But John Dunlop, one of its senior design engineers, sees the possibility of MPEG4 being overtaken by the Advanced Video Coding H.264 standard. H.264 is 25% better than MPEG4, says Dunlop, who also notes challenges from the DIVX and Real Networks technologies.

Even the Moving Pictures Experts Group (MPEG) committee is concerned. Rob Koenen, president of the MPEG4 Industry Forum, said: "It's make or break for MPEG4. The standard was frozen three-and-a-half years ago, and licences should already have been available."

Koenen acknowledges that MPEG4 has strong competition from proprietary technology in all its target markets, and some users had been scared away by the look of the initial licensing terms.

The MPEG committee met at the end of June to sort out some of the issues for the 18 companies that license patents for MPEG4 and is set to make an announcement later this week. Larry Horn, vice-president of licensing at MPEG LA, the group that administers all the MPEG licences, said: "I'm confident that a suitable licensing plan will be found acceptable to the various business models."

The group has been working on two schemes that either put a cap on the royalties a user must pay or have a minimum use threshold below which licences are free. The licence features a royalty for each decoder and encoder sold, plus a fee for each minute decoded, currently $0.02/hour.

The Amphion codec is being characterised in silicon to be launched as an intellectual property block in Q3 this year. The company plans to combine this with an existing MPEG2 core to give backward and forward compatibility in digital TV systems by the end of the year.

But the company is working on a codec that will handle H.264 next year if MPEG4 is leapfrogged.