Apple spurns proposed MPEG-4 licenses

At a company-sponsored conference Tuesday, Apple previewed the latest versions of its QuickTime digital media player and new QuickTime broadcast technology, both built with support for MPEG-4. But the company said those products will remain grounded indefinitely as it seeks to change MPEG-4 licensing terms unveiled last month by a key licensing clearinghouse.

The terms, set by MPEG LA on Jan. 31, have prompted a wave of criticism in streaming circles for including a per-minute streaming charge that adds up to 2 cents an hour for video clips delivered in the MPEG-4 format.

"We have delayed QuickTime 6 and QuickTime Broadcast for licensing reasons," Philip Schiller, Apple's senior vice president of worldwide product marketing, said at the Apple QuickTime Live conference in Beverly Hills. "The MPEG-4 license...hasn't met up to all of our expectations yet. It's amazing technology but it needs a...license...to go with it."

In an e-mail interview, Apple CEO Steve Jobs sought to clarify that while the release of QuickTime 6 is being held up pending the resolution of the licensing issue, the new product supports a variety of multimedia technologies in addition to MPEG-4.

"QuickTime 6 is not 'based' on MPEG-4, but rather will feature the industry's first complete implementation of MPEG-4 alongside QuickTime's other great audio and video codecs," Jobs wrote. "QuickTime 6 is complete and ready to release once the MPEG-4 licensing issues are resolved. I'm optimistic that the MPEG patent holders will come around soon."

Apple's rejection of licensing terms is the highest-profile response yet to MPEG LA, a licensing body representing 18 patent holders with claims on underlying MPEG-4 technology. The plan aims to resolve myriad patent claims tied to MPEG-4, which is being pushed as a new standard for online video. Although last month's deal promises to dramatically simplify licensing issues related to the technology, its terms have raised eyebrows.

Under the plan, licensees such as Apple would pay 25 cents for each MPEG-4 product, such as decoders and encoders, they ship, with fees capped at $1 million a year for each licensee. The proposal also suggests charging a per-minute rate, with no cap.

MPEG LA on Tuesday defended the plan.

"We're optimistic that the use fee can work, and we're very thankful for the feedback that we're getting from Apple and the marketplace because we think that we can work with everyone to come forth with a solution," said Larry Horn, vice president of licensing and business development at MPEG LA.

"A use fee is fair," he added. "The marketplace recognizes the role that intellectual property rights play in the development of these technologies, and the good news is that the market understands the need for it to be respected and paid for."

Horn said MPEG LA hopes to finalize its licensing model in the next 3 to 5 months.

On hold
The licensing terms leave a cloud over the future of two Apple products unveiled Tuesday: QuickTime 6 media player and QuickTime Broadcaster, a free application that aims to simplify using MPEG-4 in live video feeds over the Net.

The media player includes support for MPEG-4 video encoding and decoding, as well as support for Advanced Audio Coding (AAC), a new audio format. It is compatible with earlier MPEG-1 and MPEG-2 formats.

Apple would not say whether it might be willing to pay more to spare the content distributors from having to pay a per-stream fee. In an interview, Frank Casanova, director of QuickTime product marketing at Apple, said that although MPEG-4 is the best codec for Apple's needs it is not the only one. However, he would not put a time frame on when Apple might abandon MPEG-4 if licensing terms could not be worked out.

Casanova said the company did not feel it would be handicapped in negotiations by having announced products that are dependent on the MPEG-4 technology.

"We announced, showed, demo-ed, talked about, and delayed our release," Casanova said. "That was right thing to do."

Streaming media analysts said Apple's stance could prod MPEG LA to revisit its licensing terms.

"It's a big message they're sending to the patent holders," said Jose Alvear, senior editor at Streaming Media, a San Francisco-based media company that follows the industry. Apple is "the biggest proponent of MPEG-4. People might start saying, come on MPEG LA; let's get going."

He added, however, that the impasse would not likely last.

"Currently there's not much MPEG 4 out there, so holding it back isn't holding back much," he said.

The licensing issue has long loomed over MPEG-4, which proponents see as a powerful standards-based alternative to proprietary formats being pushed by streaming media leaders RealNetworks and Microsoft. Apple's bet on the format has partly aimed to erase that lead and reassert QuickTime on the Net where it has lagged, despite its role in pioneering digital media throughout the 1990s.

QuickTime may be behind in the streaming race, but Apple released new figures last week that suggest it could be catching up. QuickTime had 80 million new downloads in 2001, while RealNetworks only saw 75 million for its RealOne and RealPlayer players, Apple said in a press release Thursday.

RealNetworks countered that its 75 million figure referred to registered users, and that its actual number of downloads for the period was "much higher than Apple's."

Apple has been a proponent of open MPEG-4 standards for some time, having co-founded the Internet Streaming Media Alliance (ISMA) in December 2000. Other members include Cisco Systems, IBM, Kasenna, Philips Electronics and Sun Microsystems.

Market leaders RealNetworks and Microsoft have yet to sign on to ISMA, although RealNetworks recently announced it would support MPEG-4 in future versions of its products. Microsoft has incorporated some aspects of MPEG-4 in its Windows Media formats, but it has refused to endorse the standard, saying that it believes its technology is superior.

A small step forward
ISMA representatives said the group was pleased to see the outline of MPEG-4 video-licensing terms, but added it is asking MPEG LA to open them to industry review and discussion.

"We are pleased to see that our member companies are taking steps to open up discussion of the MPEG-4 visual licensing terms, and we hope to see other member companies follow suit," ISMA President Tom Jacobs said. "As we have stated before, the ISMA is very concerned that the specific royalty model MPEG LA has outlined in its press release will not foster the development of a commercially viable market for MPEG-4 video streaming solutions."

MPEG-4 was ratified as a standard by the Moving Picture Experts Group in 1999. While it has audio components, its video features have drawn the most attention. Notably, MPEG-4 is capable of compressing massive video files into pieces small enough to send over mobile networks. Backers tout it as one potential "killer app" for the fast mobile phone networks that will be built over the next few years and will desperately need new applications that can generate revenue.

Dipping into that arena, Apple on Tuesday announced a partnership with cell phone maker Ericsson and Sun Microsystems to create a wireless content delivery system based on MPEG-4.

But perhaps more important, proponents say, are the interactive features that MPEG-4 offers. For example, video could function almost like a Web page, allowing people to interact with the picture on the screen or to manipulate individual elements in real time.

The ability to give video the kind of interactivity that only Web sites and video games now enjoy has ignited the imaginations of advertisers and some Hollywood studios.

"MPEG-4 is poised for great success once the licensing terms are modified to allow content providers to stream their content royalty-free," Apple's Schiller said in a statement.

News.com's John Borland and Ian Fried contributed to this report.