MPEG-4 backers protest Microsoft license

ZDNet News ^ | January 10, 2003, 6:52 AM PT | Stefanie Olsen

[Bush2000]

MPEG-4 backers protest Microsoft license

By Stefanie Olsen
Special to ZDNet News
January 10, 2003, 6:52 AM PT

Proponents of MPEG-4 are decrying Microsoft's new licensing fees for rival technology, saying that the pricing poses unfair competition and threatens consumer choice. In a first-ever move for Microsoft, it set pricing this week for licensing of its audio and video compression technology, or codecs, for use on non-Windows operating systems. The company says it will charge 10 cents per decoder, 20 cents per encoder, and 25 cents for both.

In comparison, MPEG LA--a consortium of companies holding patents attached to implementations of the MPEG-4 standard--charges 25 cents per encoder and decoder, or 50 cents for both--a fee structure finalized in November. MPEG-4 is an emerging standard for the delivery of digital media on PCs, DVDs and consumer electronics.

By undercutting the price, critics say, Microsoft is threatening the industry's natural tendency to migrate to open standards that allow many companies to work together seamlessly to service mass media with better choice. MPEG-2, for example, MPEG-4's predecessor, is the standard currently used by most digital cable providers and DVD manufacturers.

"Is every camcorder going to have a Windows logo on the side of it, or is every DVD going to play back in Microsoft Windows Media format?" said Elliot Broadwin, chief executive of iVast, which sells digital media delivery software based on MPEG-4.

"The interest of consumers is best served when they have choice--which is exactly what open industry standards, like MPEG-2 and MPEG-4, are designed to provide," he said.

Microsoft "politely disagreed" with Santa Clara, Calif.-based iVast's claims.

"Lowering and removing licensing barriers is not only great for the consumer electronics and software industries, but also offers consumers the benefits of better quality video at smaller file sizes," said Michael Aldridge, lead product manager for Windows Digital Media division at Microsoft.

He cited the benefits of a potential personal video recorder that could store two times more TV programming than MPEG-4 using Windows Media 9 Series. "How are these benefits bad for consumers?"

Still, the outcry is part of an intense war not only for customers on the PC but also for manufacturing cell phones, PDAs, DVDs and set-top boxes.

Codecs help reduce the size of bulky digital files by removing data that won't be missed in the translation. Codecs also are considered key to developing new video services over the Internet and wireless networks.

Companies including Microsoft, RealNetworks and Apple Computer have developed advanced codecs to take advantage of the widening adoption of digital media, with quality improvements at each step of the way; and all the companies are jockeying for dominance in PC and non-PC markets. But while Microsoft is pushing for adoption of its proprietary technology by consumer-electronics manufacturers and content owners, Apple and RealNetworks have turned to support of MPEG-4.

A feasible solution

MPEG LA, which represents 18 patent holders that have claims on underlying MPEG-4 technology, set licensing terms in November after concern that the original royalty rates priced adopters such as Apple out of the market. At the time, fees did not include its current $1 million cap on usage fees or a 50,000 threshold. RealNetworks offers comparable pricing to that of Microsoft's with its Helix DNA Audio and Video.

Still, MPEG LA spokesman Larry Horn said that licensing fees will not be the deciding factor for companies adopting advanced digital media technology, but rather quality and interoperability. He added that many people have found MPEG LA's licensing fees reasonable and can build them into a working business model.

"The marketplace is going to decide which technology it wants to use," he said. "There are choices that go with using a proprietary technology--those that do, do it at their own peril."

Rob Koenen, president of the MPEG-4 Industry Forum, said that competition in licensing fees in general is positive. But he pointed out that "Microsoft's licensing fees are for the use of technology and don't necessarily cover an indemnification, while MPEG LA's license covers patent rights and comes without technology."

"With MPEG LA, as with any license, you're getting insurance. It's buying off risk," Koenen said.

Microsoft did not comment on the patent license.

A downside of MPEG-4's license is that it may be too complicated and not conducive to certain markets such as ad-supported Web publishing, Koenen said. For example, MPEG LA asks 2 cents per hour for high-value MPEG-4 content when distributed on a DVD. But extending the same 2 cents per hour to ad-supported MPEG-4 services, which have a less proven and lucrative business model, may well not work, he said.

"We are all for open standards, but we live in a landscape where there is competition as well," he said. "But I also note that if people want open standards to be a success then the patent license needs to be reasonable and nondiscriminatory such that they allow services and products to be competitively priced."

