New video codecs are mushrooming of late to address the enormous market opportunity. The focus of my last blog was on long codec development cycles and the resulting labyrinth of patents from technology providers. Let’s look at the current state of affairs in this market now.
To date the video codec H.264, also known as AVC (Advanced Video Codec), has dominated the industry in all market segments. It’s a standard based on research from many technology providers - large and small companies as well as academia - whose intellectual property (IP) is pooled and licensed by the
MPEG LA.
Next generation video codecs such as the follow-up standard H.265 from from standard organisations
ITU and ISO/IEC, also known as HEVC (High Efficiency Video Codec), or competing proprietary codecs such as Google’s VP9,
- further cut the bandwidth by half without perceivable loss of video quality, and
- support higher resolutions such as 4K video (refer to a recent 4K blog post here)
compared to their predecessors.
These new codecs are based on even better algorithms that run on faster processors due to the evolution of semiconductor technology over the last decade. They are creating a major buzz in industry today based on their compression efficiency, and are destined to replace their forefathers sooner or later.
Amazon, Cisco, Intel, Microsoft, Mozilla, Netflix Join Forces with Google
This year (2015) two further entities emerged on the video codec scene who will most certainly shape the future in one way or another:
- HEVC Advance is backed by several companies not part of the MPEG LA patent pool. The organisation may be viewed as an independent entity with a further pool of 500 patents essential to HEVC. This is a similar number to MPEG LA's pool of different essential patents. Many HEVC patents are still in the process of being granted and it is likely that several thousand will eventually comprise the full standard. As things stand right now, products employing HEVC will have to pay royalties to both MPEG LA and HEVC Advance. Generally speaking, the more patents covered by both entities, the better, because companies planning to use HEVC in their products are then faced with less "unknowns" posed by individual patent holders not part of these two pools who might raise their head at a later time with royalty claims. So long as the total license fees remain in a reasonable bracket, the HEVC codec remains a serious contender.
- Alliance for Open Media came into being in September 2015, backed by heavyweights such as Google, Cisco, Amazon, Netflix, Intel, Microsoft and Mozilla. They aim to combine their collective expertise and technologies in order to provide a future world-class, royalty-free codec. Note the word future here. It means that the designers of the Daala, Thor and VP8/VP9, from Mozilla, Cisco and Google respectively, are joining forces to create a codec that is open-source and free-for-use. Ultimately it replaces Google's prospective VP10. This approach is appealing in that it removes the fear of going with a single behemoth and its proprietary technology.
As of today, the contestant codecs HEVC and VP9 remain the same, yet the upcoming battle has become more pronounced, further exposing the market's fault lines. Google is increasing its firepower by shoring up support from other giants in the Alliance for Open Media, whereas the additional patent pool for HEVC proves that full license fees are by far not yet settled. The video codec market is sizzling as its players are scrambling to find their position.
About Codec Quality, Cost and Player Strategy
Three key factors govern the potential future success of any particular codec, namely the
Quality of the codec, the
Cost to use it, and the
Strategy employed by its backers. How do the next-gen codecs VP9 and HEVC stack up in these three areas?
Quality: How does the video quality compare at the same bit rate and screen resolution?
Both Google’s VP9 and HEVC are on a level playing field here. Refer to detailed results in
Jan Ozer's article in Streaming Media which demonstrates that VP9 is on par with HEVC/H.265 just as VP8 was with AVC/H.264.
Cost: How does the cost compare for using the codec either (i) in a hard- or software product, or (ii) for transmitting video content?
VP9 is an open-source codec and thus completely free-to-use for both cases.
For HEVC, in case (i), MPEG LA charges a royalty of $0.20 for every unit sold that exceeds the 100,000 “free” limit and is below the "all-you-can-eat" max cap of $25 million per year. Note, the latter cap is company-based, not product based. As for (ii) MPEG LA currently does not charge a license fee for HEVC-coded content. This contrasts to their policy for the predecessor H.264 (AVC). Most likely MPEG LA will revise content-transmission terms once HEVC has become widely adopted as a codec, as their licensing terms are subject to change every five years.
In addition to MPEG-LA, the newly formed HEVC Alliance surprised everyone this year by not only wanting to charge far higher unit royalties than MPEG LA but also insisting on fees for HEVC-encoded content from service providers amounting to 0.5 % cut of their attributable revenue (percentage of HEVC video they deliver). This seems to have sent shock waves through the industry, possibly leading to the formation of the Alliance for Open Media in a pre-emptive strike. It now appears that the HEVC Alliance is backpedalling on its license fee structure as a result.
Strategy: What are market players doing to ensure the future success of any codec?
This is the most fuzzy of the three because it defines what companies and organizations who either hold essential patents or are key providers of video content are doing “behind the scenes” in their attempts to monopolize markets or secure and grow their content delivery revenues. On the IP side, a simple case helps illustrate the point: many of Apple's hardware products support H.264 video en- and decode. Apple holds several patents for H.264 too as can be seen at
MPEG LA. As such they are both a licensor and licensee. As a licensee it is obviously in the interests of the company to keep the cap in a region which can easily be surpassed based on all the products supporting H.264 they sell. The $25 million cap means the company needs to sell at least 100 million iPhones, iPads, Macs... . Considering that Apple will probably sell some 200 million iPhones alone in 2015, that's not only easy but also cheap for them. On the flip side, as a patent holder Apple also benefits from the H.264 royalty stream as collected by MPEG LA, its share most likely being dependent on the attributable size of its patent portfolio to the standard. This share is often distorted by cross-licensing or bilateral agreements with other patent providers within or outside of the pool, read “I’ll make my IP available to you at no charge if you give me your IP for free". In the end, all of this may not be of particular relevance to a behemoth such as Apple, but it has huge implications for smaller IP players in the H.264 patent pool, depending on their patent portfolios or market participation with video products or content. This complex interplay of factors was probably one of the drivers for the HEVC Alliance to pop up, wishing to protect the interests of patent holders with different wish lists and priorities than those in the MPEG LA fray.
Beware of Submarine Patents
Instinct tells us that free is the best way to go. But most vendors and service providers hesitate to put their long-term codec strategy in the hands of a proprietary standard, be it from a single firm such as Google or an alliance of like-minded, complementary and dominant players such as found in the Alliance for Open Media. Furthermore, royalty-free codecs are often susceptible to so-called
submarine patents. These refer to holders of patents used in royalty-free codecs who suddenly surface to assert license fees for use of their technology, creating unexpected costs. A historic case is Microsoft’s VC–1 royalty-free video codec which failed to be a codec game changer, certainly due to subsequent royalty-incurring patent claims by other tech companies.
Conversely, the collaborative effort of a greater number of assorted companies, be they small or large, complementary or competitive, who merge their efforts into a single standard, may provide more comfort during the long-term, even if there are licensing costs involved.
In
wi360's next blog post, video codec market segments will be analyzed to provide a clearer picture of what’s at stake and the most-likely winners and losers in this game.
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