Sinclair Stands To Profit From 3.0 Royalties

During an Oct. 25 House oversight hearing, Democratic FCC Commissioner Jessica Rosenworcel charged that the FCC Republican majority led by Chairman Ajit Pai was doing the bidding of conservative-leaning Sinclair Broadcast Group by relaxing ownership rules and by “foisting” the new ATSC 3.0 broadcast standard on the public.

She suggested that Sinclair will reap a windfall from its “many, many” patents in the ATSC 3.0 — or Next Gen TV — technology that the agency would authorize three weeks later in a 3-2 party-line vote.

Sinclair downplays the value of ATSC 3.0 patents, pointing out that One Media, its joint venture with Coherent Logix, has just 12 of the thousands of patents disclosed for the standard.

But Rosenworcel may have a point about the windfall, if not FCC favoritism toward Sinclair.

If ATSC 3.0 becomes the de facto standard for TV broadcasting in the coming decade, One Media could make a small fortune from royalties from manufacturers of 3.0 receivers and transmission gear, sources close to the ATSC process say.

One Media is the developer of a key piece of the 3.0 standard, the so-called bootstrap signal, a highly robust, basic signal that triggers 3.0 receivers to wake up and latch on to 3.0 service or programming immediately.

When it was accepted by the ATSC as part of the standard in March 2016, Sinclair put out a self-congratulatory press release, trumpeting the bootstrap as the “essential core” of the standard.

It is so central to 3.0 that it is largely included in the only part of the standard (A/321) that the FCC mandated be part of any 3.0 broadcast signal. 

“That [FCC ATSC 3.0] order makes One Media a critical part of ATSC 3.0 going forward,” said one source.

By contrast, the FCC rejected appeals from LG Electronics to permanently mandate another related part of the standard (A/322) for which the South Korean company has patents.

With 3.0’s rollout in its infancy, it’s impossible to predict how much money One Media or any other patent holders may get from their patents, but history suggests it could be substantial.

“If it’s widely adopted and has a long market life, it’s certainly possible that collectively patent holders could receive billions of dollars over the life of the standard and the patents,” said Myra Moore, president of the Dallas-based Digital Tech Consulting.

MPEG LA, the Denver-based organization that organized the key joint patent licensing pools for the current generation ATSC 1.0 technology declines to discuss how much it collected in 1.0 royalties and how they were distributed to participating patent holders.

However, based on how much MPEG LA has charged for its 1.0 patent pools per use and the number of receivers sold between 2007 and 2016 (according to Digital Tech), total royalties probably exceed $3 billion. 

Two-thirds of that comes from the pool for 1.0; the other third from the related MPEG 2 compression technology that was incorporated into the standard.

South Korea’s LG, which owns the vast majority of the active standard-essential patents in MPEG LA’s ATSC 1.0 pool, is said to have received 30% of the 1.0 pool’s total, meaning that it may have earned several hundred million between 2007 and 2016 for its 1.0 technology.

“I can’t comment on this one,” said John Taylor, an LG spokesman. “The terms of the MPEG LA contracts are covered under a nondisclosure agreement.”

Rosenworcel, and some of her fellow Democrats on Capitol Hill, have been portraying 3.0 as an anti-consumer giveaway to Sinclair.

Before the FCC’s vote authorizing ATSC last month, Rosenworcel also tried to persuade her colleagues to include a provision in the rules that would have cleared the way for the agency to oversee the patent royalties.

“We know that Sinclair Broadcasting — which holds essential patents for ATSC 3.0 — has been one of the biggest champions of this new standard,” she said. 

“Before we authorize billions for patent holders and saddle consumers with the bills, we better understand how these rights holders will not take advantage of the special status conferred upon them by the FCC.”

The FCC’s GOP majority declined to sign off on her proposal, on grounds that the Advanced Television Systems Committee, the U.S.-based organization that came up with the Next Gen standard in the first place, “already requires patent holders to license patents on fair, reasonable, and nondiscriminatory terms,” a spokesman for GOP FCC Chairman Ajit Pai said.

Sinclair executives say Rosenworcel and like-minded Democrats have it all wrong. They say their primary interest is in the ATSC 3.0 technology itself, which many broadcasters believe will be a game changer, enabling them to enhance their broadcast capabilities and tap into new businesses.

“We didn’t do the ATSC 3.0 work to gain a revenue stream; that’s just sort of a happy outcoming of pushing the standard that we thought would benefit the assets that we hold in the industry writ large,” said Chris Ripley, Sinclair president-CEO, during the company’s Nov. 1 third-quarter earnings call.

“Our support of the Next Gen TV standard is based upon the enormous opportunities it creates for an entire industry,” adds One Media EVP Jerry Fritz. “That we may realize some revenue associated with our IPR is a good thing, but not the motivation for endorsing this sea change in capabilities for broadcasters.”

Fritz also says that One Media would have preferred that the FCC had not mandated the bootstrap. It wanted a completely voluntary standard.

“One Media has argued that incorporating the standards into rules requires that we have to keep coming back to the government every time there is an improvement,” he says. “We wanted to avoid that.”

Tom O’Reilly, an MPEG LA spokesman, confirmed that the pooling organization is trying to organize a new pool for organizations that hold essential patents for 3.0.

“It is too early to speculate how many patent owners and patents there may be, and we treat the identities of those that have submitted patents in order to join the pool facilitation process as confidential,” O’Reilly said.

Patents experts say that most of the 12,500 ATSC 3.0-related patents that have been disclosed at the ATSC itself — including 5,294 by Samsung Electronics and 2,803 by LG — are unlikely to be independently verified as standard-essential, or SEPs, and it’s SEPs that have the most value to patent holders and are often included in the joint licensing pools for standards technology.

“It is very difficult to predict on a non-mandatory standard how many devices will include the 3.0 IPR (intellectual property rights), what the license fees will be, how many SEPs will be part of the pool, and how the allocation will work as between licensors,” said Fritz.

Fritz pointed out that One Media has not yet decided to be part of any licensing pool. “Parties can enter into direct licensing deals or engage third parties to perform licensing activities,” he said. “We, as are most other potential licensors, are keeping our options open.”

How much One Media’s patents might ultimately be worth will be determined by market forces, not by the FCC regulations authorizing ATSC 3.0, said Fritz.

“No broadcaster is forced to transmit 3.0 signals and no manufacturer is forced to incorporate any 3.0 capability into receive devices, regardless of whether the standard or a portion of it is in the FCC’s rules.”