<DOC>
[107th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:79464.wais]
ENSURING CONTENT PROTECTION IN THE DIGITAL AGE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
APRIL 25, 2002
__________
Serial No. 107-95
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
U. S. GOVERNMENT PRINTING OFFICE
79-464 WASHINGTON : 2002
___________________________________________________________________________
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COMMITTEE ON ENERGY AND COMMERCE
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL BILIRAKIS, Florida JOHN D. DINGELL, Michigan
JOE BARTON, Texas HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia SHERROD BROWN, Ohio
RICHARD BURR, North Carolina BART GORDON, Tennessee
ED WHITFIELD, Kentucky PETER DEUTSCH, Florida
GREG GANSKE, Iowa BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming BART STUPAK, Michigan
JOHN SHIMKUS, Illinois ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico TOM SAWYER, Ohio
JOHN B. SHADEGG, Arizona ALBERT R. WYNN, Maryland
CHARLES ``CHIP'' PICKERING, GENE GREEN, Texas
Mississippi KAREN McCARTHY, Missouri
VITO FOSSELLA, New York TED STRICKLAND, Ohio
ROY BLUNT, Missouri DIANA DeGETTE, Colorado
TOM DAVIS, Virginia THOMAS M. BARRETT, Wisconsin
ED BRYANT, Tennessee BILL LUTHER, Minnesota
ROBERT L. EHRLICH, Jr., Maryland LOIS CAPPS, California
STEVE BUYER, Indiana MICHAEL F. DOYLE, Pennsylvania
GEORGE RADANOVICH, California CHRISTOPHER JOHN, Louisiana
CHARLES F. BASS, New Hampshire JANE HARMAN, California
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska
ERNIE FLETCHER, Kentucky
David V. Marventano, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
------
Subcommittee on Telecommunications and the Internet
FRED UPTON, Michigan, Chairman
MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas BART GORDON, Tennessee
CLIFF STEARNS, Florida BOBBY L. RUSH, Illinois
Vice Chairman ANNA G. ESHOO, California
PAUL E. GILLMOR, Ohio ELIOT L. ENGEL, New York
CHRISTOPHER COX, California GENE GREEN, Texas
NATHAN DEAL, Georgia KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming BILL LUTHER, Minnesota
JOHN SHIMKUS, Illinois BART STUPAK, Michigan
HEATHER WILSON, New Mexico DIANA DeGETTE, Colorado
CHARLES ``CHIP'' PICKERING, JANE HARMAN, California
Mississippi RICK BOUCHER, Virginia
VITO FOSSELLA, New York SHERROD BROWN, Ohio
ROY BLUNT, Missouri TOM SAWYER, Ohio
TOM DAVIS, Virginia JOHN D. DINGELL, Michigan,
ROBERT L. EHRLICH, Jr., Maryland (Ex Officio)
CHARLES F. BASS, New Hampshire
LEE TERRY, Nebraska
W.J. ``BILLY'' TAUZIN, Louisiana
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Blanford, Lawrence J., CEO, Philips Consumer Electronics..... 38
Chernin, Peter, President and Chief Operating Officer, News
Corporation................................................ 19
Jacobson, Larry, President and Chief Operating Officer,
RealNetworks............................................... 43
Kraus, Joe, Co-Founder, DigitalConsumer.org.................. 54
Liao, Paul F., Chief Technology Officer, Panasonic/Matsushita
Electric Corporation of America............................ 31
Litai, Assaf, Founder and Acting CEO, Vidius................. 50
Parsons, Richard D., Co-Chief Operating Officer, AOL Time
Warner Inc................................................. 27
Material submitted for the record by:
Association for Competitive Technology, prepared statement of 86
Griffin, Steve, CEO and Chairman, StreamCast Networks, Inc.,
prepared statement of...................................... 90
Rosen, Hillary,, President and CEO, Recording Industry
Association of America, prepared statement of.............. 99
Shapiro, Gary J., Chairman, The Home Recording Rights
Coalition, prepared statement of........................... 102
Valenti, Jack, President and CEO, Motion Picture Association
of America, prepared statement of.......................... 92
Video Software Dealers Association, prepared statement of.... 94
(iii)
ENSURING CONTENT PROTECTION IN THE DIGITAL AGE
----------
THURSDAY, APRIL 25, 2002
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Telecommunications
and the Internet,
Washington, DC.
The subcommittee met, pursuant to notice, at 12:30 p.m., in
room 2123, Rayburn House Office Building, Hon. Fred Upton
(chairman) presiding.
Members present: Representatives Upton, Barton, Stearns,
Gillmor, Deal, Shimkus, Fossella, Davis, Bass, Terry, Tauzin
(ex officio), Markey, Eshoo, Engel, Green, McCarthy, Luther,
Harman, Boucher, and Sawyer.
Also present: Representative Walden.
Staff present: Jessica Wallace, majority counsel; Linda
Bloss-Baum, majority counsel; Will Nordwind, majority counsel;
Hollyn Kidd, legislative clerk; Andy Levin, minority counsel;
and Brendan Kelsay, minority professional staff.
Mr. Upton. Today's hearing is on ensuring content
protection in the digital age, and while our inquiry starts
with the important question of how this impacts the transition
to digital television, our subcommittee's interest is, of
course, much broader.
The DTV transition deadline of 2006 is fast approaching. So
time is of the essence. This hearing follows on the heels of
several lengthy DTV roundtables which Chairman Tauzin held with
myself, Mr. Dingell, and Mr. Markey, at which representatives
of the major, relevant industries discussed, sometimes fiercely
debated, the obstacles which stand in the way of a successful
and timely transition to digital television and how we can
overcome those obstacles.
Many issues, such as cable compatibility and must carry,
have been touched upon in our roundtables, but perhaps the one
issue that has dominated the agenda has been content
protection. Clearly, this issue needs to be addressed if we are
to succeed with the transition.
I truly believe that the best solution is a private sector
solution. Yet inter-industry agreements have been elusive to
date. I know, through over 8 hours of roundtables, that these
issues are complex both legally and technologically. But if we
can put a man on the moon, then I am optimistic that, with the
right amount of pressure from Congress, the industries, and
consumers, which have the best engineers and minds in the
world, we can do anything that we set our minds to.
So the questions I have are these. How long can, or should,
we wait for those deals to be struck in light of the impending
deadlines on the transition to digital?
Do the industries have the right processes in place to come
up with a fair plan to all, including consumers, and one that
will not stifle technological innovation in the future? And
what, if any, is the proper role of government?
We have heard that three content protection issues have
been identified in apparent order of degree of technical
difficulty. From easiest to hardest, they are: (1) the
broadcast flag; (2) the analog hole; and (3) peer-to-peer.
Earlier I mentioned putting a man on the moon, and I am
reminded of how our Nation achieved that objective. President
Kennedy laid out the first challenge. Then the engineers came
about solving the problem. First, we put chimps into orbit and,
once that was done, we put men into orbit, and after that we
finally put a man on the moon. The point is that it was not all
done in one step. It was done step by step.
In today's context, the question becomes: If we can get the
broadcast flag done and maybe the analog hole, will that be
enough, for the sake of the DTV transition, to unleash the
content as we continue moving forward on the other content
protection issues? And will, or should, Congress or the FCC be
needed to ratify any such deals to ensure consistent compliance
amongst all manufacturers?
In all of this, we cannot lose sight of the fact that this
is about the consumer. The consumer wants to continue enjoying
great American movies, whether it be ``Saving Private Ryan,''
``Lion King,'' ``Band of Brothers,'' but if that content is
continuously ripped off and illegally transmitted with one
click to the rest of the world on the Internet, then we will
see a decline in the studios' ability to make them.
Consumers also enjoy great home entertainment equipment and
certain expectations regarding ``fair use'' rights, and we, as
Members of Congress, must vigilantly guard those rights as we
make our way through this important debate.
It is a delicate balancing act, but one which is as old as
Article I, Section 8 of the Constitution itself. I am confident
that even Ben Franklin, as he was exploring science with his
kite and his key in the thunderstorm, never could have dreamed
of the digital technology, let alone motion pictures, DVDs, the
Internet, Morpheus, and the like. Hence, fast forwarding to
today, it is this Congress' burden to help sort out how to
rationally protect content in the digital age, and that is what
I hope can be accomplished someday, if not today.
I look forward to hearing from today's panel of witnesses
to help us through these issues, and I am excited that our
subcommittee will be the first to use our committee's latest
technology to hear from one such witness remotely, Mr. Chernin
of News Corp all the way from Los Angeles. I tip my hat to
Chairman Tauzin and Ranking Member Dingell for their foresight
in bringing our committee room into the 21st century.
I yield to my friend and colleague, the ranking member of
the subcommittee, the gentleman from Massachusetts. I am sorry
we are not going to put up the Orioles-Boston game up here, but
you can watch the Cubs at some point later on. The gentleman is
recognized.
Mr. Markey. I thank the gentleman very much, and that
digital technology is so sensitive that we actually have to put
black screen up there so that people know that it is not
broadcasting some other more sensitive piece of information.
I want to commend you, Mr. Chairman, for calling this
hearing today on a variety of issues related to digital rights
management. Today's hearing will enable the subcommittee to
explore policy questions related to the digital television
transition, and will also raise other issues regarding consumer
rights related to the recording data, transferring data from
device to device, and whether consumers will have the ability
to upload information and transmit it on the Internet.
Both of the general topics to be raised at the hearing
today are important, and both probably warrant a series of
hearings on their separate sets of questions, implications and
possible solutions. Hopefully, by throwing them together today,
we can get a quick check on the status of various industry
segments as well as what other broader consumer implications
exist.
First, I want to talk about the digital television
transition. It is readily apparent to even the casual observer
that the DTV transition remains largely stalled, and even where
progress is being made, it represents marginal progress at
best. We are already a number of years into the transition
with, frankly, little to show for it.
It is clear that, if we keep up the current pace of
transition, we are also years and years away from the digital
denouement of this industrial policy for television, and I
think that it is a key element of the transition simply
acknowledging that it is, in fact, industrial policy, whether
we want to say those words or not.
We gave the broadcasters' spectrum worth billions of
dollars for free. We linked the industry an additional six
megahertz for a transition period, and we set benchmarks for
when they had to get their stations up and running. After the
transition, we expect to receive back spectrum from the
broadcasters.
Having embarked upon this policy, policymakers have not put
in place the relevant and necessary rules to ensure that the
transition is both timely and successful. As important as it is
to exhort the industry to do more, and as welcome as it is to
call upon industry leaders for voluntary efforts, such
hortatory rhetoric is no substitute for real action, because
voluntary efforts alone will not achieve our important policy
objectives.
That is because, at its core, the DTV transition represents
a government driven policy, not a purely market driven
phenomenon. Therefore, it is imperative that government do more
to create the conditions and environment for policy success.
Failure to do so is unfair to consumers, taxpayers, and to the
various high tech industries with a stake in the future of
television.
With respect to the other half of today's hearing related
to digital rights management generally, I welcome today's
glimpse at some of the issues raised by the increased
digitalization of content and the repercussions raised by the
success and growth of the Internet. Content creators have not
only an understandable interest but also a right to the
protection of their creative works from theft and infringement.
Our society has long recognized and respected this right.
In the post-NAFTA, post-GATT economy, we have made an
economic decision as a country that, as the many low wage, low
tech manufacturing jobs migrate abroad, we should compete for
high end, high tech, knowledge based jobs and markets in a
global economy. Because such products are often ephemeral, we
must protect such content from piracy, because our economic
future depends in part upon such protection.
When content creators and owners are fearful of putting
content into digital form and distributing it for fear of
infringement and theft, the marketplace is unnecessarily
depressed, and consumers either pay far too much for such
content or can't receive it at all. Reassuring content creators
and owners that the risk of such illegal conduct is minimal
will help make such digital content more available.
We must recognize, however, that not all consumers are
potential pirates, and not all subsequent use of digital
content by consumers represents infringements. I think it is
important to underscore the principle of fair use, and note at
the outset that it is called fair use, not home use.
If I have a right to record information consistent with the
fair use doctrine, I would hope that, for purposes of education
especially, we ensure that information for the classroom and
for academic research is not so encoded and locked up that
libraries or schools cannot utilize such material efficiently
to educate and enlighten.
I also hope that, while technologists work on broadcast
flags or other content protective measures, we anticipate and
construct a policy that is Internet friendly. If the digital
era of the future will permit me to record certain content in
digital form on a digital disk, it will seem quaintly analog to
tell consumers that they then cannot use the broadband Internet
to transmit that information instantly to a brother-in-law out
in Seattle. Instead, they will have to put that disk in a FedEx
envelope and spend $15 to get it out overnight.
The broadband Internet of the future should not be
envisioned solely for commercial downloads. It must be
interactive, and it must permit law abiding consumers the right
to speak and communicate digitally as well.
I understand that current technology may not yet permit
such a policy, but current discussions should not close the
door on such Internet friendly, copyright respecting conduct
and conduit. We must put faith in technology to solve some of
the problems that technology itself poses.
I thank the chairman very much for allowing me the
opportunity at a little extra length to make my opening
statement.
Mr. Upton. Recognize the chairman of the full committee,
Chairman Tauzin.
Chairman Tauzin. Thank you, Chairman Upton. Let me deeply
express my appreciation to the witnesses today who will again
help us to understand the gaps that still need to be closed in
resolution of the very serious and complex issues of protecting
digital content in this new age.
I want to particularly thank Chairman Upton, Mr. Dingell,
Mr. Markey, and Mr. Boucher who has been participating with us,
for their assistance in the roundtables. I think it is
important that I go on the record and explain what we have been
doing in these roundtables.
These roundtables have not been an opportunity for people
to come and tell us what they think we ought to pass into law,
quite the opposite. The roundtables have been our effort to
help facilitate a discussion over the many disciplines involved
in this transition to a digital television age to see if, in
fact, we can encourage and help frame some of the debate going
on in the marketplace where the agreements have to be reached
and the technologies have to be developed and the standards
have to be agreed upon and the actual industry-to-industry
conversations need to occur if, in fact, many of these thorny
issues are going to be settled outside of Congress having to
mandate technologies and standards.
The roundtables have been extraordinarily successful, and I
thought it was time, as did Chairman Upton, that we go on the
public record to talk about just how much progress has been
made, how close we are to finding resolutions on some of these
thorny issues in the marketplace rather than through
legislation, with the notion that, if agreements can be
reached, if understandings on content protection and
simultaneously protecting the right of consumers, who happen to
be our constituents, in the exercise of their fair use of
digital products in the same, although the vague way, they
appreciate their capacity to copy products in the analog world
and to use them in their home systems, etcetera, and that we
can reach agreements on interoperability standards and
agreements on transmission of the new digital signals in a way
that when consumers buy these products, they are not going to
wake up to find out that everything has been down-res'ed, which
is an interesting term meaning intentional degrading of the
resolution of the signal.
If consumers can be assured that, when they purchase
equipment, they can plug it in and play it anywhere in America
and that it is interoperable, whether it is a satellite system
or a cable system or a telephone system or wireless broadband
system that is delivering the signal, and the signal will reach
them in the same quality form it was being produced--If all
those agreements can be reached and we are left with the simple
task of codifying some agreements, where necessary, and/or
providing enforcement for those agreements so that all the
players agree to live by the terms of those agreements, that
will be the ideal best world.
The worst world will be if progress at these roundtables
stops and the interdisciplinary, inter-industry discussions end
without agreement, and we are asked instead to legislate on
standards and technologies and content protection agreements.
The roundtables have been successful to date. They have
been successful, because they have allowed members of industry
to challenge one another and to do it in front of their own
peers. They have had to explain why they have yet to reach
agreement and why they can't come to agreement, and why perhaps
their agreement is holding up others from making their
agreements and for this process to work.
I can tell you two things that are absolutely certain. We
are determined to stick with our schedule. Congress mandated
the broadcasters to be in the digital world by the year 2006.
We are going to do everything in our power to meet that
schedule. Second, we are going to do everything in our power
from this committee level, and I know in the Congress, to make
sure that consumers are the big beneficiaries of this
transition.
As we enter this digital world where incredible new
products are going to be made available, not just through the
PC modems but through the empowering and enabling the
television set in our homes to become conduits for this massive
amount of new information, entertainment, education, commerce,
even health care and who knows what else, that consumers will
be the big winners and we take them through this transition in
a way that doesn't burn them, doesn't unnecessarily cost them.
We must ensure that they don't have to constantly purchase new
equipment and new technology because we have suddenly made last
year's model obsolete by some decisions we made here. That is
going to be pretty critical.
The thing I most want to avoid and I suspect all of us on
this panel most want to avoid, is a situation where those of
you who have already committed yourselves so well to this
process, who are beginning to make the big investments, the
cable companies who are making the investments and upgrading
their systems, the broadcasters who are putting out the digital
transmission equipment and beginning to do high definition
content, the studios that are beginning to do more and more
high definition, digital content--I want to applaud CBS in
particular because of the great efforts they have made, and
urge the others to follow suit in creating and airing quality
through high definition content.
I would hate to see those of you who are beginning to do
that suddenly say that I had better stop, because progress has
not been made on the other important issues about distributing
these programs and making sure that technologies and electronic
equipment are all designed around the agreements made to both
protect content in a digital age and protect consumers'
legitimate rights of fair use.
Those are tricky, thorny questions, but I am delighted you
have all come to share the progress you have made. I have asked
Chairman Upton and the members of our committee to make sure
that this hearing does not drive you further apart but brings
you closer together, and that everything we do accommodates the
constant dialog that must occur if all the various elements of
this tricky transition will come together in a way that
consumers benefit and we stick to this timetable.
That is a healthy agenda, but I thank you for coming to
help us work it out. Thank you, Mr. Chairman.
Mr. Upton. Thank you, Mr. Tauzin. I would note for the
record that any member that is not here, their statement, if
they prefer, be entered into the record under unanimous
consent. I know Mr. Dingell is one of those.
Recognize for an opening statement Mr. Boucher.
Mr. Boucher. Thank you very much, Mr. Chairman. I
appreciate your focusing the attention of the subcommittee
today on the co-equal need to protect copyrighted material
against piracy and to respect and to reaffirm the time honored
fair use rights of the consumers of that same material.
With the arrival of content in digital form and with a deep
penetration of Internet usage, the striking of a reasonable
balance between the rights of copyright owners and the rights
of the users of copyrighted material has become both more
urgently needed and more difficult to achieve.
This hearing evolves from our earlier discussions on
facilitating the digital television transition. An element of
those discussions was the need to protect from unauthorized
copying and from uploading to the Internet the digital TV
transmission of high value programming. It is essential that
this protection be provided so that program originators will
release their high value material for digital television
broadcast.
The transition to digital television will never be truly
effective if the most desired programs are not available. So
copyrighted programs must be protected, but there is a co-equal
need. The time honored fair use right of the consumers of
digital material to make recordings for noncommercial personal
use and for personal convenience must be respected and must be
specifically affirmed.
The fair use right of consumers to convey digital material
they have lawfully acquired among a wide range of digital
devices in the home setting and beyond the home setting to
other personal spaces, including the car and the personal
office and anyplace to which that consumer of digital
information may travel, must also be respected and observed.
This committee, Mr. Chairman, is an excellent forum for
addressing these challenges and striking the essential balance
between copyright owner rights and user rights that are so
essential in this digital era. There is a right way and a wrong
way to protect content in digital TV transmissions.
The right way is to look to the affected private sector
entities for a technical solution, and on that front truly
impressive progress is being made. The Broadcast Protection
Discussion Group of the broader Copy Protection Technical
Working Group is comprised of digital equipment manufacturers
and the major motion picture studios.
The Group has already developed a standard for the
protection of digital television signals that arrive in the
home by means of cable TV or by means of satellite. These
signals pass through a set top box that can both protect the
content from unauthorized copying and allow home recording for
personal use in appropriate, clearly defined circumstances.
That same Working Group is now very close to agreeing upon
a standard broadcast flag for the protection of programming
that is delivered by digital television broadcast over the air
to be received by antenna or by rabbit ears.
That standard would also honor the fair use right of
television viewers to make copies for personal use, and work is
continuing by another group to address the problem of the so
called analog hole through which a highly technical and
cumbersome process can provide an avenue for uploading of
material to the Internet by means of the digitization of analog
content. A watermark standard to close the analog hole is in
development by another working group.
I want to take the opportunity of this hearing today to
congratulate the Working Group companies on the impressive
successes that they are achieving. I also commend them for
respecting the fair use rights of television viewers as the
various technical standards have been developed and approved by
the Group.
