Photo by GEORGE DESIPRIS: https://www.pexels.com/photo/selective-photo-of-gray-shark-726478/

Codec Royalties on Content and the Jaws Moment

I was raised in a beachfront commuter town about 60 miles south of Manhattan and five miles north of Springsteen’s Asbury Park. I went to Seashore Day Camp years 8-13, swimming laps in the pool each morning and clowning around in the ocean each afternoon. I spent middle school and high school in the Atlantic as often as possible, swimming, body surfing, and snorkeling.

I was the ocean, and the ocean was me. Then I saw Jaws, and I’ve never felt comfortable in any ocean again. I understand deep anxiety concerning what might happen, even if it’s never happened to me.

A few weeks ago, I published a blog entitled Content Royalties for Video Codecs: A Vastly Over-Exaggerated Concern, co-written with IP attorney Robert JL Moore. I co-authored the article because I kept hearing from video engineers and streaming producers that they avoided deploying HEVC because of the threat of content royalties.

As the article states, there are no content royalties on HEVC for free internet content from either of the two patent pools, and there were no court cases where content royalties were awarded. Yet after posting the article on LinkedIn, I received multiple messages from trusted colleagues in large streaming shops, some in comments to the post, many private, claiming, in general, that I was “dismissive of real IP concerns.”

One commentator (Bob Hannent from DAZN) stated, “As a streaming platform, we get a constant slew of claims from companies who have both strong and weak claims which assert their patents cover encoding OR decoding.” When I asked if this included claims on content, the response was, “Yes, some from big names, others from small firms.”

To another commentator (David Ronca from Meta), I asked, “Are you currently paying royalties on content? Have any credible parties claimed content royalties? Do you know of any cases?”

“You’re missing the point,” came his response (speaking for himself and not Meta). “It is true,” Ronca continued, “that at this time, there are no royalties being charged against encoded streams. But it is also true that, AFAIK, there is no binding statement from the IP holders that there will not be any such royalties. That, combined with the fragmentation of the HEVC IP holders into two pools and a large set of HEVC IP holders outside of any pool, creates the uncertainty that hinders HEVC.”

Nokia – Video Publishers Should Pay Their Share

Then David shared the “Jaws moment” for large streaming publishers, specifically an article entitled “Video or it didn’t happen: the video epoch and the coming IP reckoning” by Arvin Patel from Nokia Corporation (subscription required). Nokia, as Robert and I pointed out in our article, was not a member of the MPEG LA H.264 pool (now VIA LA pool) but sued Apple for patent infringement in 2018, including eight H.264-related patents. Nokia won over $2 billion, an eye-popping award. Content royalties do not appear to have been claimed, but I don’t think there was any reason that Nokia couldn’t have claimed them.

Video or it didn’t happen: the video epoch and the coming IP reckoning
Figure 1. Arvin Patel argues for “acceleration of licensing” including for content.

In his article, Patel’s argument essentially comes down to this.

Advances in video capture and processing technologies, video compression, wireless and broadband technologies, advanced data networks, and display technologies have been the result of billions of dollars of investments by companies that, by and large, do not provide video services. The main beneficiaries of these technology investments are the video service providers, including companies in cable/satellite/broadcast TV, video streaming, social media, gaming, cloud computing, video conferencing, and security.

Then, discussing content, Patel continues:

When HEVC Advance launched in 2015, its pricing structure included “content distribution fees.” After resistance from the industry, it withdrew its content pricing in 2018 without ever signing a licence. None of the other programmes include licensing of service providers. The fact that video technologies have been largely unlicensed despite their growing importance across a vast swath of the economy has become an increasingly unstable situation, and it may be about to change.

Patel then asserts that codec licensing will soon go through an inflection point where “technologies move from ‘largely unlicensed’ to ‘largely licensed’.” He concludes his argument with, “These trends have major implications for executives with responsibility for IP management. Video service providers and device manufacturers should expect to pay compensation for the technology they have embedded in their products and services.”

As Ronca pointed out, “This is a notice from Nokia that they intend to play hardball. When they sued Apple, they claimed that encoders were not bound by FRAND because the spec is for decoders. Since the settlement was not public, it is hard to know how that argument played out.”

Marconi Agrees

Patel’s comments echoed those implied by failed HEVC patent pool Velos and its owner Marconi. According to the Velos FAQ (since taken down), “As it relates to content, we will take our time to fully understand the dynamics of the ecosystem and ensure that our model best supports the advancement and adoption of HEVC technology.” Apparently, this was a complex issue because, over the approximately six-year span of the pool, the language never changed.

Figure 2. Marconi arguing for content royalties from streaming publishers.

Digging a bit deeper, Velos was founded and owned by Marconi. On content royalties, in 2021, Micky Minhas, Senior Vice President at Marconi, wrote an article on the Marconi site entitled: It’s Time for a New Approach to Codec Licensing. In the article, Minhas argued that:

Cloud and streaming services are big beneficiaries of codec technologies. Newer, better codecs dramatically reduce their storage requirements and provide ultra-high resolution videos without buffering or latency issues, enhancing the services that they charge users to watch or sell advertisements around. At present, these companies are not contributing to the cost of the codec technologies they rely on.

In closing, Minhas stated that the “perfect licensing solution” would “license at multiple points in the video encoding, decoding and transcoding ecosystem that are realising value from video coding standards, including streaming and cloud-based services, and not just end user devices.”

It strikes me that Nokia’s and Marconi’s articles and assertions fall short of valid legal claims; what one party argues “should happen” outside of valid contracts and legal precedents probably doesn’t hold much weight in court. Still, you can easily see why my article, which pointed out that content royalties have never been successfully claimed in the past, was cold comfort to major publishers reading the posts from Nokia and Marconi and fielding direct claims from patent owners.