MPEG LA's Horn countered that the royalty rates don't apply when there is not a business, but people still are working these models out. MPEG-2, which was established about five years ago, faced similar hurdles in gaining acceptance and understanding in the marketplace when first introduced.

As many such issues get ironed out, supporters of MPEG-4 want to ensure that it has room to prove itself in the market.

"Consolidating all that control in Redmond, Wash., is not good for the consumer and the industry," iVast's Broadwin said.

[Bush2000]

"By undercutting the price, critics say, Microsoft is threatening the industry's natural tendency to migrate to open standards that allow many companies to work together seamlessly to service mass media with better choice."

MPEG LA is struggling with the "surprising notion" that it will actually have to compete. Either lower your licensing fees or shut the hell up. Will the pathetic whining ever cease?!?

[anniegetyourgun]

And Lord knows, this is just about the most important and burning issue on planet at this moment. The 'critics' have too much time on their hands....

[Bush2000]

There's never any shortage of critics, is there? But few producers... ;-p

[Mo1]

PLEASE SUPPORT FREE REPUBLIC

Donate Here By Secure Server

Or mail checks to
FreeRepublic , LLC
PO BOX 9771
FRESNO, CA 93794
or you can use
PayPal at Jimrob@psnw.com

Become A Monthly Donor
STOP BY AND BUMP THE FUNDRAISER THREAD

[staytrue]

MS is using John D. Rockerfeller's strategy where he used a monopoly in one market to lower prices and destroy competition in another market. After establishing a monopoly there, he would move on. Here, MS is using profits from its windows monopoly to destroy competition and later will raise prices after it has established another monopoly.

[staytrue]

"Consolidating all that control in Redmond, Wash., is not good for the consumer and the industry," iVast's Broadwin said.

It's time to break up MS just like Standard Oil was broken up. Spin off the OS part so that the rest of MS competes on an equal footing with everyone else.

[Bush2000]

MS is using John D. Rockerfeller's strategy where he used a monopoly in one market to lower prices and destroy competition in another market. After establishing a monopoly there, he would move on. Here, MS is using profits from its windows monopoly to destroy competition and later will raise prices after it has established another monopoly.

Yeah, it's horrible that consumers will have to use a superior codec at half the price. /NOT

[Bush2000]

It's time to break up MS just like Standard Oil was broken up.

Have you considered a lobotomy?

[isthisnickcool]

Either lower your licensing fees or shut the hell up. Will the pathetic whining ever cease?!?

"Shut the hell up"? "Will the whining ever cease?" Somebody can't shut up. And the whining never ever seems to cease.

[Howlin]

Oh, thanks.....now I'll have that song in my mind all day long!

[Psycho_Bunny]

How does MS implementing a charge for something that was previously free hurt the competition?

This kind of sounds like, say, Netscape whining if MS started CHARGING for IE like Netscape always charged for Navigator?

How could that do anything but HELP MS's competition?  Even if it's half price, the fact that they have to pay for it would make the average person more carefully weigh their options.

When it's free, there's no contest.  When money's involved no matter what, you stop and think about it.

This move fosters competition.

[hchutch]

LOL. Gee, Gates is offering a product that is just as good at a cheaper price. Looks like Gates is going to get yet more enemies. Thankfully, the Bush Administration doesn't punish success the way the Clinton DOJ (Reno and Klein) tried to.

[Dominic Harr]

MS is using John D. Rockerfeller's strategy where he used a monopoly in one market to lower prices and destroy competition in another market.

It's called 'predatory pricing'. It's an illegal monopolistic practice.

'Defense of monopolistic practices' is not a conservative position.

Then again, no one ever accused MS of being a conservative institution. They're a collectively owned, collectively managed management structure that controlls businesses and gets them to make bad business individual decisions -- like operating at a hundreds of millions a year loss (MSN, XBox, etc) -- in order to benefit the collective as a whole.

But is economics knowledge really that sparse here at FR? Is the concept that "monopolistic practices == attacks on the free market" really so confusing to some that frequent here?

Or, is it just the folks with a financial stake in MS prefer to excuse all MS's illegal behavior, no matter how many times they prove it in court?

[HAL9000]

The problem with the MPEG-4 licensing fees is that the patent holders were represented by Hollywood lawyers. After the initial MPEG fee proposal, Apple put a lot of pressure on them to come up with a more reasonable fee structure, and was mostly successful. But the patent holders may need to make some more concessions or their standard may fall into oblivion in the face of Microsoft's lower fees.