The Working Group approach is the right way to proceed, and
it is achieving solid results. I will be interested to learn
from witnesses today and in other future forums the extent to
which the protection of content delivered over cable and
satellite, which has been achieved, and the protection of over-
the-air delivered content, which the Group is on the verge of
achieving, is sufficient to persuade the studios to release
their highest value content for digital television
transmission.
The wrong way to proceed is for Congress to act
prematurely, and I am concerned by all of the conversation that
has been directed in the last month to an approach recommended
in the Senate, which would clearly have the Congress act in a
premature fashion.
Legislation has been introduced in the Senate that would
have the government develop technical content protection
standards. The fair use rights of consumers would not be
guaranteed through that measure.
There is every probability that a government standard would
impede the functionality of digital receivers, players and
recorders. This is clearly the wrong approach, and the progress
being made by the private sector Working Group renders that
approach not only inappropriate but also clearly unnecessary.
After private sector standards are developed, there may be
a role for the government to assure that devices employ the
standard. At that time, we can be assured that the
functionality of players, receivers, and recorders will not be
impeded.
We can be assured that consumer fair use rights will be
protected, and that copyrighted material will be safeguarded.
Mr. Chairman, I suggest that we not act until we have received
those assurances.Thank you again for conducting this hearing,
Mr. Chairman, and a warm welcome to all of our witnesses.
[The prepared statement of Hon. Rick Boucher follows:]
Prepared Statement of Hon. Rick Boucher, a Representative in Congress
from the State of Virginia
Thank you, Mr. Chairman for focusing the attention of the
Subcommittee on the co-equal need to protect copyrighted material
against piracy and to respect and reaffirm the time honored Fair Use
Rights of the consumers of the same material.
With the arrival of content in digital form and with a deep
penetration of Internet usage, the striking of a reasonable balance
between copyright owner rights and the rights of the users of
copyrighted material has become both more urgently needed and a great
challenge to achieve.
This hearing evolves from our earlier discussions on facilitating
the digital television transition. An element of those discussions was
the need to protect from unauthorized copying and uploading to the
Internet the digital TV transmissions of high value programming.
It is essential that this protection be provided so that program
originators will release their high value material for digital TV
broadcast. The transition to digital TV will never be effective if the
most desired programs are not available. And so, copyrighted
programming must be protected.
But there is a co-equal need. The time honored Fair Use Right of
the consumers of digital material to make recordings for non-commercial
personal use and convenience must be respected and specifically
affirmed. The Fair Use Right of consumers to convey digital material
they have lawfully acquired among a wide range of digital devices in
the home and the extended personal setting including the car, the
personal office and places to which the person may travel must be
respected and observed.
This Committee is an excellent forum for addressing those
challenges and striking the essential balance between copyright owner
rights and user rights in the digital era.
There is a right way and a wrong way to protect content in digital
TV transmissions.
The right way is to look to the affected private sector entities
for a technical solution. And on that front impressive progress is
being made. The Broadcast Protection Discussion Group of the broader
Copy Protection Working Group is comprised of digital equipment
manufacturers and the major motion picture studios.
The Group has already developed a standard for the protection of
digital TV signals that arrive in the home by means of cable TV or by
satellite. These signals pass through a set top box that can both
protect the content from unauthorized copying and allow home recording
for personal use in appropriate defined circumstances.
The same Working Group is now very close to agreeing upon a
standard broadcast flag for the protection of programming delivered
over the air to the home for receipt by an antenna or by rabbit ears.
That standard would also honor the Fair Use Right of TV viewers to make
copies for personal use.
And work is continuing by the group to address the problem of the
so called analog hole which through a highly technical and cumbersome
process can be an avenue for the uploading of material to the Internet
by means of the digitization of analog content. A watermark standard to
close the analog hole is in development by the Working Group.
I congratulate the Working Group companies on the impressive
successes they are achieving. I also commend them for respecting the
Fair Use Rights of TV viewers as the various technical standards are
approved by the Group.
The Working Group approach is the right way to proceed and it is
achieving solid results. I will be interested to learn from our
witnesses today the extent to which the protection of content delivered
over cable and satellite which has been achieved and the protection of
over the air delivered content which the Group is on the verge of
achieving is sufficient to persuade the studios to release their
highest value content for digital TV delivery.
The wrong way to proceed is for Congress to act prematurely. A
measure has been introduced in the Senate which is premature. It would
have the government develop technical content protection standards. The
Fair Use Rights of consumers would not be guaranteed.
There is every possibility that a government standard would impede
the functionality of digital receivers, players and recorders.
This is clearly the wrong approach and the progress being made by
the private sector Working Group renders it not only inappropriate but
also unnecessary.
After private sector standards are developed, there may be a role
for government to assure that devices employ the standard. At that time
we can be assured that the functionality of devices will not be
impaired, that consumer Fair Use Rights will be protected and that
copyrighted material will be safeguarded. We should not act until we
have those assurances.
Mr. Upton. Thank you. Recognize for an opening statement
Mr. Stearns, the vice chairman.
Mr. Stearns. Thank you, Mr. Chairman, and I want to
congratulate you for holding this hearing to examine content
protection in the digital era.
Of course, I want to commend Chairman Tauzin for his
tireless leadership in conducting several TV roundtable groups.
As he has pointed out, they have been very helpful.
As we discuss content protection in the digital era, the
groups with the most to gain and lose from the digital
transition are copyright holders of digital content and
manufacturers and information technology companies that
facilitate such content.
For instance, the average cost of making and marketing
films is now about $80 million a film. Collectively, however,
the copyright industry generates almost $80 billion abroad, and
such investments certainly need protecting. As such,
intellectual property laws give creators the incentive and
protection they need to make their works available to
consumers.
Mr. Chairman, in passing the Digital Millennium Copyright
Act, Congress updated U.S. copyright law for the digital age by
affording copyright owners protections, while establishing fair
use for technology in a digital environment. Digital media also
creates a new opportunity for new forms of copyright
infringement, and new concerns about fair use of copyrighted
works and other long established copyright principles.
A recent article in a Wired magazine, May 2002, highlights
a man named, ``Lord of the Borrowers.'' He used the Internet
and peer to peer applications to accumulate nearly 2,500
movies, video, and software titles, and in turn contributing to
the illegal transfer of copyrighted works, including 3,000
songs and movies such as ``Harry Potter'' and ``A Beautiful
Mind.'' Such actors are no different than those who walk into
Blockbuster's movie rental and steal merchandise.
In this article it talks about this man in his home. He has
music piped into his bathroom, his living room, his kitchen.
Every corner of his home has music, with a 28-speaker stereo
system that cycles 3,000 songs ranging from 200 from Elvis
Presley tunes and all the early Beatles to classical, hip-hop,
blues and concert, all that he bootlegged, even Axl Rose doing
``White Christmas.''
He says, ``I had enough music to run a radio station,'' he
brags. ``I could let it play for weeks and weeks, and it would
never run out.'' He hasn't spent a dime, and his only real
connection comes in the form of a cable modem--``Lord of the
Borrowers.''
Mr. Chairman, I would like unanimous consent to put this
article in the record.
Mr. Upton. Without objection.
Mr. Stearns. As a result, the prevention of unauthorized
copying of digital work has grown in importance in such
technologies being continually developed and improved upon by
media and electronic industries. However, there remains several
outstanding issues regarding technology, technical industrywide
solutions.
The parties appear close to reaching agreement pertaining
to broadcast flags in order to prevent broadcast programs
exhibited on over-the-air TV stations from being redistributed
without authorization. Additionally, protecting digital content
in the analog format, or plugging the analog hole, serves as a
means of protecting intellectual property.
While these two issues appear to be imminently resolved--
immediately resolved, the parties seem far from reaching
consensus on how to treat peer to peer applications which allow
for distribution of files across the Internet without the need
of a centralized server.
Nevertheless, as pointed out by the chairman, we have the
opportunity to solve these problems, and I think the private
industry is the best way to solve these at this point, and not
have mandates from the Federal Government. As so often happens,
the Federal Government sometimes strangles innovation.
Finally, Mr. Chairman, while we are quick to protect the
investment of content owners, we must balance it out to be
doubly sure we protect the rights of consumers. It is
imperative that all parties continue to recognize consumers'
rights to personal, noncommercial use of the legally purchased
copyrighted materials.
Additionally, neither Hollywood nor manufacturers would be
profitable without consumers. As such, we need to respect
consumers' investment in such technology and ensure that their
investments are not made obsolete with efforts to protect
content.
Mr. Chairman, I again commend you for your hearing.
Mr. Upton. Ms. Harman.
Ms. Harman. Thank you, Mr. Chairman. I have a statement for
the record, but just want to summarize with a few points.
First of all, the issues we assess today have a huge impact
on the digital world, and I am trying very hard to wrap my
aging analog brain around them. Second, this is an excellent
panel and a stellar group in the first row right behind it, and
their spectrum of views is most welcome.
Third, what we do and, just as important, what we do not do
really matters in this case. We have had a few hearings lately
that I thought mattered a bit less than this one. This one will
really make a difference.
So I would just set out a few principles we ought to think
about. The first is that government should do no harm. That has
been said often, but here we are in a position to do a great
deal of harm if we do the wrong thing.
The second is that the transition to digital is not just a
question of supply. It is a question of demand, and the demand
will not be there if high value content is not there, and high
value content will not be there if we don't protect
intellectual property. So we had better get that part right.
The third point is that the private sector has a great deal
to offer here. There are market mechanisms and, as we have
heard, cross-industry mechanisms that can do a lot of the hard
work, and perhaps do it better than we can do it.
Fourth, government has a tendency to operate with a sledge
hammer. In this case, operating with a scalpel is absolutely
required.
So I look forward to the testimony today. I have got some
questions for some of the witnesses. This is going to take hard
work. We are going to earn our pay getting this thing right,
and I look forward to being a part of the bipartisan solution
on this committee. Thank you, Mr. Chairman.
Mr. Upton. Thank you.
Mr. Shimkus.
Mr. Shimkus. Thank you, Mr. Chairman. I know this is a
tough issue. I am going to listen to the panel. I just remind
people who have been before this committee before, my first
experience is with my wife, who is a church organist, when she
went through the reams of music and took out all the Xeroxed
copies of music and threw them in the trash can because she
wanted to respect the intellectual rights of the folks who
wrote the music.
It was not a positive thing for the members of the church
to see, but it was the right thing to do, because those people
who write the music, who prepare that, need to be compensated
if we continue to want artists to flourish. But this is a hard
issue. You all are the experts. We are going to ask a lot of
questions. We look forward to your testimony.
I yield back my time. Thank you.
Mr. Upton. Mr. Green.
Mr. Green. Thank you, Mr. Chairman. I want to commend you
for holding this hearing today, but I want to start out by
commending Chairman Powell and the FCC for their recent action
on the HDTV transition. His letter outlining voluntary steps to
broadcasters, cable companies, and consumer electronics folks
each need to take--and the steps each need to take was crucial
to speeding the digital transition.
The subcommittee, I think, can and will impose a mandatory
solution to move the digital transition forward, but I hope we
do not have to go down that path. For all parties interested in
the DTV transition, I fully support the goals outlined in
Chairman Powell's letter. Then I want to see the goals
implemented in a timely manner through good faith and
cooperation, hopefully, of all the parties. However, if these
goals cannot be reached on a voluntary basis and there is
continuing dispute, then I would share in any action initiated
by Chairman Powell.
Mr. Chairman, now I want to talk about the public policy
purposely excluded from the Powell letter. The missing
component was anything to do with digital rights management or
DRM. DRM is the protection of digital content that flows to
computers, high definition TVs, and various home entertainment
systems.
Why is DRM important? Because without it, we have no
protection for copyrighted works. Creative minds should be able
to profit from their creations through the copyright system.
Many American consumers, though, feel that digital is free and
can be obtained through the many peer to peer sites operating
around the world.
The idea that this digital content is free or should be
free will be a difficult mindset to break. However, it now goes
directly to the heart of the DRM problem. My constituents have
now placed a value on this type of content, and that value is
free. Rightly or wrongly, declining music CD sales seem to
indicate that consumers are no longer willing to pay $12 for a
CD. So how do we work this consumer preference into the context
of DRM?
One approach is the Hollings bill, and I oppose that
approach. It is overly broad and penalizes consumers who have
never or will never obtain illegally copied digital content.
Piracy is a serious issue, and it should be addressed, but I am
very hesitant for Congress to get too involved.
My hope is the broadcasters, content providers, and
consumer electronics folks will move to develop a solution
among themselves. It must be targeted, and it must only be in
response to the new content distribution methods from the movie
and the music industries. The software industry is already
marketing their products over the Internet with full DRM
protection, and they should be the model.
Mr. Chairman, at the end of the day, it is the consumer who
has to benefit from any changes or agreements on this issue,
and I hope to support legislation that has broad industry
support and a tightly defined focus.
Again, I thank the chairman for this hearing today.
Mr. Upton. Thank you.
Mr. Bass.
Mr. Bass. I thank the chairman for holding this hearing,
and I also want to make note of the fact, this is actually my
first hearing on this subcommittee, and it is a real honor to
be here, especially with my friend from Massachusetts. Now we
have a chance of really bringing a well deserved recognition to
the Red Sox and the Celtics and the Bruins and, of course, our
Super Bowl Patriot champions.
Indeed, Mr. Chairman----
Mr. Upton. With a Michigan quarterback, I want you to know.
Mr. Bass. I am also pleased to be participating in this
hearing because of its significance. Digital content
protection, as many have said before, is not a simple issue. It
is not going to be resolved through a formula or a Federal law
or regulation that will resolve this issue.
I think, although it is best that it be left to those who
have created and those who will employ the digital
infrastructure, content protection and so forth, and understand
the complexities best, I also feel that Congress needs to
ensure that excess consumer costs and unreasonable inhibition
on personal use are kept to a minimum, as has been said by
other members of this subcommittee.
These are very complex, and I am looking forward as the
newest member of this subcommittee to gaining a better
understanding and being an active participant in the resolution
of these issues, and I yield back.
Mr. Upton. Mr. Luther.
Mr. Luther. Thank you, Mr. Chairman, and I also want to
thank you for holding this important hearing. As has been
mentioned, the crux of the issue before us is really twofold.
First, do market forces provide adequate incentives for the
private sector to form constructive partnerships between
content providers, the information technology industry, and
electronics manufacturers to develop commercially viable
encryption technology where the property rights of content
providers are adequately protected, or do market forces make it
difficult for all of the relevant industry players to come to
some sort of meaningful consensus?
Of course, were market forces sufficient, then
Congressional action would be largely unwarranted. I am
interested in reviewing the perspectives of our panelists on
this issue.
Second, if in fact market forces are insufficient in
creating incentives for such technological innovations, the
next question becomes exactly how forceful of a nudge does the
private sector require from Congress? In this regard, I think
we need to better understand to what degree a Congressionally
mandated technological standard would inhibit the high tech
community from adapting to a rapidly and ever changing digital
environment.
Do the various parties require only strict government
enforcement of existing copyright law or should the government
step in and involve itself in determining the actual baseline
standard by which digital technology must abide?
It goes without saying that our deliberations today should
ultimately serve the American consumer. After all, we are
trying to aid the development and promise of digital television
and facilitate the application of high speed data services,
both of which should ultimately benefit the average citizen.
As long as keep the public in mind and avoid focusing on
potentially factional disputes, I believe that our committee
can be helpful in ushering in the promise of the digital age.
Thank you, Mr. Chairman, and I yield back the balance of my
time.
Mr. Upton. Mr. Davis.
Mr. Davis. I am eager to hear the panel. I ask unanimous
consent my statement go in the record.
Mr. Upton. All members have that right. Thank you.
Ms. McCarthy.
Ms. McCarthy. Thank you very much for holding this hearing,
Mr. Chairman, and I would ask unanimous consent that my
statement be placed in the record, so we can get on to the
substance at hand and the panels that have come before us
today.
Mr. Upton. Extra credit. Thank you.
Mr. Terry.
Mr. Terry. I will submit my statement, since I have an
eight o'clock flight.
Mr. Upton. Tomorrow or today?
Mr. Sawyer.
Mr. Sawyer. I will submit mine as well, Mr. chairman.
Mr. Upton. Ms. Eshoo.
Ms. Eshoo. I am not leaving until 7:30 tomorrow morning.
Thank you, Mr. Chairman, and first of all, welcome to our
very impressive panel that is here today, and most especially
to Joe Kraus, who is the founder of Excite.com. He is from Palo
Alto, which is the heart of the most distinguished
Congressional district in the country, and he has made
significant contributions to the Internet age through his
companies and now through the organization that he founded,
DigitalConsumer.org. Thank you for being here, and we are proud
that you are a witness.
This hearing gives our committee the opportunity to discuss
the status of protection and distribution of digital content.
Various technology associations have called for a national
broadband policy with goals of having broadband in 100 million
homes in 10 years. If we are going to achieve these lofty
goals, we need to examine what the barriers are that prevent
consumers from getting the content they prefer.
At times, the promise of broadband and digital television
seem really farther off than we would have hoped. I wish myself
I had at least a quarter for every time we have had a hearing
here on digital TV and have all the reports from the industry,
but we can attribute at least part of the lagging pace, in my
view, to the complexities that are associated with protecting
content.
So finding a solution to this problem, in my view, is not
going to happen quickly, and I think that it really
necessitates the concentrated efforts of all the affected
industries. If there was ever a market that would force
companies to come together and find a solution, I think this is
it.
Content creators lose hundreds of thousands of movies to
illegal downloads over the Internet, and the software industry
loses $11 billion annually to piracy. So there is one heck of
an economic incentive in this for people to come together. This
is a huge problem, and the industries, obviously, have a vested
interest in solving it.
The economic impact has resulted in the formation, as
several of my colleagues have pointed to, of working groups
that have used the combined expertise of many engineers to find
methods of protecting digital content. I think the government
should be monitoring that progress very closely from the
sidelines, rather than inserting itself into the process.
Legislation that could result in a single technological
mandate brings with it numerous problems. First, it will
stifle, in my view, the progress made by the inter-industry
working groups by imposing unnecessary bureaucratic procedures
and injecting the Federal Government into engineering
decisions. We are not good at that. We don't know how to do
that.
Second, once a particular technology is selected through
this process, it could create a single point of vulnerability,
making it susceptible to hackers and cumbersome to correct.
Finally, rather than finding a workable market solution, an
imprudent mandate could require millions of dollars in
engineering changes that, in the end, would obviously be passed
on to consumers.
So let me say last that I think that Mickey Mouse and
Silicon Valley have to create a yellow brick road to hold hands
and walk down together, and I look forward to the testimony
that we are going to hear today. I think it is going to be
very, very important for us to, obviously, take into
consideration as we look to see what policies, if any, the
Congress should be making in this area. Thank you.
Mr. Upton. Thank you. That concludes the opening
statements. You can tell, because of the interest--appearance
of the members as well as the length of the statements, the
keen interest on this topic, and we are delighted to now let
the witnesses speak.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Tom Davis, a Representative in Congress from
the State of Virginia
There were two salesmen driving around in the country when their
car broke down. It was late in the evening, so they decided to walk
over to a nearby farmhouse and ask if they could spend the night. A
recently widowed woman answered the door. When they told her of their
plight, she told them it would be inappropriate to let them sleep in
the house since she had just recently lost her husband. However, she
did offer to let them sleep in the barn.
About a year later, the two salesmen were driving in the same
vicinity when one turned to the other and asked, ``Do you remember the
time that widow let us sleep in the barn?''
His partner replied that he did.
``Did you sneak up to the house that night?''
His partner, now blushing, replied that he had.
``And did you give her my name?''
Once again, the other partner confessed his guilt. ``Why do you
ask?'' he replied.
``Well,'' said the first salesman, ``she died last week and left me
$1 million.''
The moral of this story: take credit for your work. That is the
central issue we are discussing today. The creators of music and video
products are struggling to maintain a system where they receive just
compensation for their products in a technological environment where
that task is increasingly difficult. Digital technology has made it
extremely easy to ``share'' these files via the Internet. I have been
shown a plethora of peer-to-peer sights on the net where one can go and
download content for free. Obviously, this poses a severe threat to the
recording, movie, and broadcasting industries.
