Technicolor ready to hive off video patents – is this HEVC related?

Technicolor said this week it plans to sell off its patent licensing business. It has not named a buyer, but said it is confident it will reach an agreement and described it as in line with Technicolor’s objective to simplify its structure.

Technicolor has currently suspended all commercial patent licensing discussions, but adds that it has reached a settlement with Samsung regarding litigation in Germany and France.

Back in February Technicolor initiated multiple patent infringement suits in in those countries against Samsung in both mobile phones and digital televisions. The patent areas were said to be related to video coding and communications, and we suspect that are the heart of this are the patents is holds in video codecs.

Remember that Technicolor was the odd one out among all the companies chasing the HEVC patents and membership of patent pools and it may well be the case that one of the prominent owners of the two patent pools, the one dominated by Apple and Samsung at MPEG LA, or HEVC Advance, have offered a price for key Technicolor patents.

Technicolor has always been involved in every step of development in video patents, including MPEG 2, H.264 and HEVC. But a year ago, it dropped out of the HEVC Advance patent pool so that it could pursue patent licenses separately. Fundamentally it did not want to sit idly by and watch rivals adopt its technology, and not pay patent royalties, just because there was confusion over multiple HEVC patent pools. It reported in 2016 that it had one major HEVC patent license and now it looks like this is part and parcel of another patent licensing deal that went wrong – Samsung refusing to sign, possibly because of the confusion surrounding HEVC.

A settlement with Samsung would bring Technicolor much needed cash. But a sale of the patent business could be even more lucrative. Here is one scenario we think likely, that one of the AOMedia supporters will acquire the Technicolor patents, and put them into the royalty free basket that is being promised to revolutionize codec development. That pool consists of Cisco, Intel, Microsoft, Google, Netflix and Amazon and a few others, and is poised to come out with its first product any day. It could be that this was a stumbling block and buying what are seen as essential patents, is seen as the way forward. In which case look out for one of those companies stumping up the cash for Technicolor patents.

Technicolor claims to have 30,000 patents and patent applications, in the areas of video coding and image processing, telecommunications, user experience, security and displays.

The Technology segment of Technicolor is expected to generate €70 million of EBITDA  the great bulk of which (€75 million) will come from its patent licensing activity. So without it, that division will immediately go into negative EBITDA. This is a fall from €115 million EBITDA in the company’s guidance.

In total Technicolor says it hopes to generate an EBITDA around €370 million, despite over €5 million in currency costs and a free cash flow of around €75 million, before cash settlements in the Cathode Ray Tube cartel case. However the Cathode Ray Tube cartel case had not previously involved Technicolor and the payments that others have made have been 100s of millions of dollars, so that case may still eat up all of this year’s fee cash flow.