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Netint technologies

The Truth About
Content Royalties

Jan Ozer

Jan Ozer

is Senior Director of Video Marketing at NETINT.

Jan is also a contributing editor to Streaming Media Magazine , writing about codecs and encoding tools. He has written multiple authoritative books on video encoding, including ‘Video Encoding by the Numbers: Eliminate the Guesswork from your Streaming Video’ and ‘ Learn to Produce Video with FFmpeg: In Thirty Minutes or Less’ and has produced multiple training courses relating to streaming media production.

Robert Moore

Robert Moore

who co-authored this article, is an intellectual property attorney interested in helping clients understand the real value of patents, trade secrets, and trademarks. His considerable insight into the IP market, including what technology is of value and how to obtain IP protection to capture that value, allowed him to help many companies at all stages of development, from startup to Fortune 100.

Much of the pause for codecs like HEVC and VVC relates to the threat of patent royalties. In reality, content royalties generally apply in only a few well-defined cases. This reality hasn’t stopped video publishers from delaying the widespread use of HEVC or journalists from fawning and gushing over the supposed “open source and royalty-free” AV1 standard.

This article reviews when and where content royalties apply with H.264, VP9, HEVC, AV1, VVC, and LCEVC along with what’s understood and what isn’t understood about licensing for various codec standards.

Overview - content royalties fundamentals

For perspective, imagine that you owned a long and narrow piece of land adjacent to a lovely beach. It’s your land, and you have complete control over what you charge for people who walk, drive, or otherwise cross over your land to get to the beach. You could charge fifty cents or ten dollars by the day, week, or month, charge for driving over but not walking over, or not charge at all. Your land, your choice.

Codec-related patents are like this. Sure, when they relate to a standard like H.264, HEVC, or VVC (though perhaps not a de facto standard like VP9 or AV1), those companies that helped create the standard have an obligation to offer implementers patent licenses on terms that are “Fair, Reasonable, and Non-Discriminatory,” or FRAND, a term whose meaning is subject to some interpretation. But otherwise, what a patent owner or patent pool decides to charge is completely up to them.

For example, the MPEG LA H.264 pool charges for pay-per-view and subscription videos encoded with H.264. However, MPEG LA’s HEVC and VVC pools don’t charge anything. Access Advance’s HEVC and VVC pools charge for physical media that contains encoded HEVC and VVC content, where MPEG LA’s HEVC and VVC pools don’t.

What are Patent Pools

For those new to the space, a patent pool is an organization formed by owners of patents relating to a technology that simplifies access for implementors and reduces administrative costs for all. By my count, the MPEG LA H.264 pool has 42 patent owners. If you want to manufacture a smartphone with the ability to record and play H.264 videos, you can sign a single license with the pool, and you’re covered. If the pool didn’t exist, you’d have to negotiate, sign, and administrate 42 separate licenses. According to MPEG LA, over 1600 companies have taken a license to this pool, including most of the major consumer electronics firms.

Pools are run by patent pool administrators like MPEG LA, Access Advance, and Sisvel. But royalty rates and other policies are largely set and controlled by the patent owners.

Of all the ubiquitous technology standards, from 5G to DDR to WiFi, codecs are the most supported by patent pools.  For instance, there is no major 5G patent pool for phones, leaving phone manufacturers and network infrastructure companies to deal individually with dozens of licensors, all without the benefit of the transparency of patent cost that comes with a patent pool.  Unsurprisingly, disputes over patent royalties for cellular standards have resulted in litigation much more frequently than video codec patents have.

That isn’t to say that pools remove all patent risk from codec implementation. In most instances, codec pools don’t contain 100% of patents relating to the underlying technology. For example, Apple is listed as a licensee (and licensor) in the MPEG LA H.264 pool. However, in 2017, Apple paid Nokia (not a member of that pool) $2 billion to resolve a broad patent dispute between the companies that included patents relating to H.264-related patents owned by Nokia and used by Apple, as well as patents directed to displays, user interfaces, antennas, and chipsets, among other technologies. In 2012, Motorola pursued and won H.264-related claims against Microsoft (though Motorola subsequently had to pay Microsoft damages for overcharging, and both companies are now part of the MPEG LA patent pool, meaning this wouldn’t be a lawsuit today).

