HEVC Advance Royalties: Onerous or Not?

With all the brouhaha about HEVC Advance’s content royalties, you would think that they make HEVC commercially unusable. This week, 在回答几个咨询客户关于流媒体每小时成本的询问时, and the impact of HEVC content royalties throughout the value chain, I had the opportunity to put that assumption to the test.

Specifically, 我计算了内容版税在从H.264 to HEVC for 1080p video and smaller, 今天，在互联网上分发的付费和免费视频中，哪些仍然占绝大多数. So why not look at the 4K market?

First, HEVC is an absolute enabler in the premium 4K content to connected TV market; if you don’t license HEVC, you’re out of the market. 第二，当你不支付的时候，每一笔支出看起来都很小.5% royalty seems minimal for most services, like $0.06/month per UHD subscriber for Netflix’s $11.99 UHD service, or about $0.50 per year for Amazon Prime customers paying $99/year. 这些额外的成本是否会扰乱这些公司精心调整的盈利模式, they can just raise their prices. 按照重新计算零售价格的4倍成本计算，这将使Netflix的价格升至12美元.24/month, while Amazon Prime would skyrocket to $101. Hey, you wanna watch 4K? You gotta pay.

So instead, I wanted to focus on HD and lower-resolution content, 具体分析了HEVC在H上是否实现了带宽效率.264 would outweigh the costs of the content royalty. 有趣的是，在某些情况下，他们显然是这样做的，而在另一些情况下，他们显然不是.

Assumptions and Costs

Here are my major assumptions.

1. Royalty costs. There are two high-level costs associated with HEVC playback; the content royalty and the player cost. As I discussed in a recent article, the content royalty is .5% of attributable revenues, which I’ll cover in my calculation. Since there’s no generally available HEVC player, 希望部署HEVC的服务可能还必须提供HEVC解码器, 在HEVC高级分类中，哪个是“其他设备”，价格为1美元.10 per decoder. Or, the service might send HEVC only when a decoder already exists, like in a future generation Roku, Chromecast, or Apple TV device.
   I calculate the impact of the content royalty under both assumptions. The first assumption, which includes only the content royalty, essentially asks, HEVC节省的带宽是否超过了内容版税?” The second, which includes the cost of the decoder royalty, asks, “我需要发送多少个视频单元才能支付解码器的费用??”
2. Bandwidth savings. When computing the bandwidth savings delivered by HEVC, I compared a 1080p stream encoded at 4Mbps for H.264 and 2.5Mbps for HEVC. 由于不是所有的观众都能在任何时候获得1080p流，因此节省的费用会比这少一些. That said, according to the Netflix ISP index, the average delivery speed in the U.S. for July 2015 was 3.2Mbps，所以大多数观众应该能够检索到一个相当高的数据速率流.
3. CDN delivery charges. For the M-GO scenario, I assumed a delivery charge of $0.01/GB and $0.02/GB. The latter is the lowest price published on Amazon Cloudfront which applies to publishers pushing over 5 PB per month. The former is obviously half that. For Netflix, I assumed delivery charges of $0.01 and $0.005 per GB.
4. Player development costs. 我没有将玩家开发成本包含在计算中，因为这些成本差异很大.
5. Encoding costs. I’ll mention encoding costs in all the Netflix example, but don’t include them in the modeling for simplicity. The lowest cloud encoding pricing for H.264 that I’ve seen is Zencoder at 1.25 cents per minute, twice that for HD. 我假设Netflix将每个视频编码成9个流，其中5个是高清流，零售成本为H.264 encode 17 cents per minute. I’ll cut that in half to account for Netflix’s encoding scale, 然后乘以8来解释HEVC增加的编码复杂性, which comes to $.70/minute, or $42/hour.

Let’s look at two models and then touch on some others.

M-GO Model (TVOD)

Under this model, the viewer rents an HD movie for $4.00; rather than delivering with H.264, the service provider uses HEVC. Working through Table 1:

1. 左边三列显示的是1分/GB交货成本的计算, on the right shows 2 cents per GB.
2. 在这两种情况下，如前所述，1080p电影的数据速率对于H来说都是4Mbps.264, and 2.5 mbps for HEVC.
3. 每2小时电影的数据是平均比特率除以8，从比特转换为字节, then multiplied by 60 to convert seconds to minutes, and then by 120 to calculate the 2-hour data load (4,000Mbps/8 x 60 x 120 = 3,600,000).
4. The bandwidth cost applies the per-GB charge to the total data load.
5. The rental fee is $4.00, the HEVC Advance content royalty .5% of that, or $0.02. The royalty for H.264, payable to MPEG-LA, would be the lower of 2%, which would be $.08, or $.02 (http://www.mpegla.com/main/programs/avc/Documents/avcweb.pdf). In this case, the royalty would be the same $.02 as HEVC. 

