On optimal royalty costs for video compression

Modern video compression includes a mature set of codecs, tools, and techniques that correspond to a variety of coding efficiencies and royalty costs in video delivery. In early work we showed that there can be significant benefits to employing a royalty-aware encoder that jointly optimizes rate, distortion, and royalty cost by choosing among several codecs having different royalty costs. In this paper we assume the existence of such an encoder and concentrate on how royalty costs should be assigned to benefit a system of users, video service providers, and tool/codec owners. Our work operates on the intersection of rate-distortion principles with basic concepts from economics and tries to address issues that are rapidly becoming very relevant in media delivery. Using a simple model that captures user preferences of video quality levels (given costs associated with these levels), we formulate the assignment of royalty costs as an optimization problem and solve it for optimal costs for several scenarios. The main trade-offs that govern our results are the cost of bandwidth and previously unachievable quality levels (if any) that a state-of-the-art codec gives access to. We show that content-based cost assignment not only increases user utilization but also the royalty earnings for tool owners compared to content-unaware pricing policies.