HEVC Likely to be Subject to Similar Royalty Structure as H.264

One of the best things about presenting at Streaming Media conferences is that the expertise level of attendees is so high that it’s rare you don’t learn a thing or so in the sessions that you present. So it was during my HEVC session at Streaming Media West.

The week before the session was the first time I was able to gauge the quality of HEVC with my own test clips. Though I had expected less than the oft-stated 50% bandwidth savings as compared to H.264, the Rovi-supplied clips encoded with the MainConcept HEVC codec lived up to the billing, confirming that HEVC should allow content producers to shave bandwidth costs significantly.

The playback side also looked promising, with 720p HEVC clips playing efficiently on all test computers, dating back to a circa 2007 2.93 Ghz Core 2 Extreme Dell Precision 390. I wasn’t able to test mobile playback on iOS devices, unfortunately, though Elemental loaned me a Samsung Nexus tablet with a 1.7 GHz A15 processor that easily played 1080p HEVC video at full frame rate. 

I started the session by sharing these quality and performance-related findings, and then moved to the subject of royalties, which is one of the big unknowns about HEVC. Just before the show, MPEG LA, which manages the H.264 patent group, reported that they hoped to announce a similar group for HEVC soon. But since there is no patent group yet, we know nothing about royalties, though many policies are assumed.

For example, like H.264, most observers expect royalties on products that supply HEVC encode/decode functionality. Because these royalties are considered an expected cost of doing business, most vendors in the encode/decode space are forging ahead with their development and product release plans. On the content side, most pundits expect to pay HEVC royalties for monetized content delivered via subscription or pay-per-view, again like H.264.

One point of disagreement, at least in my mind, was whether there would be a royalty on  HEVC-encoded video delivered for free, which I felt was very likely based upon widespread reports that some patent holders were dissatisfied with H.264 royalty revenue. Since most HEVC early adopters will be switching from H.264 primarily to reduce their bandwidth costs, I felt that the spectre of these royalties was dramatically slowing HEVC adoption by content producers.

Fortunately, Bill Geary, an MPEG LA VP who’s working to help formalize the HEVC group, was in the room and offered to share his observations on the matter. He disagreed, feeling it highly unlikely that the patent group would attempt to impose a royalty on HEVC-encoded free content. After the session, Frost & Sullivan analyst Avni Rambhia shared some insights about why this is so.

Rambhia, who has spoken with many HEVC patent stakeholders, related that most HEVC IP owners also build HEVC encoders, decoders, and related products, and make the bulk of their revenues from the sale of these products, not from royalties. Learning from their experiences with H.264 licensing, they wanted a policy that promoted HEVC usage as much as possible, not one that would prove onerous to prevalent business models. For this reason, she also didn’t expect HEVC royalties to extend to scenarios that H.264 doesn’t currently cover.

Rambhia, who had also spoken with many content publishers, also noted that smooth and power-efficient mobile playback was their critical short-term concern, not the potential for HEVC royalties. While tablets like the Nexus are one thing, she pointed out that phones still account for more than half of video-capable device shipments. Though some analysts report that there are billions of HEVC-capable playback devices, Rambhia calls this a "key myth," adding that "while HEVC’s ability to deliver HD content to mobile devices is compelling, content publishers need to ensure end-to-end capability including battery-efficient playback in true wireless scenarios." She concluded by recommending that while video product vendors need to be aggressively innovating on HEVC now, "content publishers should take a strongly ROI-focused approach when formulating plans for their HEVC rollout."

Watch the full video below and download a PDF of Ozer's presentation.

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