Companies fear costly MPEG-4 licenses

Some MPEG-4 backers praised the licensing plan for removing lingering uncertainty over the costs of implementing the new format, but others said a proposed per-minute streaming fee, equivalent to 2 cents an hour, makes the plan all but unworkable.

"I don't think (the fees) are commercially viable," said Douglas McIntyre, chief executive of On2 Technologies, a video-compression provider. "To come out with very high usage fees undercuts the whole concept of having a standard."

The reaction comes in response to a long-awaited blueprint unveiled last week by 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 week's deal promises to dramatically simplify licensing issues related to MPEG-4, its terms have raised eyebrows.

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

MPEG-4 is the successor to MPEG-1 and MPEG-2, technologies behind the MP3 audio explosion. Like its predecessors, MPEG-4 comprises audio and video technologies that condense large digital files into smaller ones that can be easily transferred via the Web.

The proposed licensing structure comes as the Internet Streaming Media Alliance (ISMA), a standards body including tech heavyweights such as Apple Computer and Cisco Systems, is aiming to create an open standard in streaming media. In October, ISMA released a specification for streaming MPEG-4 video and audio via the Web.

Apple joined Cisco, IBM, Kasenna, Philips Electronics, Sun Microsystems and other tech companies in founding the nonprofit group in 2000. But market leaders RealNetworks and Microsoft have yet to sign on to the project. Microsoft's Windows Media, RealNetworks' RealPlayer and Apple's QuickTime each hold a piece of the market.

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

"ISMA is very concerned that the specific royalty model MPEG LA has outlined...will not foster the development of a commercially viable market for MPEG-4 video streaming solutions," ISMA President Tom Jacobs said in an e-mail. "The ISMA, representing more than thirty industry-leading organizations, looks forward to working closely with the MPEG LA and the licensors to develop terms that will make MPEG-4 video successful."

Some video companies this week seized on the plan to push their own technology.

In a letter sent to ISMA on Friday, New York-based On2 proposed making its video-compression technology, or codec, an alternative to MPEG-4, promising to make it available at no charge. Last year, On2 released an open-source version of its VP3.2 video-compression technology and is gearing up to announce its latest codec, VP5.

Larry Horn, vice president of licensing and business development at MPEG LA, said the group appreciates the feedback from the market, but it believes the fee is "reasonable." He added that the proposal is not set in stone.

Horn said that in the past, MPEG LA has made a couple of major revisions to its MPEG-2 licensing program.

"We want the technology to succeed, so it's important we reach a licensing point where users and patent holders can have some common ground," Horn said. However, "if a service provider or a content provider is making money on this, then the principle is the patent holders should too."