All this is a long way of saying that:

  • Patent owners can decide, within the bounds of the FRAND encumbrance, what to charge for, whether it’s for encoding, decoding, content, or all of the above.
  • Patent pools can do the same, though it’s the patent owners in the pool (rather than the administrator) that makes these decisions.
  • Different pools and different patent owners often have different policies about what to charge and how much to charge.
  • Patent coverage by video codec pools is unusually robust compared to other major standards, even where there is more than one pool for a given codec.

We recite these facts so you will understand that what we report below is accurate in February 2023 (to the best of our knowledge) but is subject to change.

Content Royalties - Overview

MPEG LA administrates the only H.264 patent pool, which charges for encoders and decoders, H.264-encoded video distributed via subscription and pay-per-view, and television broadcasting. Free internet video is expressly excluded from royalties.

Reference: bit.ly/MPEG_LA_H264

In the two cases discussed above, neither company sought royalties on content; just for encoders or decoders in the hardware or operating system. We are not aware of any H.264 patent holder attempting to charge royalties on free internet content.

VP9

Reference: bit.ly/Sis_VP9

The Sisvel VP9 pool launched in 2019 and seeks royalties only on consumer devices and not content. Note that Google acknowledges Sisvel’s pool but states that “Sisvel’s licensors did not make any contributions to the VP8 or VP9 codecs,” which appears to refute the validity of the pool. There is no statement that Google will indemnify companies that deploy VP9 and end up owing royalties, though since Sisvel isn’t charging for content it’s less of an issue for publishers.

As with all codecs, it’s possible that there are VP9 patent owners unaffiliated with Sisvel who could attempt to license all implementors, including publishers. At this point, the risk seems slight.

HEVC

HEVC has two pools; MPEG LA and Access Advance (formerly HEVC Advance). MPEG LA charges only for encoders and decoders (after 100,000 units sold). Free internet content is specifically excluded.

Access Advance charges for encoders and decoders in three categories; mobile, 4K UHD+ TVs/Displays, and connected home and other devices, which includes set-top boxes, game consoles, desktop PCs, surveillance cameras, conferencing products, and HEVC software. This “other devices” category includes “HEVC decoders and encoders used to provide or made available for use through a Cloud-Based Service,” which is targeted towards for-fee services like cloud gaming, cloud-based video editing, and cloud-based conferencing.

Access also charges for digital media storage devices that contain HEVC-encoded video, but internet streaming (as well as cable, over-the-air broadcast, and satellite) are specifically excluded. Also excluded are “‘Commercial Products’ primarily intended or marketed to encode or transmit Commercial HEVC Content or provide a Cloud Based Service.”

Content Royalties as seen Minhas - unpopular opinion

Any discussion of HEVC licensing needs to include former patent pool Velos, which closed in late 2022 when key patent owners like BlackBerry, Ericsson, Panasonic, Sharp, Sony, and Qualcomm quit the pool. Since then, Velos has shifted to licensing its own patents. According to the Velos website, “Velos Media has been licensing HEVC-related patents since 2017 and has worked to develop an extremely high-quality portfolio. We own and license a curated portfolio of more than 400 global assets, many of which have claims that are essential to one or more video codec standards.

Regarding content royalties, while the pool was in operation, its FAQ (since taken down) stated that “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.” So, unlike MPEG LA and Access Advance, content royalties were never off the table.

Digging a bit deeper, Velos was founded and was owned by Marconi. On the topic of 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, “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 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.”

Clearly, Velos and Marconi believe in content royalties. Via the contact function on the Velos’ website, I asked if they are targeting content publishers for royalties and got no response. I asked a similar question to a Marconi communications professional on LinkedIn and got back a terse “all the information that is public is on the website.” This lack of available data led me to ask other sources for their thoughts and opinions.

