You talk about royalties and how MPEG is so expensive, but did you
really have a look at the license terms? The h.264 are the cheapest
license terms for such a huge patent portfolio i've ever seen.
First 100'000 units per year are for free, and those over 100'000 are
a mere 0.2 USD per unit. I don't know how you calculate production costs,
but even administrative costs are higher than that. And please note that
only _paid_ products are included, anything that is given away for free
(like OSS) is royality free.
So, over all, h.264 has the same royalties like theora for OSS,
with the simple exception that you really know that you don't have
to pay for h.264 while it is always possible for someone to pop out
of nowhere demanding royalties for a patent violated by theora.
For commercial products the fees are negligible for h.264 and knowing
exactly what you have to pay makes it a much safer choice than theora.
Summa summarum, i have to say that the patent situation favors h.264 rather