At the same time, digital technology holds great promise for
consumers. In our efforts to protect content, we must be careful not to
throw the baby out with the bath water. I will admit my first reaction
to proposed legislation that would have the government step in with a
solution was not favorable. However, this is a complex issue, and I
want to ensure that we maintain an environment as conducive as possible
to innovation. I do not have the technological answer to the question
of how to best protect digital content. However, I do not want to take
steps that prevent those with the ability to create such a solution
from doing so.
I am looking forward to the testimony today, and I am thankful to
Chairman Upton for calling this hearing to give the industry
stakeholders an opportunity to present their case. This afternoon will
be an educational experience for us all, and will hopefully guide us in
the right direction for any necessary legislative action.
______
Prepared Statement of Hon. Lee Terry, a Representative in Congress from
the State of Nebraska
Thank you Mr. Chairman and thank you for holding this hearing
today.
It is well understood that as we move forward into the digital age,
consumers will want the latest and greatest forms of technology and the
content to go with it. Digital content has become the content demanded
by consumers. DVD['s are one of the most popular segments of the
entertainment industry and are considered to be the fastest growing
consumer electronics product ever. Digital TV and HDTV programming are
starting to role out and become available to consumers in many markets.
As consumer demand for Digital TV and HDTV increases, it is imperative
that their content be protected from piracy. I think this can best be
done with a type of technology that is not selected by the Government.
There will always be men and women who feel that all content should
be free and who will spend their time doing their best to hack the most
sophisticated encryption programs. I believe that the people who hold
this belief will never change this view. That is why all the industries
affected by the need for DRM solutions must come together to sort out
their problems and find ways to solve them. The revenue lost from
content piracy is staggering, and losses increase annually. I have
heard loss figures ranging from $10 Billion to $15 Billion. This is
money that deserves to be in the hands of those who produce the
content, not of those who steal it.
I am a firm believer in free markets and as such I also feel that
industry experts can make better decisions on how to protect their
goods from piracy than the Federal Government can. The Government
should not pick winners and losers. We should not mandate a technology
that could be obsolete within a year of our mandate.
Chairman Tauzin, you should be commended for bringing industry
together for round-table discussions. These discussions are very
important to finding the solutions to the transmission of free, over-
the-air broadcasting, the analog hole, and peer-to-peer file sharing.
Through these discussions, the solution to these problems can be found.
If the Government were to mandate a solution, there could be no
fruitful discussion that might lead to better ways and different forms
of technology that would be best to protect the content providers from
piracy.
I cannot believe that IT companies or the IT industry would support
piracy. They have as much to lose as anyone else. Furthermore, I have
seen these IT companies in action, and have witnessed their desire to
be at the table to discuss the problems facing each industry and the
various solutions that can be given to solve their problems.
There are also a host of companies that are spending their time and
capital trying to solve the Digital Rights Management problem. Each one
should be commended for their efforts. Companies like SealedMedia, who
work to provide Digital Rights Management technology for organizations
requiring persistent control for digital Internet content.
SealedMedia's solution is unique, as its DRM technology is being
developed to support multiple media formats. However, if the Government
mandates a technology, we might be hindering SealedMedia's ability to
innovate and come up with solutions that the Government and affected
industries have not considered. The type of thinking that is needed to
find a solution to the DRM problem is one that provides a series of
different solutions in the short term with the capabilities to provide
additional protections in the future. Any thinking that moves towards
mandating standards today, while well intentioned, is shortsighted.
DRM solutions and innovations should not be frozen by Governmental
mandates. DRM solutions should protect content and the distribution of
digital media in all forms. In addition, DRM solutions should be
allowed to flourish in as many forms as necessary to accomplish the end
goal of ending piracy. The Digital Rights Management issue cannot be
solved with a one-size-fits-all approach. What works well for
protecting content on a DVD might not work well for protecting
broadcast content. These affected industries should be left to solve
the DRM problem with minimal Governmental intervention. Rather the
Government should focus on giving the DRM solutions all the enforcement
protections they might need.
I thank you Mr. Chairman and I look forward to the testimony from
our witnesses today.
______
Prepared Statement of Hon. Eliot L. Engel, a Representative in Congress
from the State of New York
Mr. Chairman--I want to thank you and the panelists for holding
this hearing. It is vital for the Congress to do a better job of
understanding the nuances involved in technology and the law. Before us
today is literally what the future of copyright protection should be.
There has been a great deal of discussion regarding legislation
introduced by Senator Hollings. Some have said that it specifies a
standard, but this is not true. I have reviewed the legislation and
does no such thing. It does authorize a federal agency, the FCC, to do
so. I'd like that point to be clear, because agencies can change
regulations far easier than Congress can change laws.
The need for standards is so important, so evident, and so
prevalent, that we often do not see it before our very eyes. In 1901
Congress created the National Bureau of Standards, which today is the
National Institute of Standards and Technology. One of the very first
challenges the Bureau of Standards faced dealt directly with health and
safety of every citizen within the United States. The need for
standards was dramatized in 1904, when more than 1,500 buildings burned
down in Baltimore, because of a lack of standard fire-hose couplings.
When firefighters from Washington and as far away as New York arrived
to help douse the fire, few of their hoses fit the hydrants. The Bureau
of Standards had already collected more than 600 sizes and variations
in fire-hose couplings in a previous investigation and, after the
Baltimore fire, was a key figure in setting a national standard.
Today we are concerned about the standards to protect the
intellectual property of movies and music. This doesn't rise to level
of importance of universal fire-house couplings, but it is nevertheless
important. Though a person's life is not endangered by piracy, harm
nevertheless occurs. What your job--and I speak to the panelists now--
what your job is today is to try and convince us whether or not the
Congress or Administration needs to intervene.
I have heard good arguments on both sides and I have heard some bad
arguments on both sides. So this is your opportunity to educate me and
influence my opinion.
______
Prepared Statement of Hon. John D. Dingell, a Representative in
Congress from the State of Michigan
The transition to digital television is, without question, one of
the thorniest issues this Subcommittee has had to deal with. Its
success hinges on the actions of a disparate group of industry players,
many of whom historically make their living competing against one
another. Now these companies must find a way to work together for the
good of the whole. It is a very tall order, as we've learned from the
DTV roundtable discussions led by Chairmen Tauzin and Upton, but I
remain hopeful it can be done.
Some believe the transition will not succeed unless more high
value, high definition television programming is produced by the
broadcast and cable networks. Others say that the key to success lies
in making sure broadcasters meet the digital TV buildout deadlines.
Still others say cable and satellite systems must be made to pass
through high definition content when it is available, and that these
distribution systems must be compatible with any television display.
And, of course, there remains a statutory conversion date by which this
great experiment must be completed.
In my view, all of these claims have merit. But, in the end,
success will be measured in terms of whether consumers ultimately enjoy
a higher value television product than they do today. And I am
convinced that day will come. It may not happen magically on December
31, 2006. In fact, consumers may be watching digital television signals
reconverted to display on their old analog sets for many more years
beyond that. But eventually, consumers will migrate to digital sets, so
long as they perceive value in doing so.
So where does the value come from? I believe you need to look no
further than the many hearings we've held on this subject over the past
twenty years. High Definition Television, or HDTV, was part and parcel
to this digital experiment. That idea didn't originate with me or the
other Members serving at the time. It was the simple commitment made by
the broadcast industry when it pitched the idea of receiving a second
channel. In fact, as recently as 1996, the National Association of
Broadcasters (NAB) maintained that TV stations ``will use this spectrum
for HDTV, pure and simple.''
It is true that the 1996 Telecommunication Act permits flexibility
to offer ancillary video, data, and other non-high-definition services
on this digital channel. But my sense is the tide may be turning on
these plans for a number of reasons. First and foremost, there is a
glut of digital channels out there, both on satellite TV and digital
cable. Simply adding more to the mix may not make good sense if few
people are watching.
Instead, broadcasters may need to distinguish their programming.
One way is by telling better stories. But another way is to make their
content look, sound, and feel superior to other programming available
to viewers. They certainly have the tools to do the latter, and I hope
they're beginning to see the wisdom of that. Several networks are
already putting more and more HDTV on the air, and competition from
cable networks like HBO, Showtime, HD-Net, and Discovery will only
increase the competitive pressure to do so.
Now it is true that more HD programming does not necessarily mean
the viewer will automatically see it. Cable and satellite companies
must carry the programming, and do so in a way that is compatible with
any and all digital television displays.
But, on this point, broadcasters may hold the keys to the kingdom.
If they put on more HDTV, differentiating their programming, the signs
point to tremendous consumer demand, and cable systems will be forced
to respond. Some have started to negotiate carriage agreements in
earnest, and the pressure from satellite will be very important as
well. We're already seeing DirecTV putting more HD programming on its
system. In fact, I understand they're adding Showtime HD this month at
no additional cost to subscribers, and that trend will likely continue.
The hurdle, of course, to putting on more high value, high
definition digital programming is the very real concern of content
owners over piracy of their works. We've been down this road many times
before as technology evolves. And it's pretty clear that the best
result occurs when competing interests in industry work together to
find the right solutions. I am not convinced that government has the
tools or the expertise to make the right judgments on these matters.
Certainly there are some in the industry who would prefer a
legislative approach. And I note that Senator Hollings has introduced
legislation that brings this debate into sharper focus. But the bill as
drafted is unbalanced, stunting the growth of one industry in order to
protect the growth of another.
Imagine if the motion picture industry had won its fight against
the VCR in the early 1980s. At that time the industry believed VCRs
would provide the death knell to first run motion pictures. Now, of
course, sales of VHS tapes actually exceed box office receipts each
year. But if that notion had prevailed in the Supreme Court, the VCR
would have been outlawed and the benefits to both the film industry and
the consumer would never have been realized. As the industry learned
then, the answer is not to limit technological advances. Rather, it is
to embrace them and adapt business strategies to exploit their inherent
value.
While I believe the industry is best poised to negotiate the
technical details of digital rights management, the government
certainly does have an ongoing and important role in protecting
consumers. That means making sure reasonable consumer expectations are
met. That goes for recordability and playback on a variety of devices
throughout the home. But, just as important are reasonable consumer
expectations about the functionality of the new equipment they already
have bought. Over $5 billion of high definition equipment has been sold
to date, and that number is projected to soar to $9 billion by the end
of this year.
This equipment was bought with the promise of delivering high
definition pictures. In my view, the proposals made by some industry
players to downgrade the resolution of programs delivered to this new
equipment are unfair, counterproductive to the transition, and possibly
unlawful. Consumers should not be left holding the bag. Content owners
and equipment manufacturers should find technological solutions to
close the analog hole and address ``in the clear'' transmissions--and
the sooner the better--so the industry's exposure to piracy is limited
going forward. But to do so in a way that makes obsolete, or even
degrades the functionality of, existing products should be a
nonstarter.
Mr. Chairman, again I commend you for tackling these difficult
issues today, and I look forward to continuing our work together to
meet the challenges they present.
Mr. Upton. This is a first that we are actually going to
have a video conference in this hearing room, and our first
witness will be Mr. Peter Chernin, President and CEO of News
Corporation, who is actually in Los Angeles, to be followed by
Mr. Richard Parsons, Co-Chief Operating Officer of AOL Time
Warner, Dr. Paul Liao, Chief Technology Officer of Panasonic/
Matsushita, Mr. Larry Blanford, CEO of Philips Consumer
Electronics, Mr. Larry Jacobson, President and Chief Operating
Officer of RealNetworks, Mr. Assaf Litai, Founder and Acting
CEO of Vidius, and Mr. Joe Kraus, Co-founder of
DigitalConsumer.org.
We will start long distance with Mr. Peter Chernin. Peter,
welcome. Thank you for appearing. All of your statements are
all made part of the record. If you could also try to abide by
the 5-minute rule, that would be truly appreciated. Thank you.
Mr. Chernin.
STATEMENTS OF PETER CHERNIN, PRESIDENT AND CHIEF OPERATING
OFFICER, NEWS CORPORATION; RICHARD D. PARSONS, CO-CHIEF
OPERATING OFFICER, AOL TIME WARNER INC.; PAUL F. LIAO, CHIEF
TECHNOLOGY OFFICER, PANASONIC/MATSUSHITA ELECTRIC CORPORATION
OF AMERICA; LAWRENCE J. BLANFORD, CEO, PHILIPS CONSUMER
ELECTRONICS; LARRY JACOBSON, PRESIDENT AND CHIEF OPERATING
OFFICER, REALNETWORKS; ASSAF LITAI, FOUNDER AND ACTING CEO,
VIDIUS; AND JOE KRAUS, CO-FOUNDER, DIGITALCONSUMER.ORG
Mr. Chernin. Thank you, sir. Good afternoon, Mr. Chairman,
Ranking Member Markey and members of the subcommittee. My name
is Peter Chernin, and I am the President of the News
Corporation. Thank you, Mr. Chairman and Ranking Member Markey,
for inviting me to participate in today's hearing by video
conference.
I would like to take this opportunity to applaud all of you
for your leadership in seeking to ensure copyright protection
for content providers in the digital age.
First, I would like to point out that, although some
content providers have been accused of being backward thinking
and anti-technology, I am proud to be aggressively pioneering
this committee's brand new video conference technology.
As an industry, we are in a very exciting but challenging
time. The rise of the broadband Internet and other digital
technologies is providing us with tools of unprecedented
flexibility that we are only beginning to fathom. News
Corporation is already harnessing these technologies and
distribution methods on an unprecedented scale.
For example, over 50 percent of United States television
households are able to receive Fox programming in digital form,
including the first ever all digital, wide screen Super Bowl
earlier this year. We have released hundreds of Fox movies on
DVD, and will soon be releasing Fox movies in the high
definition digital DVHS prerecorded format. However, we
strongly believe that the great promise of broadband Internet
and other digital technologies can be fully achieved only if
protections are in place to safeguard our investment in the
development and distribution of content.
Recently, we have seen more and more Napster-like programs,
such as Gnutella and Morpheus, which facilitate the downloading
of motion pictures and television programming without
authorization or compensation to the copyright holder.
With the advent of broadband, it is only a matter of time
before these file sharing technologies and other emerging
mechanisms have a serious impact on the economic viability of
the motion picture and television broadcast industries.
However, I cannot emphasize enough that it will not be just the
media companies that will be hurt economically if this piracy
continues.
Rampant piracy will hurt all businesses and consumers and
individuals that make their livelihood from the making,
redistribution, and licensing of content.
We are working to solve the piracy problems ourselves by
distributing our content through media that are reasonably
secure. For example, pay cable, direct broadcast satellite, and
DVHS are digital distribution channels to the home that provide
a basic level of security for digital content.
In each of these areas we are able to protect our content
either through contractual arrangements with cable and
satellite providers or through a licensing process using
commercially available digital rights management, DRM,
technology for the Internet. However, I want to focus for a
moment on the one major digital distribution method that does
not currently offer adequate protection, digital over the air
broadcast television or so called DTV.
Presently, cable and satellite have a competitive advantage
over DTV due to the closed nature of cable and satellite
systems that allow for encryption and, thus, for the protection
of content. DTV, on the other hand, is not encrypted for public
policy reasons and, therefore, does not enjoy these same
protections. However, we have identified a technological
solution that works without encrypting DTV.
It involves the insertion of a broadcast flag in DTV
signals that can be detected upon receipt by DTV processing
equipment. Once detected, the receiving device would protect
the content from being redistributed on the Internet. However,
this technology would have no impact on the ability of
individuals to make personal copies of their favorite
television shows.
Mr. Chairman, as you are undoubtedly aware, there has been
an ongoing effort for the last several years to negotiate the
protection of all digital audio-visual content delivered to the
home network, including but not limited to DTV. These
negotiations, often referred to as the 5C negotiations, have
made substantial progress with regard to the protection of pre-
recorded and conditional access delivered content such as pay
per view, video on demand, and pay and basic cable, and we at
Fox applaud that progress.
I am also pleased to note, Mr. Chairman, that over the past
few weeks significant progress has been made between our
industry and the IT and consumer electronics industries on
solving the problem of protecting free, over-the-air digital TV
broadcasts through the use of a broadcast flag.
I have described in my written testimony the details of the
status of these negotiations. This positive movement could not
have occurred without the substantial involvement of this
subcommittee and other Members of Congress who have put
pressure on all of us to solve this problem.
I would also like to praise Mr. Parsons of AOL Time Warner
and Mr. Barrett of Intel for their joint statement on
principles on copyright protection that specifically mentioned
the need to fix the DTV copyright problem.
Private sector efforts such as these are important toward
reaching our stated goals, and should be commended. However,
even if we do reach a private sector agreement, which I am
confident we will, targeted legislation will still be necessary
in order to ensure a level playing field for all the parties.
Just as we are striving to protect our content when
distributed by DTV, we are confronting two other mechanisms
that still threaten the security of content. Into the
foreseeable future, we will still need to deliver content to
consumers in an analog form. After all, hundreds of millions of
television sets can only accept content in that form.
Unfortunately, analog content can be easily converted into
an unprotected digital form that can in turn be copied or
redistributed without authorization. This is the so called
analog hole. We are developing a plan to plug the analog hole.
It includes harnessing watermark technology that will prevent
such conversions from being used to avoid content protection
obligations.
We hope to secure, again, inter-industry consensus on such
a proposal, and we welcome your assistance in encouraging all
relevant parties to make this happen. Once that consensus is
reached, we would hope to have that solution quickly ratified
by Congress.
Finally, we are diligently working on plans to stop the
unauthorized viewing of content delivered via the Internet. It
is a very difficult and complex problem to address, because
there are so many ways unauthorized content can be distributed
on the Internet. We are mindful of not overcorrecting the
problem and burdening Internet appliances anymore than
necessary, but we are confident that the problem can be solved.
We know it must be.
It is reported that every day hundreds of thousands of
copies of movies are being downloaded without compensation to
their copyright holders, and this number is growing rapidly.
The competition from pirated and, therefore, free copies of our
movies and TV shows is the single biggest obstacle to
developing a viable business model for offering consumers
authorized versions of movies and TV shows on the web.
Again, we are optimistic that we can develop the
technological solution to address this threat in a cost
effective way, just as we have with DTV and will soon be doing
with the analog hole. However, it is critical that Congress
plays an active role in ensuring that the parties reach a
consensus on how to solve this problem as quickly as it is
technologically possible.
This is an Internet problem that needs to be solved at
Internet speed. We need Congress and your efforts to continue
to help make that happen. As with the broadcast flag and the
analog hole solutions, we will need Congress to codify this
solution to the illegal download problem.
At the end of the day, Mr. Chairman and members of the
subcommittee, if we do not find creative solutions to this real
and growing problem, consumers will be the ultimate losers.
While some may see a short term gain in obtaining free,
unauthorized material from the Internet, the long term result
will be less consumer choice and stunted American technological
growth and development.
I thank you for the opportunity to present the views of
News Corporation from a distance on this important topic, and I
will be happy, whenever you would like, to answer any
questions. Thank you.
[The prepared statement of Peter Chernin follows:]
Prepared Statement of Peter Chernin, President and Chief Operating
Officer, News Corporation
Good morning, Mr. Chairman and Members of the Subcommittee. My name
is Peter Chernin and I am President and Chief Operating Officer of News
Corporation. Mr. Chairman, I want to take this opportunity to thank the
Subcommittee for inviting me to participate in today's hearing, and to
applaud the Subcommittee's efforts to ensure copyright protection for
content producers in the digital broadband age.
First, I would like to point out that, although some content
providers have been accused of being backward-thinking and anti-
technology, I am proud to be aggressively pioneering this Committee's
brand-new video conference technology. It is not the first time the
entertainment industry has pushed technological innovation to new
levels. I hope that this will not go unnoticed by our detractors.
You have asked me to cover several topics in my testimony: first,
to describe industry efforts to ensure that digital television
content--particularly high-definition content--is protected once the
transition from analog to digital television is complete; next, to
identify the goal of the Copy Protection Technology Working Group (or
``CPTWG'') and its subcommittee, the Broadcast Protection Discussion
Group (or ``BPDG''). I will also discuss my company's involvement in
the BPDG's efforts to address the broadcast flag technology solution;
the process of evaluating alternative technologies capable of keeping
free, over-the-air television programming from being redistributed on
the Internet; the impact of content protection technology on consumers'
ability to enjoy the full panoply of new and exciting digital
equipment; and, finally, inter-industry efforts to close the ``analog
hole'' and to resolve the broader, peer-to-peer file sharing problems,
as well as the proper role of government in determining those
solutions. I welcome the opportunity to provide you with my company's
perspective on these important matters.
1. pre-bpdg efforts to protect digital television
A. The CPTWG and the Identification of the ``DTV Hole''
I will begin by giving you a few words of background on the CPTWG.
