What is AACS and why do some people think it is slowing down the growth of Blu-ray?  AACS, whose proper name is the Advanced Access Content System, is a specification for managing content stored on pre-recorded and recorded Blu-ray Discs with PCs and CE devices. Its founders are IBM, Microsoft, Sony, Disney, Intel, Panasonic, Toshiba, and Warner Bros. The problem is that the licensing fees are steep and are putting pressure on the already struggling replciators, and/or keeping the replicators away from Blu-ray completely. 

The International Digital Media Alliance (IDMA, formerly known as the DVDA) is leading an initiative to lobby the AACS Licensing Authority (AACS LA), which handles the licensing, to revise the current fee structure that is arguably impeding the adoption rate of the Blu-ray Disc for non-Hollywood titles. (Click here to read the IDMA petition.) The licensing structure in place now, is just temporary. Final decisions were expected to be made by April 15 of this year, but no final word has been given yet. So, what’s next? What is being done to deal with this fees, and ultimately really get growth for this format going?

The content system for Blu-ray is different than it was for DVD. With DVD you had CSS. It too, was a digital scrambling of the data on the disc, but it was optional. There was also Macrovision, which was a pay per disc process content owners paid for and it too was optional. "With Blu-ray, there is a different sheriff in town,"said Bruce Nazarian, president of IDMA."Unlike HD DVD, where AACS was optional unless you wanted to use the web connectivity, AACS is mandatory on Blu-ray which means there is a whole level of licensing complexity and fees that bear into this before you can even make your first replica."The content owner/producer must sign and belong to the AACS before anyone will sell them a license."

Cost is variable. Basically, there are two tiers. The fee for a fully participating studio is $40,000 a year, according to Michael Ayers, Chairman of AACS LA. "This gives the studio the ability to have direct participation on how AACS LA makes its decisions. We recognize that smaller entities may not be as interested in the hands on approach, therefore a lower administrative fee makes sense for them. So, we created a one-time $3,000 fee for those content providers. Then, there is a per-disc fee, which is $1,300. That figure is almost 50 percent lower than it was originally.

For most IDMA members, even the lower fees are still especially hard to contend with, said Jim Taylor, CEO of the IDMA. Based on his anecdotal research, Nazarian told EMedialive, more than half of the titles that are available for sale on DVD came from non-Hollywood producers. Those replicators holding back are likely to be the ones to put a whole lot of vitality into the Blu-ray market in much the same way the independent producers pumped out DVD titles. There is a lot of pent up demand for Blu-ray discs right now, both IDMA representatives said.

As a result, IDMA took the initiative to make sure that AACS really understood the issue. "The good news is, they do understand our concern," said Taylor. IDMA has diplomatically offered solutions to the AACS LA, not through the elimination of AACS, but through some additional licensing approaches that are not yet currently available. "We think it would be really helpful to create a new tier that could take into consideration the lesser needs of non-Hollywood producers and provide them with a relatively affordable entry path to get into Blu-ray."

On the other side of the issue are the stakeholders in the Blu-ray technology that have invested a lot of time and energy in creating this format and no one disagrees that they are entitled to the money. "Once everybody is starting to make money, I don’t think anyone has a problem with continuing to spend money to protect their titles, it’s just this big high gate in front of them ,and it needs to be opened up a little bit," said Nazarian.

The AACS licensing system is really expensive, Taylor said, while AACS counters that the current licensing scheme is essentially a break-even proposition for them. "They have been working on changing to a new system that would be less expensive," Taylor said. "In the meantime, we suggested having a smaller fee that you have to renew every year. That works for independent publishers because if they are making money with Blu-ray they can renew....something like $500 a year would be more manageable."

According to Ayers, "The market has a lot of content put out by smaller entities so we know that it is a very important market segment. In effect, it’s not fair to even say the big replicators are not feeling the costs. From the very beginning we built in features into our pricing that would make the technology accessible to the smaller entities. We are not a non-profit, but we do work on a firm cost recovery basis. The technology is supposed to enable the market for BD. It’s not viewed as an independent money maker, but we have to be self-sufficient. The licensee generates the content, sends it to us, we digitally sign it and send it back to them so they can include it on the disc when they send it out."

My question to Ayers was, why is it so expensive? The key generation facility is very complex, he said. It’s a collection of servers that are set up in a very secure area and are operated by contractor that can generate the keys. When a content owner sends in an order, it goes through a very secure facility where that order is generated and sent back to the licensee, he explained. "It’s that process of setting up the facility and operating it," he said, "which is the biggest chunk of the fees being paid." 

Richard Diercks of RADCO Media, which has already produced Blu-ray titles, says his biggest gripe is the cost of check discs. "If you send something off and then you get check discs and you want to make a change in it, you have to pay the whole thing again!"

Diercks is right. This extra cost can be particularly cruel as early believers in the Blu-ray format are still learning and making mistakes. Ayers disagrees. "To say we are charging for test discs is a little bit of a misperception," he says. "We don’t know nor do we want to know what title you are submitting to us for a certificate. Keep that secret. However, that also means we don’t know if the title as been submitted before. The exact same steps have to be taken whether it’s the first time or the 10th time it is being submitted. That being said, this issue is one of the initiatives we are working on internally."

The April 15, 2009 date was agreed on two years ago when discussing the finalization of licensing agreements. So, now what? Ayers said, "AACS LA is looking at processes related to its costs that we think we will be able to reduce fees further this year. I’m optimistic that when we do release our updated and final documents, the smaller and independent entities will be able to see that we took concrete steps and listened to their comments."

Taylor said, "AACS LA is hung up with bureaucracy, but IDMA is pestering them and reminding them that time is passing and the format could be doing better without these fees."

Debbie Galante Block (debgalante at aol.com) is a freelance writer based in Mahopac, NY.