Download: MPEG-LA proposes tech tax on content

It is clear that control over the flow of bits is a critical step in our migration to the new digital media infrastructure. And intellectual property is the main weapon that those who currently control the distribution of high-value content are using to wage war against the consumers of entertainment, news and information.

Every day we hear updates about the legal battles taking place in a futile attempt to control the flow of bits between individuals. Shutting down Napster has had little impact. While it may be possible to shut down companies trying to horn in on the lucrative business of distributing music, nothing short of shutting down the Internet is likely to prevent the use of peer-to-peer file-sharing services like Gnuetella.

After the bust, a highly relevant question was raised. How can the technology of the Internet be monetized?

One variation of this question is “Will consumers pay a ‘fair and reasonable’ fee to download music, news, TV shows, movies and other forms of entertainment via the Internet?”

The prospect that subscription and streaming may soon become synonymous has not escaped the attention of a group of stakeholders who control patents related to the video compression technology that makes the delivery of streaming video possible.

For several years there has been growing interest in the next MPEG standard. MPEG-4 was envisioned as a standard for very low bit rate applications including streaming media to appliances connected to the Internet, and to wireless devices like mobile phones. Recently, interest in MPEG-4 has grown because of its improved compression efficiency, enabled by tools that build upon MPEG-2 compression concepts.

This is especially interesting for IP broadcasting applications, as MPEG-4 can improve the quality of digital media delivered at constrained bit rates. But MPEG-4 also includes object-based coding and composition techniques, which will allow content to be localized and personalized. These tools have drawn interest from every industry looking at opportunities to enhance today's current linear TV programming model, including cable, DBS and DTV broadcasters.

Many companies were hoping that MPEG-4 would become the standard for the delivery of streaming media via the Internet, bringing order to the chaos of multiple vendors pushing their own proprietary solutions. A large group of computer industry manufacturers including Apple, IBM and Sun, formed the Internet Streaming Media Alliance, advancing MPEG-4 as the standards-based solution for Internet streaming.

In early February, Apple announced QuickTime 6.0, which adds support for MPEG-2 and MPEG-4. But Apple also announced that it would not release QuickTime 6.0 because of a provision of the recently announced MPEG-LA licensing terms for the essential MPEG-4 visual patents.

The licensing provision in question is a usage fee of two cents per hour for any revenue-producing streaming activity that uses the MPEG-4 video codec. This fee is uncapped and could result in millions of dollars in additional royalty costs for anyone using MPEG-4 to deliver content for profit. MPEG-LA is also working on a MPEG-4 usage fee for broadcast distribution via cable, DBS and DTV.

The notion of a technology tax on content is not unprecedented. MPEG-LA imposed a usage fee on content delivered via DVD, which uses MPEG-2 video compression. The fee is collected by the companies that mass-produce DVD discs. And manufacturers of video game consoles have imposed steep royalties on video game titles. Nearly half of Sony's profits are generated by the royalties on PlayStation games.

There is a growing consensus that the proposed usage fee is unworkable, and that it will kill MPEG-4. Real Networks, Microsoft, ON2 and other codec vendors do not charge a usage fee, and give away their players. But the desire of major corporations that control key technology to generate profits by taxing content distributors is not likely to dissipate. In this war, however, consumers may prevail, as they are the ultimate arbiters of the marketplace.

Craig Birkmaier is a technology consultant at Pcube Labs, and hosts and moderates the OpenDTV Forum.