I read license agreements so that you don't have to.
This weekend, I've been digging deep into the agreements that govern your right to encode and decode video content using the AVC/H.264 standard. Google's announcement last week that it intends to remove H.264 support from its Chrome browser didn't mention the word money at all. The original terse announcement raised more questions than it answered, which led Google product manager Mike Jazayeri to follow up on Friday with a second blog post, four times as long as the original. This time, he didn't duck the subject of pay-to-play and H.264:
To use and distribute H.264, browser and OS vendors, hardware manufacturers, and publishers who charge for content must pay significant royalties—with no guarantee the fees won’t increase in the future. To companies like Google, the license fees may not be material, but to the next great video startup and those in emerging markets these fees stifle innovation. […]
Our choice was to make a decision today and invest in open technology to move the platform forward, or to accept the status quo of a fragmented platform where the pace of innovation may be clouded by the interests of those collecting royalties. [emphasis added]
That raises a host of interesting questions that can only be discussed intelligently if one understands exactly who's paying, and how much. The group that licenses the AVC/H.264 patent portfolio, MPEG LA, publishes a summary of the license terms. I first looked at that document last May and published an analysis here, in H.264 patents: how much do they really cost? This post is an update to that information.
The agreement that I examined last May expired a few weeks ago, at the end of 2010. The renewed agreement, which is now available on the MPEG LA web site (PDF format) covers a five-year term from 2011 through 2015. According to the document properties, this version was last updated on January 5, 2011.
Using Microsoft Word, I compared the January 2011 version with a copy I saved back in May 2010. This post summarizes the current licensing terms and points out one eyebrow-raising change, which literally appears in the fine print at the end of the document.
To use H.264 features, you must have a valid license for MPEG LA's AVC/H.264 Patent Portfolio License. This is how the MPEG LA describes that portfolio:
[E]ssential patent rights for the AVC/H.264 (MPEG-4 Part 10) digital video coding standard used in set-top boxes, media player and other personal computer software, mobile devices including telephones and mobile television receivers, Blu-ray DiscTM players and recorders, Blu-ray video optical discs, game machines, personal media player devices, still and video cameras, subscription and pay-per view or title video services, free broadcast television services and other products. To align with the real-world flow of AVC/H.264 commerce, reasonable royalties are apportioned throughout the AVC/H.264 value chain.
Chances are, you're already licensed to use AVC/H.264. You may even have paid, indirectly, several times on a single PC.
MPEG LA neatly divides its customers into two categories and publishes royalty rates for different groups within each category.
Group (a) consists of companies that "manufacture and sell AVC encoders and decoders,” typically as part of a hardware or software product. These companies pay MPEG LA for a license. In exchange, their customers get the right to use the codecs supplied with that software “for personal and consumer (including internal business) purposes without remuneration but not for other uses.” The parenthetical language about internal business use was added in the most recent update.
Group (b) applies to “video content or service providers,” who need sublicenses to use AVC encoders and decoders to deliver H.264-formatted video that does not fall under the "personal and consumer" license.
On the next page, I take a closer look at what H.264 licenses really cost software companies like Google.
Page 2: Who pays for an H.264 license? And how much does it cost? -->