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Mobile DRM levy hits operators where it hurts

In the pocket, to the tune of billions

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News that the MPEG Licensing Authority had reached a royalty policy for the patents in the Open Mobile Alliance DRM 1.0 specification, will have come as a shock to many operators and handset makers that have been led to believe that OMA DRM was to be royalty free. At the level they have set them, the royalties are likely to run into billions of dollars over the next few years.

The innocuous looking statement, issued last week finally put a tally on the cost of adopting the technology with operators having to pay a royalty of $1 for every device that is issued which used the OMA spec, and a further one per cent of any transaction in which an end user pays for delivery of a digital asset using OMA DRM.

According to ContentGuard CEO Mike Miron, speaking to Faultline last week: “The OMA didn’t choose to use our technology for implementing its Digital Rights Langauge for OMA 1.0, and instead chose to use a system developed by IPR systems in Australia. We told them that this wouldn’t mean that they could escape our patent portfolio and we’ve been telling them that all along.

“It shouldn’t be a surprise that suddenly the MPEG LA has issued a joint patent covering OMA DRM 1.0, but OMA has been strongly suggesting to its members that its standard would be royalty free.” Miron added: “We’ve heard two opinions with some people welcoming it and others saying that the royalty is too high, but that’s just because they thought it was free, and any charge is too high once you think something is free.”

MPEG LA announced that an initial group of essential patent holders including ContentGuard, Intertrust, Matsushita, Philips and Sony will license the portfolio of patents collectively, with MPEG LA collecting the royalties.

The five companies reckon they have all the patents necessary for implementing OMA DRM 1.0 and most of those needed for DRM 2.0, although that hasn’t been finalized yet and could potentially mean involving technology from one or two more companies.

But MPEG LA is offering the royalty payments for both DRM 1.0 and 2.0 for now, and is prepared to backdate coverage of the technology to January 2004 with payments only needing to be made from January 2005 onwards.

Intertrust is known to be a world leader and patent holder in trust models, architectures for moving encryption keys around within a digital rights management environment, while ContentGuard produced the work that the ISO and MPEG21 has standardized on for expressing rights in an XML-like meta language.

The MPEG LA initially called together patent holders in October 2003 and a first meeting was held in secret. Later in October 2004 MPEG LA said that its DRM Reference Model version 3.0 was released to specifically cover OMA 2.0, but no terms had yet been decided upon at that time.

Although the patent royalties could hit both handset makers and operators, the payment of the $1 device charge is to be made by the company selling its handsets directly to the public, in many cases the operator rather than the handset supplier.

With major Cellcos like Vodafone using OMA to provide protection for content on its Live! system, this means that one per cent of Live! content revenues could be up for grabs just as every competitor that Vodafone has is trying to launch a similar service. Over the next few years some 2 billion phones are likely to end up with DRM on them, making a basic handset revenue of $2bn among these patent holders with out the charges for service revenues, which we would expect to be higher.

Vodafone itself uses CoreMedia's software which is OMA DRM compliant based on JAVA, ODRL and XML and is used to allow Vodafone to securely distribute multiple content formats such as music tracks and videos.

OMA DRM 1.0 has also been implemented by virtually all phone makers and operators and even by conditional access suppliers such as News Corp’s NDS. Now all of their customers will find themselves hit with a royalty bill where they thought there would be none. And there’s probably no getting round it. Even if they stick to older proprietary technology instead of adopting OMA, there’s no certainty that these won’t also require royalty payments.

ContentGuard is now owned by a triumvirate of Microsoft, Time Warner and Thomson, while Intertrust is owned by two of the other patent holders, Sony and Philips.

MPEG LA also licenses patents for MPEG-2, Firewire, Digital Video Broadcasting Terrestrial, MPEG-4 Visual (Part 2), MPEG-4 Systems and AVC/H.264 (also known as MPEG-4 Part 10) standards and is working on a similar patent pool for Microsoft’s VC9 (also called SMPTE VC-1) video codec, the ATSC standard, and the DVB Handheld standard.

Copyright © 2004, Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of the week's events in the world of digital media. Faultline is where media meets technology. Subscription details here.

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