Play Video about NETINT- HQHT - Jan Ozer - Content Royalties
HARD QUESTIONS ON HOT TOPICS – The Truth About Content Royalties
Watch the full conversation on YouTube: https://youtu.be/jIayNsLNonw

Ask the Experts about Content Royalties

Alex Davies is a Senior Analyst who heads up Rethink TV and covers codecs and royalties extensively, including in this article: Velos Media may be distorting the picture of video codec costs for device makers. I asked what he thought about the possibility of Velos charging for patent royalties, and he responded,

“I think that at this stage in the game, given the recent membership exodus from Velos Media, it would be quite unlikely to see the group successfully try to assert its remaining HEVC patents against content owners. On the matter of content royalties, the LCEVC approach, of targeting a license for the video service itself rather than the devices on which its video is consumed, is an interesting approach that does seem to be gaining traction.”

Back in October, I (author Jan Ozer) wrote a Streaming Media article about Google’s decision to support HEVC in Chrome, and asked co-author Robert about the potential for content royalties with HEVC. Robert pointed out that

“neither of the two existing pools, which account for about 85% of existing HEVC patents, is charging royalties for streaming. The Velos members, by and large, have either joined the Access Advance HEVC pool ([Sharp,] Panasonic and Sony) or have their own robust licensing programs that major implementers, including content providers, are probably licensing already.”

Continuing, Robert stated that:

“certainly, there exist HEVC patent owners unaffiliated with pools. Content providers not already licensed to the unaffiliated owners’ portfolios could be required to pay some royalties. Still, in light of the above, and in light of the fact that we haven’t seen a significant amount of HEVC SEP enforcement so far against content providers, I don’t see Velos’ exit significantly changing the royalty paradigm for content providers implementing HEVC. In short, I expect that content providers will most likely continue to enjoy the ability to implement HEVC for low or no royalties.”

Nothing has happened since then to change this view. While every content company considering distributing HEVC-encoded content should obviously perform their own due diligence, the potential for royalties appears slight. Clearly, Velos and Marconi could benefit the entire industry by making their intentions known in this regard, but they haven’t done so to date.

AV1

Reference: bit.ly/Sis_AV1

The Sisvel AV1 pool launched in 2019 and seeks royalties only on consumer devices. AOMedia acknowledges the Sisvel pool but hasn’t repudiated it. There is a patent defense program but no agreement to indemnify. Again, the Sisvel pool doesn’t seek royalties on content, but unaffiliated AV1 patent owners could seek to license any implementer.

VVC

The VVC picture looks similar to HEVC for MPEG LA and Access Advance in terms of what gives rise to a royalty, and that free internet video is excluded. I asked Velos which codecs their patents extended to via their contact form and via LinkedIn and heard nothing back.

NETINT - Jan Ozer - The Truth About Content Royalties -table 5

LCEVC

LCEVC royalties are charged on content, specifically, a capped, low per-user fee on the streaming service actually using the codec. LCEVC developer V-Nova made this decision for both financial and tactical reasons. From a financial perspective, the company reaping the direct benefit of using the codec is paying for royalty.

From a tactical perspective, a company that wants to deploy LCEVC doesn’t have to wait until the platforms it’s targeting decide to support LCEVC playback. Rather, since LCEVC playback can be enabled in software on many platforms, the licensor can simply distribute a player to its target endpoints.

NETINT - Jan Ozer - The Truth About Content Royalties -table 6
Reference: bit.ly/VN_LCEVC

That’s what we know today. Just a reminder that none of the above constitutes legal advice. Please verify all conclusions with your own legal counsel. 

If you have a burning question to ask about content royalties – join Voice of Video – live conversation with video industry experts.

Demystifying Content Royalties in Video Encoding: Conversation with IP Attorney Robert J.L. Moore

Thursday, April 13, 2023, at 11 am EST

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