Licensing decision ends MPEG-4 tiff

The group of patent holders governing MPEG-4 finalizes licensing terms for the media delivery standard, bowing to market pressure for manageable royalty rates.

Stefanie Olsen Staff writer, CNET News
Stefanie Olsen covers technology and science.
Stefanie Olsen
3 min read
MPEG LA, a group of patent holders governing MPEG-4, on Monday finalized licensing terms for the media delivery standard, bowing to market pressure for manageable royalty rates.

"We've met a lot of the concerns that have been expressed in the marketplace," said Lawrence Horn, spokesman for the group, which represents 18 patent holders that have claims on underlying MPEG-4 technology. "We've built a licensing model that's usable in the industry."

Under the new terms, owners of Web site content can license the latest video and audio compression format for 25 cents per subscriber or 2 cents per hour, subject to a $1 million annual cap. Also, MPEG LA set a minimum threshold so that content owners with fewer than 50,000 subscribers aren't subject to royalties. The fees are applicable to Web site operators that benefit commercially from use of the technology, through either paid advertisements, pay-per-view services or subscriptions.

MPEG-4 is the successor to MPEG-1 and MPEG-2, the 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.

In February, MPEG LA had proposed fees without thresholds or caps, prompting fear among many multimedia companies that it would be too costly to stream media over the Internet using the format. Apple Computer, which bases its multimedia player on the standard, rejected the proposed royalty rates, throwing the future of its QuickTime media player into uncertainty and delaying its launch.

But in recent months, MPEG LA showed signs of acquiescing to market demands, culminating in the early release of Apple's QuickTime 6 in absence of a final licensing agreement. On Monday, Apple introduced the final version just hours before terms were made public. The company is also considering using the format to deliver CEO Steve Jobs' Macworld keynote address on Wednesday, which would be the first major event streamed in MPEG-4 over the Web.

"We've made a lot of progress as an industry working with MPEG LA, moving them considerably from where they were six months ago," said Frank Casanova, Apple's director of QuickTime product marketing.

The new licensing structure is broken out for different markets. Cable and satellite providers, which rely on MPEG-2 for video delivery, can license the latest format at a onetime rate. Cell phone providers are subject to the same fees as Internet providers.

Encoders and decoders are also subject to the same royalty rates for MPEG-4. Manufacturers or consumer electronics companies, for example, would have to pay only per-use fees above 50,000 units of encoded material, with a maximum rate of $1 million annually.

A third option for content owners allows them to pay $1 million annually up front to avoid reporting on usage. The threshold applies to a single legal entity, meaning that Time Warner, for example, would not have to treat separately each of its online properties that stream media.

Rob Koenen, president of the MPEG Requirements Group, said that if MPEG LA had not reconsidered per-use fees, the technology might well have withered.

"If the terms are acceptable for the markets, MPEG-4 will take off big time. If not, it will be a serious impediment," Koenen said.

He added that the standard was created to be used in multiple markets and that, like the MP3 standard for listening to music files, MPEG-4 needs to be adopted on the Internet to spread to consumer electronics devices, video-on-demand services and elsewhere. But per-use fees could easily hamper its adoption, he said.

"MPEG-4 doesn't exist in a vacuum," he said. "It has to be economically feasible, too."