For people to share video using advanced codecs on the internet and elsewhere, the codecs have to be developed in the first place. The cost of development is then recouped using patent licenses. Sometimes a fee is charged for building a player – whether on a website or in a modern TV, sometimes a free is charged on each time content is played. Paying per play is known as a content royaty.

There are two groups of patent holders associated with the codecs associated with UHD and 4K playback. The HEVC group aren’t charging content royalties, but a second (made up of GE, Technicolor, Mitsubishi, Philips, and Dolby) have just announced their royalty rate.

Jan Ozer has just ran the numbers:

For a $4.00 movie downloaded from Amazon Prime or M-Go, the royalty would be two cents, right in line with MPEG-2/H.264 content royalties. In a Netflix scenario, for a $10/month subscriber who watches 10% of video that uses HEVC, the royalty would only apply to 10% of the subscription price, so the royalty would be about half a penny ($0.005). Assuming the $10 subscriber watches 100% HEVC, the royalty would be a nickel.

HEVCAdvance expects the royalty to be calculated on gross numbers, not on a per-subscriber basis. For an advertising supported site, if HEVC was 30% of all video distributed, the calculation would be 30% x total video-related advertising revenue x .005. In this scenario, if video-related advertising revenue was $1 billion, the royalty would be $1,000,000,000 x .3 x .005, or $1.5 million, a far cry from the $120 million Apple is staring at.

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…no matter how much you dislike the terms offered by HEVCAdvance, dealing with the individual patent holders would have likely been more expensive, and certainly more complicated. IP rights are a reality, so like the T-shirt says, the market will keep calm and carry on.

Read more at the Streaming Learning Center.