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Back to Basics: H.264 Licensing Terms
Confusion and consternation abound. Here's a brief overview and analysis of H.264 licensing terms.
Fri., Dec. 12, by Tim Siglin

One almost-universal truism in the world of streaming media is that licensing particular technologies can be a confusing and somewhat byzantine process.

MPEG-4 and H.264 licensing, in particular, have received the brunt of the disaffection born from confusion. Equal uncertainty abounds for the proprietary codecs, whose licensing models are not publicly disclosed. Those who sell proprietary codecs use the perception of H.264 licensing as a labyrinthian ordeal as an ideal marketing tool to complement the proprietary technology's "simple" license.

Most impacted, though, are the content owners and content distributors who express a common opinion about the licensing process: While necessary, at least as far as they can tell, it can be a convoluted process to even understand the licensing, enough so that it distracts from the real focus of creating, encoding, and distributing content.

Part of this fear, uncertainty, and doubt comes from misinformation about the types of licenses and the thresholds required for such licenses. Do a Google search and you'll find many of the top documents on H.264 licensing center on the 2003/2004 timeframe, a point at which the license terms were in a state of disarray.

Much of the confusion stems from this era, with some "urban myths" persisting from documents that are readily available online appearing to be part of the legitimate final license issue. To better understand, let's first take a look at the H.264 licensing entity.

MPEG-LA
MPEG-LA, which disingenuously dubs itself as a reseller of sorts, bundles license portfolios together. Its most famous license portfolio was for MPEG-2, used in everything from DVD players to satellite television boxes. When the MPEG-4 portfolio appeared, though, the MPEG-LA consortium didn't come out of the gate with the same clarity of purpose and transparency of licensing terms as it had with MPEG-2.

MPEG-LA's H.264 licensing approach learned a bit from the MPEG-4 debacle but still didn't reach the ease of understanding it had with MPEG-2. The fault is not all on MPEG-LA, as some patent holders disliked the way that their parts of MPEG-2 were handled, and subsequently made it more difficult to aggregate the block of licenses together into a single portfolio. Having said that, MPEG-LA did expand some of its licensing reach (we'll talk about one specifically) when it came to final licensing, which also caused a bit of industry consternation.

Remembering that the H.264 codec can be scaled down to mobile, up to high-definition, and used as a low-latency messaging, videoconferencing, or broadcast delivery methodology, let's shift now to the licensing vehicle. We'll look briefly at an overview of the final H.264 licensing terms from MPEG-LA, based on a summary document provided at www.mpegla.com/avc/AVC_TermsSummary.pdf

MPEG-LA splits the H.264 license portfolio into two sub-licenses, one for manufacturers of encoders or decoders and the other for distributors of content. The biggest uncertainty comes from the distribution side. Since there are very few companies who manufacture codecs, we'll focus strictly on the distribution side, where content is encoded, transmitted to the end viewer, and then decoded for viewing.

The sublicense on the distribution side gets further split out to four key subcategories, two of which (subscription and title-by-title purchase or paid use) are tied to whether the end user pays directly for video services, and two of which ("free" television and internet broadcast) are tied to remuneration from sources other than the end viewer.

"Free" Television.
Looking at the sublicenses from last to first, the "free" television broadcasting approach has caused particular uncertainty, great enough that it led, in part, to a suspension of some fees until 2010.

The backstory is that the "free television" term in MPEG-LA draft licensing was limited to traditional television broadcasts known as Over The Air (OTA) broadcasts. While covering a specific segment of broadcast, allowing broadcasters to use H.264 video transmissions within the MPEG-2 Transport Stream in a technical backwards-compatibility move that might have warranted the licensing fee, the patent holders decided only limited revenues would be derived from OTA broadcast transmissions.

MPEG-LA subsequently broadened the scope of the "free television" term.

"Formerly limited only to over-the-air broadcasting, 'Free Television AVC Video' now refers to AVC Video that constitutes television broadcasting which is sent by an over-the-air, satellite and/or cable Transmission," the company said in a May 2004 release announcing final licensing terms. "The party (e.g., a broadcaster) which is identified as providing Free Television AVC Video service is the Licensee and assumes responsibility for the applicable royalties."

This point is important because it further solidifies the approach MPEG LA uses for "participation fees" that must be paid on indirect revenue based, in some part, on the use of H.264 decoding.