Counting the Cost of Blu-Ray Licensing a Number of Issues Need to Be Addressed If Blu-Ray Is to Fulfil Its Potential

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unwieldy or fail to fully take into account the BD production process. Finally, there is the cost, with cumulative licensing fees accounting for a substantial proportion of a BD disc’s manufacturing cost.

BEFORE A CONTENT HOLDER CAN PUT CONTENT onto a BD disc and get it replicated, the holder needs to be licensed by the BDA licence entity.The BDA’s licensing activities include distributing the BD format books, logo guide and data, and issuing a compliance certification after a BD disc has undergone a stiff verification and testing process. There are several elements to the BD licensing scheme. Content holders, distributors and providers wanting to put content onto BD must take out a Content Participant Agreement, which costs $3,000 a year and runs for five years. There’s also a ‘light’ version that costs $500 a year and also runs for five years. There is no fee for the use of a Logo Licence Agreement, and there is an optional BD-Live Logo and Online Certificate Issuance Agreement, which incurs no charge, although there is a fee of $1,000 per private key. There are other BD licensing obligations. Disc replicators need to take out a BD-ROM mark interim agreement with Sony, Philips or Panasonic, while content providers must take out an AACS licence (see table, page 18). There’s also the option of taking out a BD+ licence for enhanced copy protection available from BD+ Technologies. Eric Carson, business unit manager, media manufacturing solutions, DCA, says:“The ROM mark is a nightmare – it’s the biggest pain point. Sony and Philips have different licences, so it’s not just about cost but what licensing terms you prefer.”The cost of a BD+ licence depends on the type of agreement. The actual

Some fees have been reduced but is it enough? Counting the cost of Blu-ray licensing A number of issues need to be addressed if Blu-ray is to fulfil its potential. Key is the cost of obtaining the necessary licences and the time involved in doing so, writes George Cole “EVERYONE WANTS TO SEE BLU-RAY DISC THERE ARE THREE INEVITABILITIES IN LIFE: get the widest range of content possible to make it an death, taxes – and that anyone involved in a even more compelling format. ADOPTION EXPAND consumer electronics format will have to pay Bruce Nazarian, president of the International royalties and licence fees to manufacture product, Digital Media Alliance (IDMA), says BD licensing is “not WHILE MAINTAINING whether it’s hardware or software. So it’s no surprise necessarily overly complex, but it is more complex than that the Blu-ray Disc format attracts a fair number of licensing DVD, and has many a first-time BD publisher THE COPY AND IP licensors – exactly how many is uncertain, although slightly confused”. some think the number is at least 20. Everyone in the Rolf Hartley, senior vice president and general PROTECTION THAT AACS optical disc industry wants Blu-ray to succeed, manager for premium content applications at Sonic especially now that DVD margins are becoming Solutions, adds:“There are about 20 agencies governing BRINGS. BUT THE increasingly thin and more consumers are looking to Blu-ray licensing, covering device manufacturers, LICENCE AND FEE watch videos online or download them onto their PC. content holders and software vendors such as Sonic.” There are many factors that will determine the So what are the licensing issues and what is being STRUCTURE NEEDS TO success or failure of Blu-ray. One is the number of done to address them? The first is the sheer number of parties that are prepared to invest in the format. Part of parties that have their hands out requesting a licence BE SIMPLER AND LESS this investment includes licensing fees, but it also fee right along the BD chain. BD licensors can be includes the time needed to obtain the relevant divided into three groups: the Blu-ray Disc Association EXPENSIVE” licences. There is general agreement that the current (BDA), AACS, and miscellaneous patent holders of the ROLF HARTLEY, SONIC SOLUTIONS Blu-ray licensing process is unsatisfactory and that a technology used by BD, such as video codecs. A second number of issues need to be addressed if Blu-ray is to issue is the licensing process – some systems are

