Video Markets for Appliances, Desktop and Mobile (Part III)

Part II of “Video Rules - Codecs Engage” reviewed the next-generation video codec scenario and the potential, forward-looking success of its contestants and their solutions, namely the industry alliances MPEG LA, HEVC Advance and Alliance for Open Media (Google, Cisco, Amazon, Netflix, Intel, Microsoft and Mozilla). Here in Part III video market segmentation takes center stage, affording a clearer picture of how the ecosystem is changing and what sectors offer future rewards

Next-gen video codecs such as HEVC and VP9 further cut the bandwidth required for transmission and storage by half without perceivable loss of video quality which is why using them makes good technical and business sense. Employing them means that recorded footage needs to be encoded, stored, transmitted, and decoded on the device at the receiving end.

The many players in this video transmission ecosystem pay careful attention to the number of video consumers they will ultimately reach at the receiving end in their choice of a codec . The more, the better. The codec that best manages to permeate the ecosystem is most likely to be a winner.

The mobile video explosion
Data source: Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update, 2015–2020

Segmenting the end-user market is helpful before placing your bets. Inspecting each of the following three market silos delivers useful data for any prediction:

1. Appliance segment: TVs, set-top boxes (STB) for terrestial, cable and satellite broadcasts
2. Desktop segment: PCs, notebooks
3. Mobile segment: smartphones, tablets, media players

Pegging each segment’s size is no easy task but let’s give it a try using data available from reliable sources combined with a good dose of common sense. We’ll use the metric “bytes” to gauge size as it’s easiest for comparative purposes.

For 1 (appliances) I’ll venture to make a broad simplification to arrive at some ballpark figure: assuming that under half of the world's population (let's say 3 million TV consumers) watch one hour of TV a day on average (some watch several hours, some don’t/won't/can’t at all, whilst a few may come close to 24/7 behaviour) and assuming all video content is H.264 coded at 1280 x 720 resolution running 25 frames per second:

60 minutes/day x 150 Mbytes/minute x 3 billion people = 27 EB per day

1 exabyte (EB) is 1000 6 bytes or 1 000 000 000 000 000 000 000 bytes

(Please refer to a recent post on the average file size of 10 seconds of video)

Of course not all TV that is broadcast is encoded in H.264 as assumed in the above calculation. Mostly it’s HDTV that uses H.264 (see Wikipedia’s list of video services using H.264). For the sake of arriving at meaningful comparative data, I've deliberately used this simplification.

For the 2 (desktop) using data provided by Cisco in their February 2015 Visual Networking Index Forecast, online video that is downloaded or streamed for viewing on a PC screen is forecasted to account for approximately 23 EB of monthly Internet traffic in 2015, leading to roughly 0.766 EB of PC/notebook video per day.

For 3 (mobile) using data provided by Cisco in their February 2016 VNI Global Mobile Data Traffic Forecast, video accounted for 55 % of 3.7 EB total monthly mobile data traffic in 2015. For 3 that approximates to 0.068 EB per day for all mobile video traffic.

Here’s the corresponding table for daily video traffic in 2015:

Appliances	Desktop	Mobile
27 EB	0.766 EB	0.068 EB
100 %	2.8 %	0.3 %

It’s apparent that both desktop and mobile video are still dwarfed by video broadcast to appliances, but keep in mind, markets for video are in a disruptive mode, as the younger generation spend more time watching short, on-demand video clips delivered to their smartphones instead of viewing prime-time TV shows. Cisco’s data validates this behaviour in that video consumed on mobile devices is set for compound average growth rates of almost 60 % per year for the period 2015 - 2020, the fastest growth rate of all. In summary, mobile video will be gobbling up market share of broadcast and PC video at a fast pace.

Let’s look at these market segments regarding the codecs used.

Appliances: TVs, Set-Top Boxes (STB) and Other Nifty Devices

In terms of size and revenue, this is by far the most relevant of all three. You could call it the professional video segment that is in transition from broadcasting video content over-the-air (OTA) or pay-TV video-on-demand (VoD) to the newer variant of streaming professionally recorded media over-the-top (OTT) of wired or wireless data connections. Its hinges on interoperability, legacy equipment and fallback modes. H.264 is the established and well understood standard supported by most appliances. But the industry is in flux and looking to better codecs such as HEVC or VP9 for achieving lower transmission bit rates or supporting ultra-high resolution (UHD) devices.

