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I've been wondering since I've been using Windows as Windows Media Player have only some video formats supported and they have not been making it to support all the media formats, while softwares like VLC and KM Players have all the codecs in it. Also if that was due to patent problems then why VLC and KM Players are left in the market? Was that due to Open Source?

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Simple... The main reason is down to software patents - Microsoft is in America and have to follow American patent law where software patents are enforceable which means that to include them would mean paying royalties.

VLC is made by a team based in Europe where software is not patentable (well, under most non-business circumstances) which means that if they can reverse engineer/come up with a free alternative, they can include it for free without paying a penny in royalties.

Here is a page from Video Lan's webpage that explains a bit more how they are able to do it (and showing it is under threat) - http://www.videolan.org/press/patents.html

...This being said, Microsoft are supporting a heck of a lot out of the box, and it gets better with every release of Windows, but, they will never be able to play "EVERY" format on the market - and even with VLC it can take some serious time from a new format being released to a codec for playing.

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Microsoft has also can the approach that, if users WANT support for the codecs they are able to license, it will in the future be separate from the cost of Windows. This allows them to lower the cost of Windows 8 overall for everyone, and pass a small saving to those that want this support, since Microsoft can perhaps get better deals for those licences. –  Ramhound Oct 28 '12 at 12:32
    
If you install a codec page (eg. Shark007 codecs) then Windows Media Player (and Center) will happily play a whole raft of additional formats. It's not quite as forgiving as VLC - but handy for those people using their PC as a HTPC. –  Richard Oct 28 '12 at 13:15

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