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An at-a-glance guide to BD licensing AACS is called a Content Provider Licence. For a one- time fee of $3,000, they will give you a licence number to work with Blu-ray replicators. The replicator cannot accept an order from anyone without this licence and associated licence number. So, now you have your licence and you are ready to replicate. “Well, not quite… When the material is sent to the replicator, you will be charged the following fees by the replicator (which are mandatory and, by the way, keep changing). First, you will be charged for the AACS Media Key that encrypts the content of the disc, and an AACS Content Certification for that title, followed by an AACS Order Processing fee. This is for every Blu-ray title and the average cost for all three is around $1,700. So, you have now spent $3,000 for the Content Provider Licence “THE AACS PROCESS IS SLOW AND EXPENSIVE FOR A CUSTOMER WITH ONLY A SHORT-RUN REQUIREMENT”

Source: One To One Magazine GUY MARRIOT, IODRA

BD licensing process is not too onerous and involves content holder is required to use AACS. CSS, for and you will be spending $1,700 for keys, certification downloading documents from the BDA website and example, is not required for DVD replication.” and processing per title. Now we are finally ready to completing the appropriate details, returning the Bob Orzack, vice president at Cine Magnetics and a replicate DVD Blu-ray – if you have any money left.” documents to the BDA – and then paying the licensing member of the American Independent Media Others are critical too, including Carson:“AACS is not fee on request. Manufacturers Association (AIMMA) licensing task so bad once you figure out the system, but you are force, says the AACS licensing process is “extremely expected to fill in a lot of paperwork and it’s still an THE MOST CONTROVERSIAL ASPECT OF BLU-RAY difficult and expensive”. AACS licensing documents run expensive deal.” LICENSING is the mandatory requirement to use AACS to more than 100 pages. Guy Marriot, chairman of the International Optical on all BD-ROM titles, regardless of their target audience. In a company blog, Orzack outlined the difficulties Disc Replicators Association (iODRA), notes:“The AACS As Hartley explains:“Replicating a promotional (free) BD AACS presents to smaller content providers:“The process is slow and expensive for a customer with only title is certainly more expensive than DVD, because the simplest arrangement between the rights holder and a short-run requirement.”

