You need a pricey licence to drive a Blu-ray

As the two-year battle between high-definition formats finally resolved itself in 2008, Blu-ray’s future seemed wide open. And from the point of view of the major motion picture studios, it was. The bulk of the licensing fee structure put together by the Advanced Access Content System Licensing Administrator – known by its acronym AACS LA, it manages the copy-protection patents for the AACS technology holders including Sony, Toshiba, Disney, Warners, Microsoft and Intel – is scaled to the kind of budgets Hollywood routinely works with: a US$40,000 annual service charge as well as fees for the AACS media key that encrypts the content of the disc, an AACS content certification for that title, and finally an AACS order processing fee, at a cost of another US$1,300 per title. That’s lunch money for Hollywood’s moguls.

Non-Hollywood content developers who want to access the high-def disc are charged less – a one-time fee of US$3,000 for the Content Provider License to work with certified Blu-ray (BD) replicators (replicators cannot accept an order from anyone without this licence and associated licence number), and the US$1,300 in service fees.

Wait a minute, though, this group says that if you’re a small, independent content developer already burdened with the costs associated with gearing up for a new HD format, those fees can mount up. ‘From where I sit, the single biggest challenge is that the mandatory AACS licensing poses a huge roadblock to enabling the large independent authoring community that wants to use BD, but cannot overcome the initial $4,500-plus AACS buy-in for the first title,’ says Bruce Nazarian, president of the International Digital Media Alliance (IDMA, formerly the DVD Association), as well as president of Digital Media Consulting Group in Las Vegas. ‘If these fees were reduced significantly, and title key generation made cheaper – each time a BD is remastered, it costs $1,300 for a new title key because each key is tied to the disc's data, and when that is changed, the key is no longer valid – then many of us believe that a huge groundswell of pent-up BD publication will take place.’

In Hollywood, US$1,300 may not seem like a huge amount of money, but in the larger context it’s bigger than it appears. With basic BD authoring now available for less than US$4,000 or so, and mastering and metalising obtainable for less than US$1,000, the US$1,300 adds more than 25 per cent to the cost of each title. Furthermore, BD is still a relatively new technology compared to other optical disc formats and remains vulnerable to pre-production glitches. If a master is unusable, the remastered version incurs another US$1,300 service charge, and these charges are levied both for entertainment titles intended for consumer distribution and for content developed for internal use, such as corporate presentations, many of which would benefit from access to a high-definition platform. And the use of Blu-ray file folders on red-laser media – so-called BD-5 and BD-9 discs, which can use DVD as the carrier format while still achieving higher resolution video – also incur the licensing fees.

Nazarian estimates that the several thousand users currently deterred from using Blu-ray due to the fee structure could generate as much as US$21m in additional revenues for the format if fees were substantially reduced, with a sizable portion of that going to the AACS-LA itself.

 The IDMA has an online petition in progress that Bruce Nazarian says has several hundred individual and institutional signatories so far. One of those is Media-Tech, a trade group representing facilities including mastering, authoring and replication companies. ‘The goal is… to strongly suggest a tiered approach to licensing fees that will enable everybody to participate [in Blu-ray], according to their means,’ Marianne Sernevi, president of the organisation, stated in a press release. ‘Doing so will unleash the pent-up creativity of thousands of independent producers who are waiting to participate profitably in growing the Blu-ray format.’

Randy Hudson, director of optical disc technology at Duart, which earlier this year acquired his authoring company Broadness, points to DVD’s evolution as a template for what could happen if BD’s content licensing fee structure was reduced. ‘When you look at the historical data, you clearly see that as the cost of entry, the cost of authoring and replication became lower and lower for DVD, the number of participants and titles skyrocketed,’ he says. ‘The costs [of content licensing] has come down some in recent months, but not enough to get a huge number of potential independent content developers – who fill about half the racks at video stores – to go with Blu-ray. Combine that with the effects of the recession, which has really put the squeeze on independent content budgets, and the potential user base that can’t access Blu-ray gets bigger every day.’ Even the incremental fee reductions that have taken place have also created a wait-and-see attitude among independent content developers, who hold off in hopes of catching yet another reduction.

 A major difference between DVD and Blu-ray in terms of professional uptake was the fact that the CSS copy-protection scheme used with DVD was not absolutely mandatory; while it’s used on virtually every conventional entertainment title in circulation, content suppliers can opt out if they felt copy protection was unnecessary, such as for corporate projects. HD DVD, the rival format that BD conquered, likewise did not make AACS mandatory except for Internet-connected discs.

 That, says Rolf Hartley, senior vice president and MD of premium content services at Sonic, which makes Blu-ray authoring toolsets, is the heart of the issue. ‘We have many, many users of our software who work outside of Hollywood and who want to bring their high-definition content out on disc,’ he explains. ‘If they could opt out of the AACS requirement, they would, but they can’t.’

 The AACS-LA’s points to the decreases in licensing fees it has enacted since 2007, when it established a non-Hollywood licensing tier with a one-time fee of US$2,500, later dropped to $1,500 and most recently to $1,300. That, says Michael Ayers, manager of AACS-LA and chair of its business group, as well as a senior attorney at Toshiba, is in comparison to the US$40,000 annual fee charged major film studios. ‘We’re charging fees based on the level of service we have to provide for each tier,’ he explains. Ayers cites cost reductions by its technical service providers for services, such as the digital content certification for each master copy for a title, not pressures from non-Hollywood users, as the reason for reductions of the lower licence fee. Nonetheless, he says the organisation is aware of the sentiment in the non-Hollywood sector. ‘We’ve tried to take that into account from the beginning, and we continue to,’ he adds, hinting at but not confirming further reductions as their operating and other costs come down. ‘We’re always looking at the fee structures to see how we can adjust and tweak it,’ he says.

The bottom line is about more than a few thousand dollars per title, fee-reduction proponents assert. At this point in time, it’s about getting Blu-ray wider traction for its ultimate battle, which is against digital video downloads. ‘If Blu-ray remains the province mainly of major studios, which have the vast majority of the titles out there now, it runs the risk of the format failing in favour of a disruptive technology like downloading,’ says Randy Hudson. ‘Blu-ray is an evolutionary format, not a radical one like DVD was when it came out. So it needs have evolutionary expectations – a shorter cycle time from introduction to consumer acceptance. And the way to do that it is to lower the cost barriers. The costs for authoring software and other related processes are already coming down quickly. The patent licence structure needs to do the same.’