The “Open Media Stack – Video Specification V0.9” is now available for community review at the Open Media Commons website.

OMS, announced in April 2008, is a project of Sun Microsystems’ Open Media Commons initiative to define a complete, royalty-free media specification, including codecs and associated elements.

The OMS Video draft is a key milestone and a big deal, and not just because I am proud to have contributed to this effort at Sun.   This is the first public release of a video codec specification with a vetted royalty-free methodology that is a determined, bottom-up invent-around of the royalty-bearing interlocking and cross-coordinating set of MPEG codec licenses – MPEG-2, MPEG-4, and h.264/AVC (an orchestrated complex of licenses managed through the same license administrator, MPEG-LA, which is owned and controlled, no surprise, by MPEG patent holders themselves).

But do royalties on things like video codecs really matter?  Many people don’t even realize that royalties like these exist, or assume they are a just a nuisance cost-of-business borne somewhere in the value chain.

But consider — MPEG and their related royalties are:

Big. Think on the order of over $2 billion per year, on some one billion or so MPEG integrated circuits a year and growing.  That’s royalties, not sales, so better to think of them on the profit side of the business equation — and that’s on the order of ten percent of the entire profit of the world’s 37 largest consumer electronics companies, calculated from a recent Deloitte study of consumer products industries.  And given that consumer electronics manufacturers are in a notoriously thin-margin business (according to the Deloitte study, average net profit margin of 3.3%, the second lowest profit in all consumer products industries, ahead of only tires) — the $2.50 per MPEG-2 device royalty alone likely exceeds the manufacturer profit on vast numbers of consumer electronics products.

Applicable across the entire value chain of devices, content, and encoders.  Consider also the $100 million or more a year in royalties of 3 cents on “packaged content” on 90% of all DVD discs produced, collected through disc duplicators.  Or the reported 100M Euros in royalties in 2005 on MP3.  Or the temporary exemption on “Internet broadcast” royalties — expiring December 31, 2008 on MPEG-4 (perhaps to the chagrin of MPEG-4 licensee DiVX, who noted in a recent SEC filing “Our license agreement with MPEG LA, under its MPEG-4 Part 2 Visual Patent Portfolio will expire on December 31, 2008. MPEG LA has the right to renew the license agreement for successive terms of five years, upon notice to us.”), and expiring December 31, 2010 on AVC/h.264.

Applicable to you (and virtually everyone else on the network connected planet).  Just check your iPhone EULA (“The iPhone Software and iPhone Software Updates contain AVC encoding and/or decoding functionality, commercial use of H.264/AVC requires additional licensing.”) or Flash licensing restrictions:

“The end-user license for Flash Player allows users to play back H.264 content for their own noncommercial use. Commercial applications of Flash Player to decode H.264 video may require a separate license…. Usage categories that may require a license and involve royalty fees include advanced video coding products, title-by-title video, and subscription video among others. Most categories apply to commercial use and implementation, but some are more broad”.

Sure, some will assert that this doesn’t really apply to “you”, just figure out a clever “not-me” work-around — but to quote Russell Long and countless others:  “Don’t tax you, don’t tax me. Tax that fellow behind the tree.”

Gosh, one can see how one study of consumer electronics patents/standards commented: “Standardization activities are political negotiations and not a forum for assessing which technologies excel over others”.

So here’s to hoping that OMS Video will add to the growing but still under-the-radar open media movement, including Xiph, Dirac, and more to come.  Please take a look at the OMS Video specification and provide comments if you are so inclined.