The format war over online video standards is over. You may not have realized there was a war at all, but this is a big deal. This is not a cease-fire, but a peace treaty with every relevant John Hancock firmly aboard.
When Google (Nasdaq: GOOG) released the high-quality WebM video format royalty-free to the world, digital video publishers were faced with a conundrum: support the guaranteed royalty-free but slightly lower-quality WebM standard, or the sharper but potentially more expensive H.264 industry standard?
The industry divided among the WebM camp, the H.264 supporters, and the true neutrals of the browser world thusly:
- WebM support only: Mozilla Firefox.
- H.264 support only: Microsoft (Nasdaq: MSFT) Internet Explorer and Apple (Nasdaq: AAPL) Safari.
- Both: Google Chrome and Opera.
Now the MPEG LA technology licensing body has announced that the H.264 standard will join WebM on the royalty-free side of the fence until the end of time or until the standard becomes obsolete, whichever comes first. This makes Google's $133 million buyout of On2 Technologies seem like a waste of money -- that's where the technology for WebM came from, and now there's really no need to provide a royalty-free alternative to the prevailing standard. But raise your hand if you believe that H.264 would be free today if Google hadn't made that move. Yeah, that's what I thought.
Of course, H.264 isn't entirely free even now. Free use extends only to services that are free to end users such as Hulu or Google's YouTube. Apple will still have to pay license fees for the videos it sells through iTunes. But part of that payment goes right back into Apple's own pockets anyway -- the company is a longtime backer of and patent contributor to the H.264 standard. Other major beneficiaries of the H.264 license fee include Microsoft, Cisco Systems (Nasdaq: CSCO), and Dolby Laboratories (NYSE: DLB). Keeping the standard relevant and revenue-producing is important to these guys, while Google is not part of the consortium and so has little incentive to support H.264.
Online video is a hot topic these days -- streaming fees have reportedly become a sticking point in the hectic contract negotiations between Time Warner Cable (NYSE: TWC) and Walt Disney (NYSE: DIS), for example. Ensuring a stable ecosystem of video technologies is essential to a future of online entertainment, and royalty issues can be a major stumbling block. This tricky minefield just got a little less dangerous but is by no means completely defused.
