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New Patent Pool Wants 0.5% Of Every Content Owner/Distributor’s Gross Revenue For Higher Quality Video

By Dan Rayburn

In March, a new group named HEVC Advance announced the formation of a new patent pool, with the goal of compiling over 500 patents pertaining to HEVC technology. The pool of patent holders, which is “expected” to include GE, Technicolor, Dolby, Philips, and Mitsubishi Electric has just announced their royalty rates and are going directly after content owners and CE manufacturers. HEVC Advance wants 0.5% of content owners attributable gross revenue for each HEVC Video type. To put in perspective how unjust and unfair their licensing terms are, they want 0.5% of Netflix, Apple, Facebook, Amazon and every other content owner/distributor’s revenue, as it pertains to HEVC usage. Considering that most content owners and distributors plan to convert all of their videos over time to use the new High Efficiency Video Coding compression standard, companies like Facebook, Netflix and others would have to pay over $100M a year in licensing payments. The licensing terms apply to all content services that get revenue from advertising, subscription and PPV – which pretty much equals every content owner, OTT provider, broadcaster, sports league, satellite broadcaster and cable provider you can think of.

Making matters worse, HEVC Advance says their licensing terms are “retroactive to date of 1st sale”, so companies would be required to make payments on content they have already distributed using HEVC. In addition to content owners, HEVC Advance is also going after CE manufacturers of TV, mobile and streaming devices. TV manufacturers would have to pay $1.50 per unit and mobile devices incur a cost of $0.80 per unit. Streaming boxes, cable set-top-boxes, game consoles, Blu-ray players, digital video recorders, digital video projectors, digital media storage devices, personal navigation devices and digital photo frames would cost a manufacturer $1.10 per unit.

While HEVC Advance is quick to say how “fair and reasonable” their terms are, they aren’t. The best way to describe their terms would be unreasonable and greedy. MPEG LA, another licensing body for HEVC patents, charges CE manufacturers $0.20 per unit after the first 100,000 units each year (no royalties are payable for the first 100,000 units) up to a current maximum annual amount of $25M. HEVC Advance’s rates for TV manufacturers is seven times more expensive than MPEG LA’s licensing fees. In addition, MPEG LA charges content owners nothing for utilizing HEVC technologies in their business. (Updated 7/24: Removed reference to the licensing terms for AVC to make it easier to compare pricing)

Licensing groups typically don’t go after content owners; instead they go to hardware and platform vendors in the market who are customers of content distributors. But in this case, HEVC Advance is going directly after content owners and isn’t asking CDNs, encoding vendors or others in the video ecosystem to license their patents. What HEVC Advance doesn’t grasp is that this approach of trying to get a share of content owners revenues has been tried in the past and failed miserably. MPEG-4 Part 2, the original MPEG-4 video compression that pre-dated AVC failed in the market because of this licensing approach. Content owners are not willing to share in their revenue, and HEVC Advance is taking a fatal flaw in their approach. The fact that they think someone like Facebook, Apple or Netflix is going to hand over tens if not hundreds of millions of dollars to them, each year, shows just how delusional they really are. While I don’t expect HEVC Advance to get any traction with content owners, their licensing terms could have some major impacts in the industry. Right now, content licensing deals around streaming media services do not account for the cost of royalty payments. So if more money is required to play back higher-quality video, content licensing costs will go up, and consumers are going to foot the bill for higher priced streaming services

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