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Details of new One-Red BD Licensing scheme add to replicators' headaches

Replicators will be forgiven for thinking royalty-seeking bodies are making their life increasingly difficult with the arrival of yet another entity to deal with - One-Red. "It's a little complicated, but it makes sense after a couple drinks," admitted the spokesman for the Blu-ray licensing programme who spoke at the Singulus seminar in Frankfurt last week.

One-Red is the name of the new organisation to which Philips transferred its patents programme for pre-recorded discs as well as hardware and its other optical licensing operations. One-Red will execute all Blu-ray disc licenses around the world on behalf of One-Blue, except in the US, Canada and Japan. In those territories, One-Blue will keep administering these schemes.

For recollection, New York-based One-Blue is an independent company established in October 2009 for the purpose of administering a licensing programme for patents essential to Blu-ray Disc products. For hardware and software products, the license covers Blu-ray Disc, DVD and CD essential patents; for disc products, the license covers Blu-ray Disc essential patents. To date, participating patent holders include Cyberlink, Hitachi, Panasonic, Philips, Samsung, Sony, Dell, HP and JVC-Kenwood.

For its part, One-Red, headquartered in Sunnyvale, California, with 13 offices worldwide, is a separate company independent from One-Blue, staffed mostly by Philips personnel. Its CEO is Susumu Aoyagi (formerly with Sony); the CFO is ex-eTarget's Laurent Pellet and former Philips executive, Ben Beune, is the COO. Because it is a resource-pooling organisation involving competitors - Philips, Pioneer, Sony and One-Red LLC - merger approval was obtained in the major territories not to fall foul of anti-cartel regulations.

Given that the new company's merger was registered back in January 2011, little information transpired about its existence until now.

It is the details of the licensing agreement - the License Status Confirmation Document (LSCD) - that concerned the replicators present at Frankfurt.

One-Red institutes a Per-batch License that licenses product shipments rather than manufacturers. "If you get an order for 100,000 units, you would go on the computer, enter the information. The website would then capture that information and supply you with a LSCD within an hour," explains Charles Hausman, from One-Blue, soon to move to One-Red. "That document is what you show to prove that these products are licensed. Without the LSCD the products are not licensed. The agreement requires that you get an LSCD for each shipment." Reporting has to be done within 12 hours of the shipment.

A royalty report will not be required under this scheme as the information will appear in the LSCD filing. The replicator will be invoiced monthly. The LSCD document may be required by customs in some countries. It also helps retailers confirm they are trading in legal products. "Don't be taken by the apparent bureaucratic nature of the exercise," says Hausman.

A 'mother' LSCD can be broken up in smaller 'derivative LSCD as the original shipment could by redistributed into several smaller regional shipments.

While replicators recognise the system may be suitable for very large orders, say, 1.5 million CDs for a single retailer, it will be a nightmare in the case of numerous smaller quantities, say, 200-500 discs, for different labels.

Proof of registration also involves either affixing a sticker on the box to show that the title is licensed or a packlist which can be included in the shipment.

A new logo has to be put on each disc, in the matrix band, recorded in the stamper. "Are we going to have to put stickers also for One-Blue, BD4C, Toshiba, MPEG? That's impossible,' complained an irate disc manufacturer.

However, what exercised most the assembled replicators is the view that One-Blue has not been playing straight with them. When One-Blue representatives introduced the new licensing organisation at the Media-Tech fair in Frankfurt in 2009, they said it would act as the one-stop shop to cover all royalties claims. It turns out not to be true.

Two months later, Mitsubishi Electric, Thomson Licensing, Toshiba and Warner Bros. Home Entertainment formed their own company, the BD4C Licensing Group for the joint global licensing of Blu-ray and DVD patents essential for the whole range of BD discs and devices. Disney Enterprises and The Trustees of Columbia University in the City of New York have since joined.

And both One-Blue and BD4C make clear that the door is open to new claimants that could organise themselves into a separate royalty-seeking body. Some believe that MPEG LA might have specific claims on some patents.

Needless to say that royalty rates are cumulative. One-Blue/One-Red has set the rate for BD-ROM Data Disc at $0.0725 and BD-ROM Movie Disc at $0.0975. For its part, BD4C charges $0.04 for BD-ROM and BD-Video Discs. The total rate - so far - for a replicated BD movie disc is $0.1375.

So far, because, ominously for replicators, this figure could rise. On its website, BD4C suggests that, with an increase in number of its members, it "reserves the right to adjust the rates as necessary [...]." There is no reason why One-Blue/One-Red would act differently.

"Given the razor-thin margin on discs, the uncertainty as regards the final licensing rate we have to pay puts us in a difficult situation," says an executive on the frontline. "With such a moving target, how can we plan the future carefully, especially when the packaged media market goes through such a tough time?

With the exception of Sony DADC, no other European replicators appear to have signed up to either One-Blue or One-Red.

In a follow-up Media-Tech meeting, a lawyer brought to the attention of delegates the fact that, while One-Blue already announced its licensing disc rates, no patents list has been published. Therefore, "replicators have no way of knowing if they need to apply for a One-Blue license or if a Philips license is enough." He recommended that unless all the information is on the table, further discussions with the company is useless. "They have confirmed they understood our concerns, but they don't give a s**t." Not the present Media-Tech, which celebrated its 10th anniversary, was expecting.

Story filed 06.12.11

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