In a first-ever move for Microsoft, it set pricing this week forof its audio and video compression technology, or codecs, for use on non-Windows operating systems. The company says it will charge 10 cents per decoder, 20 cents per encoder, and 25 cents for both.
In comparison, MPEG LA--a consortium of companies holding patents attached to implementations of the MPEG-4 standard--charges 25 cents per encoder and decoder, or 50 cents for both--a fee structure finalized in November. MPEG-4 is an emerging standard for the delivery of digital media on PCs, DVDs and consumer electronics.
By undercutting the price, critics say, Microsoft is threatening the industry's natural tendency to migrate to open standards that allow many companies to work together seamlessly to service mass media with better choice. MPEG-2, for example, MPEG-4's predecessor, is the standard currently used by most digital cable providers and DVD manufacturers.
"Is every camcorder going to have a Windows logo on the side of it, or is every DVD going to play back in Microsoft Windows Media format?" said Elliot Broadwin, chief executive of iVast, which sells digital media delivery software based on MPEG-4.
"The interest of consumers is best served when they have choice--which is exactly what open industry standards, like MPEG-2 and MPEG-4, are designed to provide," he said.
Microsoft "politely disagreed" with Santa Clara, Calif.-based iVast's claims.
"Lowering and removing licensing barriers is not only great for the consumer electronics and software industries, but also offers consumers the benefits of better quality video at smaller file sizes," said Michael Aldridge, lead product manager for Windows Digital Media division at Microsoft.
He cited the benefits of a potential personal video recorder that could store two times more TV programming than MPEG-4 using Windows Media 9 Series. "How are these benefits bad for consumers?"
Still, the outcry is part of an intense war not only for customers on the PC but also for manufacturing cell phones, PDAs, DVDs and set-top boxes.
Codecs help reduce the size of bulky digital files by removing data that won't be missed in the translation. Codecs also are considered key to developing new video services over the Internet and wireless networks.
Companies including Microsoft, RealNetworks and Apple Computer have developed advanced codecs to take advantage of the widening adoption of digital media, with quality improvements at each step of the way; and all the companies are jockeying for dominance in PC and non-PC markets. But while Microsoft is pushing for adoption of its proprietary technology by consumer-electronics manufacturers and content owners, Apple and RealNetworks have turned to support of MPEG-4.
A feasible solution
MPEG LA, which represents 18 patent holders that have claims on underlying MPEG-4 technology, set in November after concern that the original royalty rates priced adopters such as out of the market. At the time, fees did not include its current $1 million cap on usage fees or a 50,000 threshold. RealNetworks offers comparable pricing to that of Microsoft's with its Helix DNA Audio and Video.
Still, MPEG LA spokesman Larry Horn said that licensing fees will not be the deciding factor for companies adopting advanced digital media technology, but rather quality and interoperability. He added that many people have found MPEG LA's licensing fees reasonable and can build them into a working business model.
"The marketplace is going to decide which technology it wants to use," he said. "There are choices that go with using a proprietary technology--those that do, do it at their own peril."
Rob Koenen, president of the MPEG-4 Industry Forum, said that competition in licensing fees in general is positive. But he pointed out that "Microsoft's licensing fees are for the use of technology and don't necessarily cover an indemnification, while MPEG LA's license covers patent rights and comes without technology."
"With MPEG LA, as with any license, you're getting insurance. It's buying off risk," Koenen said.
Microsoft did not comment on the patent license.
A downside of MPEG-4's license is that it may be too complicated and not conducive to certain markets such as ad-supported Web publishing, Koenen said. For example, MPEG LA asks 2 cents per hour for high-value MPEG-4 content when distributed on a DVD. But extending the same 2 cents per hour to ad-supported MPEG-4 services, which have a less proven and lucrative business model, may well not work, he said.
"We are all for open standards, but we live in a landscape where there is competition as well," he said. "But I also note that if people want open standards to be a success then the patent license needs to be reasonable and nondiscriminatory such that they allow services and products to be competitively priced."
MPEG LA's Horn countered that the royalty rates don't apply when there is not a business, but people still are working these models out. MPEG-2, which was established about five years ago, faced similar hurdles in gaining acceptance and understanding in the marketplace when first introduced.
As many such issues get ironed out, supporters of MPEG-4 want to ensure that it has room to prove itself in the market.
"Consolidating all that control in Redmond, Wash., is not good for the consumer and the industry," iVast's Broadwin said.