Well, they’re here – V-Nova has revealed the licensing terms for LCEVC, and in some instances, they are very affordable indeed. We were assured in the announcement that this licensing model can make money, but one wonders how much money is being left on the table.
On the one hand, V-Nova could have aimed to only slightly undercut the status quo, making perhaps billions of dollars over a ten year period. Instead, it has targeted a fortune that is measured in millions, and perhaps only just into triple digits in that regard.
Of course, that should be lauded. Naked profiteering has always looked gross, and CEO Guido Meardi is quite right that codec royalties are typically viewed as a tax. Taxes are never viewed as a value-add, by businesses or consumers, but the sales pitch here is that the license is a pittance of the amount that a video service is going to save in its hosting and bandwidth costs.
More to the point, as LCEVC claims to be easily backwards compatible, it wouldn’t really be practical to try and charge royalties or licenses for devices that are already out in the field. In terms of the pool of targets, focusing only on the video services should make the job of signing and collecting a lot easier than if V-Nova was chasing OEMs in APAC.
The cost of the Usage License is determined by the type of video service and by the number of users it has, with the ballpark prices ranging from less than one cent per user per year, up to 12 cents per user per year. The maximum fee is capped at $3.7 million.
Some examples were given. An SVoD service with 80 million annual users would reach the cap at $3.7 million. An AVoD service with 100 million annual users would be paying $1.8 million. An operator TV Everywhere service with 12 million users would be paying $250,000, and a tiny video service with 250,000 users would pay around $18,000 annually.
The point here is that it becomes cheaper, per-user, as a video service scales up in its reach – a progressive model. However, it’s not yet clear what counts as an annual user, which is definitely a point of concern.
If the definition is unique viewers in a year, the cost is going to jump significantly. If the definition is tied to some form of minimum activity, such as Monthly Active Users (MAUs), then video service operators are going to be put more at ease. If we’re counting every person who followed a link and ended up on a video site, it could balloon the LCEVC licensing cost. Similarly, there wasn’t mention of embedded videos on third-party web pages.
Playing around with the numbers provided, the SVoD service would be paying $0.0463 per user per year. The AVoD service would be paying $0.0180 per user, and the operator TV Everywhere service would be paying $0.0208 per annual user.
The smaller start-up video service is paying a lot more on this per-user basis, at $0.0720, but of course, would be getting a discount as it scales. For example, if it was still paying that per-user rate as it reached 100 million users, it would be paying some $7.2 million to V-Nova annually – instead paying a bit less than 50%.
Notably, the graduations between the bands are not yet public. For instance, at the start-up rate, that service would reach the $3.7 million cap at 51.39 million viewers – well below the cap example of the 80 million SVoD viewers.
To this end, it seems very likely that there are going to be milestones that determine the going rate for an annual user. Going on the static values, and not the suspected dynamic pricing bands, the AVoD service would cap out at $3.7 million with 205.55 million viewers, the TV Everywhere service would cap out at 177.6 million viewers, while the SVoD service has presumably capped out at the 80 million user threshold.
Of course, there is a chance that the SVoD cap is a bunch lower than the 80 million example, but that value seems to tie in with the rest of the ranges – targeting the relatively higher margin SVoD realm.
However, when you start looking around for an idea of how big the potential annual market for LCEVC is, you quickly run into problems. There isn’t a running total of global video services, but some napkin mathematics can give you an indication. In the SVoD realm, Netflix, Disney+, and Amazon Prime would provide a quick and easy $11.1 million. They all have higher user counts than the cap.
But trying to gauge the tier-two SVoD services becomes a lot trickier. The top three have something like 400 million subscribers between them, globally. Give it a year and the combined HBO and Discovery service will come close to reaching that cap, so we could add a little less than $3.7 million and bring our running total to $14.5 million.
After that, however, we have far smaller user counts in the global SVoD sector. It should bring us up to $16 million or so, and if we then round up the more regionally or nationally focused services, we imagine we could see that number reaching the $20 million mark.
However, AVoD is a whole other kettle of fish, with around 5.35 billion MAUs. At the per-user rate, this would be a total market of $96.41 million annually, but of course, quite a few AVoD services are going to reach our estimated capping-out number of 205.56 million users.
On this basis, it looks like LCEVC has a larger addressable market in the AVoD realm, and there is also the social media and gaming platforms to target, to bump this up further. However, it does seem a disservice to only charge Zuckerberg $3.7 million, despite him having some 3 billion MAUs on the Facebook platform.