What To Do: Patent Owners

Many far wiser commentators than I have attempted to advise this group, with no visible success and much frustration. That said, my advice here would be two words, provide certainty. Or perhaps, eliminate FUD (fear, uncertainty, and doubt).

Let me emphasize that patent pools are not the enemy. As I’ve documented multiple times, I consulted with Sisvel from 2019 – 2022, and learned that the overarching goal of all patent owners and pools is to promote and accelerate the usage and success of their technologies. Sure, royalties are great, but if the technology doesn’t succeed in the market, nobody profits.

While the initial terms of some HEVC pools were over reaching, royalty terms quickly settled and HEVC licensing is near pervasive. It’s clear what’s subject to a royalty and what isn’t. You may not like the terms proffered by the respective codec pools but there is very little uncertainty.

The challenge is the individual patent owners. While strategic administrator input and group dynamics in a pool can help promote a decision for the greater good, individual patent owners have no similar motivation. It really comes down to their individual visions of the best way to monetize their patents.

Flush with a winning streak and a war chest, Nokia seems bent on enforcing its own brand of true religion on the streaming market and publishers in particular. Good luck with that. If Nokia wants to ensure 100% AV1/AV2 adaption and a bottomless defense fund, they should start suing publishers for content royalties.

That said, any way you look at it, there’s no short term solution coming from the patent owners’ community.

What To Do: Publishers

Relating to my fear of sharks, over the last few decades, I’ve basically stayed out of the ocean. Presumably, quitting the marketplace isn’t an option for a successful publisher.

Before we consider alternatives, it’s worth pointing out that few if any, patent-related markets have absolutely clear ownership and licensing schemes. With cellular and Wi-Fi standards, there often are multiple patent pools, and/or major players outside the pools who license directly with technology implementers. So, the codec market isn’t unique in this respect. You can’t really argue that cellular and Wi-Fi markets have been held back by this dynamic.

For those who want to throw out the baby with the bathwater, this post is not an indictment against patent owners or standards in any way, shape or form. Broad swaths of Patel’s arguments are fundamentally true; we’ve all benefited from the technologies he identified, as company owners and employees, investors, and consumers.

Consider that before H.264 became dominant, we had QuickTime, Silverlight, and Flash, all with different codecs and a different player. Then Apple and Adobe adopted H.264, enabling high-quality streaming with ubiquitous compatibility. Later, after much huffing and puffing, all browsers supported H.264 via HTML5, extending the compatibility benefit to all producers and consumers.

Without standards, which are built on standard essential patents, you might need a different TV to watch Netflix and YouTube, a different phone to talk to your friends and your family, and a different router for work, home, and school. Perhaps there’s a better way going forward, but this is where we are today.

Who gets paid for these technologies and how is a different issue and in the dominion of the courts, not public opinion.

Put Your Faith in AV1

OK, so what are your options as a publisher?

The concern over content and other royalties paints the aggressive promotion of AV1 and VP9 by Alliance for Open Media (AOM) publishers like YouTube, Meta, and Netflix in a new light. Unfortunately, neither codec offers smooth sailing, as Sisvel has launched patent pools for each.

We can argue all day over who’s right and who’s going to win. Still, until Sisvel shutters the pools (seemingly unlikely), Google/AOM settle with Sisvel (like Google did with MPEG LA for VP8 back in 2012), or the issue is resolved in court, AV1 and VP9 offer the vision of royalty-free status, but not the certainty. So, while AV1 might end up being the long term answer, it’s not that today.

Keep Swimming in Shark-Infested Waters

This seems like the only option. You need H.264 for backward compatibility, HEVC for HDR, and 4/8K, and AV1 isn’t sufficiently supported in mobile hardware or the living room to abandon either H.264 or HEVC. And, as mentioned, AV1 doesn’t offer immunity either.

Certainly, if you’re a smaller publisher, the likelihood of receiving a demand letter is lower, but if codec licensing goes through Patel’s “inflection point,” it’s going to affect a broad swath. After Apple lost and paid Nokia $2 billion, how many companies of any size would opt to challenge Nokia in court?

What to do? Clearly, you can’t assume that what’s happened in the past will keep happening in the future. In this regard, my initial article provided bad advice.

You should keep your ear to the ground and pay attention to any patent-related lawsuits or agreements. Now might be a good time to consult with a patent attorney to identify your risk and formulate mitigation strategies.

As stated in Patel’s article:

Whether you’re a patent owner, a product/service provider or an IP services company, the acceleration of video licensing will affect your business. The companies that best prepare for this transition are most likely to avoid significant liabilities and capture a significant share of the value that will flow into the video IP marketplace. The video epoch is entering a new phase. Are you prepared?

No Animals Were Harmed While Writing This Article

Just a quick note that I am not seeking to minimize or, in any way, make light of people with deep anxieties (like mine) or publishers with deep concerns about patent royalties. The Jaws analogy reached out to me as a vehicle to both share something of myself and perhaps draw some readers into the article. No offense was meant to anyone in either group. I hope none was taken.

Yeah, and the title of this section makes absolutely no sense, but I wanted you to read this section.

About Jan Ozer

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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. I am a contributing editor to Streaming Media Magazine, writing about codecs and encoding tools. I have written multiple authoritative books on video encoding, including Video Encoding by the Numbers: Eliminate the Guesswork from your Streaming Video (https://amzn.to/3kV6R1j) and Learn to Produce Video with FFmpeg: In Thirty Minutes or Less (https://amzn.to/3ZJih7e). I have multiple courses relating to streaming media production, all available at https://bit.ly/slc_courses. I currently work as www.netint.com as a Senior Director in Marketing.

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