A new industry group called HEVC Advance is threatening to demand royalties for the new HEVC video codec that could halve the bandwidth required for streaming online video or offer higher resolutions with the same bandwidth usage. The organization is promising to demand a royalty of 0.5 percent of revenue from any broadcaster that uses the codec for streaming. This move could re-ignite the arguments surrounding video codecs on the Web and may well jeopardize services such as Netflix's year-old 4K streaming service.

H.264, the de facto standard for video compression in online streaming video, has long had a shadow cast over its existence due to its patents and the royalties that must be paid for their licensing. A consortium called MPEG LA, representing many of the different patent holders that have intellectual property relevant to H.264 including Apple, Samsung, and Fujitsu, collects royalties on H.264 encoder and decoder hardware and software. However, to ensure that H.264 remained attractive and viable to free online streaming services such as YouTube, MPEG LA has committed to not charging any kind of content-based royalty for free services. MPEG LA's royalties are also capped; a paid streaming service like Netflix will pay no more than $6.5 million a year for its streaming license.

This situation wasn't perfect, in particular presenting a problem for open source software decoders. Mozilla for a long time refused to support H.264 in Firefox, as it had no good way of paying the royalties that an integrated decoder would incur and, further, felt that the Web should not settle on a patent-encumbered specification. After a long period of reflection, and in particular the growing realization that H.264 was far and away the market share leader, Mozilla eventually relented. First it built support for hardware-based playback—a workaround, of sorts, as the hardware manufacturers had already paid the licensing fees—and this was later followed by a donated software decoder from Cisco, with the networking company footing the bill.

MPEG LA promised a similar agreement for HEVC (also known as H.265), developed as a more efficient, higher quality successor to H.264. Although encoders and decoders would continue to incur fees, the group's license scheme makes streaming, broadcasting, and the use of HEVC on Blu-ray discs zero-cost. This would have permitted a similar situation to H.264; hardware manufacturers and proprietary software vendors would continue to pay the fee, but streaming services and other content producers wouldn't have to pay.

Though only a few years old, HEVC support has already found its way to some TVs and smartphones. Netflix's 4K service, for example, takes advantage of HEVC support in some smart TVs.

This fragile situation is now jeopardized by HEVC Advance. HEVC Advance wants to ditch the free streaming that MPEG LA offered, and charge a royalty for it, even when the software and hardware being used to create the HEVC video are already licensed with the royalty paid. Moreover, unlike MPEG LA, which generally caps the licenses that must be paid, HEVC Advance's royalty scheme has no upper limit.

MPEG LA has no authority over the patents—it doesn't own them, it simply has a non-exclusive right to sell licenses to them—and companies with HEVC-relevant patents are under no obligation to join MPEG LA. If those companies are unhappy with MPEG LA's terms, they don't have to participate. It appears so far that at least five companies have decided to do just that: HEVC Advance claims General Electric, Technicolor, Dolby, Philips, and Mitsubishi Electric as members. Since announcing its price scheme on Wednesday, the group has so far not announced which patents its licenses cover. It's also asking other companies to join it, though not until August.

HEVC offers significant advantages in bandwidth efficiency, and as such offers great value to companies like Netflix, but so far its real driver isn't offering 1080p video in less bandwidth; it's offering 4K video in the same bandwidth. TV manufacturers are pushing 4K as the Next Big Thing, but thus far have struggled with a dearth of content that can actually take advantage of the extra resolution. Streaming could help fill that gap, as it doesn't require major upgrades of broadcast infrastructure or purchase of new physical media and playback devices. HEVC makes streaming 4K more cost-effective than it would be with H.264. A royalty of 0.5 percent of revenue could well swing the pendulum the other way.

Other groups, including both Google and Mozilla, are working on competing codecs with the goal of providing a viable alternative to HEVC. But with HEVC already finding itself in shipping systems, including those with hardware acceleration, they face an uphill struggle.