After discussions lasting months, patent holders have agreed on license terms for the next-generation HEVC video-compression technology -- and it's a better deal than today's prevailing standard.

MPEG LA, the company that sells a license to 57 HEVC-related patents on behalf of Apple, Samsung, Fujitsu and other 20 patent holders, said Monday it'll charge 20 cents per product that can encode or decode video using HEVC, though the first 100,000 units are free. That's the same price as for today's prevailing standard, called H.264 or AVC, but this time around, MPEG LA isn't charging for use of the technology when a video is streamed over the Internet or sold on a Blu-ray disc.

Eliminating fees for things like paid video streaming services could mean a faster adoption of HEVC, and therefore better image quality and video performance for consumers. So far, HEVC is a rarity, in part because it's too new to be supported in software like operating systems or in hardware like mobile-device processors. Some new exceptions with HEVC support are Apple's iPhone 6 and Samsung's 4K-capable NX1 camera .

Myoung Sup Han, executive vice president of Samsung's digital imaging business, offered a this summary of the rationale for supporting HEVC during the NX1 launch: videographers can "save memory and record longer."

What's HEVC, and why is it controversial?

HEVC, short for High Efficiency Video Coding and also called H.265, is a standard that governs how video can be compressed to fit within capacity constraints of Internet connections and storage media. HEVC/H.265 offers about twice the image quality for a given number of bits per second when compared to its predecessor, AVC/H.264. The industry is embracing the new standard largely to enable the higher resolution of 4K video.

Francesca De Simone, Philippe Hanhart, Martin Rerabek, and Touradj Ebrahimi/EPFL

Video codecs operate behind the scenes for the most part, but they can be a surprisingly contentious subject. One big reason are those patents.

Technology to encode and decode video and audio streams are called codecs. The HEVC codec looks destined for success, but royalty fees mean anyone selling lots of mobile phones, video-chat apps, Web browsers, or operating systems will have to pay to use it. That's not uncommon in the technology world, but it means there is, in effect, a toll gate for video on the Internet.

That stands in stark contrast to, say, image formats like JPEG that are free to use.

That patent provision is one big reason Google has pushed its rival VP8, VP9, and soon, VP10 video codecs. The company wants to liberate video on the Internet.

That's why it's notable HEVC doesn't require any payments for streaming-video use: it partially neutralizes at least one VP9 advantage.

MPEG LA's pricing change fits within a competitive market. "Offering a pool license of benefit to the marketplace requires striking a balance between what patent holders are willing to offer their patents for and what licensees are willing to pay. Both are necessary. MPEG LA believes this streamlined licensing approach will make the HEVC License widely acceptable," the company said in a statement Tuesday.

Patent royalties aren't just a financial problem. For open-source software like Mozilla's Firefox browser, it's not legally possible to include. Today Firefox downloads an H.264 codec supplied by Cisco, which pays royalties. It's an awkward situation, and it doesn't cover Firefox and HEVC -- which is why Mozilla is working on its own royalty-free video codec called Daala, which it hopes will leapfrog both VP9 and HEVC.

HEVC adoption rate

Most of the rest of the industry has settled on HEVC, though. But even so, it's not going to be a fast transition, according to Dan Rayburn, a principal analyst at Frost & Sullivan.

Stephen Shankland/CNET

"The dark secret is that content owners can't afford to do 4K," he said, referring to video about 4,000 pixels wide -- four times the number of pixels as in today's prevailing 1080p video at 1,920x1080. The 4K video expense comes with longer times to encode or transcode video, higher storage requirements, greater Internet network usage to distribute it, he said.

"It's going to take four or five or six years" for HEVC to catch on, he predicted.

So far, there's not much 4K content actually available from movie or TV studios. Even when it starts becoming more commonplace, there's plenty of doubt most people can actually tell the difference between today's HD and tomorrow's 4K

Of course, HEVC also could help improve today's video at 1080p -- it's not just good for 4K. Indeed, Google adopted VP9 for YouTube because it found it could show high-resolution video more often than with H.264.

HEVC licensing

The HEVC license has no costs for distribution of Blu-ray discs, broadcast transmission, or Internet streaming. The cost is 20 cents per unit for software or hardware shipped -- for free or for sale -- that can decode or encode HEVC video.

The first 100,000 copies per year are free, though, and there's a $25 million annual cap per company. The current license lasts through December 31, 2020; after that the license can be renewed for five-year periods, but if fees go up, they won't increase more than 20 percent, MPEG LA said.

One change from the AVC/H.264 license is that there's no longer a price break after 5 million units. With the earlier codec, the price dropped from 20 cents to 10 cents per unit after that threshold.

Another potential cost increase: the AVC/H.264 license has an annual payment cap of $6.5 million for companies shipping AVC/H.264-equipped products, but HEVC's annual cap is higher, at $25 million. With AVC/H.264, a company could actually be subject to several different $6.5 million caps for different categories -- one for selling PCs and another for selling Blu-ray discs, for example -- but there's only the single category now for HEVC.

Who exactly will clean up on HEVC licensing?

Companies with patents to license include Samsung, Apple, Fujitsu, Hitachi, JVC Kenwood, NEC, Siemens, and Vidyo. Microsoft and Panasonic aren't on the list, unlike with H.264, but it's possible more patent holders could be added to the license, as has happened with earlier MPEG LA patent pools. That would be convenient for companies that have more of a one-stop shop at MPEG LA instead of having to hammer out separate agreements in place with multiple patent holders.

The list of patents deemed essential to implement HEVC also could change as older patents expire and new patents arrive.

One thing won't change, though: companies wanting to get involved in digital technology video will need lawyers, not just engineers.

Update, 9:45 a.m. PT: Adds MPEG LA comment.



Correction, 9:45 a.m. PT: This story incorrectly stated points about HEVC and AVC/H.264 royalty payment caps. The HEVC royalties have an annual cap of $25 million, and a single company could be subject to more than one $6.5 million cap for different uses of AVC/H.264.