The CPTWG was founded in the aftermath of unsuccessful discussions
in the mid-1990's among representatives of the content, consumer
electronics and information technology industries regarding a
legislative approach to protecting content in the dawning digital era.
The CPTWG was created to be a non-exclusive, non-legislative, non-
binding forum that would meet regularly to investigate and seek
consensus on technological solutions for various content protection
challenges. I think it's important to recognize that the CPTWG is not a
standard-setting organization and has no authority to promulgate or
even recommend particular technologies. Even where consensus on a
particular technological approach has been reached within the CPTWG,
implementation is always left to entities outside the forum.
From the outset of discussions within the CPTWG, there was
widespread recognition that content delivered to consumers in encrypted
form was easier to protect, from both a technological and a legal
perspective, than content that was unencrypted, or ``in-the-clear.'' As
a result, CPTWG focused its initial efforts almost exclusively on the
protection of content that could be delivered to the home in encrypted
form--in other words, physical media like DVDs and cable and satellite
programming distributed via conditional access. The idea was that once
encrypted, such content would be continually protected through secure
links to the recording and transmission technologies of consumer
electronic and computing devices in people's ``home networks.'' Solid
achievements grew out of these CPTWG efforts. These include the DVD
protection technology CSS, the so-called ``5C'' output protection
technology (known as DTCP) and the so-called ``4C'' technology to
protect recordings on removable media (known as CPRM).
The problem is that free, over-the-air, digital television could
not directly benefit from those advances. Under current FCC
regulations, digital terrestrial television broadcasts and certain
basic tier cable video programming are delivered ``in-the-clear,'' or
in unencrypted form. In other words, unlike encrypted digital media
such as DVDs, or premium digital cable and satellite video
transmissions delivered via conditional access, there is no technical
or legal authorization needed to receive DTV signals. Thus, unprotected
DTV content can be redistributed, over the Internet or elsewhere,
without any authorization from copyright holders. The resulting ``gap''
in the digital content protection scheme is referred to as the ``DTV
hole''.
B. The Role of DTV Protection in the 5C Negotiations
When the question of how to plug this DTV hole arose in 1999, Fox
and other broadcast-oriented studios realized that the quickest way to
resolve the problem would be to augment already-developed home
networking protection technologies like DTCP. The initial idea was to
require network entry, or ``source,'' devices to detect and respond to
a ``broadcast'' watermark by directing such content to a protected
output of the device. However, 5C cited a number of legal and
commercial reasons for its belief that it could not agree to impose
such an obligation upon its licensees and as a result the 5C/studio
negotiations, which involved a number of issues besides DTV, were
delayed for most of the year 2000.
Progress from there was gradual. In November 2000, two studios
elected to sign a Memorandum of Understanding with the 5C (later
replaced by definitive agreements) that did not include protection for
DTV. A month later all seven MPAA studios signed a letter to 5C
supporting the amendment of the 5C license to impose broadcast
watermark detection and response obligations upon 5C-licensed source
devices. The DTLA and the other five studios then entered into
discussions regarding such an amendment, which again proceeded slowly.
In 2001, two new technology proposals from the studio side
intensified these negotiations. First, in the Spring, Fox's engineers
proposed a mechanism for implementing broadcast protection in a less
complex--and therefore less expensive--way than the original watermark
proposal. The idea was to include in the technical standards for DTV a
simple and voluntary ``Redistribution Control'' descriptor
(colloquially, a ``broadcast flag'') indicating that the copyright
holder desired to control redistribution of the broadcast signal. (This
is the same proposal that was formally incorporated into the standards
of the Advanced Television Standards Committee, or ATSC, earlier this
month.) Fox also developed and presented to the 5C companies a
technical proposal whereby this ``broadcast flag,'' when detected in
ATSC transport streams, would automatically direct the streams to the
established 5C protection system--while acknowledging that the earlier
``broadcast watermark'' might continue to be useful as an alternative
or replacement approach. The ``broadcast flag'' application was
incorporated in a proposed MOU between the 5S studios and the 5C
companies that was sent to 5C in July 2001 and discussed for the next
several months.
Finally, at a meeting in October 2001, the 5C companies again
declined to impose the Fox solution through the DTCP license. However,
the 5C companies suggested that Fox's proposal form the basis for
constituting a multi-industry group dedicated to protecting DTV against
unauthorized redistribution. At that time--and later at an FCC staff
``hoedown'' meeting that November--the 5S studios expressed concern
that such a multi-industry process might unnecessarily delay the actual
implementation of DTV protection, but nevertheless agreed to
participate. At the November 2001 CPTWG meeting, the individual 5C
companies presented a slightly refined version of the Fox technical
proposal, and recommended that a group open to all interested parties
be formed for the purpose of evaluating the revised technical proposal.
Later that day, 70 representatives of the consumer electronics,
information technology, motion picture, cable and broadcast industries
agreed to form the Broadcast Protection Discussion Group (BPDG). They
have since been joined by representatives of various government bodies,
public interest groups, academics and other private individuals.
2. the work of the bpdg
A. BPDG Problem Statement and Schedule
A Work Plan for the BPDG was drafted and circulated in mid-December
2001 that described the problem BPDG was formed to address as follows:
``A solution is needed to prevent unauthorized redistribution
of unencrypted digital over-the-air broadcast content on a
worldwide basis (including unauthorized redistribution over the
Internet).''
The Work Plan also recommended a simultaneous effort to consider
the policy and legal aspects of implementing the solution as follows:
``A parallel discussion also should take place among
representatives from the affected companies and industries to
consider the policy and legal aspects of the solution,
including with respect to what legally enforceable means might
be available to mandate the use of the technologies or
adherence to implementation requirements recommended by the
technical working group''. This effort should be organized
promptly, so that work can begin once consensus begins to
coalesce around a technical proposal.''
The Work Plan proposed that the so-called ``Parallel Group'' (since
renamed the ``Policy Group'') be organized in January 2002, and that
March 31, 2002, be the proposed deadline for completing the BPDG's
evaluation of the ``broadcast flag'' proposal.
For Fox and the other 5S studios, at least, the March 31
deadline was a key factor in muting concern about the delay
inherent in multi-industry open processes like the BPDG. As
such, Fox is greatly disappointed that the March 31 deadline
was not adhered to, even though we acknowledge the substantial
efforts that were made to do so. We are equally disappointed
that the Policy Group has barely begun its work on how to
mandate adherence to the requirements developed by the BPDG.
Every single day, new and perfectly lawful DTV receiver
products are manufactured in the U.S. and around the globe
without any built-in protection against unauthorized
redistribution. As a result, every single day DTV's exposure to
piracy increases. Fox calls on all BPDG participants to do
their utmost to ensure that the requirements document is
finalized as soon as possible, and that the Policy Group begin
work immediately on ideas for implementing it through
legislation, regulation and/or private licenses.
3. the mpaa/5c/cig agreement on bpdg conclusions
A. The BPDG Conclusions
Like any other multi-industry process featuring participants with
diverse interests and agendas, the discussions of the BPDG have not
been without controversy. But that does not mean that key participants
have been unable to reach agreement. To the contrary, I am pleased to
report that, thanks to marathon negotiations during the past week,
representatives of the MPAA studios, the 5C companies and the Computer
Industry Group (CIG) have reached agreement in principle on a
comprehensive set of conclusions recommended for adoption by the BPDG.
(A copy of these conclusions is attached.) The most important of them
can be summarized as follows:
1. An approach based on a ``broadcast flag'' is technically sufficient
for the purpose of signaling protection of all DTV audio-visual
content.
2. The specific ``broadcast flag'' used for this purpose should be the
ATSC Redistribution Control descriptor now set forth in the
ATSC Standard.
3. Protection requirements should begin at the point of demodulation of
the incoming ATSC signal.
4. Products covered by the compliance and robustness requirements must
handle demodulated content in a ``protected manner'' unless--
and until--the products screen for the ``broadcast flag'' and
determine that it is not present. The parties have agreed on
exactly how ``protected manner'' should be defined for various
ways in which DTV is and might be transmitted and stored within
and between covered products.
5. Where the demodulated DTV content has been screened and the
``broadcast flag'' has been determined not to be present, no
further requirements or limitations should be imposed upon the
handling or recording of such unmarked content.
6. Unscreened and marked content should be recorded by, or output from,
covered products exclusively through the following permitted
methods:
a. Through certain legacy outputs and recording methods, including
analog outputs and recording methods;
b. Through certain non-legacy digital outputs that do not pose
undue risk of unauthorized redistribution; and
c. Through non-legacy digital outputs and recording methods that
provide adequate protection against unauthorized
redistribution. The parties have agreed on three
alternative ``market acceptance''-based criteria and one
alternative ``just-as-good-as'' criterion for determining
which outputs and recording methods meet the ``adequate
protection'' test (as discussed in further detail below).
The parties have also agreed on certain recommendations to
the Policy Group as to how to handle disputes and the
``hacking'' of authorized output and recording protection
technologies.
B. The Impact of the Agreed BPDG Conclusions on Alternative
Technologies for Protecting DTV from Unauthorized
Redistribution
These are the pillars of the MPAA/5C/CIG proposal, a proposal that
carefully balances the rights of content owners, of device
manufacturers, of the proprietors of technologies currently available
to protect DTV from unauthorized redistribution, and of the proprietors
of such technologies that will become available in the future. As I've
noted, the agreement provides for four alternative methods by which a
particular protection technology can be proposed for inclusion on the
list of approved technologies (the so-called ``Table A'') or added
later. The first method requires agreements with just three content
providers (of whom only two need be studios) by which such providers
use or approve the particular technology. The second requires
agreements with just two studios--as well as 10 device manufacturers.
The third method is the ``just-as-good-as'' method, by which a
proprietor of a new technology can get on the list without having had
to get anyone to adopt the technology, merely by showing a neutral
arbiter that the technology is ``at least as effective'' as an
uncompromised technology already on the list. This fourth method
enables protection technologies linked to technologies already on the
list to also be added.
Some participants in the BPDG have argued that technologies should
be candidates for inclusion on the list just by virtue of the sheer
volume of content protected, regardless of whether content owners have
had any say whatsoever in this protection. Such an approach strikes us
as far too manipulable by device manufacturers and unlikely to ensure
that only effective technologies be added to the list. Other
participants have suggested that an array of technical criteria be
adduced to determine whether a technology is ``good enough'' to be
added to the list. While such a proposal sounds even-handed, no list of
technical factors could realistically represent the complex ways those
factors interact to make an overall system architecture effective (or
not). Furthermore, no list of factors developed in 2002 could possibly
anticipate all of the revolutionary ways in which future protection
technologies might evolve. As such, the ``technical criteria'' approach
would stifle creative technology development without necessarily
keeping ineffective technologies off the list.
By contrast, the ``market acceptance'' criteria outlined in the
MPAA/5C/CIG proposal serve to screen for ineffective technologies while
protecting the proprietors of effective technologies against slow
marketplace acceptance by content providers. Nor do these criteria
discriminate against innovative and unorthodox approaches. Just to take
one example, Philips has presented BPDG with a proposal whereby
unencrypted recordings of broadcast content could be protected by an
alternative ``flag preserving'' mechanism. Protection in this scheme
would be derived from ``compliance'' rather than ``self-protection.''
Because Philips has not yet specified exactly how this compliance would
be achieved, its proposal is currently incomplete. However, nothing in
the agreed criteria will preclude Philips from petitioning to add its
proposed technology to the list of approved recording protection
technologies in the future, once it has a complete proposal to submit.
We look forward to evaluating this proposal, as well as other examples
of the benefits of innovative thinking we expect to receive in the
future.
C. The Impact of the Agreed BPDG Conclusions on Consumers' Enjoyment of
Digital Technology
It's equally important to point out that nothing in the proposed
BPDG requirements will adversely affect consumers' enjoyment of digital
equipment in all its exciting variety. To the contrary, the emerging
consensus on how DTV should be protected will accelerate the
proliferation of such equipment by better informing manufacturers
exactly what sort of protections to incorporate. Nor will protection
requirements hinder the operation of new digital equipment. Consumers
will continue to be enabled to make secure copies of DTV content marked
with the Broadcast Flag, either on personal video recorders like TiVo
or ReplayTV or on removable media such as D-VHS tapes or recordable
DVDs. Similarly, the requirement that non-legacy digital outputs be
protected will do nothing to hinder the ability of consumers to send
DTV content across a home digital network with connections to digital
set top boxes, digital recorders, digital servers and digital display
devices. Finally, the compliance and robustness requirements will not
extend to professional broadcast products that are not used to insert
and carry the Broadcast Flag, or to bona fide academic and commercial
research and development activities, and so will not hinder such
activities in any way.
4. industry efforts to address the ``analog hole'' and p2p
I have focused most of my testimony on protecting the ``DTV hole''
not just because of this Subcommittee's laudable interest in and
concern for the DTV transition. It is also because the ``DTV Hole'' is
the gap in the digital content protection scheme for which we have a
solution that is ready to implement today. This solution is the
``broadcast flag.'' For the other two dangerous gaps--the so-called
``analog hole'' and the problem of online theft--solutions are every
bit as necessary (if not more so), and promising technologies have been
identified, but finalized solutions are regrettably more elusive.
A. Plugging the ``Analog Hole''
Long into the foreseeable future, content providers will need to
deliver content to consumers in an analog form; after all, hundreds of
millions of TV sets are not digitally equipped. Unfortunately, analog
content (including protected digital content converted to analog for
viewing purposes) can easily be converted into an unprotected digital
form that can in turn be copied or redistributed without authorization.
This is called the ``analog hole'' in digital content protection
schemes. The BPDG identified the ``analog hole'' in its Work Plan as a
subject for further study, but has more recently realized that because
this issue applies to a range of content far broader than DTV, and
because the BPDG is already late in finishing its work on the Broadcast
Flag, the BPDG is not the appropriate forum in which to address it.
Fox strongly recommends that the multi-industry approach that has
brought us so far towards achieving protection of DTV broadcasting,
turn next to developing and implementing a solution for the ``analog
hole.'' In the meantime, Fox and its industry colleagues are working on
a plan that includes harnessing watermark technology to close the gap
in content protection that's created by the digital/analog conversion.
. We hope to secure inter-industry consensus on such a proposal, and we
welcome your assistance in encouraging all relevant parties to make
this happen. Once it does, we would hope to have that solution quickly
ratified by Congress.
B. Online Theft of Content
Finally, we are working intensely on a plan to prevent the
unauthorized viewing of content delivered via the Internet. It is a
difficult problem to address because there are so many ways
unauthorized content can be distributed on the Internet. We are also
mindful of not over-correcting the problem and burdening Internet
appliances any more than necessary. But we are confident that the
problem can be solved; we know it must be. It is reported that every
day, hundreds of thousands of copies of movies are being downloaded
without compensation to their copyright holders, and this number is
growing rapidly, in tandem with the increasing speed and proliferation
of Internet-delivered broadband. The competition from pirated copies of
our movies and TV shows is the single biggest obstacle to our
developing a viable business model for marketing movies and TV shows
legally on the Web. Again, we are optimistic that we can develop a
technological solution to address this phenomenon in a cost-effective
way, just as we have with DTV, and as we will soon be doing with the
``analog hole.''
However, it is critical that Congress play an active role in
ensuring that the parties reach a consensus on how to solve this
problem as quickly as technologically possible. This is an Internet
problem that needs to be solved at Internet speed. As with the
broadcast flag and analog hole solutions, we will need Congress to
codify the solution to the illegal download problem. We at News
Corporation are working to build the necessary support in the private
sector, including consumer electronics and computer manufacturers,
Internet service providers and others in order to come up with
solutions that would benefit industry and consumers. With our combined
technological expertise, we have a chance to stop the rampant theft of
copyrighted works and to provide the business opportunities that will
drive the development of new and innovative products and services long
into the future.
At the end of the day, Mr. Chairman and Members of the
Subcommittee, if we do not find creative solutions to this real and
growing problem, consumers will be the ultimate losers. While some
consumers may see a short-term gain in obtaining free unauthorized
material from the Internet, the long-term result will be less consumer
choice, lower quality of content, and the stunted growth of American
technology and entertainment.
Thank you for providing me this opportunity to present the views of
News Corporation. I will be happy to answer questions.
Mr. Upton. Thank you.
Mr. Parsons.
STATEMENT OF RICHARD D. PARSONS
Mr. Parsons. Chairman Upton, Chairman Tauzin, Ranking
Member Markey, and distinguished members of the committee, my
name is Dick Parsons. I am CEO-Elect of AOL Time Warner, and I
am grateful for this opportunity to appear before you today.
Since a full version of my testimony has been submitted to
the committee, I will touch only on the most salient points. I
want to begin, however, by thanking the committee, and the
chairman in particular, for the DTV roundtables you have held,
as well as for your overall efforts to spur the transition to
digital distribution. Your understanding of the importance of
content protection is a linchpin in moving this transition
along.
AOL Time Warner has been out front in recognizing the
landmark significance of digital technology and in bringing its
benefits to the public. Warner Bros., for instance, pioneered
the DVD. HBO was the first premium channel to offer nationwide
high definition digital television, and today it delivers more
than 60 percent of its programming in that format. Time Warner
Cable is leading the cable industry's digital transition, while
AOL encompasses what is, by far, the world's largest online
community.
As head of our movie, music and television businesses, I
have witnessed the profound impact digital media may have on
the creative process, but no matter how digitized content
becomes, its power and potential will always depend on the
unique, idiosyncratic magic of storytelling. It is that magic
which stands to be hurt most by digital piracy.
Illicit use of digital technology's unlimited copying
capacity threatens the economic equation which fuels the
creative process. Who will invest the time and talent and
material that can instantly be ripped off? Where will capital
come from for new studio productions when there is no
possibility of return on that capital?
The legal remedies we have pursued to stop digital piracy
are not sufficient by themselves. To the greatest extent
possible, content must be made secure at the point of
distribution in ways that do not impede legitimate consumer
use.
With our colleagues in the information technology and
consumer electronics industries, we are developing efficient
methods of protection. Among these are: An encryption system to
secure DVD video; safeguards for content as it moves from
computers to monitors; and a secure means for making recordings
for home use that inhibit the potential for digital piracy.
Our business is dependent on consumers, and we think our
efforts in copy protection offer them easily available, legal,
and affordable content. Under the content protection licenses
we have signed, consumers can make digital copies of over-the-
air broadcasts, basic cable, satellite and premium channels for
their own use.
In view of this significant progress, we see no need for a
broad government mandate regarding design requirements. Such
sweeping regulatory action would be counterproductive, and
would seriously hinder the development of new technologies.
However, since it is impossible to require all manufacturers to
join the effort, certain gaps cannot be closed solely through
licensed based, voluntary protection systems.
These gaps occur when content is either delivered without
access controls, so called in the clear, or are later converted
into unprotected formats. Let me talk briefly about the three
gaps, Mr. Chairman. Now you have identified them. Several of
the committee members have identified them, and Mr. Chernin
just spoke about them, the need for a broadcast flag to protect
content that is broadcast in the clear, the need to close the
analog hole so that when content that is broadcast in a
protected format but then is converted into an analog or
unprotected format, can be captured and then redistributed, and
then the need to do something about peer-to-peer file sharing.
I won't go through that again, because I am keeping my eye
on this clock, but we think that there is in each of those
three areas possibly an appropriate role for targeted
legislation to take what the industry is working on, which are
negotiated among our various industries, standards to either
implant broadcast flags or watermarks to protect the analog
hole problem, or yet to be developed technological solutions on
the peer-to-peer file sharing, and make those uniform across
the land through some targeted legal requirement.
That is where we see the role of government being most
appropriate, but we clearly see the role of the various
industries involved as being preeminent in terms of taking the
lead to define how to attach those discrete problems.
So we have worked together very closely, in particular,
with our colleagues at Intel, in establishing some principles
that outline what is the growing consensus among the
industries, and I am pleased to report that a number of other
companies, including Mr. Chernin and his company, News Corp, as
well as Toshiba and others, are coming on board this
articulation of these principles, and we will file a copy of
those with our statement for your record. But the fact that we
are all coming together to design and put in place consumer
friendly solutions with only limited government involvement is,
to me, very encouraging.
It makes me confident that we can work with each other and
with you to overcome whatever barriers exist to unleashing the
full potential of the digital economy. Thank you.
