With the recent confirmation of the VVC (Versatile Video Coding) royalty terms for the two patent pools Access Advance and MPEG LA, it is worth exploring the impact of these fees on the video device marketplace – and what better way than abusing a spreadsheet? It appears, based on volume pricing, that Sisvel’s AV1 is cheaper than AVC at small volumes for OEMs, and that Velos Media – the third HEVC licensing group – is wildly distorting the MPEG market.

As the example scenario, we chose to focus on a smartphone, and charted three different shipment scales – a small run of 3.5 million units, a medium run of 30 million, and a large run of 300 million. Plotting the relevant royalties owed, using a selling price of $500, threw up some quirks, but the biggest loser here is Velos Media. It persists in not publishing its price lists, and based on our understanding, is around four to five times the cost of MPEG and Access.

For our small OEM, with sales of $1.75 billion, it ends up paying $15.3 million in royalties, across AVC, HEVC, VVC, VP9, and AV1 – equivalent to 0.87% of its revenue. For the medium OEM, the percentage is the same, but our large OEM benefits from the scaling seen in the schemes, and ends up paying 0.68% of revenue in royalties – a total of $1.02 billion.

But where things get interesting is in the ratio of each codec. At first glance, the proportion of the total comprised of HEVC and VVC is astounding, on 41.6% and 48.5% respectively, with AVC and VP9 on just 2.99%, and AV1 on 3.96%.

On second glance, some sense can be made. Velos Media and Access Advance are not involved in AVC licensing, with MPEG LA alone there. All three are in HEVC and VVC, and drilling down to the terms for each will highlight the problem.

For HEVC, the MPEG LA terms come in at $0.20 per unit, with a cap of $25 million – the maximum a firm will have to pay annually. For VVC, the price is the same, but the cap is now $30 million. In both, the first 100,000 units are free. Access Advance is a little costlier, with no free allowance. In HEVC, the per unit price is $0.40, with a cap of $40 million. For VVC, this is $0.50 and $45 million.

For our large OEM example, it would hit both the caps, with its 300 million shipments. Here, it would therefore cap out at some $55 million for HEVC, and $75 million for VVC. Velos Media does not appear to have caps, and is believed to be in that aforementioned 4x to 5x pricing range. Based on our estimate, this means that Velos is responsible for $360 million in HEVC royalties, and $420 million for VVC.

If Velos Media had not emerged, our large OEM would be paying just $241.4 million in royalties, instead of just over $1 billion. This is a staggering imbalance. In that revised scenario, Sisvel gets to claim that its AV1 royalty is noticeably cheaper than the total HEVC, and markedly cheaper than total VVC. When you factor in Velos, this pricing difference is laughably outrageous.

Even if Velos has been misrepresented, and is actually substantially cheaper or does in fact have device caps, all this does is add fuel to Sisvel’s fire. In the Velos-less scenario, AV1 still seems to end up around 40% cheaper than HEVC, and nearly half the cost of VVC. When Velos is included, AV1 is 9.5% the cost of HEVC, and 8.1% the cost of VVC, for this large smartphone OEM. Throw in Access Advance’s higher prices for TVs and the picture gets even worse.

This is not to say that things are all rosy in the AV1 camp. The dust still has not settled from AOMedia’s 2019 announcement, in response to Sisvel’s AV1 patent pool founding. In that, AOMedia said that it “is aware of the recent third-party announcement attempting to launch a joint patent licensing program for AV1. AOMedia was founded to leave behind the very environment that the announcement endorses – one whose high patent royalty requirements and licensing uncertainty limit the potential of free and open online video technology.”

Well, Sisvel being that much cheaper than the HEVC and VVC codecs that AV1 was created to dethrone somewhat takes the wind out of that argument’s sails. Sure, it is not the royalty-free vision that AOMedia intended, but pragmatically, it is relatively cheap. It is still somewhat ostrich-y that AOMedia refuses to name Sisvel in that statement, but it is notable that searching its website for the name will lead you back to the announcement.

It seems very unlikely that AOMedia will try to climb down from its position that AV1 does not infringe on any patents. Sisvel insists it does, and the outpouring of the industry’s collective scorn and derision when AOMedia first made that claim cannot be forgotten. Until a court rules in AOMedia’s favor, royalties for AV1 will be pursued.

What is still a bit strange is general hostility toward Sisvel. If there is a villain in this story, surely it is Velos Media? There is no sign of such technology patents diminishing in importance, and Sisvel’s behavior has been above board and transparent. Sure, it is asking for payments on what AOMedia insisted was a free-to-use codec, but that alliance still deserves a good kicking for making such a claim in the first place – and on the surface, appears to have done nothing to challenge Sisvel and rectify the situation.

Velos Media has suffered a few notable defeats, with Unified Patents working to slowly dismantle some of its key claims. Qualcomm jumped ship recently, something we suspect is related to its addition of AV1 to its Snapdragon platform – likely setting the stage for direct AV1 licensing contracts. It is worth noting that many HEVC, and likely VVC, licenses are negotiated outside of the pools, with Nokia and Bosch being good examples.

AOMedia’s membership is wealthy enough to throw cash at this problem until it goes away, should it come to that. Apple and Google both have patents in the HEVC realm, and both have revenues large enough to comfortably buy countries. Samsung spans MPEG LA, Access, and AOMedia, as does LG and Microsoft, and while Huawei is still persona non grata in the West, it is still a major global player.

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