Tuesday, May 08, 2012

ZDNET Half Billion Dollars for DVD and MP3 Support on Windows 8 MP3 and other Media Players

The amounts required to license digital media decoders on Windows PCs seem like chump change. But multiply those pennies times hundreds of millions of PCs, and the bill for Microsoft and its PC...
Some highlights: 
So what does that collection cost Microsoft and its partners over the course of a year? For the sake of simplicity, let’s assume that 20 million Windows 7 PCs are sold each month, for a total of 240 million over the course of a year. Here’s the (somewhat oversimplified) bill:
DecoderCost per unitTotal annual cost
AVC/H.264up to $0.20$6.5 million (cap)
VC-1up to $0.20$8 million (cap)
MPEG-4 Visualup to $0.25$4.75 million (cap)
Dolby Digital+unknownunknown
AAC$0.48$32,000 (cap)
MP3$0.75$180 million
That makes the total bill for Windows 7 for those decoders just a sliver under $200 million.That works out to about $0.83 for every copy of Windows sold through an OEM.

Dolby Digital


The Dolby 10-K report filed with the SEC in November of 2011 offers some clues as to what Microsoft is currently paying for the Dolby technology included in Windows 7:
Microsoft Corporation is one of our licensees and accounted for approximately 10%, 12%, and 13% of our total revenue in fiscal 2009, 2010, and 2011, respectively. Most of our Microsoft revenue is generated from the Windows 7 operating system, which contains our technologies. We face the risk that Microsoft may not include our technologies in the commercial version of the Windows 8 operating system or future Microsoft operating systems. If our technologies were not to be included in the commercial version of the Windows 8 operating system or future Microsoft operating systems, we intend to support the playback of DVD, Blu-ray Disc, Broadcast, and online content on PCs by licensing our technologies directly to OEMs.
It didn’t take too much work on my part to do the math based on that disclosure. In FY 2009, Microsoft paid Dolby $72 million. In 2011, Microsoft paid $124 million to Dolby. That’s a 72% increase in just two years, which I suspect is the result of Windows 7 Professional including Media Center (Windows Vista Business did not). 

DVD Playback via MPEG-2

The MPEG-2 standard for DVD movie playback is a flat $2.00 per PC, with no cap. Two other oddities in the license agreements are worth noting as well:
Under the MPEG-2 Patent Portfolio License the party that offers MPEG-2 Royalty Products (Section 1.18) for Sale (Section 1.22) to the End User is responsible for royalties…”
In other words, it’s the PC maker that has to pay that royalty. (Microsoft pays the royalty on shrink-wrapped software it sells as upgrades and full licenses, and for copies of Windows delivered electronically—as part of TechNet and MSDN subscriptions, for example.)
If the code that enables playback of DVD movies is included in the base operating system, the PC maker must pay $2 in royalties for each device it sells, even if that device has no DVD drive.Over the past three years, I have purchased four notebooks—two from Dell, one from Samsung, one from ASUS. In each case, the PC maker had to pay $2.00 per notebook even though none of those notebooks included a DVD player.
So there’s your answer. By including DVD playback support in Windows 8, Microsoft would put its PC-building partners on the hook for a total of $480 million a year in payments, in addition to the millions of dollars Microsoft would pay to Dolby for its technologies.

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