To: BillyG who wrote (38987 ) 2/19/1999 1:08:00 PM From: DiViT Respond to of 50808
LITTLE WORD ON PATENT ROYALTIES 02/15/99 DVD Report (c) 1999 Phillips Business Information, Inc. DVD replicators remain on pins and needles where patent royalties are concerned. As DVD grows in popularity, replicators are certain that they will eventually be expected to shell out in order to use the critical DVD manufacturing processes that are patented by other companies. The problem, at least from a replicator's perspective, is that they're unsure exactly how much they'll have to pay, and to whom. Only MPEG Licensing Administrator (MPEG LA), a company handling patent licensing for DVDs using MPEG-2 video (and virtually any DVD with video on it uses MPEG-2), has announced its royalty rate and is currently pursuing royalty payments. Two other groups, consisting of nine companies claiming DVD patents, have announced royalty rates, but have yet to begin collecting payments. There are at least five other companies believed to own DVD-related patents that have yet to announce any royalty plans. The uncertainty is the problem for DVD replicators, who will unquestionably be expected to pay royalties for any and all DVDs made, regardless of when. For example, a company could claim that it owns a DVD patent a year from now, and still demand royalties on all DVDs made by a replicator since that facility began manufacturing the format. As the situation currently stands, DVD replicators are expected to pay up to 16.5 cents in royalties for each DVD made. But many replicators believe that when all DVD patents are announced, that figure could surpass 25 cents per disc. That's a big pill for many mid- to small-size replicators to swallow, considering that DVD-5 replication pricing is fast approaching the $1.00 per disc mark. By comparison, replicators typically pay less than five cents a disc in royalties on a CD that they sell for about 45 cents per disc. While replicators prefer not to speak on the record about the subject for legal reasons, most are concerned - for good reason - that if DVD royalties approach or even exceed 25 cents a disc, it will become very difficult for them to earn a profit. And as far as content owners are concerned, royalties will eventually have a very real impact on how much a replication job costs. MPEG LA Up Front While replicators are not necessarily happy about having to foot the bill for MPEG-2 video-related royalties, MPEG LA has been the most up front to date of those companies collecting DVD-related royalties. Formed in 1992, MPEG LA handles patent licensing for 14 companies owning a combined 54 essential patent families. To date, MPEG LA has concentrated on collecting royalties from hardware and encoder/decoder-related companies, including the likes of C - Cube , Sony, Matsushita, Zapex and Toshiba, according to Larry Horn MPEG LA vice president, licensing. The Denver, CO-based organization has just begun speaking with some of the more prominent DVD replicators, from whom MPEG LA will collect royalties for use of MPEG-2 video on a DVD. Interestingly, one content-related company has already agreed to pay royalties rather than its replicators - Divx, the much talked about pay-per-use version of the DVD-Video format.