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What Spooked Google into Dropping H.264 from Chrome?

Look around you for devices that play digital video. Maybe you see a cable box, Blu-ray player, iPad, PlayStation 3, a Windows 7 PC or an Xbox. All these devices play video using the much-ballyhooed H.264 codec. YouTube's entire library is encoded in H.264, and so is the entire Netflix (NFLX) Watch Instantly catalog, as well as all the shows on Hulu. Google (GOOG) Android phones support it, too.
So why would Google drop H.264 (also known as MPEG4) support from its Chrome browser?

In a post on Google's Chromium blog, the company says the reason for the switch is -- prepare the drum-beat -- "to enable open innovation." Nobody seems to believe any of this rhetoric. "I don't see how Google keeps [Adobe] Flash but drops H.264 in the name of "openness" without being seen as utter hypocrites," says developer and pundit John Gruber.

Gruber isn't the only plaintiff; read the comments below Google's official blog post decrying the change, most of which are from self-professed Google enthusiasts. One calls it a "violent move." Another thanks Google for "making the the HTML5 transition even more messy."

The licensing restrictions on H.264 have long ago disappeared, so would Google say this is an issue of "openness"?

Because H.264 could hold major costs down the road. As ArsTechnica explained back in February, the H.264 codec may be free to license, but the MPEG LA group that issues these licenses still reserves the option of bringing back the licensing fee, or leveraging heavy royalties to people who use H.264 commercially in the future. As Ars explained last year, MPEG LA could still:

... saddle Internet video with the same kind of costly licensing terms that the organization currently applies to television broadcasts---$2,500 per transmission or $10,000 per year for every million households that can receive the broadcast.

MPEG LA's decision to extend the no-cost terms for free Internet video distribution will effectively defer this issue until 2016, the new expiration date. It's still unclear what the licensing terms will be after the new expiration date--MPEG LA could choose to apply hefty fees at that time.

So if you're a developer making video apps -- whether you're an engineer at Hulu, or just an over-caffeinated startup coder -- your app's future profitability hangs in the balance if you're using H.264. Since Google has so much of its revenue stream tied up in online video, it's no wonder they want to be sure they won't get smacked with a huge royalty burden a few years down the road.

Google wants to replace H.264 with an "open" codec called WebM. (Other long-shot alternatives to H.264 include Windows Media format and Mozilla's Theora codec.) But WebM may have its own unknown costs. Once it popularizes, patent-holders may emerge from the woodwork to demand licensing fees. MPEG LA CEO Larry Horn indicated this week that his organization is actively searching for places where Google's IP could be making infringements. According to our sister site ZDNET, Horn said:

[N]o one in the market should be under the misimpression that other codecs such as Theora are patent-free. Virtually all codecs are based on patented technology, and many of the essential patents may be the same as those that are essential to AVC/H.264. Therefore, users should be aware that a license and payment of applicable royalties is likely required to use these technologies developed by others, too.
So what's a developer to do?

WebM is still an under-developed codec that isn't ready for primetime, and H.264 is already too overwhelmingly dominant to disappear quickly. Apple devices will continue to play H.264 natively, and of the existing Web video encoded in H.264 will still be playable through "umbrella" plug-ins like Adobe (ADBE) Flash and Microsoft (MSFT) Silverlight, which can play video encoded in several different ways. But both Flash and Silverlight require browser plugins to be installed on some computers. (Neither works with Apple's iOS Safari browser.)

Still, this is a chance for Flash and Silverlight to shine. Flash has been making strides in efficiency with new support for hardware acceleration and new hardware-accelerated APIs for Flash 3D. Silverlight has been getting rave reviews from app developers who've used it to develop on Windows Phone 7, and it has supported hardware acceleration since 2009.

If other application developers get wary of future licensing costs of H.264, they may turn to Flash or Silverlight as future insurance.