Dolby’s ‘Air Apparent’ Terms to MPEG-2 Audio

Dolby Laboratories Tuesday introduced new licensing terms for the use of audio playback regarding the evolving MPEG-4 standard,
nearly two months after the MPEG LA licensing consortium sparked a furor with its proposed royalty rates for
MPEG-4 video dissemination.

The San Francisco company said the MPEG-4 AAC licensing program builds on its MPEG-2 AAC
program to cover audio for streaming, wireless, and multimedia applications. Dolby serves as the licensing hub for patents owned by
AT&T , Fraunhofer IIS-A, Sony and, as of Tuesday, handset leader Nokia

Unlike the MPEG LA’s licensing terms for MPEG-4 Visual, the MPEG-4 AAC does not factor use fees into its equations, something that
those with a vested interest in the standard expressed concern over when the MPEG LA revealed its terms in January. The Internet
Streaming Media Alliance (ISMA), a body whose members work to create interoperability standards for MPEG-4, was one of those
dissenting groups. ISMA applauded Dolby’s licensing schemes.

“The MPEG-4 AAC co-licensors listened to licensees and understand the complexities of the marketplace — it is impractical to expect
content owners or distributors to adopt a format which involves use fees, dramatically increasing their costs while also burdening
them with tracking usage,” said Tom Jacobs, president of ISMA. “ISMA members have been very concerned that the proposed use fees for
MPEG-4 video patent licensing will inhibit the uptake of MPEG-4 among its most important constituents — the companies that create
and/or distribute multimedia content. ISMA strongly supports the MPEG-4 AAC business model. It encourages the use of this important
new technology by making it attractive to the content industry, which will in turn promote the sale of products and the success of
the MPEG-4 standard.”

Just how dismayed were groups who rely on digital media distribution when the MPEG LA announced its terms? Apple Computer Inc.
, whose QuickTime media application competes with players made by RealNetworks Inc. and
Microsoft Corp. , put a stay on
the release of its QuickTime 6, which is optimized for MPEG-4 playback, to protest usage fees it deemed untenable in the

MPEG LA’s bit about usage fees called for a fee of 2 cents an hour, “based on playback/normal running time for every stream,
download or other use of MPEG-4 video data in connection with which a service provider or content owner receives remuneration as a
result of offering/providing the video for viewing or having the video viewed.”

Indeed, Dolby’s terms state that there are no royalties or usage fees for content distribution in AAC format, either in electronic
form or in packaged media.

Under Dolby’s terms, which will be available in April, licensees will pay the following royalty rates for MPEG-4 AAC decoders and

  • For a consumer decoder product: $0.50 to $0.12 (volume-based) per channel
  • Royalty rates for PC-based software decoder products are $0.25 per channel, up to a maximum annual payment of $25,000 per legal

  • For a consumer encoder product: $0.50 to $0.12 (volume-based) per channel
  • Royalty rates for PC-based software encoder products are $0.50 to $0.27 per channel (volume-based), up to a maximum annual
    payment of $250,000 per legal entity

  • For a commercial decoder product: $2.00 per channel
  • For a commercial encoder product: $20.00 per channel

Ed Schummer, senior vice president and general manager of Dolby’s Consumer Division said: “The MPEG-4 AAC licensing program has been
fine-tuned, taking into account various market demands in radically different environments ranging from freely distributed PC-based
software decoders to high-quality playback consumer electronics devices.”

MPEG-4 AAC includes a few enhancements over patents in the MPEG-2 AAC pool; MPEG-4 AAC works at stereo bit rates down to the 40 to
48 kbps range, and to the 24 to 30 kbps range in mono.

With a migration path from MPEG-2 AAC, Dolby will be promoting MPEG-4 AAC for 3G wireless networks, Internet streaming of audio and
audio/video, and home networking, as well as for the traditional MPEG-2 AAC applications such as electronic music delivery, digital
radio, and ISDB television broadcast.

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