In this segment HEVC (H.265), the follow-up standard to AVC (H.264), is used to compress some of the best and most popular studio-grade 4K streaming media currently, supported by most 4K-UHD-enabled appliances and used for professionally recorded 4K-content streamed by providers such as Netflix and Amazon Prime. Some video experts go so far as to say that HEVC/H.265 has already won the battle against Google’s VP9 simply based on the fact that AVC/H.264 has worked well for all industry participants in the past despite the licensing costs involved.

In other words, why risk turning your back on a proven business model?

Next to the cost issue (remember Google’s VPx compression is free), companies involved with creating and selling media products and services are willing to pay licensing fees

(i) if licensing is a simple procedure that also idemnifies them from possible future “submarine patent” claims as outlined in a previous blog

(ii) if the fees are reasonable in relation to generated revenues through products/services

H.264 fulfilled these requirements to a large extent: acceptable licensing terms and one company, MPEG LA, handling the complete licensing process.

H.265 appears to have muddied the pond in both respects: now it’s two parties - MPEG LA and HEVC Advance - with unclear patent lists, and hair-raising licensing costs regarding the latter’s terms that also add never-seen-before royalties on HEVC-encoded content itself.

Good reasons to consider alternatives, right?

One alternative for professional media is to continue using H.264 as long a possible. This is even attractive in terms of compression rates, as codec standards don’t specify the method used to encode and decode their compressed streams, only the syntax used. As such there are many initiatives to extend H.264’s life cycle with better compression algorithms “inside”.

The other is to wait until the competitive, open-source codec from the consortium called the Alliance for Open Media (Google, Amazon, Cisco, Microsoft, Mozilla, Netflix and Intel) becomes available some time in early 2017.

Desktop and Mobile Video Market Segments

In constrast to the appliances segment, desktop and mobile additionally support user-generated content. As mentioned previously, this segment is exploding in size as amateurs create their own videos that mostly run under a few minutes, are uploaded to public servers such as Google’s YouTube and consumed online by millions.

Desktop and mobile video users access compressed video on their devices either

• through a native application like a “media player” for a PC or an “app” on a smartphone.
• through their browser (or a 3rd-party plug-in for it)

Two “native application” examples are VideoLAN’s VLC player for the Windows or OSX operating systems, or YouTube’s app for smartphones running either iOS (Apple) or Android (Google) operating systems. Licensing costs for the codec are picked up by the creator of the app in most cases.

For codecs used within the browser, the browser vendor frequently pays the licensing costs. In some cases the browser relies on decoding support by the operating system (OS), thereby relegating the licensing cost to the OS vendor, or even one level deeper, to the hardware decoder - a functional block within a chip - found in the device itself which improves performance and mitigates battery drain.

If you compare the browser and operating system manufacturers with the members of the Alliance for Open Media, it isn’t hard to guess which next-gen codec is likely to take on the lead role in this particular segment.

In addition Google’s current VP9 codec is already being used for 4K video streaming on YouTube. Moreover, it’s also supported by a wide range of major TV makers like LG, Sony, Samsung, Panasonic, Toshiba, Philips and even GPU/processor makers like Intel and Nvidia. Google is continuing to bet on the principles of open, community-developed technologies and their speed of implementation to drive adoption in the hope of out-engineering the competition at some future point.

The writing seems to be on the wall on whom to use for future mobile and desktop markets. It’s once-in-a-lifetime chance to displace the H.26x incumbent a la longue in the professional segment too. Yet there might be unexpected twists down the road if essential patent holders block licensing initiatives or unexpectedly decide to change sides .

Stay in touch with mobile video market updates using wi360’s Event Calendar where you’ll find current conferences, expos, webinars and workshops that track streaming video listed under the category Multimedia.

Video Rules - Codecs Engage (Part II)

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:

1. 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. 
2. 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.

You can find upcoming events such as conferences, expos and webinars covering video, broadcasting, streaming and multimedia in wi360's Mobile & Wireless Event Guide