When Will the HEVC Royalty Picture Clear Up: Apparently No Time Soon

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Motivated by their perception of being short-changed in H.264 royalty revenues, HEVC/H.265 intellectual property (IP) owners seem to be in no hurry to formulate a cohesive and rational royalty policy, delaying the very royalties that they covet. 

I had the pleasure of hosting a panel at Streaming Media East entitled Understanding the Significance of HEVC/H.265. The speakers were well-connected, high-level executives at Akamai (Will Law), Elemental Technologies (Mark Cousins), and Rovi/MainConcept (Thomas Kramer). Together, they provided a vision of where HEVC will most quickly be adopted, and you should definitely check out the video when it becomes available on the Streaming Media site (I’ll let you know in this blog when it’s available). 

One attendee asked when the royalty picture would clear up. To explain, as I’ve written before, HEVC is encumbered by multiple patents owned by multiple parties, and at this point, not all of the stakeholders have agreed to be represented as a single group. So not only have the royalty charges not been set, who you make the check out to is not yet clear.

In contrast, all companies who contributed intellectual property to the H.264 specification joined together into a group represented by MPEG-LA, and royalty charges were set long before the first streaming-related licensees started deploying the technology. According to the folks on my panel, therein lies the problem; many who contributed to the H.264 specification feel they left some serious money on the table. And it’s hard to argue with that concept.

For example, dozens of broadcasters make billions of dollars in annual advertising revenue distributing H.264 video, and the H.264 patent holders see nary a cent beyond the fees paid by encoding and decoding vendors, which are capped at $5 million per annum per company. So YouTube might pay some H.264 royalties as part of their encoder purchase, but then again, they may not, since they use FFMPEG and build their own encoders. Either way, the H.264 patent group gets nothing for the petabytes of H.264 videos distributed by YouTube. Similarly, H.264 runs rampant on corporate intranets, helping companies train and communicate with their employees and partners, reducing travel costs and generating revenue, and the H.264 patent holders get none of that either.

According to the panelists, many of the H.264 intellectual property contributors also own HEVC-related IP, and they’re highly motivated to get their fair share. At this stage, I would guess that organizations beyond a certain size will have to pay a royalty to distribute HEVC-encoded video, whether it’s over the Internet or on their own intranets. Again, it’s hard to argue against that concept; if HEVC helps cut an organization’s bandwidth costs by 50%, why shouldn’t the IP-holders who enabled this benefit share in the windfall?

With H.264, the threat of being supplanted by Google’s VP8 seemed to contribute to the H.264 patent group’s decision not to charge a royalty for video distributed free over the Internet. VP9 probably won’t have the same effect because Nokia has sued Google for patent infringement, claiming that VP8 (and likely VP9) infringes upon the company’s H.264 (and presumably H.265)-related IP. So it’s unlikely that the HEVC IP owners will be motivated by VP9 to make HEVC available for free. 

Unfortunately, that leaves streaming producers seeking to deploy a next gen codec with nowhere to turn. You don’t know how much HEVC will cost, and if you deploy VP9, you can expect to hear from Nokia’s lawyers. This dynamic is undoubtedly chilling progress in other components of the streaming ecosystem; for example, though encoding vendors can pass any HEVC royalty along to their customers, can someone at Adobe pull the trigger on adding HEVC playback to Flash without knowing the cost?

Given the history of H.264, it’s entirely reasonable that HEVC IP owners should want a bigger piece of the pie. What’s not reasonable are the delays in coming together to formulate a cohesive and rational royalty policy. At some point, this will delay the revenue stream the HEVC IP owners so clearly covet, and increase the risk, however small, than an alternative technology will appear and steal the entire pie.

About Jan Ozer

I help companies train new technical hires in streaming media-related positions; I also help companies optimize their codec selections and encoding stacks, and evaluate new encoders and codecs.

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