Flash Lite 3 (and now 4) can be customized to support h.264 video but the license for h.264 needs to be purchased separately by OEMs. We often get questions on how much additional costs this is going to incur so I researched and here’s what I found. H.264 has a different licensing structure for devices and internet users. For non PC type devices, h.264 licenses is free upto 100K units and it costs $0.2 per unit upto 5 million units and $0.1 per unit after 5 million units. They cap the royalty at $5M for 2009-2010. (This information is picked from here).
So if you are planning on using Flash Lite with h.264, you’ll have to consider these costs.Often times third party vendors optimize the codec for a chipset and charge additional royalty. OEMs should consider these costs also for BOM calculation.
Now if you are planning on using h.264 with Flash on PC for broadcasting, the story is entirely different. H.264 is going to be royalty free to Internet sites that stream video using the technology as long as the video is free for viewers till 2015. But if the user is paying, there are costs involved by title per legal entity. There’s also a different licensing model for on-air broadcasts using h.264. I recommend researching online to find your exact situation to estimate BOM.