Table 1. Application of HEVC Royalty in pay-per-view scenario.

Because of the H.264 royalty, the model is positive from the start, but at 1 cent per GB, it will take 96 rentals to the same client to pay for the player. 再加上开发和编码成本，这一切都显得不切实际. Let’s see how it looks with the Netflix model.

Netflix Model (SVOD)

Netflix is a monthly subscription service that charges $8.99/month for SD/HD (non-4K) content. The first set of three columns represents a delivery cost of .5 cents per GB; the second 1 cent per GB. (I have no idea how much Netflix pays for bandwidth, but if my numbers are low, obviously the case for HEVC is stronger.)

Working through the table:

1. The average Netflix viewer watches 90 minutes of video a day, a very scary number.
2. 在这两种情况下，如前所述，1080p电影的数据速率对于H来说都是4Mbps.264, and 2.5Mbps for HEVC.
3. 每天的平均数据是平均比特率除以8，将比特转换为字节, then multiplied by 60 to convert seconds to minutes, and then by 90 to calculate the 90-minute data load (4,000Mbps/8 x 60 x 90 = 2,700,000).
4. I multiplied this by 30 to calculate data per month.
5. The bandwidth cost applies the per-GB charge to the monthly data load.
6. The subscription fee is $8.99, and I’m assuming that 100% of content is delivered via HEVC. At .5%, the royalty would be $0.045. Note that for subscription revenue, Netflix would pay MPEG LA the princely sum of $100,000/year, which I'm not including in the model.

Table 2. Working through the HEVC Advance royalty in a Netflix scenario.

At $0.005/GB for delivery, HEVC still saves Netflix $0.每个订阅者每月15美元，从中减去HEVC预付版税0美元.045, netting about 10.7 cents per subscriber per month, a very big number when you have 65.5 million subscribers. 即使在向HEVC Advance支付版税后，Netflix每月也能净赚7,008,934美元. Obviously, the numbers are even more favorable at the $0.01/GB delivery cost.

What about encoding cost? According to my colleague Dan Rayburn, Netflix has about 60,000 individual titles, including movies and television show episodes. Assuming an average length of 60 minutes, it would cost about $42/ title to convert these to HEVC, for a total of around $2.52 million. 即使误差是2倍，也不会对结果造成太大影响.

If Netflix had to pay the player royalty, breakeven at $0.005/GB delivery charge would be about 12 months; after which Netflix will earn $3.85 per subscriber for the following 36 months. At $0.01美元/GB, 5个月后达到收支平衡，3年的价格几乎翻了三倍，达到9美元.32.

If the savings are so grand, why isn’t Netflix jumping on this model? Several reasons, starting with the installed base. 许多Netflix用户在无法升级到HEVC的设备上观看视频, like the Roku box in my living room and my daughter’s iPhone 5.

在可以升级的电脑和笔记本电脑上，回放架构正处于过渡阶段. Adobe Primetime will support HEVC, but adds another cost to the mix. HTML5 could support HEVC playback, but HEVC playback isn’t currently available in any browser, and likely won’t be for a long time to come. 也许Netflix可以创建自己的可下载播放器，但这种模式也正在衰落.

Anyway, 这个分析的重点并不是Netflix忽略了一些成本节约, 而是分析HEVC Advance内容版税对不同类型部署的影响. While it does preclude some uses, it absolutely doesn’t preclude others.

Conclusion

Why is the Netflix scenario so much brighter than M-GO? 因为Netflix节省了超过23倍的带宽，而只支付了大约02美元.5/unit more in royalty costs.

What does this mean? Basically, 如果服务必须支付解码器版税，那么使用HEVC来节省带宽成本在按次付费应用中是行不通的. Even at 4 cents per GB, which is probably unrealistic for any large commercial service, the average savings per movie is only about $0.如果该服务必须支付与播放者相关的版税，那么它的盈亏平衡点大约是24部电影.

What about advertising-funded sites like CNN and ESPN? Using HEVC for the bandwidth savings seems doubtful; most distribute lower-resolution video than 1080p so the bandwidth savings would be less, while the royalty percentage is the same. Ditto for Facebook and Twitter, which use even lower resolution videos. Plus, where there is no H.264 royalty, these entities would presumably owe HEVC Advance .5% of attributable advertising revenue, 在低数据速率视频中，这将很难通过节省带宽来弥补.

基本上，随着每GB成本的降低，HEVC节省的带宽也会下降. When you incorporate even a very low royalty rate like .5%，除了像Netflix这样的高带宽、低版税应用之外，这种模式看起来很可疑.

【编者注:Netflix的编码成本已被上调，以反映业内人士提供的额外信息。. Table 1 has been revised to include the H.264 royalty which was excluded in the original analysis. 表2和Netflix每月的净节省已被修改，以消除在原始计算中对HEVC Advance版税的重复计算.]

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