[The prepared statement of Richard D. Parsons follows:]
Prepared Statement of Richard D. Parsons, CEO-Designate, AOL Time
Warner
Mr. chairman, ranking-member markey, and members of the
subcommittee, I'm grateful for this opportunity to discuss an issue of
great importance to my company, our entire economy and, above all,
consumers.
AOL Time Warner is both the largest producer of information and
entertainment and a leader in developing innovative digital
technologies for their delivery. As such, we appreciate the DTV
roundtables you've held as well as your overall efforts to spur the
transition to digital distribution.
I'm here today to answer publicly the questions you've been asking
many of us privately for some time: Where is AOL Time Warner in its
efforts to provide consumers the benefits of digital media? And how far
along are our intra- and inter-industry efforts to develop reliable,
consumer-friendly digital content-protection technologies?
Our company has been out front not only in recognizing the landmark
importance of digital technology, but also in bringing its benefits to
the public. Warner Bros., for instance, pioneered the DVD. HBO is the
first premium channel to offer nationwide high-definition digital
television and today delivers more than 60% of all its programming in
high definition format. Time Warner Cable offers digital distribution
in 42 markets--leading the cable industry's digital transition. AOL
encompasses what is, by far, the world's largest online community.
At AOL Time Warner we also have the world's finest library of film,
music and tv programming--content that we're eager to offer consumers
in new digital formats.
In my role as head of AOL Time Warner's movie, music and television
businesses, I Witnessed first-hand the profound impact digital media
have on the creative process. On the delivery side, more innovations
will reach the market in the next three to five years, introducing new
levels of reliability, variety and quality.
But no matter how digitized content becomes, or how tremendous the
impact of convergence, the power and potential of the entertainment
industry will always depend on the unique, idiosyncratic magic of
storytelling.
It's that magic which stands to be hurt most by digital piracy.
Along with breakthrough benefits, digital technology enables users to
make unlimited perfect copies and, with the click of a mouse,
distribute them globally.
The illicit use of this copying capacity threatens the economic
equation which supports and fuels the entire creative process. What
artist will invest years of sweat, struggle and talent in developing
content that can instantly be ripped-off? Where will the capital come
from for new studio productions when there's little or no return on
what's been produced?
When viewers can download an entire season of West Wing from the
Internet, for free and without commercial advertising, what value does
syndication have? When Lord of the Rings is available for free on
Morpheus, how many people will skip the trip to the theater?
Last year, record sales were down 10%, much of it due to online
file-stealing on Napster-like services.
With the spread of peer-to-peer swapping sites encouraging and
enabling online theft, there's definite urgency to our plight.
We've vigorously pursued the legal remedies that exist. But
litigation isn't enough. We need to protect content at the source while
simultaneously driving the use of digital technologies.
Over the past six years, we've worked with our colleagues in the
information technology (IT) and consumer electronics (CE) industries to
develop efficient methods of content protection. It's been a productive
partnership, and we've accomplished a great deal in this voluntary
cross-industry process.
Among the results are an encryption system to secure DVD video;
protection for content passed through device-to-device connections in
home networks; safeguards for content as it moves from computers to
display on monitors; and a secure means for making recordings for home
use that inhibit the potential for digital piracy.
Of course, our business is dependent on providing consumer benefits
and making consumers happy and we think our efforts in copy protection
will do just that--making content available easily, legally and at a
reasonable price.
We're continuing to work together to meet new challenges. Today
companies like realnetworks are providing drm solutions that we're
already using in the marketplace.
The cornerstone of these cross-industry efforts is the awareness
that, to the greatest extent possible, digitally delivered copyrighted
content should be made secure at the point of distribution.
These new technologies also offer consumers both familiar and new
ways of using their devices to enjoy content. For instance, under the
content protection licenses we've signed to date, consumers will be
able to make digital copies of over-the-air broadcast, basic cable, and
satellite, and premium channels (such as HBO) to watch at their
convenience.
That means a son can copy band of brothers from HBO for his WWII
veteran father to watch when he comes to visit. Other technology will
permit a family in the middle of watching Harry Potter via video on
demand to pause the movie for its own intermission. That's the type of
convenience we plan to offer consumers through digital technology.
In view of the significant progress we're making in cross-industry
content protection, we believe there's no need for a broad government
mandate of design requirements. That type of sweeping regulatory action
would be counterproductive, seriously hindering the development of new
and better technologies.
However, since it would be impossible to require all manufacturers
to join the effort, it's clear that certain gaps cannot be closed
solely through license-based, voluntary protection systems. These gaps
occur when content is either initially delivered without access
controls (i.e., ``in the clear''), or later converted into unprotected
formats.
Over-the-air broadcasts, for example, are delivered in the clear,
with no access controls. Work is underway to identify copyrighted
broadcasts with a ``broadcast-flag,'' indicating they shouldn't be
redistributed over the Internet. To ensure that devices receiving the
broadcast signal obey the flag, there must be a legal requirement to
detect and respond to it.
Such a requirement can be accomplished by narrowly focused
government action--possibly through an FCC regulation. Many of our
partners in the ce and it industries agree that this targeted
government action is necessary as well as desirable.
A more critical and systemic problem is known as the ``analog
hole.'' Even when delivered digitally in a protected manner, video
content must be converted to an unprotected analog format that allows
it to be viewed on millions of analog TV sets. Once content is ``in the
clear'' in analog form, it can be converted back into a digital format
and is subject to unauthorized copying and redistribution.
This involves all delivery means for audiovisual content, from DVDs
to pay per view, to over-the-air broadcasts.
One way to plug this hole is through watermarking. This embeds
copyright status and permitted uses within the content. Although not
perceptible by the consumer, the watermark can be read by devices
designed to detect and respond to it.
As with the broadcast flag, efforts are underway to develop and
select a consensus watermark. But these have been hampered by patent
disputes. a single watermark must be agreed upon. If private industry
can't agree, we are likely to turn to the government for guidance and
assistance.
Once a watermark is selected, some government action will be needed
FOR appropriate detection and response. This can be strictly focused on
the particular devices or parts of devices capable of receiving an
analog signal and converting it into digital. No broad mandate
concerning the overall design of computers or consumer electronic
devices is necessary.
Implementing the broadcast flag and filling the analog hole with
watermark technology are goals on which we are making good progress.
But these solutions won't solve the vexing problem I mentioned earlier
of piracy on peer-to-peer networks.
This is the third gap, and the most difficult to close. The popular
term for trafficking in copyrighted works--``file sharing''--is a
misnomer. It isn't sharing. It's online shoplifting. Indeed, it's worse
than shoplifting because it's not simply making a copy for oneself but
duplicating and distributing multiple copies throughout the world.
The pace and reach of this illegal activity continues to increase.
New peer-to-peer services, such as KazAA, Morpheus and Grokster,
flourish on the Internet. Studies have shown that at any given moment
500,000 to 1 million people are using one of these services and
networks to find, reproduce and redistribute files. If Napster is any
guide, approximately 90% of this activity consists of unauthorized
trafficking in copyrighted works.
And we face new peer-to-peer challenges all the time. For example,
the new replay 4000, among other things, allows users to copy premium
cable shows and then easily send them to other replay owners who don't
subscribe to the channels involved. In effect, it creates an internet
``black box.''
No single approach--technical, legal, legislative or economic--can
provide a solution. The active cooperation and committed participation
of all industry sectors--content, consumer electronics, computer and
service provider--will be necessary to reach workable solutions.
The main impetus will come from business, and we're strongly
committed to working with our colleagues across the relevant
industries. Yet, it's clear to me--and I believe there's a growing
consensus across the entertainment, computer and consumer electronics
industries--that at certain critical points our work must be
complemented by targeted government action to support private-sector
solutions.
In conjunction with Intel, which has led the development of many
copy-protection technologies, we've worked to establish principles that
outline this growing consensus. I am pleased to report that
newscorporation, led by my colleague Peter Chernin, issued a statement
last week applauding these principles.
The fact that we are all coming together to design and put in place
consumer-centric solutions, with only limited government involvement,
is a very encouraging sign.
It makes me confident that we can work with each other and with
Congress to overcome whatever barriers exist to unleashing the full
potential of the digital economy.
Thank you.
Mr. Upton. Thank you.
Mr. Liao.
STATEMENT OF PAUL F. LIAO
Mr. Liao. Mr. Chairman, Ranking Member Markey and members
of the subcommittee, thank you for the opportunity to testify
before you today. I am here today in my capacity as Chief
Technology Officer of Matsushita Electric Corporation of
America and President of its Panasonic Technologies Company
division.
As a company on the cutting edge of the transition to
digital television, Panasonic has been deeply involved in
efforts to ensure that digital content is adequately protected.
My written testimony summarizes some of the many technological
developments that Panasonic has been involved in, including the
development of the CSS encryption system used to protect DVD
discs, the development by the 5C group of companies of the
Digital Transmission Content Protection technology that
protects copyrighted content as it moves digitally from device
to device in a home network, and the invention of the Content
Protection for Recordable Media technology to provide secure,
encrypted recording and storage of authorized copies of
copyrighted content.
In participating in these technology development efforts,
we have been guided by two overarching principles: (1) Ensuring
that the legitimate interests of consumers, which are the
bedrock of our business, are preserved in the transition to
digital technology; and (2) by enabling--We need to enable new
business opportunities for consumer electronics companies such
as ourselves, information technology companies, and content
companies alike.
Although in my prepared remarks today,I will focus most
particularly on the experiences of Panasonic, I am here also as
a representative of the 5C group of companies, and I will be
happy to answer any questions with respect to those activities
and initiatives.
At the onset, I need to express my gratitude to this
committee and its leadership for your continued focus through
private meetings, industry roundtables and other means for
bringing the various stakeholders together to address and
resolve issues that have been affecting the transition to
digital television, DTV.
Although the topic of today's hearing is ensuring content
protection in the digital age, I believe that the availability
of robust content protection systems is only one of the
building blocks necessary to promote the transition to the
digital world. Really, three C's are necessary to make this
transition: Carriage, content, and consumer; carriage of DTV
signals by broadcasters, cable operators and satellite
services; of course, the availability of compelling content,
the second C; and obviously, consumer, the consumer awareness
of digital TV, including the benefits of consumer DTV equipment
that is appealing and, most importantly, affordable.
In terms of carriage, good progress has been made with
respect to ensuring the carriage of DTV, and particularly HDTV,
by broadcasters, cable operators, and satellite systems alike.
I think all should be proud of the progress that has been made
toward DTV availability.
I believe the transition to DTV could be accelerated even
further if consumers had access to DTV via cable-ready DTVs and
a choice at retail of cables, digital set top boxes.
In terms of consumer awareness, Panasonic promotes consumer
awareness of DTV opportunities every day through our
advertising, our joint efforts with retailers and broadcasters,
for example, by sponsoring and co-financing the production of
HDTV programs, and through CEA's industry-wide promotion and
education efforts, as well as by providing a variety of DTV
products that, we hope, consumers are finding appealing.
All of the affected industries need to continue these
efforts to build consumer awareness around DTV and HDTV.
However, with respect to the issue that is the main focus of
this hearing, content protection, Panasonic is proud to be part
of a private sector inter-industry effort to develop
technologies that protect content from the source to the time
it is displayed on the consumer's TV or PC, and those
technologies can continue to provide that protection when an
authorized recording of the content is made.
The challenges proposed by the digital environment are
rapidly evolving. Therefore, all the companies involved in
these efforts have continued to innovate new solutions and, of
course, all this has to be done with the interest of consumers
in mind, because serving our customers, the consumer, is
Panasonic's most important goal.
These private industry initiatives have proven to be the
most effective way to proceed. It is simply not possible for
government to mandate from above broad design requirements that
address the myriad of interests and technological challenges as
effectively as collaborative private sector efforts. We expect,
nonetheless, that for any solution to be successful, it must
withstand public scrutiny. Therefore, we welcome, and in fact
encourage, your continued interest in our efforts to address
these challenges.
We have mentioned three key elements: Protection of in-the-
clear broadcast content using the broadcast flag; addressing
the analog hole; and preventing unauthorized peer-to-peer file
sharing. In our written comments as well as the comments made
by Mr. Parsons and Mr. Chernin already, we have reviewed some
of these progresses in each of these areas.
I would only like to add that this process is rapidly
moving to a conclusion with a return to the broadcast flag. In
fact, the 5C companies, the CIG Computer Industry Group, and
the MPAA met late last night and reached agreements in a
proposal that will be recommended to the full group. In fact,
we expect that to be circulated today.
The problem of peer-to-peer distribution of copyrighted
content is very, very difficult to resolve. To my knowledge, no
concrete proposals concerning how to solve this problem have
been proposed. In fact, it is quite likely that no single
solution to this problem will be developed, and that instead a
variety of technical and legal and business approaches will be
necessary.
At the moment, the immediate, admittedly partial solution
appears to be consumer education efforts and strong enforcement
of copyright laws.
I would like to conclude by just saying that we have built
our business on delivering innovative products to our
consumers, and we realize that, in order to develop and deliver
the greatest value to our customers, we must likewise provide
strong copyright protection to the owners of copyrighted
content.
[The prepared statement of Paul F. Liao follows:]
Prepared Statement of Paul F. Liao, Chief Technology Officer,
Matsushita Electric Corporation of America and President, Panasonic
Technologies Company
Mr. Chairman, Members of the Subcommittee, thank you for the
opportunity to testify before you today. I am here today in my capacity
as Chief Technology Officer of Matsushita Electric Corporation of
America and President of its Panasonic Technologies Company division.
Our company is the principal U.S. subsidiary of Matsushita Electric
Industrial Co., Ltd. (``MEI''). Our principal brand, and the name by
which the companies are commonly known is ``Panasonic.'' Panasonic is
one of the world's largest producers of innovative electronic and
electric products for consumer, business and industrial use. Our
consumer and broadcasting product lines include a broad array of audio,
video, communications and computing products and components. In the DTV
realm, for example, we were proud to introduce the first consumer HDTV
in the United States in the summer of 1998.
As a company on the cutting edge of the transition to digital
television, Panasonic has been deeply involved in efforts to ensure
that digital content is adequately protected. My testimony summarizes
some of the many technology development efforts Panasonic has been
involved in, including the development of the CSS encryption system
used to protect DVD discs, the development by the ``5C'' group of
companies of the Digital Transmission Content Protection (``DTCP'')
technology that protects copyrighted content as it moves digitally from
device to device in a home network, and the invention of the Content
Protection for Recordable Media (``CPRM'') technology to provide
secure, encrypted recording and storage of authorized copies of
copyrighted content.
In participating in these technology development efforts my company
has been guided by two overarching principles:
(1) Ensuring that the legitimate interests of consumers--the bedrock of
our business--are preserved in the transition to digital
technology; and
(2) Enabling new business opportunities for Consumer Electronics
(``CE''). Information Technology (``IT'') and content companies
alike.
Although my prepared remarks today focus most particularly on the
experiences of Panasonic, I am here also as a representative of the
``5C'' group of companies and would be happy to answer questions with
respect to 5C activities and initiatives during the question and answer
portion of the hearing.
At the outset, I would like to express my gratitude to all of the
Members of the Committee on Energy and Commerce, including the Ranking
Members of the full Committee and this Subcommittee, and especially to
both the Chairman of the full Committee and to you, Mr. Chairman, for
your continued focus through private meetings, industry roundtables and
other means on bringing the various stakeholders together to address
and resolve issues that have been affecting the transition to DTV.
While the topic of today's hearing is Ensuring Content Protection in
the Digital Age, I believe that the availability of robust content
protection systems is only one of the building blocks necessary to
promote the transition to the digital world. Because this Committee has
been so dedicated to encouraging the transition to DTV, and because 5C
has played an important role in advancing the transition to DTV, I will
use the DTV example to illustrate the role that content protection
systems can play in the transition to and availability of new digital
technologies and compelling content for consumers. Our experience has
shown that careful balancing is necessary to achieve the public policy
goals articulated by this Committee, and to harmonize the needs of
consumers and of the various affected industries.
I believe that three things are necessary to make the DTV
transition a reality:
<bullet> Carriage of DTV signals by broadcasters, cable operators and
satellite services;
<bullet> Availability of compelling content; and
<bullet> Consumer awareness and education about DTV and consumer DTV
equipment that is appealing and affordable
To encourage the development of each of these components, a careful
balancing of interests is required.
<bullet> Compelling content is required to encourage consumers to look
into, learn about, and buy in to DTV;
<bullet> Adequate security is required before content owners will
release compelling content; and
<bullet> DTV products must be affordable and must respect legitimate
consumer expectations about how consumers will be able to use
and enjoy content they rightfully acquire.
Panasonic--through the 5C and through other private licensing
initiatives--has been working hard to meet the legitimate interests of
content companies, broadcasters and consumers. I am pleased to report
that much progress has been made in each of the three areas I
mentioned, however significant issues remain that merit the Committee's
attention.
Carriage of DTV
Good progress has been made with respect to ensuring carriage of
DTV by broadcasters, cable operators and satellite systems. I would
like to extend congratulations, on behalf of Panasonic to the broadcast
industry which has made great strides towards DTV availability. Over
300 broadcast DTV stations are already on the air and carrying a
variety of programming in TV markets that comprise over three-quarters
of all TV households.
I would also like to extend congratulations to the cable industry
which has been offering increasing DTV content over the past few years
to their digital subscribers. There are many digital and some
interactive program services already, and several cable operators have
recently announced plans to provide more on their systems, including
HDTV programming. Congratulations are also in order to satellite
service providers, which have carried digital, and to borrow FCC
Chairman Powell's phrase, ``value-added'' TV content from the time
satellite services were launched.
Panasonic has supported the availability of such value-added
content in a variety of ways. Our company has made direct financial
contributions to cover program development and HDTV production costs.
For instance, we provided significant program production equipment
support for the first HDTV presentation of ``Monday Night Football'',
and for the past two years we have sponsored CBS's prime-time HDTV
line-up. We likewise provide digital equipment loans and HDTV
production support for the efforts of several producers of high-quality
digital programming, such as nature, natural history, documentary and
other programs which are being aired on public and commercial
broadcast, cable and satellite channels. Panasonic is also providing
professional DTV and HDTV production equipment to producers, program
makers, and special-venue presenters in order assist in the transition
to DTV.
Progress with respect to carriage of content is encouraging, but I
believe the transition to DTV could be accelerated if consumers had
access via ``cable ready DTVs'' and a choice at retail of cable set top
boxes. After all, cable is the largest provider of television service
to American TV households. A key element of these cable ready DTVs and
retail set top boxes is the POD-Host Interface technology. We would
like the license agreement for this technology to include clear rules,
such as those included in the 5C license for DTCP technology, to ensure
that the technology cannot be used to undermine consumers' customary
home recording expectations. I applaud the Committee's efforts to date
and urge the Committee to keep a keen focus on these issuesContent
As I mentioned at the outset, CE and IT manufacturers such as the
5C group of companies involved in developing and licensing the DTCP
technology, realize that in order for content providers to fully
embrace DTV and other new digital forms for delivery of content,
security concerns must be adequately addressed. Panasonic has been at
the forefront of developing content protection technologies for use
with both audio and video. We have been directly involved in developing
and licensing technologies that can protect content from the source to
the time it is displayed on a consumer's TV or PC. We have likewise
developed technologies to protect the content from unauthorized copying
and redistribution if/when it is recorded in the home.
In participating in these technology development efforts Panasonic
has been guided by several themes:
<bullet> Technologies should be developed through a process of inter-
industry consultation and collaboration to ensure that they are
(a) practical to implement; (b) achieve the legitimate
copyright protection goals set forth by the content community;
and (c) deliver value to consumers.
<bullet> Technology initiatives should be led by the private sector.
The objectives should be achieved by voluntary license
agreements where possible, and complemented by narrowly-focused
government action only where necessary.
<bullet> Technology solutions should include rules to preserve
consumers' customary recording expectations.
We realize that both the opportunities and the potential challenges
posed by the digital environment are ever evolving. Despite the fact
that the content protection technologies we have been involved in
developing were each designed to meet specific sets of requirements
outlined by the content companies, the CE and IT companies involved in
these efforts have been willing to keep innovating and adding to the
existing technologies (and creating new ones) to meet unanticipated or
previously unarticulated goals of the content owners. Of course, this
has all been done with the interests of consumers in mind, because
serving our customers is Panasonic's most important goal. In our view
this is the most effective way to proceed. It is simply not possible
for the government to mandate from above broad design requirements
which as effectively address the myriad of interests and technological
challenges as do collaborative private sector efforts. We expect,
nevertheless, that for any solution to be successful it must withstand
public scrutiny. We therefore welcome your continued interest in our
efforts to address these challenges.
