Billions Of $ At Stake In ATSC Next-Gen Effort

The companies vying to have their technology adopted or at least incorporated into the next-generation TV broadcast transmission standard by the Advanced Television Systems Committee all have their reasons.

Consumer electronics manufacturers like LG Electronics, Sony and Samsung know that a new standard — ATSC 3.0 — could fire up consumer demand for millions upon millions of new TV sets and other electronic devices.

Sinclair-backed ONE Media believes its system, if adopted, will rejuvenate broadcasting by allowing stations to broadcast to mobile devices, offer targeted advertising and enter new data businesses.

But, according to one ATSC insider, the proponents all have another powerful motivator — the mega-bucks that will flow to them in the form of royalties from whatever patented technology they can squeeze into the new standard.

“It’s billions of dollars,” the source said of  the potential size of the total ATSC 3.0 patent royalty pool.

“The primary participants in that [ATSC] room are there for one reason: They are looking at their future revenues, and more and more of those are being driven by patents and royalties,” the source added.

The subject of royalties is somewhat taboo. ATSC officials and system proponents are reluctant to talk about it publicly. “ATSC is not involved with licensing issues other than our requirements for disclosure and licensing under reasonable and nondiscriminatory terms and conditions to all applicants,” said ATSC President Mark Richer.

Representatives of Sony and Samsung, which are promoting an ATSC 3.0 transmission standard together, did not respond to requests for comment on this story.

John Taylor, a spokesman for Zenith Electronics, which is backing an ATSC 3.0 standard being advanced with its parent company, LG Electronics, and GatesAir, acknowledges that patent licensing is a factor, but downplays it.

“Sure, for some there’s the potential for recouping R&D investments by collecting royalties from patented inventions down the road,” he said. “Perhaps even more important for a device and component manufacturer like LG, looking ahead to producing ATSC 3.0-enabled TVs, tablets, smartphones and in-car systems, is being part of the process from the ground up.”

Because ATSC 3.0 is incompatible with the existing ATSC 1.0 digital broadcast standard, consumers will have to buy new sets to receive ATSC 3.0 off air.

Mark Aitken, VP of advanced technology at Sinclair, which is promoting the ONE Media system in partnership with Coherent Logix, says Sinclair’s primary interest is driving “economic opportunity for broadcasters.”

“We’re putting our time, talent and our money into this because our future depends on it.,” he said.

ATSC proponents insist that it’s premature to start trying to calculate the size of the ATSC 3.0 patent royalty pool. The standard has yet to be set, and a recommended standard is not expected to be set forth until late this year at the earliest.

“The fact is, nobody knows at this early stage what patented inventions will be part of ATSC 3.0 or the possible amount of the royalty pools,” Zenith’s Taylor said.

But if past is prologue, proponents that get a piece of  the ATSC 3.0 patent royalty action have good cause to be optimistic about their financial prospects.

LG’s Zenith, which has more than a dozen patents in the current digital standard does not disclose its royalties, according to Taylor. But one industry estimate puts Zenith’s annual ATSC 1.0 royalty take in the “tens of millions” of dollars.

Japan’s Funai Electric Co., just one of more than a dozen companies that has been asserting ATSC 1.0 patent rights, was demanding royalties of $5 per ATSC 1.0 compatible TV sets, while France’s Thomson Inc. (now Technicolor SA) was asking for royalty payments of $3.50 to $5 for each set, depending on the set’s size, according to a 2009 FCC complaint.

A Technicolor spokesperson declined comment. Representatives of Funai did not respond to requests for comment.

In that same FCC complaint, Douglas Woo, the former president of the now-defunct Westinghouse Digital Electronics, alleged that the more than a dozen ATSC 1.0 patent claimants were demanding that his company pay royalties of anywhere from $24.10 to $40.10 for the so-called “standard essential patents” or SEPs for each ATSC 1.0-compatible TV set manufactured, depending on the set size.

Woo said the ATSC 1.0 SEPs in converter boxes cost $12.50 per box.

About 289 million ATSC 1.0-compatible TV sets and converters were sold between 2007 and 2013, according to Consumer Electronics Association. So assuming that Woo had it even close to correct, and an average royalty of $10 per device was paid, ATSC 1.0 royalties have been worth at least $2.89 billion overall.

“The U.S. patent system is designed to allow inventors to recoup a return on the investment they make in developing patented inventions,” Zenith’s Taylor said. “The fact that the ATSC licensing pool that Zenith participates in has more than 130 companies licensed validates that the economics are reasonable and non-discriminatory.”

To cover their bets, leading ATSC 3.0 system proponents are said to be signaling their interest in discussing possible alliances designed to ensure that they get a piece of royalty pie no matter what system is eventually adopted, a source close to the discussions told TVNewsCheck.

“As the ATSC process narrows down, people are negotiating for the best position by trying to share in the support of the technology,” the source close to the discussions said.

At the same time, Sinclair’s ONE Media has been signaling that its door is open to investment stakes from other broadcasters, which might then be able to share in the royalty payments that would ensue if ONE Media’s ATSC 3.0 technology is ultimately adopted.

ATSC is hoping to have a recommended ATSC 3.0 standard in place late this year or early 2016, setting the stage for a massive industry transition as soon as 2017.