Next-generation video codec market projected to reach $8.9 billion by 2033

Codec efficiency has transitioned from a backend technical specification to a core strategic lever for managing infrastructure overhead and user experience. As 8K and immersive VR/AR content scale, the ability to deliver high-fidelity video over constrained mobile networks becomes a primary competitive moat. This shift favors technology firms like Google and Apple that control both hardware ecosystems and deep patent portfolios. Strategists should monitor the velocity of AV1 hardware integration in mid-range mobile devices, as hardware-level decoding remains the final bottleneck for universal adoption of high-efficiency standards.

The transition to next-generation codecs is already reaching a critical mass among Tier-1 streamers. Per FlatpanelsHD (December 2025), Netflix reported that AV1 now accounts for approximately 30% of its total streaming volume, making it the platform's second most-used codec. Netflix noted that AV1 delivers equivalent or better quality than HEVC while utilizing one-third less bandwidth on average, specifically citing a 45% reduction in buffering interruptions on TV devices. This performance is partially attributed to the 2025 productization of Film Grain Synthesis (FGS), which allows for cinematic detail at significantly lower bitrates.

Simultaneously, the competitive landscape is shifting toward specialized hardware and AI-driven intelligence. Per a MAXIMIZE market report (2026), while AVC maintains the largest share of production deployment at 84% due to legacy compatibility, AV1 is projected to reach a 57% combined reach by the end of 2026. This rapid ascent is being fueled by new licensing models, such as the Video Distribution Patent (VDP) Pool, which simplifies multi-codec licensing for HEVC, VVC, and AV1 under a single umbrella. Furthermore, per global reports (April 2026), over 60% of organizations now use AI/ML in at least one encoding workflow to manage the five-fold increase in processing complexity required by standards like VVC.

Standardization bodies are already looking beyond the current cycle to address emerging immersive media needs. Per ITU reports (January 2025), a joint workshop was held to begin establishing requirements for the "H.267" standard, which will prioritize ultra-low latency for VR and AR applications. This follows the 2026 publication of the fourth edition of the H.266 (VVC) specification by the ITU-T, reflecting a move toward codecs that can handle the 40ms total motion-to-photon delay required to prevent motion sickness in spatial computing environments.