Some specific examples of our activities with regard to content
protection are summarized below.
5C--
Panasonic is one of five companies (sometimes therefore referred to
as the ``5C''), that developed the Digital Transmission Content
Protection (``DTCP'') technology used to protect content as it
traverses the IEEE 1394 home network.
<bullet> DTCP was developed and is being licensed by a license
administrator established by the five CE and IT companies to
address requirements set forth in a request for proposals by
the CPTWG, a multi-industry group that included direct
participation by the motion picture industry.
<bullet> The technology protects content that enters the home via
cable, satellite or other means of conditional access
technology from being copied or retransmitted beyond the home
(e.g., via the Internet) without authorization of copyright
holders and will be adapted for use to protect content that
enters the home via unencrypted digital broadcast pursuant to
the ``broadcast flag'' technology described below.
<bullet> DTCP employs encryption and authentication in order to ensure
that content is exchanged only among devices which agree to
continue to protect the content.
<bullet> Since approximately 85% of TV households in the U.S. receive
programming through cable or satellite conditional access
technologies, the DTCP technology may be applied to this
conditional-access protected content to prevent unauthorized
Internet retransmission.
<bullet> The DTCP technology license incorporates ``encoding rules''
modeled after Sec. 1201(k) of the Digital Millennium Copyright
Act (``DMCA'') to preserve customary home recording practices.
These rules were developed through manufacturer and Content
industry consultation beginning in the early 1990s. Pursuant to
these provisions, content companies may use the DTCP technology
to protect content according to the following minimum rules--
<bullet> Free TV is freely copyable, but may be restricted from
redistribution;
<bullet> One generation of copies must be permitted for paid
programming such as HBO; and
<bullet> Copying (other than as part of a ``pause'' function that is
periodically deleted) may be prohibited with respect to
packaged media, Pay Per View (``PPV'') and Video On Demand
(``VOD'') type content.
CSS--
Together with Toshiba, Panasonic developed the Content Scramble
System technology used to encrypt pre-recorded DVD discs
<bullet> This technology enabled the launch of DVD--the most successful
consumer product ever.
<bullet> Licensing of CSS has now been turned over to a multi-industry
group called the DVD Copy Control Association (``DVDCCA'')
which is comprised of representatives of the CE, IT and Motion
Picture industries.
<bullet> Beyond licensing the encryption technology used on pre-
recorded DVD discs, DVDCCA is tackling a number of additional
projects, including the evaluation of a ``watermark'' to be
used in conjunction with pre-recorded DVD content to provide
additional security against recording and playback of
unauthorized copies of the content.
4C--
Together with three other companies (sometimes referred to as the
``4C'', Panasonic developed Content Protection for Prerecorded Media
(``CPPM'' used e.g., to protect DVD-Audio) and Content Protection for
Recordable Media (``CPRM'' used for secure recording and storage of
content)
<bullet> The technology was developed and is being licensed by CE/IT
companies.
<bullet> The technology license incorporates rules that allow for
customary consumer copies such as for time-shifting and place-
shifting of audio content.
Consumer Equipment
The third and central part of the puzzle in making the DTV
transition a reality is consumers. Consumer technologies succeed when
consumers are aware of them and see value in them for their own lives.
In the national transition to DTV, all involved must be part of the
effort to alert and educate consumers to the DTV opportunities and
choices they have. And all must provide enough value for consumers to
want to ``buy in'' to the DTV revolution. Panasonic tries to do this
every day with its retail partners, in its advertising, in joint DTV
``launch parties'' and special events with broadcasters and others,
through support of CEA's industry-wide promotion and education efforts,
and, most importantly, by providing a variety of DTV products we hope
will be appealing to consumers.
This also means that consumer DTV products must be affordable, easy
to use, and respect consumer expectations about how the consumer will
be able to interact with and use content. Panasonic's activities, both
in the 5C and elsewhere, have been guided by these concerns. Therefore:
<bullet> The 5C technology is licensed on a cost-recovery basis so as
not to unnecessarily add to the cost of consumer products
<bullet> The 5C technology was developed in order to provide effective
protection, yet not impose undue burdens on product
implementations so as not to compromise product functionality
<bullet> The 5C DTCP technology license incorporates ``encoding rules''
aimed at protecting consumer's fair use expectations.
Current Challenges & Future Efforts
During hearings before the Senate Commerce Committee in February,
representatives of the motion picture industry advocated the need for a
government-mandated solution to three specific problems:
<bullet> Protection for ``in the clear'' broadcast content to prevent
unauthorized redistribution of such content via the Internet,
<bullet> Addressing the so-called ``analog hole,'' and
<bullet> Preventing unauthorized ``peer to peer'' file sharing of
copyrighted content.
Panasonic agrees that these are serious issues deserving of
attention. A brief summary of inter-industry efforts to consider these
challenges follows.
Protection of broadcast content delivered in the clear
Because digital terrestrial television broadcasts and certain basic
tier cable video programs are delivered in unencrypted (``in the
clear'') form, unlike pre-recorded, encrypted, digital media such as
DVD or digital cable and satellite transmissions delivered via
conditional access systems, there is no technical or legal
authorization necessary and no licensing predicate by which to
establish conditions for the secure handling of such content. As a
result, unprotected DTV content can, as a technical matter, be
delivered outside of the home environment, such as over the Internet
without authorization from copyright holders. In November of 2001,
representatives of the 5C members described to the Copy Protection
Technical Working Group (``CPTWG'') a refined version of a proposal,
originally presented to the 5C members by Fox following on industry
standards activity in the Advanced Television Standards Committee,
which would require certain devices which demodulate DTV content to
respond to a ``Broadcast Flag'' and securely route content which a
copyright owner has indicated should not be redistributed via the
Internet, only to protected digital output and recording technologies,
or to analog outputs. The 5C members recommended that a group be formed
under the auspices of the CPTWG <SUP>1</SUP> to evaluate this proposal
and to determine whether there is sufficient industry and consumer
organization support for the proposal as a solution to the problem of
unauthorized redistribution of broadcast content. To date, the group
formed as a result of this initiative has undertaken considerable
activity--
---------------------------------------------------------------------------
\1\ The CPTWG is the open forum of CE, IT, and content companies
and consumer groups which meets, typically on a monthly or bi-monthly
basis in Los Angeles, to consider technical copy protection issues.
<bullet> The Broadcast Protection Discussion Group (``BPDG'') has met
13 times in four months, in person and by phone.
<bullet> The participants in these discussions appear to be in
fundamental agreement that an approach based on a ``Broadcast
Flag'' is technically sufficient for the purpose of signaling
protection of DTV content in digital form, beginning at the
point of demodulation, against unauthorized redistribution.
<bullet> There is likewise substantial agreement as to the particular
flag to be used, and that content that is either marked with
the flag or has not been screened for the flag may only be
recorded or output from covered products by either (a) analog
products and recording methods; and (b) digital outputs and
recording methods that provide protection against unauthorized
redistribution.
<bullet> Certain issues currently remain unresolved, including (a)
finalization of criteria used to determine whether a particular
recording technology or digital output protection method should
be deemed ``authorized;'' and (b) whether there is adequate
support for an alternative proposal, advanced by Philips, which
would allow unencrypted digital-to-digital recordings of
broadcast content for at least some period of time.
<bullet> The schedule for BPDG now calls for a final report by mid-May,
and I believe that this is achievable.
<bullet> Since the BPDG was primarily focused on technical matters, a
separate, ``parallel group'' has been formed to begin
discussing how to enforce the hoped-for technology solution. It
is possible that narrowly focused government action will be
necessary to support any private sector technology approach.
Plugging the so called ``analog hole''
Digital content delivered in a protected manner must nevertheless
be converted to an unprotected analog format in order for it to be
viewed on the vast majority of HDTV and digital televisions in
consumers homes. The ``analog hole'' refers to the potential which
exists for redigitization and subsequent unauthorized redistribution of
content (via peer to peer networks or otherwise) because of this need
to convert digital signals to analog form in order for them to be
viewed. It is currently thought that the most effective means by which
the so called ``analog hole'' issue can be addressed is by using a
watermark to indicate how content marked with the watermark can be
copied and redistributed.
There are efforts currently underway, under the auspices of the
DVDCCA, to evaluate ``standard definition'' watermarks which we hope
will be extensible to ``high definition'' content. This process has
shown that there are serious business, legal and technical issues that
need to be resolved before a watermark can be identified for use to
plug the ``analog hole.'' Further efforts are necessary before it can
be determined how such a watermark might practically be implemented in
order to mitigate the analog hole problem. It is possible that
narrowly-tailored government efforts may be necessary to address this
problem once an appropriate watermark has been identified, however
these decisions should await identification of such a watermark.
Preventing unauthorized peer to peer distribution of content
The problem of unauthorized peer to peer distribution of
copyrighted content is most difficult to solve. CE and IT companies,
including the members of 5C, are sympathetic to the concerns of content
owners, yet it is in the arena of solving the peer to peer problem
where the legitimate concerns of content owners, the legitimate
interests of consumers, and the ability of CE and IT manufacturers to
deliver products that are affordable and innovative may be hardest to
harmonize. The problem is made even more difficult by the fact that
digital devices are used to enjoy (and sometimes share) a variety of
data--some of which are not copyrighted.
To my knowledge no concrete proposals concerning how to solve the
peer to peer problem have been proposed by any industry sector. It is
quite likely that no single solution to this problem will be developed
and that instead a variety of technical, legal and business approaches
will be necessary. At the moment the immediate, although admittedly
partial, solution appears to be consumer education efforts and strong
enforcement of copyright laws to punish commercial piracy of
copyrighted content. In the event that inter-industry efforts to
address the issue are convened, Panasonic stands ready to contribute
its technical knowledge to find a solution which promotes the
availability of digital content while promoting the twin goals of
preserving consumer rights and protecting the intellectual property of
content owners.
Conclusion
Panasonic has built its business on delivering innovative products
to consumers. We realize that in order to deliver the greatest value to
our customers we must likewise provide strong copyright protection for
the owners of copyrighted content. For this reason we, together with
other members of 5C have been at the forefront of developing
technologies that aid the transition to the digital environment for all
parties involved. Panasonic will continue to contribute, where it can,
to help address technical challenges faced by the industries
represented here today and to promote a rapid and fruitful transition
to DTV.
Mr. Upton. Thank you. I note that the House is going to
have votes in a short time. So my goal is to try to strictly
adhere to this 5-minute rule so that we can get into some
questions before the votes start, knowing that we will come
back.
Mr. Blanford.
STATEMENT OF LAWRENCE J. BLANFORD
Mr. Blanford. Mr. Chairman and members of the subcommittee,
my name is Larry Blanford. I am president and CEO of Philips
Consumer Electronics in North America. I do appreciate the
opportunity to appear before you today, and applaud your
leadership on this extremely important and complex set of
content protection issues.
I am accompanied today by the Managing Director and Senior
Vice President of Philips Research in New York, Dr. Barry
Singer.
Now Philips is a global leader in display, storage and
connectivity in the digital age. We have nearly a century of
experience in consumer electronics, research, design, and
manufacturing, and a proud history of inventing and developing
consumer electronics products from the audio cassette and the
compact disc to high definition television.
We also have a long history of constructive participation
in content protection activities and in developing content
protection technologies, from the pioneering serial copy
management system to what we believe is the leading candidate
for video watermarking technology now being evaluated.
Philips has been guided in its development of its consumer
products and protection technologies by certain principles:
maintaining ease of use and user friendliness; providing
backward compatibility with existing devices; preserving the
opportunity for new, innovative products; respecting
intellectual property rights; preserving the consumer's fair
use rights; and, importantly, balancing among the various
competing rights and interests.
Philips comes before you today with a call for action, one
which I believe is important, if collective we are to achieve
technological solutions that strike the all important proper
balance of rights in the emerging digital age, those of
consumers, device manufacturers and content owners.
I say collectively, because when it comes to setting
content protection policy and ensuring the balance of interests
and rights, your role is just as critical as that of the
private sector. Simply put, the process we are now using to
pick a technological solution and balance these interests is
flawed, and we need your help to fix it.
Today you are reviewing the status of the most recent
developments in digital age content protection, the need to
protect digital terrestrial television broadcasts from
unauthorized retransmission over the Internet. Philips fully
supports the goal of the Broadcast Protection Discussions Group
to protect against such retransmission, and we support the
concept of a flag in the ATS signal to achieve this end.
We also appreciate much of the progress made by that group.
However, we along with a growing number of participants are
deeply concerned about the direction that the group is taking
with respect to what happens after the broadcast flag is
identified and how DTV would be constrained inside the home.
Basically, the only paradigm being considered by BPDG is
one that would, in most cases, require public broadcast content
to be encrypted upon receipt in the home and on any copies on
removable media. You have heard repeatedly that a solution to
this problem is imminent. We appear here today, however, to say
that, although we are actively involved in those discussions,
we do not believe we are anywhere close to a consensus
solution.
Philips, along with Thompson, RCA, and Zenith, shared their
concerns as formal objections to the recent BPDG interim
report, and raised them with you at the April 9 DTV roundtable
discussion. Others have expressed similar concerns privately. I
am here to reiterate those concerns today.
No. 1, the direction of the current discussions threatens
to constrain the consumer's fair use rights and expectations.
For example, if future DVD recorders are obligated to encrypt
recordings of television broadcasts from digital sources, any
such recordings made on those recorders would not be usable on
the 35 million DVD players consumers own today.
No. 2, the process by which decisions are being reached is
not fair, reasonable or open, and is not seeking consensus.
Rather, it is a carefully choreographed drive toward a
preordained result.
No. 3, the decisions regarding how products will be allowed
to handle content and the rights of consumers would reside with
a few companies through private contractual relationships.
No. 4, companies interested in making devices that handle
digital television would be required to sign up to a complex
web of overreaching contracts. These contracts include
obligations called compliance rules and robustness rules that
extend deeply into the design and functionality of each device,
and dictate what actions the devices may take and what
consumers can do.
Put simply, those driving BPDG are rushing the group to
judgment without a thorough public consideration of how the
group's approach will diminish the rights of the consumer and
competition in affected industries.
At the April 9 DTV roundtable discussion, important
questions were posed by Chairman Tauzin: Who has control? Who
makes the final decisions? In this case, no public official, no
consumer, no licensee, no other interested party has a seat the
decisionmaking table. Only the licensors of the preferred
technologies and the content community can set policy and make
decisions.
Balancing the rights of consumers and differing business
interests are a matter of public policy. Consumers' rights must
not be left in the hands of private interests. We call upon you
today to establish a forum under government auspices in which
we can all participate in order to get this right.
While we do not know the perfect forum of this private-
public partnership to take, we believe the former Advisory
Committee for Advanced Television Services with its strong and
effective leadership serves as a useful model. Again, we are
not recommending that government mandates the solution, but
provides a governance to a process so that we can get the
solution correct.
Philips wants to be part of that solution, and we, as much
as any company, want this digital transition to flourish and
flourish quickly. We believe an appropriate public-private
partnership will move us to that consensus solution more
rapidly.
Thank you for this opportunity to share our views and our
concerns. I would be happy to answer any questions you might
have.
[The prepared statement of Lawrence J. Blanford follows:]
Prepared Statement of Lawrence J. Blanford, President and CEO, Philips
Consumer Electronics Company
Mr. Chairman and Members of the Subcommittee, my name is Larry
Blanford. I am President and Chief Executive Officer of Philips
Consumer Electronics Company, a division of Philips Electronics North
America Corporation, which is the US subsidiary of Philips Electronics
of the Netherlands. In the United States, Philips employs over 35,000
people manufacturing and selling over $10 Billion dollars of goods and
services in the areas of consumer electronics, lighting, medical
systems and devices, semiconductors, displays and domestic appliances.
I thank you for the opportunity to appear before you today and
commend you for conducting this hearing entitled, Ensuring Content
Protection in the Digital Age at such an important juncture in the
transition to that new age. Your attention to the Digital Television
(DTV) transition and to the complex set of issues that remain to be
addressed is vital to the ultimate success of that transition. You
rightfully focus today on a key challenge--resolving copy protection
and digital rights management in a way that is consistent with public
policy goals of protecting content, allowing technology to thrive and,
most importantly, preserving the fair use rights and expectations of
the consumer in this new digital age. The manner in which we proceed
will dictate the measure of success we attain.
The combined efforts of the public and private sectors have come a
long way toward ushering in this new digital age, but I come before you
today to raise a caution--that the current direction embodied in the
on-going Broadcast Protection Discussion Group addressing ways to
prevent Internet Retransmission of digital television broadcasts is not
in the interest of sound public policy, is not in the best interest of
the affected industries and is certainly not in the interest of the
consumer. Mr. Chairman, Philips raised its concerns in the most recent
DTV Roundtable Discussion on April 9. We are here today because we feel
it is very important to bring to your attention the fact that the
chorus you will hear today, as Senators Leahy and Hatch heard at their
hearing only weeks ago, that a solution to the problem of Internet
redistribution is imminent misrepresents the current state of affairs
and the nature of the challenge that still lies ahead.
Philips, as much as any company in the US wants to see this
transition to the digital age, and more specifically this transition to
digital television, move as swiftly as possible. But we also know from
decades of involvement in the consumer electronics industry that we
must get this right, meaning that we cannot rush to judgment on
technological solutions that are not widely accepted as the best
solution for all parties involved--the CE industry, the Information
Technology industry, the Content Community and, of course, the
consumer. Philips calls upon the Congress today to reassert its role in
this critical public-private partnership by providing an appropriate,
public forum to continue these industry discussions and to foster
workable solutions on a timely basis. Further, today we offer to
provide our complete support to such an effort, including offering
related Philips technologies to all comers, under open, fair and easily
available terms. Philips has an extensive technology portfolio, which
we believe can contribute to the development of solutions every bit as
robust and effective as those embodied in the current, BPDG direction.
Philips has long history in development of consumer electronics
products and technologies
Philips is no stranger to the world of inventing and developing
products and technologies in the area of consumer electronics. From the
Compact Cassette to the Compact Disc to the one chip TV, Philips has
invented and developed products that have enjoyed widespread acceptance
in the industry and among consumers. The Compact Disc is the most
widely implemented digital technology on the face of the earth. Open,
public standards helped make this so, open, public standards should
help us select new copy protection schemes.
Our untiring commitment to the development and implementation of
advanced television in the United States began in our research labs in
Briarcliff Manor, New York in 1981. With decades of financial
investment and enormous scientific effort, we worked to help create and
commercialize Digital Television. Philips is extremely proud to have
been instrumental in the development of Digital HDTV, beginning with
its own system, later as a member of the Advanced Television Research
Consortium, and finally as a founding member of the ``Grand Alliance,''
which produced the DTV standard adopted by the FCC in 1996. This
unprecedented standards setting process involved numerous private
companies from each affected industry but just as importantly involved
an extraordinary public-private collaboration fostered by the Congress
and the Federal Communications Commission embodied in the Advisory
Committee for Advanced Television Services (ACATS) chaired by Mr.
Richard Wiley. The positive result has propelled the United States into
an historic transition to advanced digital television and related
services.
Philips has been an active participant in the development of Copy
Protection Technologies and Adheres to Basic Principles to
Protect the Consumer
The implementation phase has certainly presented its challenges,
not the least of which has been the development of copy protection
technologies. Philips has long developed solutions along with the
content community that struck the proper balance between the interests
of the copyright holder and the consumer. Philips invented, and offered
to the consumer electronics industry for free, the Serial Copy
Management System, which simply provided the necessary instruction to
the recording device as to whether a copy was or was not allowed. We
continue to be equally involved and committed to seeking solutions that
strike the proper balance. Philips has for years been a constructive
participant in inter-industry copy protection activities. We have
dedicated millions of dollars and thousands of hours of effort from our
best engineers to groups such as the Copy Protection Technical Working
Group (CPTWG), the Secure Digital Music Initiative (SDMI), and the
Broadcast Protection Discussion Group (BPDG). Drawing on our expertise
in digital video we were the lead developer of one of the two watermark
technologies being considered for the protection of digital video
content. Philips created and offered to the record labels an innovative
technology to work with watermarks to address Internet file sharing of
sound recordings. We have suggested several approaches to the BPDG.
As these contributions suggest, Philips develops new products and
technologies with the interest of the consumers'' rights and
expectations at top of mind:
<bullet> Consumers' fair use rights must be preserved in any technical
or public policy solutions to digital age challenges
<bullet> Backward compatibility has been the backbone of the consumer
electronics industries' product designs.
