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Did MPEG LA spark a division in the mobile DRM industry?

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Did MPEG LA spark a division in the mobile DRM industry?

Oyster Bay (NY) – An ABI Research report released Monday points the finger at MPEG LA, one of the licensing agencies that handles the suite of codecs related to MPEG video and audio, for major mobile phone carriers all having chosen different providers for digital rights management. As a result, the study implies, there’s no single methodology for an independent video service provider in North America to deliver content to mobile phones.

The report raises concerns as to whether the frequently revised suite of licenses that are required for manufacturers to implement multimedia codecs in their devices, is becoming cost-prohibitive for manufacturers, and creating delays and price hikes for consumers. But the president of MPEG LA, Larry Horn, poked significant holes in the ABI study, telling TG Daily that some of its basic premises are actually false.

UPDATE 1:15 pm 13 April 2006: This morning, ABI Research posted a correction to its report earlier this week. Now, instead of claiming that the high licensing fees negotiated in its agreement with the OMA led its members to choose other proprietary DRM services, the report – or at least the preface to it – states that a lack of agreement between MPEG LA and OMA, precipitated by the allegedly high royalty fees MPEG LA sought to charge, drove OMA members to seek other sources.

A press statement announcing the ABI report, entitled “Mobile Platform as Fertile Ground for Proprietary DRM Vendors,” states that the Open Mobile Alliance, which represents the mutual interests of wireless service providers, content providers, and vendors, selected MPEG LA to serve as its licensing agency. But when the high prices set by MPEG LA made implementation too expensive, the statement goes on, vendors of proprietary DRM services swooped in, offering mobile carriers more attractive, less open, alternatives.

Vamsi Sistla, the co-author of the report, chided the industry for trying to pursue an open standard first, before trying the more natural approach of trying several solutions and letting the best one win out. “This is a classic example of what not to do when trying to nurture a new market,” Sistla wrote. “It is misguided to pursue an open standard solution in a brand-new market. A better time is after a few years, when the market is disjointed, the competition has changed, and companies can collaborate to benefit from economies of scale.”

The best way for an emerging market to start off on the right foot, Sistla contends, is through “the trial and error of multiple solutions.” He cited Apple’s iTunes as a prime example of one service that was built on proprietary DRM, at an early enough time in its emerging market for competitors to waste their time on collaborating on an open alternative that could defeat Apple.

MPEG LA’s Larry Horn makes it clear, however, that the eventual key to making a mobile DRM scheme work appropriately is to strike a happy medium between reasonable costs for implementers, and a scheme that reaps revenue for its patent holders. “Like any product, including those sold in the mobile DRM market, research and development costs money, and technology – especially one like this that enables a new revenue stream – has its price,” Horn told TG Daily. “That said, the owners of the technology have every interest in seeing their technology successfully utilized – granted, there are many flavors of DRM in which that may be so. Therefore, [MPEG LA’s] proposed royalties have been carefully designed so they can reasonably be built into the revenue stream from both handset makers and mobile service providers that the technology enables, in order to allow its intellectual property rights owners to earn back their investment as the licensees make money from using it.”

But Horn went further, poking a significant hole in ABI’s thesis. MPEG LA was never chosen to serve as the OMA’s licensing administrator, Horn said; and thus, its licensing fees could not have served as the catalyst for division in the mobile DRM field. He added that the OMA’s patent portfolio for DRM patents has yet to be issued, and the individual owners of those patents – not the OMA as a whole – will choose the eventual license administrator.

Horn’s statement is backed up by a press release issued by the OMA in April 2005. Entitled “Open Mobile Alliance Distinguishes Itself from DRM Patent Pool,” the statement reads, “OMA does not have a relationship with MPEG LA and did not participate in the development of the license terms suggested by MPEG LA for OMA DRM. Additionally, OMA is not in a position to determine the applicability or completeness of the patent claims of the MPEG LA and its patent pool participants.”

While MPEG LA proposed a fee for a suite of DRM licenses, it apparently did not do so on the OMA’s behalf. “The industry’s concerned response to MPEG LA’s DRM license fee proposal highlights the industry’s interest in ensuring availability of open mobile services,” OMA Chairman Jari Alvinen stated in the 2005 release.

It would appear that the OMA is in competition with MPEG LA for predominance in the mobile DRM field…which might meet one of ABI’s conditions for a healthy market where trial-and-error among competitors enables one to emerge as eventual champion. But one might reasonably ask whether a similar situation should rightfully be applied to the equally burgeoning field of high-definition video discs, where MPEG LA is also a key administrator of licenses for manufacturers, and the trial-and-error method of determining a market victor has, by most accounts, yielded more error than triumph.

UPDATE 4:45 pm 13 April 2006: Responding to ABI Research’s correction this morning, MPEG LA President Larry Horn told TG Daily, “Regardless of whether ABI’s projection proves true (we don’t know of any basis for drawing that conclusion, however), what seems to have been lost here is that the purpose of the license being developed by MPEG LA is to offer users who choose OMA DRM the convenience of a license under essential patents owned by many different patent owners in a single transaction as an alternative to negotiating separate licenses. And, since MPEG LA’s business is based on providing a service for whatever technology choices users may make, we remain interested in offering any such license that would of benefit to the market, whether for OMA or other flavor of DRM.