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Commentary: Pieces of (VP)8

"Our relationship with On2 over the years," said John Edwards, CEO of Move Networks, "has enabled viewers to realize the highest quality Internet television experience possible. We look forward to On2's continued innovations."

The pattern of emails questioning On2's performance is similar to previous articles. For instance, when I interviewed Doug McIntyre, a Streaming Media All-Star and former CEO of On2, about VP7 in an interview conducted just days before he resigned from On2 and left the industry, I received a significant amount of feedback from On2 stockholders that were long on the stock and short on positive comments about management.

"I found Doug to be very open and straightforward, with a good perspective on streaming media, codecs and the market at large," the February 2006 article stated. "Doug’s perspective had been honed from five years at On2. The story, set to publish today, however, was pre-empted by the announcement five days ago that Doug McIntyre was leaving the company. So the article now becomes less about Doug’s key role in positioning the company for the growth it’s experiencing today and more a look at how the company fits into the industry perspective."

I went on to note that VP7—and indeed any innovation that On2 was doing on future versions—was the company's competitive advantage. While VP7 seemed to be slightly better than H.264—and it had been licensed by many companies that used VP6, including Adobe—VP7 was not widely implemented. Instead, H.264 was integrated into Adobe's Flash player.

"VP6 was released in a timeframe when several good codecs were released," the article noted, adding that "VP7 was brought to market while H.264 was still being designed by committee."

"Slowing down innovation at a time when we have gained a reputation for continuing to push the envelope would be selling short the company’s future," said one executive in the article, mimicking McIntyre's claim that innovation was what drove the company, but I noted that "On2’s individual balancing act, now that it has received some much-needed and much-deserved public exposure alongside its much-larger licensees, is to find a way to balance sales of its state-of-the art current products and the growing awareness of the company from larger competitors with the leadership gap left by its outspoken former CEO."

I also noted in that February 2006 article a sense that the company would possibly pull back on innovation to fill the corporate treasury, even if the company's innovation strategy is its core competency, which generated another set of anonymous emails asking if stockholders should keep their stock or sell it—something StreamingMedia.com writers and editors aren't equipped to answer any more than the general public.

On2 the Present
Back in the present, the new VP8 announcement is interesting, and holds promise, but is short on substance that would allow stockholders to make good decisions: The announcement doesn't say when it will find its way into Flix, or other encoding products, and doesn't give any indication of adoption. In fact, the Move Networks quote doesn't say the company is using the product, just that it has enjoyed a long history and looks forward to the future.

In fact, the VP8 claims sound somewhat similar to the claims On2 made on May 19, 2008, just prior to Streaming Media East. In a press release titled "On2 Improves VP6 Video Quality for Flash By Up to 40%" the company noted "significant improvements to the On2 VP6 video technology used in Adobe Flash 8 and 9 and Flash Lite 3. Achieving a substantial increase to the quality of encoded video, in some cases as much as 40%, content encoded with the new On2 VP6 technology is fully compatible with the existing decoder used in Flash player."

The May 2008 press release quoted Jim Bankoski, co-Chief Technology Officer of On2 Technologies, as saying "We have evolved our motion search strategy bringing notable improvements in fast movement sequences, sport for example."

In the VP8 release, the company says it has created a 40% improvement yet again.

"With On2 VP8, we set out to increase compression performance . . . while reducing playback complexity by 40%," said Paul Wilkins, co-CTO at On2. "In the end we exceeded these goals and even back-ported some of what we learned to our On2 VP6 or Adobe Flash encoders."

So is the 40% reduction in playback complexity for VP8 on top of the 40% reduction in playback complexity in VP6 or is it the same as VP6? I can't say, since there's no evidence that comparisons to the 40% improvement in VP6 can be tested: The improvements to VP6 announced back in May were to be introduced as a free upgrade to the On2 Flix suite of encoding and publishing tools for Flash video but have yet to find their way into the encoders in the Flix suite.

The most recent version of Flix Pro (8.53) doesn't have the new VP6 enhancements, meaning there are no desktop video tools that Flash content creators have access to. Adobe also confirmed this to be the case, noting that On2 also does not yet even support VP6-S (a simplified version of VP6, not to be confused with the 40% improvement of video quality in VP6) in the On2 Flix Exporter. The VP8 press release—which mentions VP6 / Flash only in a cursory way—seems to indicate that VP8 is now the primary focus of the company, which means the VP6 enhancements may be withheld for an additional period of time.

Immediately after the VP8 press release went out, several additional emails came in.

"How could h.264 be declared a winner when advancements in codecs continue to be made?," said another unnamed commenter who also frequents the On2 stock boards, adding, "for example, below is a link to an announcement released today by streamingmedia regarding the launch of on2 technologies' latest codec, VP8."

Another commenter was a bit more bold.

"In light of VP8 from On2.Those companies mentioned above need to go back to the drawing board. VP8 is a game changer in this space. I am still trying to figure out why MS being so desperate to get back into the video space. Has not taken out ON2," the comment said in its entirety.

The combination of the points of "game changer" and "licensing hassles" are repeated on both On2's website and its press releases. The first anonymous commenter played that theme up, and the more recent VP8 press repeats the litany:

"On2 video is proprietary to On2 Technologies and is available with patent-pool free licensing," the press release states, "avoiding the burdensome royalties associated with standards based formats."

The press release's wording of "patent-pool free licensing" is a bit misleading, in that it's really "licensing of VP8 free of patent-pool constraints" rather than On2 requiring no licensing fees. But the new On2 splash page corrects the misperception by stating "no patent pool royalty hassles" so at least the company is correcting the misperception on its site.

As mentioned before, we encourage reader feedback, but also hope that commenters will come clean about their motivations and companies will put out releases that are clear and unambiguous. The VP8 press release raises more questions than it answers, since VP6 and Flash have as much to do with VP8 as did Microsoft with H.264 up until about a week ago.

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