Technicolor Didn’t Buy Into HEVC Advance’s ‘Litigation Strategy,’ CEO Says of Withdrawal From Pool

Rose made no secret of his “disappointment” last summer when HEVC Advance released its first royalty “rate card,” he said. Rose was particularly displeased with HEVC Advance’s “policy” of charging royalties for H.265 content, including broadcast and streaming services (see 1504010051), he said. After much industry pushback, HEVC Advance since has revised its pricing policies in a number of ways, including licensing its H.265 patents royalty-free to content services that charge no fee to end users, though a royalty structure remains in place for paid over-the-top and broadcast services, as well as for physical media (see 1512210034).

Nevertheless, “at that point in time” last summer, "we started wondering about what we should do and were we basically doing the right thing” by staying with HEVC Advance, Rose said. “I initiated some informal discussions with a few people, a few manufacturers, to try and get a feeling of where things were, and I came to the conclusion that where HEVC Advance was going was to a litigation strategy,” he said. “I did not feel like participating in a litigation strategy, and funding this, because that is not our business model.”

Contrary to Rose's stated observations, HEVC Advance "is not focused on a litigation strategy," Pete Moller, the patent pool's CEO, emailed us Friday. "We are a licensing company, focused on enabling companies practicing HEVC technology to quickly and efficiently obtain licenses to a large portfolio of high quality essential HEVC patents. We recently modified our pricing model to reflect even more clearly our focus on enabling broad and rapid adoption of HEVC technology. Any issue with our pricing model concerning streaming was resolved several months ago when, after listening again to the marketplace, we agreed to significantly lower royalty rates, including waiving fees on free-to-end-user streaming, and providing exceptionally reasonable caps on royalties for commercial content distribution.”

Despite Rose's contention that he was displeased with HEVC Advance's pricing structure last summer and especially its policy to charge content royalties, "Technicolor played an integral part in all of HEVC Advance’s pricing decisions," Moller said. Setting HEVC Advance's pricing "was a supplier driven decision -- not a licensing driven decision," he said. Moller repeated that HEVC Advance removed Technicolor’s 12 patents "from our list of many hundreds and don’t consider the loss of Technicolor’s portfolio to be material in any way.”

After Technicolor’s HEVC Advance withdrawal and the signing of what it has called a “material license agreement” with an unnamed company as its first H.265 bilateral licensee, Technicolor in the past two weeks started developing “with our entire licensing team an action plan to start monetizing this,” Rose said of Technicolor’s H.265 patent portfolio. It’s “premature” to forecast when Technicolor will sign additional H.265 licensees “because we’re developing that sales strategy action plan as we speak,” he said. Rose concedes “there was a real question in the marketplace in 2015 whether our HEVC patents were worth anything, whether we had a solid IP portfolio” in H.265 technology, he said. With the signing of its first licensee, “we’ve now put that question to rest,” he said. “Our portfolio is solid, is very strong, so strong that we can go in on a bilateral basis, just as we did for MPEG4.”

When Technicolor announced its HEVC Advance withdrawal, it fielded “lots of congratulatory phone calls from a number of our customers,” and also calls from “a number of Asian and West Coast parties, asking us for clarification and advising us to come over for a meeting or for a discussion,” said Rose. The decision to withdraw “had the positive impact in terms of reengaging discussions with a number of people,” he said.

Despite forecasts that abound about the death of physical media, global demand for DVDs and Blu-rays that Technicolor serves with its replication services stood at 3.3 billion discs at the end of 2015, Rose said. “That’s a lot,” he said. “Before we go to zero, we have a lot of time to go.”

Predicting when physical discs will become extinct “is a question I’ve been asked for eight years,” Rose said with a chuckle. Those “wondering” about the future viability of physical discs will find it surprising that 26-to-31-year-olds and those aged 15-25 were “the two largest groups” buying physical media in North America last year, he said. “It’s counterintuitive, I think, to a lot of people, but these are the facts, and this is something that’s underpinning my belief” that physical media still “has a long way to go,” he said. “It’s a market that still has a lot of leg in it,” and will expand with Technicolor's production having started this quarter of the first Ultra HD Blu-ray titles from Fox and Lionsgate, he said. Though Ultra HD Blu-ray won’t be a big volume generator at the start, it “absolutely” will be “impactful" right away "in terms of margin contribution,” he said.