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Furor Subsides as MPEG-4 Licensing Terms Are Set

MPEG LA, a group of patent holders to the MPEG-4 format, finally reached agreement on Monday regarding final licensing terms after initial terms, released in February, outraged the digital media community.

Under the new terms, due to go into effect this September, Web sites can license the latest video and audio compression format for 25 cents per subscriber or 2 cents per hour, subject to a $1 million annual cap. Also, MPEG LA set a minimum threshold so that content owners with fewer than 50,000 subscribers aren't subject to royalties. The fees are applicable to Web site operators that benefit commercially from use of the technology, through either paid advertisements, pay-per-view services or subscriptions.

"The licensing fees under MPEG LA were prohibitively high and it seems as though they have reached a compromise," said Ryan Jones, an analyst with the Yankee Group. "It seems to be one that most parties can be happy with."

Larry Horn, vice president of licensing and business development for MPEG LA, agrees, noting that making the format usable for its customers and still a viable commodity for the patent holders is why the group exists.

"Obviously (the compromises) were hotly debated among the patent holders," said Horn. "You do your best and come up with things that would actually be attractive in the market."

MPEG-4 is the latest compression technology for digital multimedia created by the Moving Picture Experts Group, the group which also which also produced MPEG-1 (interactive video on CD-ROM) and MPEG-2, the core compression technology in transmitting, storing and consuming digital media.

MPEG-4 features significant strides in compression technology allowing greater quality over less bandwidth.

Controversy erupted after the proposed licensing terms were announced in February. The proposed uncapped playback fee of 2 cents per hour for MPEG-4 streams or downloads that a service provider would have to pay concerned Apple and others involved, who felt the price tag would lead to the technology's demise.

"We learned a lot in the process," said Horn. "The January announcement was very helpful because many of the principles have survived, but we have tried to make them more acceptable to the user. We couldn't have gotten as meaningful a response had we not gone through the process as we did."

The originally proposed terms also lacked an exemption for smaller Web sites, a clause which is included in the latest licensing agreement.

"That's a critical thing to drive acceptance of a new standard," said Jones. "If you are charging high licensing fees to Web sites or media companies that are just experimenting with the new standard and dont have a lot of following yet, you really squash a lot of the most important development aspects of that technology."

In February, Apple delayed the release of its Quicktime 6, which fully supports the MPEG-4 format, until MPEG LA settle a more reasonable fee-structure. Apple ended up holding out, until it released the new version at the beginning of June.

Industries outside of the Internet, including cable and satellite, have a slightly different pay structure.

Current cable television, direct satellite television and over-the-air broadcast that one day may allow a broadcaster to address its broadcast to a specific viewer or subscriber will pay a royalty of $0.25 for the right to manufacture and sell each decoder and encoder and the party providing content service to the subscriber will pay a royalty of $1.25 for the paid-up right to use a decoder to decode and use encoded MPEG-4 Visual information.

For stored video, the replicator or content provider will pay $0.01 per 30 minutes or part to a maximum of $0.04 per movie, with the price falling to $0.005 per 30 minutes or part thereof to a maximum of $0.02 per movie where the content is 5 years or older. Videos of 12 minutes or less pay a standard $0.002 fee

In addition to the MPEG-4 Visual Patent Portfolio License, MPEG LA will offer optional licenses under patents that are essential to the MPEG-4 Systems Standard (without MPEG-J) and to the MPEG-J part of the MPEG-4 Systems Standard.