Did you know that patents, including standard-essential patents (SEPs), power the video compression technologies behind the videos that we make and watch on our smartphones and digital televisions? It is no exaggeration to say that the entire streaming industry and much of social media, as well as videoconferencing, are built on our ability to efficiently send and receive digital video. 

Watching video clips on social media, streaming movies or series from online platforms and using video conferencing apps for business meetings would be impossible without efficient video compression—or SEPs. Video compression reduces the size of the picture without degrading its quality. This efficiency is crucial for decreasing storage requirements and optimising bandwidth, which is important for streaming services, video conferencing and broadcasting.  

For example, an uncompressed copy of a typical two-hour movie recorded in 4K resolution would be 11,600 gigabytes, or 11.6 terabytes. At an average internet speed of 100 Mbps, a file that size would take 32 hours to download. The High-Efficiency Video Coding (HVC) standard allows the video file to be compressed to just 14 gigabytes. That’s about 1/1000^th of the size of the original. Then it can be downloaded in under two-and-a-half minutes. It also makes real-time streaming easily feasible on a mobile network. The latest Versatile Video Coding (VVC) standard can do it even faster.  

Many companies that profit from the efficient delivery of digital video services simply couldn’t operate without these advanced video compression technologies. Indeed, there is huge consumer demand for video content: 92.8% of internet users worldwide watch digital videos every week. The average viewer worldwide spends 17 hours a week watching digital videos. Video content now drives almost two-thirds (66%) of all internet traffic. 

What video codec standards are out there? 

A video codec is a technology that compresses and decompresses digital video. The most widely adopted video codecs are those that are internationally standardised and which the ISO/IEC’s Moving Picture Experts Group and ITU-T’s Video Coding Experts Group develop jointly. The global proliferation of multimedia mobile devices in the early 2000s required a worldwide consumer electronics video compression standard to ensure interoperability. This led to the development of the Advanced Video Coding (AVC) or H.264 standard in 2003. Nearly two decades later, the AVC standard still enables the high-definition video we use on our mobile devices today. AVC also started a new revolution for business applications such as video conferencing and digital video surveillance. 

The HEVC or H.265 standard was published in 2013 and offered a 50% bit-rate reduction compared with AVC at the same picture quality. It contributed to the rise of video conferencing and ultra-high-definition 4K videos. AVC and HEVC standards are now embedded into more than two billion devices annually. That includes virtually every smartphone, PC, TV, digital video player and consumer camera in the world, along with communication and broadcasting networks and media cloud services.  

The next generation video compression standard, VVC or H.266, was developed in 2020. VVC enables 50% more compression gain than HEVC with the same picture quality. It delivers efficient transmission and storage of all video resolutions, even up to 16K for future wall screens, and can support new emerging content experiences, such as game streaming, 360-degree video streaming and ultra-low latency video applications.  

Approximate relative bitrate requirement for each video codec in order to reach the same video picture quality for HD and 4K content benchmarked against the HEVC video codec. Lower is better. 

source: Ericsson Technology Review (10) 2020, p. 5. 

Therefore, video codec standards are another example of a fundamental technology, like 4G and 5G cellular communications, that global open standards enable. 

Who benefits?  

A lot of companies benefit from the availability of video codec technologies. These include many categories of manufacturers of everything from small devices such as cell phones and tablets to mid-sized devices such as laptops, PCs, and set top boxes. Connected vehicles with integrated video entertainment screens also benefit from the technology. So do companies in cable/satellite/broadcast TV, video streaming, social media, gaming, cloud computing, video conferencing, and security spaces.  

It is no secret that over-the-top (OTT) streaming services such as video on demand and video-based social platforms are a huge growth market. In 2023, the global OTT streaming market generated about $170 billion in revenue. Experts expect it to grow close to $200 billion this year. By 2028 the market could reach almost $350 billion. The OTT streaming market is just one example of the tremendous value fundamental technologies such as video compression enable. 

The virtuous cycle of innovation is at risk

Far more companies benefit from and use video coding technologies than invest in their development. The advances in video capture, processing, storage, and compression have been the result of billions of dollars of investments by companies that, by and large, do not provide video services or hardware.  

The system is based on the virtuous cycle of innovation. In that cycle, some companies invest billions of dollars or euros into the development of video codec technologies years before relevant standards development organisations adopt them as standards. That can be years before device manufacturers and service providers implement them in new products. Patent owners only license standard-essential patents (SEPs) on fair, reasonable and non-discriminatory (FRAND) terms after the video codec standards achieve market success.

The market is adapting to make the licensing process as smooth as possible. Implementers could approach SEP owners for a license. They could also decide to turn to patent pools, which can provide licenses from many different SEP owners. Various pools offer licenses to end-user devices and software, while others focus on video streaming.  

Companies that participate in standards development will reinvest the FRAND royalties obtained from licensing, along with substantial amounts of additional investment, in developing the next generations of fundamental multimedia technologies.  

The virtuous cycle of innovation is heavily dependent on having a balanced and efficient FRAND licensing framework. Sadly, the European Commission’s proposed Regulation on Standard-Essential Patents threatens that balance. We encourage EU Member States currently reviewing the proposal to fully study its potential adverse impact on incentives for the development of key enabling technologies before deciding how to approach it.