Blu-ray Disc Licensing Gets Cheaper and Easier

— -- From a manufacturing standpoint, one of the banes of Blu-ray Disc's existence has long been the muddled licensing process. To incorporate the Blu-ray Disc format--as well as the CD and DVD formats--into a device, manufacturers have had to contact each format's patent holders to arrange for a license to include that format in their product. Now, however, Panasonic, Philips, and Sony have joined forces to create a consolidated process for licensing the formats in Blu-ray Disc products.

In an announcement today, the big three stated that they have joined with other Blu-ray patent holders to allow manufacturers to procure one license that covers all the necessary patents for Blu-ray Disc, DVD, and CD. The new licensing program, which will be run by an independent company, will be based in the United States, with branch offices in Asia, Europe, and Latin America.

The yet-to-be-named new company will allow any patent holders for Blu-ray Disc, DVD, and CD technologies to join the new licensing entity as both a licensor and shareholder.

The move is intended to promote the growth of Blu-ray Disc products. It should succeed in doing so, too--and not just by virtue of reducing the number of places a manufacturer must go to get licensing approval for its product.

The new approach to licensing will be able to offer a significant discount--expected to be at least 40 percent--on the collective patent fees, as compared with the costs for a manufacturer that pursues the patents independently. Fees for the new product licenses will be $9.50 for a Blu-ray Disc player and $14 for a Blu-ray Disc recorder; disc fees will be $0.11 for a read-only disc, $0.12 for a recordable disc, and $0.15 for a rewritable disc.

One interesting bit in today's announcement got me wondering. The release makes a reference to the new program as "introducing special measures to encourage companies selling Blu-ray Disc products to comply with their license obligations. The program also includes measures to easily identify unlicensed products in the market and a system to address those who may not have obtained proper licenses for Blu-ray Disc products."

That language would seem to indicate that the companies due royalties from Blu-ray Disc intellectual property are experiencing problems with manufacturers' paying up--or are expecting such problems. We've seen some manufacturers get called on IP-royalty issues before, with optical-drive IP--specifically when CD and DVD became commoditized and more Asian manufacturers (especially in Taiwan and China) got into the manufacturing game. Given that Blu-ray Disc products have emerged largely from Japan so far, I imagine that licensing compliance hasn't been as much of a problem.

But earlier this year, at CES 2009, a number of China-based manufacturers showed Blu-ray Disc players. For example, players from both Sherwood America and Insignia are based on Chinese OEM designs. Perhaps the licensing move--as well as the carefully worded language in its announcement--reflects the expectation that many more manufacturers will enter the Blu-ray game in the coming year. A single, one-stop-shop licensing authority for Blu-ray may help to head off licensing-compliance issues, as well as to make chasing down offenders easier.

Ultimately, a 40 percent reduction in royalty costs marks a huge win for consumers. With such a dramatic drop in manufacturers' costs, consumers can expect to see lower-priced players on the market sooner. Suddenly, the $150--or even $100--Blu-ray Disc player appears within reach, possibly by the end of this year.