If MPEG can match Microsoft's price point, it will win. The other factors besides price - superior technology based on an open standard that performs well even at low bit rates - favor MPEG.

[Bush2000]

It's called 'predatory pricing'. It's an illegal monopolistic practice.

Everyone should read The Myth of Predatory Pricing.

"Predatory pricing is the Rodney Dangerfield of economic theory--it gets virtually no respect from economists. But it is still a popular legal and political theory for several reasons. First, huge sums of money are involved in predato- ry pricing litigation, which guarantees that the antitrust bar will always be fond of the theory of predatory pricing. During the 1970s AT&T estimated that it spent over $100 million a year defending itself against claims of predatory pricing. It has been estimated that the average cost to a major corporation of litigating a predation case is $30 million.(3)

Second, because it seems plausible at first, the idea of predatory pricing lends itself to political demagoguery (Look, Harr: They're talking about you!), especially when combined with xenophobia. The specter of a foreign conspiracy to take over American industries one by one is extremely popular in folk myth. Protectionist mem- bers of Congress frequently invoke that myth in attempts to protect businesses in their districts from foreign competi- tion.

Third, ideological anti-business pressure groups, such as Citizen Action, a self-styled consumer group, also employ the predatory pricing tale in their efforts to discredit capitalism and promote greater governmental control of in- dustry. Citizen Action perennially attacks the oil industry for either raising or cutting prices. When oil and gas prices go up, Citizen Action holds a press conference to denounce alleged price gouging. When prices go down, it can be relied on to issue a "study" claiming that the price reductions are part of a grand conspiracy to rid the market of all competitors. And when prices remain constant, price- fixing conspiracies are frequently alleged.

Fourth, predatory pricing is a convenient weapon for businesses that do not want to match their competitors' price cutting. Filing an antitrust lawsuit is a common alternative to competing by cutting prices or improving product quality, or both.

Finally, some economists still embrace the theory of predatory pricing. But their support for the notion is based entirely on highly stylized "models," not on actual experience."

[shadowman99]

"Somebody can't shut up. And the whining never ever seems to cease."

Well said. It's funny that he seems just as lock step about ANYTHING that competes against microsoft. Almost like he has that "wasn't invented here" attitude.

Frankly, I think he's just hoping someone will bring the L word into this, and I not going to give him the satisfaction.

[Dominic Harr]

Predatory pricing is the Rodney Dangerfield of economic theory--it gets virtually no respect from economists.

• MS uses coercion, fraud, and other illegal means to maintain an 85% profit margin in the Windows and Office products.

• MS operates the XBox, MSN, and everything else at a *loss* of hundreds of millions of dollars a year trying to gain marketshare.

Yet you've found a paper on the web that claims there is no such thing. Well, that settles it, should we believe your link to an opinion piece, or our lying eyes?

Defense of monopolistic practices is not a conservative position.

Period.

[TechJunkYard]

.. the patent holders may need to make some more concessions or their standard may fall into oblivion in the face of Microsoft's lower fees.

If MPEG can match Microsoft's price point, it will win. The other factors besides price - superior technology based on an open standard that performs well even at low bit rates - favor MPEG.

I'm actually in Microsoft's corner on this one.... reduced prices rule. Open Standards shouldn't be get-rich-quick schemes... MPEG-LA should lower their license fees (a quarter per encoder/decoder?) to compete, or eliminate them entirely. I'm still pissed about the MP3 fees.

When the free Ogg alternatives get released later, they'll both have some competition.

[ThinkDifferent]

Either lower your licensing fees or shut the hell up. Will the pathetic whining ever cease?!?

Somebody check the temperature in hell, I agree completely. The original licensing terms were ludicrous, improving only slightly after Apple threatened to abandon MPEG4 in Quicktime. These aren't tiny software companies being vitcimized by the all-powerful Microsoft, they're Hollywood interests who are complaining because Microsoft is threatening the monopoly they wanted to have.

And I still want to know how they get off calling MPEG4 an "open standard". I can't write software that implements it without paying to license patents, doesn't sound very open to me.

[Nick Danger]

They must have liberals running that MPEG-4 show. When a credible alternative appears in your market at half the price, you cut your price in half... and then you run around and try to figure out how you're going to afford that. Putting out a press release that whines about it is weird; that's something Tom Daschle would do.