The Windows 10 Anniversary Update, aka version 1607, has been found to leave many webcams inoperable. The update prevents the use of webcams in applications such as Skype and Open Broadcaster Software (OBS), along with all manner of custom CCTV programs. Extremely popular hardware, such as Logitech's C920 and C930e cameras, in conjunction even with Microsoft's own Skype, will fail to properly broadcast video.
People first noticed the issue earlier this month. But it's only within the last couple of days that the exact cause became clear via a post by Brad Sams on thurott.com.
Microsoft has said that a fix is in development, but has not yet said when that fix will be distributed.
The Anniversary Update changes some aspects of how Windows handles cameras, and the issue appears to affect both USB webcams and network-connected IP devices. Traditionally in Windows, only one program has been permitted to access a webcam at a time. If you're using the camera in Skype, for example, other applications such as OBS or the Windows Hello facial recognition cannot use the camera.
Windows 10 1607 includes a new component to address this. A system service called the Windows Camera Frame Server connects to the data streams from the webcams. Regular applications connect not to the camera hardware directly, but to this new frame server component. The frame server supports multiple connections from applications and shares the video data from the camera to every connected app. This puts an end to the "exclusive" use of devices, and it's arguably a change that Windows should have made long ago. Third-party software for sharing cameras between applications exists, but the operating system should support this scenario natively, as it already does for audio devices.
Microsoft explains that the design of the frame server is the issue.