H.264 licenses: Prices increase up to 45 times

Price shock for the H.264 video standard: Up to 4.5 million US dollars per year could be due for companies using it in the future. The new pricing model applies to those who do not have a license agreement with the responsible licensing agency Via Licensing Alliance by the end of 2025. Those who were already paying fees under the old, significantly cheaper model at that time are not affected by the price increase.

The widespread video standard is primarily used for streaming, delivering high-quality videos with low bitrates thanks to its efficient compression. Its new licensing model distinguishes between different types of licensees: subscription or ad-funded streaming providers, social media platforms, cloud gaming providers, cable or satellite TV providers, and OTA (Over the air) providers. Depending on the category, the new fees will then be based on their own respective tiers.

The more users, the more expensive

For subscription-funded or Over-The-Top (OTT) streaming providers, the new fees are based on the number of paying users. Platforms are in the highest price tier, Tier 1, if they have at least 100 million paying users – then they will owe the full 4.5 million dollar annual fee. Tier 2 includes platforms with 20 to under 100 million paying users, for whom 3.375 million dollars annually will be due. Tier 3 for 5 to under 20 million users will cost 2.25 million dollars annually. Providers with under 5 million users will pay 100,000 US dollars annually – the price that previously applied to all providers, regardless of their size.

This means that a major player like Netflix will pay 45 times more for H.264 in the future, provided it did not have a contract with Via Licensing Alliance by the end of 2025. At that time, the agency also contacted all affected companies with the request to negotiate a contract, as it informed the trade magazine Streaming Media. Via therefore did not consider a public announcement necessary. The current situation is a hard blow, especially for small companies that did not negotiate a contract in time or may not have been contacted at all.

Unusual step

The license fees compensate the numerous patent holders whose developments have been incorporated into the standard. For patents that flow into standards, the principle applies that licenses must be offered on fair, reasonable, and non-discriminatory (FRAND) terms. However, what exactly this means is not explicitly defined. US licensing attorney Jim Harlan gave Streaming Media his assessment of the situation, whether the current price increase can still be described as “fair and reasonable” in the sense of FRAND. Important factors would include “relevant factors would include comparable licenses in the market, the technical importance of the remaining patents, whether those patents continue to read on core implementation features, the remaining life of the patents, and the overall strength and scope of the portfolio relative to earlier licensing benchmarks.”

Although many patents included in an H.264 license have now expired, the standard is mathematically highly complex and has been continuously developed by various parties over a long period. Therefore, there is no quick replacement for H.264, which is still extremely widespread. Raising prices solely because a standard is aging is not common practice – there are no comparable examples. “What sometimes occurs is a restructuring of licensing models or a shift in how royalties are allocated across different products or services,” explains Harlan. A sharp late-cycle increase that is not supported by portfolio strength, remaining patent life, or comparable licenses would, according to Harlan, be subject to close scrutiny under a FRAND analysis. However, he also points out a common misconception: that patents for a standard have expired does not mean that no more license fees are due.

(nen)