'HEVC Advance' Announces Revised Licensing Structure and Its Impact On The Market

Yesterday 'HEVC Advance' announced its revised licensing terms. A summary of the updated royalties rates was also released. 

It seems that 'HEVC Advance' has significantly adjusted its model based on market feedback. One of the major changes is that the content distribution royalty is only required when commercial content is sold with direct revenue from an end-user. Royalties are waived for “free-to-user” content (ad-supported, no fee to end-user, etc.) for both  Broadcast TV and Internet content. In addition, royalty caps were added as well as a $25,000 per year royalty waiver for smaller markets.

Although we would prefer only one HEVC patent pool, this is a significant step in the right direction. Personally I don't think any content distribution royalty is reasonable given that two HEVC royalties will always be paid: to encode the content and the decode the content. In addition, many of the patents in the 'HEVC Advance' pool are legacy old H.264/AVC inventions which are reused in H.265/HEVC. As such the owners of the patents in the 'HEVC Advance' pool are likely to be paid twice for the same patent, as nearly all consumer products will support both H.264/AVC and H.265/HEVC.

Many of our customers are planning to use our technology in professional markets. Given that MPEG LA does not have a content distribution royalty and HEVC only requires a content distribution royalty when content is sold directly to the end user, this should result in no requirement for a content royalty. MPEG LA does not require royalties for volumes of 0-100,000 units per year. 'HEVC Advance' says "Entities owing royalties of less than $25,000 annually (calculated at base rates) do not need to execute a License Agreement" which translates into around 31,000 units per year at the "Other Devices" royalties rate of $0.80. The other essential patent holders not in either MPEG LA or 'HEVC Advance' pool are only likely to expect a license and hence royalties from the huge consumer companies.

The end result is that for professional markets no HEVC royalties are likely to be required. For consumer markets like smartphones the royalty is likely to be $0.40 ('HEVC Advance') + $0.20 (MPEG LA) + $0.20 (other essential patent holders) = $0.80 per smartphone. The big consumer companies like Apple, Samsung etc. will quickly hit the royalty cap resulting in a yearly total fee of $45M ('HEVC Advance') + $25M (MPEG LA) + $25M (other essential patent holders) = $95M. It is also possible they may be able to cross license their own HEVC patents resulting in a lower total royalty liability. 

'HEVC Advance' says "it will work with major operating system and web browser/media player providers to remove barriers to adoption" which I hope happens. They also only expect one royalty per device. So if Dell ships a laptop with the latest Intel chipsets which includes HEVC decoding, Dell should pay the HEVC royalty. If Microsoft, Mozilla or Google deliver a browser which uses the hardware HEVC decoder no further royalties should be paid by the browser vendor.

It is also important to understand that proprietary video codec like VP8, VP9, VP10, Thor, AOM, Perseus are not subject to FRAND. If they use any 3rd parties video patents  (which we believe is essential to get get good compression efficiency), of which HEVC has over 10,000, then the royalty rates are likely to be much higher than the HEVC royalties.