<bullet> Consumers react negatively and very strongly when their
expectations for fair use and ease of use are not met.
<bullet> Ever increasing levels of complexity in consumers' devices
will render products increasingly unreliable, more expensive
and will constrain consumer activities.
<bullet> User Friendliness is a hallmark of CE products.
Consumers should not bear the costs, in dollar terms and in terms
of technological complexity, when there are much simpler solutions to
the agreed upon problem--the prospect of Internet redistribution of
digital terrestrial broadcasts.
Philips Supports the Goal of Preventing Internet Retransmission of
Digital Terrestrial Broadcasts, But Believes the BPDG Process
Is Actually Retarding Industry Efforts To Move Forward
We fully support the goal of BPDG to protect against retransmission
of digital television over the Internet and the concept of a flag in
the ATSC signal to achieve this end. We also appreciate the progress
made by that group, including the general agreement that a flag in the
ATSC signal can be used to trigger protection, the idea of starting
protection upon demodulation, and many of the other details that have
been advanced. However, we, along with a growing number of
participants, are deeply concerned about the direction that the group
is taking with respect to what happens AFTER the broadcast flag is
identified, and how DTV would be constrained inside the home.
This issue of protecting broadcast content is a complex one that
merits careful consideration and the evaluation of a variety of
alternatives.
Regrettably, in this effort to address Internet retransmission,
BPDG has been taken over by a small group of companies that are
pressing a particular approach that would affect ALL retransmission of
content inside the home. This proposal tramples upon the fair use
rights of the consumer and introduces unnecessary levels of complexity
and costs in consumer devices.
Under the approach proposed by one Studio and a consortium of
hardware companies called the 5C, digital television content would need
to be ``protected'' once demodulated. The technologies that could be
used for this protection, which are generally conceived to be
encryption technologies, would be under the control of the studios and
private consortia, such as the 5C. For example, the technologies that
the studios wish to use as a benchmark for the protection are the
encryption technologies licensed by the 5C entity (which encrypts
content on digital links) and the related 4C entity (which encrypts
content on removable recording media).
Any party interested in designing and manufacturing devices using
these technologies to encrypt digital television programs would be
required to sign up to a Byzantine set of complex, over-reaching
contracts for these proprietary technologies. These contracts include
obligations called Compliance Rules and Robustness Rules that extend
deeply into the design and functionality of each device and dictate
what actions the devices may take. These Compliance Rules and
Robustness Rules are in the control of the studios and the private
consortia and will be created in the first instance, and may be changed
in the future, wholly in their discretion. The public, consumers,
licensees, and public officials are, unfortunately, not a part of this
process. In short, private interests are taking control of consumer
rights and as a result establishing public policy! A small number of
our competitors and the studios are put in control of the functionality
of our products!
This result is possible because of the licensing construction built
around the use of these technological solutions. Moreover, the
technology licenses agreements and associated Rules include obligations
that extend far beyond that which is necessary and appropriate to
prevent the Internet retransmission of DTV.
Even if it were appropriate to cede public policy to private
interests, the implementation of this most recent proposal is rife with
unintended consequences for products and for the consumer. The
obligation to include multiple encryption technologies in each device
that handles DTV content will burden consumer devices, increase their
cost and decrease their legitimate functionality.
Further, the 35+ million DVD players in the market today are unable
to decrypt any discs recorded in the home using any proposed encryption
system. If future DVD recorders are obligated to encrypt recordings of
television broadcasts from digital sources, any such recordings made on
those recorders will not be useable on any existing DVD player or on
any DVD player likely to be shipped in the near future. Consumers
should not be required to purchase a new set of devices or to make
digital recordings of content of digital content through old fashioned
analog interfaces simply to do what consumes have always done in their
homes. To leave matters in this state is to deny the consumer the
benefits of digital technology. Digital technology's primary advantage
is to move and copy data without any qualitative loss. Where this is
appropriate (such as in a consumers home) it is reasonable that the
consumer not only retain the ability to watch broadcast content at a
convenient time or to move content from one room to another but also to
gain additional flexibility to utilize content. To do otherwise is to
restrain technology solely for the benefit of the copyright holder as a
mechanism to subdivide content into smaller units, each of which can be
sold at a premium price.
The current proposal also would inhibit innovation in television
products. Under the proposal, any innovative company interested in
developing and marketing new products that would give consumers more
control over how and when they view television would be required to
sign these over-reaching, burdensome licenses for the ``approved''
proprietary encryption technologies, pay the applicable license fees,
and bear the costs of including encryption and decryption capabilities
in their products. The complexity and cost of these licenses and the
technologies alone will inhibit start-up companies, which are often the
most innovative.
The BPDG is not a consensus body and is certainly not a standards body.
Philips has lost all confidence that the BPDG discussion group as
currently constituted can achieve meaningful results, or that it will
allow for serious consideration or adoption of technology solutions of
equal merit presented by other interested parties. BPDG is not an open,
consensus standards setting process. BPDG has no process for making
decisions. In fact, the studios and 5C have made clear their view that
there need be no process, because BPDG is not a standards body; it
simply is a forum for discussion and the identification of points of
agreement and disagreement. Such discussions may have their place, but
on this matter of such critical importance to the establishment of good
public policy, this approach is seriously lacking.
We respectfully believe that the decisions of how DTV content
broadcast over the public airwaves will be handled in the home and how
it will be available to consumers raise important public policy issues;
issues that are far too important to leave to any group of private
companies no matter how well intentioned. Private industry should be
given a chance to reach a consensus, but the process should be cleansed
by the sunlight of government. Further discussion should be held in an
open forum, with the involvement of those who are entrusted with the
development of public policy.
Philips believes the Congress should make clear that there will be
no toleration of a system in which the private interests control the
Rules for copy protection technologies that become de facto standards.
The rules and licenses under which such technologies are used raise key
public policy issues and must be subject to minimum standards of
openness, reasonableness, scope and consensus. We have ideas for
appropriate technologies that we are prepared to share with the
industry in exactly this manner, as we have attempted in the past.
Philips, therefore, calls upon the Congress to reassert itself in
this ongoing endeavor by providing under its auspices or the auspices
of the Federal Communications Commission, or a suitable standards body
an organized, open and fair venue to oversee the continuation of
efforts to develop and implement next generations of copy protection
technology. In support of such a change, Philips pledges its full,
continued support and further pledges to do its part to make
technological solutions available on open, fair and reasonable terms to
all interested parties. We look forward to this Committee's continued
leadership in this critical arena.
Mr. Upton. Thank you.
Mr. Jacobson.
STATEMENT OF LARRY JACOBSON
Mr. Jacobson. Mr. Chairman and Ranking Member Markey and
members of the committee, I am delighted to appear before you
today to discuss the pressing issues facing the media and
technology industries in our digital era.
RealNetworks, founded in Seattle, Washington, in 1994, is a
pioneer in the development of digital media technology and
services that enable people to create, deliver, discover, and
play digital audio and video content over the Internet, both
through downloading and through a method RealNetworks invented
called ``streaming.'' Most of you probably know our RealPlayer
or RO-1 player.
RealNetworks agrees that today's Internet marketplace
suffers from an unacceptable level of piracy of copyrighted
works. As a person who has spent most of my career in the
entertainment and broadcast industry, I understand that
copyright protection lies at the core of America's ability to
create and sell entertainment products throughout the global
marketplace on a variety of distribution platforms.
Digital copying via the Internet poses fundamental
challenges for the economics of both the entertainment and
technology industries, and we need to meet that challenge head
on in order to realize the potential of this new distribution
medium.
The good news is that RealNetworks is building distribution
channels, business models, and new subscription services that
will contribute to a robust and legitimate content marketplace
for digital music, video, and other products. As a fundamental
part of our digital media platform, RealNetworks has developed
a robust and sophisticated digital rights management technology
or DRM to protect content that is delivered to consumers.
This DRM and our other security technologies are in the
marketplace today, and currently protect premier content we
offer, from major record labels, CNN, Fox Sports, ABC News,
NASCAR, major league baseball and the MBA, among others.
Already in 18 months since we began offering our premium
protected subscription services, we currently serve over
600,000 monthly paid subscribers.
In crafting legislation regarding the Internet, Congress to
date has wisely refrained from sweeping regulation, resisting
the temptation to become in essence the chief technology
officer for the Internet. We should continue to be guided by
three core principles: First, that government should only
intervene in technology markets where there is a clear evidence
of market failure; second, that private sector competition will
always create the best technologies, resulting in new revenue,
new quality jobs, and new consumer benefits; and, third, that
all solutions must respect consumers' fair use rights to fully
enjoy digitally delivered content.
In the spirit of these principles, scores of companies,
including RealNetworks, are enabling secure content
distribution through flexible DRMs that are protecting content
in today's marketplace. Software can be built and adapted to
accept multiple DRMs and play back content that is encoded in a
variety of file formats, and we see evidence that market driven
solutions for security are rapidly evolving on the Internet
today.
In contrast to market driven solutions, we don't believe
that the government should pick a single winner and mandate a
security standard for the rapidly evolving digital market. This
approach would politicize the standard process, establish more
bureaucracy, create a single target for hackers, and ultimately
not lead to the best technology for security.
Rather than focusing its energies on creating a new
regulatory framework for digital media distribution, we believe
it would be wiser for Congress to eliminate practical barriers
to the growth of e-commerce and digital media.
As the Copyright Office recently recommended, existing laws
should be fine tuned to clarify that payments due for streaming
and downloading of music content should be put in place. We
must also address the economic imbalances in the field of
Internet radio, where new legal regulations have made it harder
for innovative programming services to compete on a level
playing field with other content offerings.
Moreover, Congress must always proceed carefully before
tampering with our carefully balanced copyright laws.
Clarifying the status of temporary copies in RAM and server
copies, for example, would make it easier to lawfully perform
and download digital content, all in a way designed to
compensate copyright owners.
Finally, Congress should clarify how longstanding fair use
principles peacefully coexist with the anti-circumvention
provisions of the DMCA. Any marketplace for digital goods must
preserve longstanding consumer rights to use content they have
purchased in a variety of ways. We must treat Internet users
like potential customers and not potential criminals, if we are
to build a marketplace based on mutual trust.
In closing, RealNetworks stands ready to work with
policymakers and all other concerned parties to create a
digital marketplace that affirms the best principles of
American innovation, consumer value, and the rule of law.
Thank you for your attention, and I would be happy to
answer any questions that you may have.
[The prepared statement of Larry Jacobson follows:]
Prepared Statement of Larry Jacobson, President and Chief Operating
Officer, RealNetworks, Inc.
Mr. Chairman and members of the Committee, I am delighted to appear
before you today and thank you for the opportunity to come to
Washington--the ``other Washington'' for those of us with a Seattle
orientation--to discuss some of the pressing issues facing the media
and technology industries at this moment.
RealNetworks as a Pioneer in Internet Media Delivery
RealNetworks, founded in Seattle, Washington in 1994, is a pioneer
in the development of digital media technology and services that enable
people to create, deliver, discover, and play digital audio and video
content over the Internet and within intranets, both through
downloading and through a method RealNetworks developed called
``streaming.'' Streaming enables consumers to enjoy uninterrupted,
real-time broadcasts over the Internet, by compressing digital media
files and dividing them into packets, that then are delivered to the
consumer's personal computer.
RealNetworks developed the first streaming media player and the
first streaming media server in 1995. RealNetworks has released nine
versions of the RealPlayer streaming media player. In addition,
RealNetworks has released two versions of its RealJukebox software,
which was first introduced in 1999, and which permits consumers to
manage their music collections on their personal computers. That
dynamic pace of innovation continues given the rapid adoption and
increasing use of digital media on the Internet.
RealNetworks offers a universal platform for end-to-end delivery of
digital media, from creation to broadcasting to end-user consumption.
This allows companies to build powerful digital media applications like
video subscription services on our platform without regard to the
underlying hardware or the software operating system. RealNetwork's
business model is based primarily on (1) licensing and selling software
to create, deliver, play and secure digital media; (2) selling
subscriptions for access to audio and video content from major content
providers, including ABC News, CNN, Wall Street Journal, Fox Sports, E!
Entertainment, Warner Music Group, BMG Records and EMI Music; (3)
providing professional services, such as hosting others' streaming
media and technology implementation, and (4) selling advertising and
promotions via RealPlayer, RealJukebox, and the RealOne Player for our
RealOne sports, news and entertainment subscription service.
As a fundamental part of our digital media platform, RealNetworks
has developed a robust and sophisticated DRM--Digital Rights
Management--technology to protect content that is delivered in
streaming or digital download formats. This DRM, called the Real System
Media Commerce Suite, currently protects digitally downloaded and
streamed files from major record labels via the MusicNet platform and
has been licensed to the MovieLink consortium, organized by Sony,
Universal, Warner Brothers, MGM and Paramount Pictures, to protect the
digital download of feature films.
Today, we have licensed our technology to over 270 million unique
registered users around the world with at least one of our products.
These consumers have consistently proven their desire to enjoy music
and video, whether streamed on demand, streamed in a webcast mode, or
delivered via digital download. As bandwidth increases for connected
users, music video and long-form video content are proving equally
popular. In fact, broadband consumers are the heaviest users of our
technology and as broadband adoption increases we can expect similar
increases for streaming media technologies.
As a company with applications on an estimated ninety percent of
personal computer desktops in the United States and hundreds of
millions of users around the globe, we are keenly aware of the
challenges to Internet distribution of music, video and other forms of
content that require licensing of intellectual property rights.
The Challenge of Secure Digital Distribution at a Critical Time for our
Industry
Mr. Chairman, this hearing comes at a critical time for the
Internet and specifically for companies that are building the new
distribution channels for music and video content. We are all aware of
the explosion of online file-sharing services and their global
popularity. Countering this trend, both independent and major recording
companies have licensed their works to subscription online services
such as MusicNet, PressPlay, and Listen.com's Rhapsody and other online
ventures. RealNetworks has been one of the driving forces behind the
creation of legal subscription services. As for the prospect of
distribution of feature films on a pay-per-view basis, RealNetworks is
contributing technology to the MovieLink venture and we hope to see
other pay-per-view and subscription video services roll out in the near
future. Our technology and subscription services model is designed to
facilitate just this sort of business.
For any of these new content distribution channels to succeed, we
will need to make sure that content is secured, that consumers see
value in the digital purchases they make, and that the underlying
business models make sense for all participants in the ``food chain.''
Security for music and video distribution is essential. Whether
digital content is produced by a garage band or a global media company,
content owners need to reach a comfort level with putting that content
into the digital marketplace.
We all know that today's Internet marketplace is characterized by
an unacceptable level of piracy of copyrighted works. The balance of
copyright--providing authors with a fixed exclusive period of time to
reap the rewards from creating new works--will be upset if this
situation prevails. The business leaders testifying alongside me today
will undoubtedly give a more detailed picture of the dimension of the
piracy problem and the steps they are taking to address it. Let me
simply say that RealNetworks does not take widespread Internet piracy
lightly, both as a creator and licensor of our own intellectual
property and as a long-standing partner of many content creators.
RealNetworks was the first company to successfully invoke the anti-
circumvention mechanisms of the DMCA to stop the distribution of
software that attempted to break the proprietary content protection
measures within our RealServer and RealPlayer software and we will
continue to invoke legal mechanisms to prevent piracy.
As a person who has spent most of my career in the entertainment
industry, culminating from 1997 to 2000 as President of the Fox
Television Network, I understand that copyright protection lies at the
core of America's ability to create and sell entertainment products
throughout the global marketplace on a variety of distribution
platforms. Digital copying via the Internet poses fundamental
challenges for the economics of both the entertainment and technology
industries and we need to meet that challenge in order to realize the
potential of this new distribution medium.
The good news is that RealNetworks is building distribution
channels, business models and new subscription services that will over
time create a robust and legitimate content marketplace for digital
music, video and other products provided that license rights to that
content can be efficiently and effectively obtained and administered.
DRM technology is one key ingredient for establishing a legitimate
digital marketplace. The Real System Media Commerce Suite currently is
used by technology platforms such as MusicNet to protect tens of
thousands of valuable sound recordings from major record labels. To
protect valuable intellectual property with a level of assurance
required for digital distribution, DRM's must be universal, flexible
and secure. We design our DRM with the ultimate goal of supporting all
types of media to all devices. Further, these DRM's must support
flexible set of business rules that allow the content creator to
determine payment scenarios ranging from pay per use to permanent
ownership. Finally, we design our DRM to be native, end-to-end, tamper
resistant and to be quickly renewable in the event of malicious attack.
Technology alone will not create the legitimate marketplace for
online distribution of content. After an era where first advertising
and then e-commerce was widely expected to carry the new online
industry to the promised land, we have learned from experience that a
mix of business models, matched to consumer behaviors, are required for
our industry to succeed. RealNetworks has led the way with premium
content services--offering distinct packages of digital downloads, on-
demand streamed content and webcast streamed programming--that reward
content owners while providing unique value to end users. These
services are prime examples of RN working in content with using RN
technology to promote content to deliver it to consumers on a
subscription basis.
Baseball fans can't get condensed games of complete baseball
broadcasts on-demand on network TV, but they will be able to pay for
this product this season through our RealOne subscription products. In
parallel efforts, we are working with Fox Sports, CNN, E!
entertainment, ABC News, NASCAR, the NBA and other world-class media
companies and sports leagues to bring unique value to the online
consumer. In this sense, the Internet won't directly compete with
television or radio, but it will offer programming that is uniquely
interactive and well-suited to the online digital medium.
While RealNetworks can build the launching pad for digital
distribution, our content partners supply the rockets. Simply put,
there can be no meaningful marketplace for digital goods without
compelling content. From major media companies, to independent radio
stations, to non-profits, to individuals seeking an outlet for creative
expression, the Internet is a vast network of content markets. It is in
fact a ``super market,'' where great content can reach over 500 million
globally connected users. Just as other digital products such as the
compact disc and DVD video disc created new markets for traditional
content, online digital distribution will enrich content creators and
serve consumers in new ways. RealNetworks has played a special role in
inventing the channels for digital streaming and downloading of audio
and video and our philosophy here is simply to ``Let a Thousand Flowers
Bloom.''
Building a Competitive Marketplace Absent Government Intervention
When the history of the first decade of the Internet is written by
some future historian, he or she will probably focus one salient fact:
that public policymakers in the United States were wise enough to let
the infant medium evolve with a minimum of government interference and
regulation. It is hardly a secret that the United States, spurred by
companies such as Amazon.com, E-Bay, Cisco and Intel, to name only a
few, leads the world in innovating the software, infrastructure and
business models that make the Internet run and that unprecedented
economic value has been created in a very short span of time. In
contrast to the European Union, where policymakers have an instinct to
``regulate first'' then let the market develop, the foresight of
American public policy in this sphere must not be underestimated.
Congress has stepped in wisely, to respond to distinct needs to protect
certain classes of information such as healthcare, financial data, or
information pertinent to children. Yet Congress has eschewed more
sweeping regulation, and has resisted any temptation to become, in
essence, the ``Chief Technology Officer for the Internet.''
We should continue to be guided by two core principles: First, that
government should only intervene in technology markets where there is
clear evidence of market failure. Second, that competition will always
create the best technologies, resulting in new revenue, new quality
jobs and new consumer benefits.
Let me first address the issue of market failure. Recently, we have
been told that unless a single unitary and open standard is created for
digital content protection, the digital marketplace will not evolve.
Concerned companies have sketched a scenario where competing and
conflicting technologies will create a digital Tower of Babel, where
consumers are confused by different technical choices and where systems
fail to interoperate with one another, preventing the build out of an
end-to-end distribution channel for digital content.
From our perspective, the Tower of Babel scenario ignores the
realities of today's marketplace. Scores of companies, including
RealNetworks, are laying the foundation for secure content distribution
through flexible DRM's. Software can be built to accept multiple DRM's
and play back content that is encoded in a variety of file formats. For
example, RealNetworks supports several different secure file formats,
including Microsoft's Windows Media DRM. Unlike a hardware environment
where a media player is permanently ``locked in'' to one DRM or can
only play content from one source, software media players are designed
to be rapidly updated to accommodate new file formats and improved
security schemes. In addition, our player technology supports multiple
third party DRM solutions. In this manner, a consumer can get content
secured by a variety of different DRM's in different formats. In
designing these DRM solutions, we also adhere to a principle of ``ease
of use'' for consumers, with the digital rights management functions
occurring through automation that is essentially transparent to the end
user who simply wants to access interesting and entertaining content
delivered online.
