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A thicket of patent and licensing disagreements—including accusations that Microsoft has swiped intellectual property—threatens to stall deployment of next-generation compression technologies. As a result, broadcasters and cable and DBS operators will have to wait for technologies that promise more channels, more storage, and more subscribers.

The patent difficulties center on Microsoft's Windows Media 9 (WM9) and subset VC-9, which is under review by Society of Motion Picture Television Engineers (SMPTE). For its part, the MPEG-4, Part 10 Advanced Video Codec (generally called H.264) has met resistance to its high licensing fees.

Manufacturers are already lining up products that use both formats. Each converts analog video and audio signals into digital formats that are more efficient than MPEG-2, the current favorite for content storage or distribution.

For content providers, that means the ability to store more on existing servers; for distributors, such as MSOs or DBS providers, it means sending out more channels to subscribers. These days, channel bandwidth requirements limit addition of new services, and VC-9 and H.264 can reduce those requirements.

Despite the patent problems, Microsoft has found support for its technology, with more than 140 manufacturers agreeing to integrate it into products. But last fall, Microsoft made its technical specification known to SMPTE as part of its efforts to have VC-9 become a standard. When fellow SMPTE member companies examined the specs, they raised concerns at the closed-door meeting: Microsoft, they said, was claiming others' technology as its own.

"There are many elements of the VC-9 technology that are not owned by Microsoft," says one industry veteran familiar with the formats. "There are basic coding methods in WM9 that are similar to or identical to some existing MPEG work."

Jason Reindorp, Microsoft Digital Media division group manager, says much of the development of WM9 was completed before the MPEG-4 format arrived on the scene. "Microsoft contributed some technology to MPEG-4, which is also used in VC-9, so there are a few direct similarities," he says. "We are aware that other companies have raised issues concerning intellectual-property licensing for VC-9. The company is proactively working to address these concerns." (See his further comments on VC-9 in the Q&A, opposite page.)

And so is the industry's leading third-party licensing company, MPEG LA. On March 26, the organization was scheduled to issue a call for potential patent holders to submit claims against Microsoft, a normal part of the standards process. MPEG LA will evaluate the claims and handle any licensing issues that arise. If it finds that patents have been infringed, a pool will be set up and licensing monies from VC-9 users split between Microsoft and that pool.

As for H.264, with 17 manufacturers including Sony, Matsushita, Philips, and even Microsoft to please, the licensing issue has become muddled. For one, there are two camps of licensors: those operating through MPEG LA and those working through ViaLicensing, an independent subsidiary of Dolby Laboratories.

Proposed terms for licensing fees have been deemed unfair by such organizations as the European Broadcasting Union. For instance, over-the-air broadcasters with more than 100,000 households pay royalties of $10,000 a year. Services with more than 100,000 subscribers pay $25,000 a year (costs increase to $100,000 per year for 1 million subscribers). Also, fees are at least 2¢ per title for video streams longer than 12 minutes. At those prices, the EBU told MPEG LA and ViaLicensing thanks but no thanks.

"That is nowhere near what the industry is used to," explains David Price, vice president, business development, for encoder manufacturer Harmonic and a board member of the MPEG Industry Forum. Organizations are used to paying one-time, reasonable fees. H.264 is expected to make a new proposal around the time of NAB in Las Vegas next month, but early word is that the terms will be unacceptable to cable and DBS operators.

MPEG LA's Larry Horn, however, is optimistic that broadcasters will embrace the agreement. Last week, Japanese broadcasters agreed to terms with MPEG LA so they can use the compressor/decompressor (codec) for mobile DTV broadcasts. They will pay a one-time fee of $2,500 for each encoder used to transmit H.264 video.

Of course, all the uncertainty has a ripple effect on product development and deployment. Harmonic is typical of the vendors crunched by the current format confusion. At NAB, it will exhibit a single encoder unit that works with WM9, H.264, and MPEG-2. The encoder gives the customers maximum flexibility, but it's also more expensive because it has to incorporate multiple codecs.

Today, both VC-9 and H.264 slog towards acceptance. VC-9 has been submitted for SMPTE standardization. If it becomes a standard before H.264 figures out its licensing puzzle, its prospects for widespread acceptance are much better. But if H.264 resolves its revenue model first, that could deal a big blow to Microsoft.

Despite the controversy, VC-9 will be a hot topic at NAB. It is already appearing in video encoders and decoders. And encoders and decoders using H.264 will also arrive. The question is: Can technology trump politics?