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MPEG LA Announces Proposed HEVC Licensing Terms

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Yesterday, MPEG LA announced proposed license terms for HEVC. We parsed the press release, and spoke with MPEG LA, and here’s what we know, and what we don’t know.

The terms are better for content publishers. Specifically, there are no content-related royalties; if H.264 video is sold via pay-per-view or subscription in sufficient quantities, royalties will apply. With HEVC, there will never be any content-related royalties.

Intuitively, this makes a lot of sense. Content publishers often carry a lot of weight in standards decisions like the choice between VP9 and HEVC; for example, Time Warner’s decision to back Blu-ray is widely considered the death knell to HD DVD.

I asked MPEG LA vice president Bill Geary, who helped formalize the HEVC group, about the decision to not charge content-related royalties. He explained that this decision related to how content is produced and published today, especially as compared to the past. Specifically, when encoded video was distributed on disk or via cable, tracking creation and consumption was simple. However, the plethora of distribution mediums available today made this much more complicated. The HEVC IP owners wanted to make the terms as simple as possible in a “modern streamlined pool licensing approach.”

In my Streaming Media West session on HEVC, I boldly predicted that the HEVC IP owners would attempt to charge royalties on HEVC-encoded content. Geary was there and strongly opined that he felt this wouldn’t be the case.

The terms are more expensive for encoder/decoder vendors. Both H.264 and HEVC excepted the first 100,000 units, and both charge $0.20 per unit after the first 100,000. However, with H.264, the royalty dropped to $0.10 after 5 million units and is capped at $6.5 million through 2115. The HEVC royalty never drops, and is capped at $25 million.

While $25 million is a big number, the most significant computer-related companies that likely reached the $6.5 H.264 cap are Adobe, Apple, Google, and Microsoft. While it’s highly unlikely that Apple won’t license HEVC, after all, they’re the first company listed in the MPEG LA press release, it will be interesting to watch what Google does.

In January 2011, Google promised to remove H.264 from Chrome and never carried through, a seeming recognition of the fact that H.264 was dominant. If Google licenses HEVC for Chrome, it will be viewed as a similar recognition that HEVC will also be the dominant standard. Stay tuned on that one.

The terms and participants are still a work in progress. The press release included a list of 21 HEVC IP owners, including Apple, Cisco, Fraunhofer, NEC, NTT DOCOMO, Thomson Licensing, and Vidyo. It stated that the terms were currently supported by 25 patent holders, of which four declined to be identified. 

One of the biggest concerns about HEVC was that essential patent holders would opt out of the patent pool, forcing HEVC users to enter into multiple licensing agreements with multiple companies. I asked Geary about notable companies that weren’t listed, including AT&T, Microsoft, Nokia, and Motorola. He declined to comment about who’s in and who’s out, but pointed to the language in the press release that states,

As work continues on evaluating patents for essentiality and concluding terms in final agreements, the license is currently supported by 25 prospective HEVC essential patent holders including the following (companies listed). Additional patent holders who are participating in the facilitation process also may be included, and others are welcome to join.

MPEG LA posted the release to provide market guidance on the terms accepted by the 25 essential patent holders. But the press release clearly states that the terms are not final, though MPEG LA expects to issue the HEVC Patent Portfolio License “in early 2014.” For this reason, it’s too early to speculate about who will join and who won’t.

Though short of final, the proposed terms answer a lot of critical questions, particularly for content owners who were concerned about distributing HEVC-encoded files because of the potential for a royalty. Though encoder/decoder vendors probably won’t like the increased cap, at least they have a feel for how the royalty picture will play out. 

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