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Bob Edmonds, vice president sales and marketing at regardless of the number of copies produced for each Eclipse Data, says:“The actual AACS licensing process version. AACS licensees also have to appoint registered isn’t that difficult; it’s a case of ‘sign here and send a agents in the US to deal with the legal documentation. cheque’.” He adds:“As well as purchasing the main Ayers says these additional elements add little to the licence, we also have to purchase keys for our software overall cost of an AACS licence, and in the long run, to be able to encrypt and decrypt images. The cost of actually save money:“ISAN is a useful element, the keys is not huge (about $100) but the although the pricing we can’t control. As for the administration fee is about $1,000-$1,500.What’s more, requirement to appoint an agent, well, that’s to make some of the keys have a limited lifetime, and after 18 sure that if there’s a dispute, AACS can address it as months they expire and you have to purchase new keys. cost-effectively as possible. If we had to use the courts it You have to make sure that your customers have the would be very costly and this would be reflected in our latest set of keys. It’s not so much the key cost, but the fees. As it happens, using an agent costs about a couple administration costs that make this process expensive.” of hundred of dollars a year – it’s not expensive.” Michael B Ayers, chair of the AACS business group But Ayers accepts that there are some issues with and manager of AACS LA, says:“AACS is only one part of the AACS licensing process, as Hartley points out:“When the many elements that are needed to go into BD disc you send a BD title for replication, you’ll be charged a production. However, we are very mindful of the content certificate of $500 per certificate for each glass concerns of smaller licencees, and pass on cost savings master, as well as an $800 AACS processing/handling in the form of reduced fees whenever possible.We have fee. If there’s an authoring error or you choose to change reduced fees for Content Certificates, for instance, twice anything on the disc for creative reasons, you’ll have to since our launch three years ago.” pay for a new content certificate when you resubmit the Ed Younger, Eclipse Data’s sales manager for Americas, title for replication.This can be expensive and is a real agrees that prices have fallen:“The early adopters [for concern for non-Hollywood content holders, because “BD LICENSING IS NOT Blu-ray] were the big studios.They are part of AACS LA check discs can often breed changes.” NECESSARILY OVERLY and see it as a necessary evil, but smaller independents Nazarian says it’s an issue that concerns his see the costs as a barrier for getting into Blu-ray. If you’re organisation’s members:“The recurring per-title fee of COMPLEX, BUT IT IS producing 5,000 discs and it costs you $1,500 per title, $1,300 is actually required each time a BD master is that adds more than $3 per disc. However, it used to cost created, which means if an authoring mistake is found, MORE COMPLEX $2,500, so AACS LA has reduced its fees, and our the producer needs to pay another $1,300 AACS fee customers have seen some fee reductions.” (plus remastering fees) in order to create the THAN LICENSING DVD, Hartley says:“There’s a balancing act for AACS LA to replacement master.” AND HAS MANY A ensure a quality of service to licensees while providing lower fees to lower volume content holders. Everyone FROM 27 FEBRUARY 2009, AACS LA stopped issuing its FIRST-TIME BD wants to see Blu-ray Disc adoption expand while interim licensing agreement, which had been in force maintaining the copy protection and IP protection that since BD’s launch. It’s now preparing to publish a final PUBLISHER SLIGHTLY AACS brings. At the same time, the licence and fee licensing agreement, and Ayers says that AACS LA has structure needs to be simpler and less expensive to “learned lessons along the way during the interim CONFUSED” foster such adoption. Even so, many non-Hollywood process that have allowed us to refine it to better fit the BRUCE NAZARIAN, IDMA content providers are choosing to release titles on realities of device manufacturing and disc production”. Blu-ray because the format is selling well.” When asked to elaborate, Ayers adds:“We’ve had concerns with a number of device manufacturers, BUT EVEN TAKING OUT AN AACS LICENCE INCURS content holders, replicators, and authoring and prove costly for some and we are taking that into ADDITIONAL FEES. A mandatory part of the licence mastering houses.We’ve heard some of the things consideration.” Ayers points out that the problem is that includes allocating an International Standard they’ve said and plan to make changes in the final AACS works with a key-generation facility and there is Audiovisual Number (ISAN) to each BD title for unique agreement to address them.” no way of knowing if a content certificate is a repeat or identification.“The cost of an ISAN for a Blu-ray Disc is Although Ayers is not in a position to give details of not.“The same work goes into generating a key, composed of two elements: the ISAN allocation when these changes, he says that areas such as how the whether it’s the first or the 20th,” he notes, adding, registering the work; and the V-ISAN (version ISAN) licensing fees are structured, who pays for what and “we’re working on a new agreement with our key- allocation when registering the specific version of that when, and the timing and reporting processes, are just generation facility that will give more flexibility.” work,” explains Patrick Attallah, ISAN’s CEO and some of the issues being addressed. Finally, Ayers stresses that AACS LA members (which managing director. In the UK, element one costs £10.50 When it comes to the content certificate issue, Ayers include Microsoft, Intel, Sony, Disney and Warner Bros) ($15) and element two is £3 ($4) per version (for says:“We have heard concerns about that and there is a do not get favourable licensing deals:“The AACS example, Blu-ray or DVD) – the fee remains the same little wrinkle in the process.We understand that it can founder companies wishing to also implement the AACS technology sign the same licence agreements, and have the same obligations, as every other licensee.” Blu-ray Disc uses highly sophisticated technology, so it’s little wonder that there are a potentially large number of patent holders to whom royalties will have to be paid. Carson explains:“We wanted to build a software player emulator product and got contacted by anybody and everybody who had a patent claim.We had to sort through all of those – there’s no single body. It would be good to see a single IP pack that covered all the relevant patents, because the cost of administrating patents is outrageous.” Nazarian adds:“The licences should be more fully explained on the AACS and BDA websites, with a specific procedure spelled out for obtaining a licence, and the specifics of which entity controls which licences. This is especially necessary, as AACS LA allows the replicators to administer much of the title key and per-disc royalty fee collection, which most folks don’t expect.” Younger says:“There are so many potential royalty payments that we’ve created a software guide module for our customers, to help them track the various audio and video codecs contained in the discs they are producing. At some point, royalties will be collected so they need a simple method to collect this information.” Marriot notes:“The only company with Blu-ray Disc replicators need to take out a BD-ROM mark interim agreement with Sony, Philips or Panasonic patents that has announced a replicator licensing

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scheme is Philips. Sony has put a ‘discussion document’ on its website suggesting rates for a Sony-only licence for Blu-ray patents.” Philips’ BD licensing scheme charges 3 euro cents per BD-ROM data disc, 4 euro cents per movie ROM disc, and 6 euro cents per BD recordable or rewritable disc. Sony is proposing a royalty fee of 1.5% of the net selling price or 3 US cents per BD-ROM disc (whichever is the greatest) and 1.5% of the net selling price or 6 US cents per BD-R/RE disc. It’s a confusing business. Marriot adds:“My understanding is that replicators pressing Blu-ray Discs are either entering into an agreement with their customer for the customer to pay the DIGITAL PRINTING - TRANSFER - DECORATION “WE HAVE REDUCED FEES FOR CONTENT CERTIFICATES TWICE SINCE OUR LAUNCH THREE YEARS AGO” MICHAEL B AYERS, AACS LA

royalty liability – when known – or the replicator is making an accrual of around 20 or 25 US cents for the royalty liability when known.” Edmonds says:“I am sure that our customers would appreciate a patent and licensing pool; a single organisation that would take care of this, similar to MPEG LA. I expect something like this will emerge.” Moves to create a common patent pool for BD are indeed occurring, although progress is slow. Marriot says:“No other Blu-ray patent holder has proposed any licensing scheme, although MPEG LA continues in its efforts to put together a Blu-ray licensing patent pool. It is possible that an MPEG LA pool may exclude Philips, Sony and Panasonic, which are said to be talking together about forming a separate patent pool.” MPEG LA licences provide coverage under patents essential for use of various technology standards, including: MPEG-2 Video and Systems, AVC/H.264,VC-1, MPEG-2 Systems and IEEE 1394. Royalties for packaged media are on a per-MPEG-2 video event or per-disc basis. The royalties for AVC/H.264 and VC-1 packaged medium products are on a title-by-title basis. In the case of optical discs, it is MPEG LA’s policy to offer its licences to the replicator or duplicator producing the discs containing video content. “MPEG LA has been working with 19 companies that own patents essential to the format to create a joint licence,” says an MPEG-LA spokesman.“Since the Blu-ray Disc specification prescribes the use of MPEG-2, AVC and VC-1 video compression, our licences for those technologies also are relevant for Blu-ray Disc products.” There is near-universal agreement that the current BD licensing system needs simplifying and that costs should be reduced. Philips even says that its unilateral BD licensing system is being offered:“In anticipation of the future launch of a joint Blu- ray Disc licence programme, in which the patents of a number of companies are combined in one single licence agreement.” The BDA also thinks that it’s in everyone’s interest to have a patent pool for the format. However, it’s unlikely that there will ever be a one-stop shop for BD licensing. In addition to a possible patent pool formed by Philips, Sony and Panasonic, Ayers says that AACS LA has not been asked about pooling its patents, adding:“It is something DIGITRAN-CD 500 we would have to consider very seriously, because AACS is not specific to Blu-ray Disc. We are not against such a move, but it’s not up for consideration at this time.” There is optimism in the industry that some form of BD patent and licensing pool Technical Data Digitran-CD 500: will emerge, if only because it’s in everyone’s interest to reduce the time and costs of dealing with licensing issues. If Blu-ray is to become the new standard for home video entertainment, then its licensing system will need a radical overhaul. • Decoration of CD, DVD, CD-ROM, DVD-ROM, CD-CARDS, SHAPE-CD etc. • Transfer of digitally printed images (CMYK with full or partial white backing) from a transparent carrier-film

Replicators must pay fees of nearly $5,000 for each and every Blu-ray title KAMMANN SPEZIALMASCHINEN + STEUERUNGSTECHNIK GMBH IN DER LOHGE 18 D-32257 BUENDE Germany www.aacsla.com www.aimma.org www.blu-raydisc.com Phone: +49 5223 17229 Fax: +49 5223 3947 Mail: [email protected] www.cinemagnetics.com www.dvda.org www.dcainc.com www.eclipsedata.com www.iodra.com www.mpegla.com www.sonic.com