To win the business of major media companies, technology companies
will make sure that their security solutions meet the specifications
outlined by copyright holders. If we fail to do this, we won't get
their business. As in the case of the VHS vs. Betamax systems, the
marketplace will ultimately decide on the most appropriate technology
for specific consumer and industrial uses. We see evidence that market-
driven solutions for security is rapidly evolving on the Internet today
and we will continue to design our software players and security
solutions to be flexible, multi-platform and renewable.
Market-driven solutions, as has been the case in American industry
from the Nineteenth Century invention of the telegraph to the 21st
Century mapping of the human genome, consistently create the most
enduring economies--economies that reward inventors and consumers with
products that become a part of the fabric of their daily lives. Only a
few years ago, the Internet was primarily a text-based medium. Now we
think of going online in terms of accessing the latest news, sports,
entertainment, music videos and short films. Ten years from now, we may
think of the convenience of the Internet like a literal ``home video''
store, where we can ``stop by'' to rent the latest films or our
favorite television shows. This is why we are so excited about playing
a role in creating these new digital distribution markets by creating
platforms for rich media content delivered to millions of consumers and
secured by our DRM solutions.
Government-Mandated Standards will Stifle Innovation and Fail to Reduce
Piracy.
The alternative to market led solutions for digital rights
management is a scenario where the government picks a winner and
mandates that this government regulated standard become the ``open
standard'' for the industry. This scenario is embraced in the Consumer
Broadband and Digital Television Promotion Act, S 2048, introduced a
few weeks ago by Senators Hollings and Stevens.
The Bill mandates that all hardware and software digital media
devices respect standard security technologies that are approved by the
FCC. If the undefined ``industry'' fails to develop the specified
security technologies within a one year period, then the FCC is
authorized to develop a standard based on the criteria listed in the
proposed bill.
The criteria may sound familiar to you, given my description of the
RealNetworks and other industry developed DRM solutions that are
already protecting digital content in today's marketplace.
Standard security technologies, according to the Hollings-Stevens
legislation, must be: reliable, renewable, resistant to attack, readily
implemented, modular, applicable to multiple technology platforms,
extensible, upgradeable, not cost prohibitive and the software portion
of such standards must be based on open source code.
Aside from the last requirement, several current DRM's meet the
proposed legislation's test. The recent advances in the Broadcast
Protection Discussion Group for digital television affirm that the IT,
consumer electronics and content industries can work together to
develop effective security measures outside a framework of government
bureaucracy and regulation.
However, S. 2048 not only sets abstract requirements for a
technical standard, but also poses serious issues for consumer use of
digital content. We find it very troubling that S. 2048 appears to make
it a crime for an individual to alter security technology to access
protected content, unless their behavior fits within a very narrow safe
harbor. To be precise, the person must be a lawful recipient of a
personal copy for lawful use in their home and only play back such
content at a time when ``it is lawfully performed.'' This safe harbor
is so narrow as to radically rewrite the long-standing Fair Use
doctrine in our copyright law, which has been applied time and again by
courts from every Federal Judicial Circuit to ensure that consumers can
use purchased or public domain content for legitimate purposes.
For example, S. 2048 could be read to prohibit--indeed
criminalize--the practice of a consumer taping a digital TV program and
saving that file for future multiple viewings with extended family and
friends.
Mr. Chairman, this proposed ``government mandate'' approach to
solving the digital piracy problem will create a host of problems for
the information technology industries, cause a firestorm of protest
among American consumers, and ultimately do very little to prevent the
proliferation of pirated digital music and video files. We reach this
conclusion, based on our track record of developing successful software
products that are used by millions of consumers to legitimately play
back and store online content and from our observation of the history
of government mandated standards. Please allow me to summarize these
conclusions as seven ``lessons'' based on our experience, which call
into question whether any government mandated standard would solve the
piracy problem it is designed to address:
1. Forcing an industry to reach a ``common standard'' inevitably
results in lost time to market for effective solutions. This
was the case with the effort to protect digital music in the
Secure Digital Music Initiative. It is especially true where
RealNetworks, IBM, InterTrust, RSA, Microsoft and a host of
other leading companies have already deployed DRM's that meet
many of the security criteria of S. 2048;
2. Government standards inevitably try to solve ``last year's
problem,'' while technology, consumers and the hacker community
march on. The FCC, already burdened with a full plate of
important regulatory tasks, is unsuited to stay on top of the
latest industry developments in encryption, tamper resistance,
new formats and online security measures and would be unable to
deploy solutions in the matter of hours required to stop
system-wide hacks of the government administered standards;
3. Creating a process for the government to pick a winner will
politicize the standards process and favor those companies with
staying power and political skill, not necessarily the best
technologies;
4. A single uniform standard presents a bigger target for hackers;
5. Overbroad laws that mandate content protection for all digital media
devices would potentially criminalize widespread lawful and
reasonable consumer activity on home networks and common
practices of making back-up copies for future use;
6. New laws creating legal uncertainty will result in less investment
in new technologies that in any way process digital content,
thus slowing the roll-out of digital television and broadband
deployment;
7. Finally, we have learned that the adoption of new and confusing Fair
Use tests that apply to narrow sets of consumer behavior, such
as the safe harbor envisioned in S. 2048, lead to legal
confusion, consumer confusion and eventual market paralysis.
The Need for Targeted Legislation to Update Existing Copyright Law to
Accommodate New Technologies and Promote Digital Content
Services
Congress must always proceed carefully before tampering with the
regime of Copyright, Patent and technology laws that maintain the
balance of copyright between the incentive to create new works and the
rights of consumers to enjoy those works. S. 2048, as currently
drafted, would radically alter the copyright balance in ways that
disrupt the development of a robust marketplace for digital media, and
therefore would benefit neither content creators, nor distributors, nor
consumers.
Only four years ago, Congress created new rights in copyright law
and new security enforcement mechanisms with the passage of the Digital
Millennium Copyright Act. Recently, in its Section 104 report, the
Copyright Office recommended several changes that would update the DMCA
to better solve the problems of digital distribution. Clarifying the
status of temporary copies in RAM and server copies, for example, would
eliminate legal uncertainty in the area of licensing of music for
online distribution and speed up the legitimate offering of music on a
subscription basis. Changing notice provisions to copyright owners,
allowing for blanket notices to license thousands of works at a time,
would similarly stimulate this music distribution channel--all in a way
designed to compensate copyright owners.
We don't need additional new criminal penalties designed to make it
harder for consumers to access digital works. In fact, the DMCA already
provides powerful mechanisms to prosecute those who distribute software
primarily designed to circumvent technical protection measures and, as
I mentioned above, RealNetworks was the first company to enforce these
provisions. If pirates reach a level of activity where they begin to
pose a challenge to secure distribution of content in a given channel,
the DMCA and current copyright and criminal laws provide the tools to
go after them and shut down illegal products.
Rather than focusing its energy on creating a new regulatory
framework for digital media distribution, we believe it would be wiser
for Congress to eliminate practical barriers to the current
marketplace, particularly in areas such as Internet radio where new
legal regulations have made it harder for innovative programming
services to compete on a level playing field with other content
offerings. Several of these measures are already under consideration in
the House and Senate and RealNetworks would urge policy makers to adopt
limited legislation designed to impact and resolve the following
issues:
1. Online Music Licensing--we need to update existing statutory
licensing provisions and make it easier, not harder, to pay
writers and publishers for use of their works online via music
subscription services. To compete effectively with unlicensed
music file sharing services, legitimate online services should
be legally enabled to offer comprehensive content offerings,
such as complete libraries of songs, to end users, without
burdensome notice requirements that necessitate thousands of
individual licensing transactions before any content can be
offered to music consumers;
2. Web Radio--Congress should examine whether the current standard for
the performance of sound recordings via web radio has been
interpreted to create a burdensome rate structure on an
innovative new medium that offers a diversity of content from a
wide variety of webcasters to the public;
3. Network Transmission--we need to clarify that copies that are not
accessed by the consumer, but simply facilitate the
transmission of a final copy to the end user, should not bear
separate royalties or taxes;
4. Performances and Reproductions--as recently recommended by the
Copyright Office, Congress should distinguish between a
performance, such as an on-demand stream, and a permanent
reproduction, such as a digital download, for the purpose of
computing royalty payments;
5. Copyright Royalty Tribunal--Congress should explore the
reestablishment of a permanent judicial panel such as the
Copyright Royalty Tribunal--in order to speed up rate-making
proceedings and foster new distribution models such as
webcasting.
Mr. Chairman, as set forth in Article I of The Constitution, our
copyright system is predicated on the balance of consumer rights to
enjoy content and the limited monopolies granted to creators of content
in order to incentivize them to create works that promote the progress
of ``Science and the Useful Arts.'' Yet recent changes in our copyright
laws threaten this delicate balance and we believe it is time for
Congress to address the confusion caused by the DMCA regarding the
status of consumer Fair Use, not in the limited and restrictive manner
contemplated by S. 2048, but in a way that clarifies that consumers
have the right to store, archive and time shift purchased and public
domain content. The simple act of breaking a digital seal should not be
a crime in this country if the underlying purpose falls within the
accepted personal use ambit of our long-standing copyright balance. A
clearer zone of fair use will stimulate the invention of legitimate
products designed to allow users to enjoy purchased music and video
that is delivered by new digital services. In turn, this will create
demand for broadband services and increase investment in new
technologies.
Working cooperatively, the content and technology industries will
create a dynamic marketplace for digital distribution of content. Such
a market will enrich consumers with new choices and lead to new product
innovation. Eventually, it will stimulate artists to create new art
forms unique to the new digital medium.
RealNetworks has worked in partnership with independent artists and
leading media companies to build the framework for online distribution
in a way that respects copyright, pays artists and offers value to
consumers. We stand ready to work with policymakers, consumer
electronics companies, broadband providers, media companies and all
other important actors in this environment to create a digital
marketplace that affirms the best principles of American innovation and
the rule of law.
Thank you for your attention. I'd be happy to answer any questions
you may have.
Mr. Upton. Thank you.
Mr. Assaf Litai.
STATEMENT OF ASSAF LITAI
Mr. Litai. Thank you, Mr. Chairman. I am Assaf Litai,
founder of Vidius, Incorporated. Vidius is a startup company
that offers services for use by content owners concerned over
peer-to-peer distribution of their products. We also offer
auditing services for use by corporations and other
institutions who may find that their corporate computers are
being used without their knowledge or approval for peer-to-peer
distribution of movies, games, computer software, books, data
bases and objectionable material.
Today I will demonstrate a video system called Clearsight
that is capable of identifying, auditing, and interdicting such
piracy. I want to emphasize the importance of its auditing
feature.
Most of the peer-to-peer services that deliver pirated
material are owned and controlled by legitimate institutions in
other lines of endeavor. This should not be a surprise, because
most symmetrical broadband access today that is high band width
for uploads as well as downloads is provided to institutions
rather than private homes.
This is unlikely to change anytime soon, because even cable
modems and DSL lines provide for slow upload speeds. Viral
distribution occurs where both the upload and download are a
true broadband speed.
Vidius has applied for over 20 patents on the techniques
and services that I will demonstrate today, but demand for them
thus far is limited. Many legitimate institutions, even
corporations who are themselves major victims of piracy, are
afraid to learn about their own hosting activity, that this
could open them to prosecution for willful activity. To
paraphrase an old song, they are afraid to find out who is
hosting stuff on their own servers, whether they are out
selling stuff.
See, most of the material made available for peer-to-peer
distribution is not stolen at all. It is licensed copies of
programs, data bases or publications that employees are quietly
and illegally publishing to the rest of the world. But these
servers also offer lots of entertainment content that has
indeed been stolen.
What I will show you now is a movie recorded in our office
of our system at work, not a simulation. It shows a server
audit as to how many servers are offering a single movie and
then focuses on a particular corporate server, including the
number of copies. Our movie then shows us interdicting further
mass anonymous distribution.
We show a two-stage process. Stage one is localization,
searching for and finding the host of the film. This utilizes
our auditing system. Stage two is interdiction, removing the
film from mass anonymous distribution.
The auditing system display shows a navigation tree on the
left panel and a detailed report of search results on the right
panel. Using the navigation tree, we can zoom in from
continents down to countries, down to specific hosts for this
film. We could select any continent, but let's look more
closely at the U.S.
On the left you see a list of very respectable institutions
at each of which someone is offering one or more copies of this
film for mass distribution. We could, for example, look at the
University of California, but let's pick one of the dozens or
hundreds of companies that the search for this one movie turned
up.
Now you see a big list of numbers. Each of these numbers
represents one machine somewhere in this company that is
offering for distribution at least one copy of this particular
movie. We will now take a look at just one of these servers. It
is offering to the public two copies of Part One of the movie
and one copy of Part Two.
Now for the interdiction stage. This movie of our computer
screens shows the beginning of a download, the entry of a
command to interdict it, and the distribution of the content
stopping. This is basically then the Gnutella client
downloading the film, the search. We know who the host is.
The information is filled in by the Clearsight system, and
we start the interdiction. Look at the speed indicate there on
the top righthand corner of the screen. As you can see, it is
no longer available to the peer that requested it or to other
peers.
I want to emphasize a few points about what you have seen.
First, our system operates only in data that has been publicly
displayed to any inquiring computer. This data describes the
content that has deliberately been made available to the public
for piratical distribution. If this information was not
personally delivered to anyone who inquired, the Vidius system
could not operate.
Second, our system does not require the identification of
any one server, PC, home network nor consumer electronic
product, nor does it interfere in any respect with the
operation of such products on an institutional or home network.
Third, our audit system can also be used to help this
company identify all illegally offered content of all types,
data, software, games, etcetera, on its computer systems so
that they can clean it up themselves. Since this material is
publicly offered, we would not even have to go onto their
premises to compile a report for them.
I am not here to denigrate other approaches to dealing with
peer-to-peer distribution, particularly those favored by our
potential clients. Our service, and perhaps those of some
competitors, is designed to be part of a multi-faceted
approach. I do believe, however, that our own element is least
intrusive to consumers and corporate employees and most
productive for those who employ it.
In summary, Mr. Chairman, I have demonstrated two separate
approaches to dealing with peer-to-peer piracy, and we think
both can contribute to dealing with the problem. One is to help
content providers protect against illegal distribution of
otherwise unprotected content. The other is to help those who
unwittingly make such distribution possible to audit and police
their own premises.
If major organizations and institutions had incentives to
clean up their own computer servers, the majority of illegally
posted movies, books, songs, software, games, data, training
manuals, and objectionable matter that we find in our audits
could disappear overnight.
Thank you, Mr. Chairman, for the opportunity to have
appeared today.
[The prepared statement of Assaf Litai follows:]
Prepared Statement of Assaf Litai, Founder and Interim CEO, Vidius,
Inc.
Chairman Upton, Ranking Member Markey, and members of the
Subcommittee: I am Assaf Litai, Founder of Vidius, Inc. Vidius is a
start-up company, co-founded by veterans of Israel's underseas and land
defense forces. It offers technology services and support to those who
are concerned about the unauthorized, mass distribution of their
products--movies, music, games, computer software, books, and
databases--over peer-to-peer networks. Vidius has developed and applied
for twenty patents on techniques and services, which I will demonstrate
today, to assist owners of such products in protecting themselves. But
current law actually provides disincentives for these owners, and for
legitimate institutions and businesses whose facilities are the
unwitting hosts for pirate distribution, to take simple and effective
steps to stop the unauthorized mass distribution of these valuable
entertainment, computer software, game, and publishing properties.
Industry and congressional concern over copyright has focused
increasingly, and now almost exclusively, on the business that Vidius
is in--addressing mass, unauthorized distribution of content that is
``hosted'' on servers scattered around the country and the world. These
servers are of two general types--those that are maintained for other
purposes by large institutions, and, to a far lesser extent, those
maintained expressly for this purpose by some individuals. A letter
recently sent by a group of motion picture CEOs to a group of hi-tech
industry CEOs said:I22 ``[U]nauthorized peer-to-peer file distribution
. . . harms existing theatrical, home video and subscription outlets,
and discourages legitimate on-line services which cannot sell access to
movies, music and other entertainment content . . . available for free.
We . . . should all work together in a consensus-based and cooperative
fashion to find solutions to this problem that is threatening the very
essence of our business.''
Indeed, this understates the problem--our research has shown that
these very same servers also host computer software, books, games,
etc., responsible for much or most of the piracy in several other
industries.
Today I will demonstrate a Vidius system called ClearSite
<SUP>TM</SUP> that is capable of identifying, auditing, and
interdicting such piracy. I want to emphasize the importance of its
``auditing'' feature. Most of the ``servers'' for piracy in fact are
owned and controlled by legitimate institutions in entirely unrelated
businesses or endeavors, without their knowledge. Let me repeat that--
most of the peer-to-peer servers that deliver pirated material are
owned and controlled by legitimate institutions in other lines of
endeavor. This should not be a surprise, because most symmetrical
broadband access today (hi-bandwidth for both uploads and downloads) is
still provided through institutions rather than private homes. Real,
viral distribution occurs when participants have high bandwidth for
uploads as well as downloads. This is the case today primarily in
institutional settings, and is unlikely to change any time soon.
While we know that much of the motion picture material distributed
on peer-to-peer networks has been obtained, as well as distributed, in
an unauthorized fashion, many of the items distributed--particularly in
the area of computer software--were not ``stolen'' at all. Rather, they
are legitimate, purchased and licensed copies. However, they have been
illegally made available for mass distribution by employees or others
at these institutions or companies, many of which themselves have been,
and are, prominent victims of piratical distribution. To paraphrase the
song--
``Who's hostin' stuff on your own servers
While you are out sellin' stuff?''
Before demonstrating ClearSite <SUP>TM</SUP> I want to provide some
assurances as to what the ClearSite <SUP>TM</SUP> system is not:
<bullet> First, our system does not invade the privacy of any data
stored on anyone's server or hard drive. It operates only on
data that has been publicly displayed to any inquiring
computer. This data describes the content that has deliberately
been made available to the public for piratical distribution.
If this information were not purposely delivered to anyone who
inquired, the Vidius system could not operate.
<bullet> Second, our system does not require the modification of
anyone's server, PC, home network, or consumer electronics
product. Nor does it interfere in any respect with the
operation of such products on an institutional or home network.
<bullet> Third, the ClearSite <SUP>TM</SUP> system cannot operate
against the wishes of the ISP that connects the server to the
network.
Now for our demonstration. In our offices we recorded an actual
instance of finding one product on a server that offered it for mass
unauthorized distribution. We can collect and audit this information
either by product or by host. Thus, in a different demonstration from
today's, we could show how XYZ corporation's peer-to-peer servers--
generally PCs used by its employees--are today hosting a range of
software, books, games, databases, and audiovisual material for mass
unauthorized distribution. Today, however, we will focus on tracking
and addressing the distribution of a particular piece of content--a
motion picture.
To track and audit a particular movie, we need not have implanted
any information in it, or have been given any special knowledge about
it. We can figure these things out for ourselves, through a process
known as ``fingerprinting.'' Our demonstration shows our actual survey,
acquisition, and evaluation of a single case, including a determination
as to how many copies of the movie are on the server. (This part we
could have demonstrated in real time, remotely, using any laptop
computer tied in to our office.) Our movie then shows us interdicting
further illegal distribution. (This part we can only do from our office
facilities, which is why we recorded the entire demonstration.) This is
a demonstration of our actual process at work, not a simulation.
Our system is sufficiently flexible to be applied only to those
servers that offer a certain number of illegal copies, or that have
downloaded a particular movie a certain number of times. That is
another reason why our audit function is so important.
I am not here today to denigrate other approaches, particularly
those favored by our potential clients in various business. We are,
after all, a startup company building a clientele among the various
industries that are here before you today. Having listened to the
debates about other approaches, however, I submit that from the
standpoint of law-abiding consumers and businesses, ours is the
approach to stopping piracy that is least intrusive to consumers and
employees, and most productive for those who employ it.
I also should note that neither Vidius nor I am opposed to
distributed computing in general, or peer-to-peer networking in
particular. To the contrary, I agree with those who have said that
distributed computing and peer-to-peer networks present many new
opportunities to the information technology industry. To be kept free
from regulation, this activity needs the advantage of self-protection.
Such protection is available to top-down networks through DRMs.
I said at the outset that existing law provides disincentives to
such self-protection. I can point to two areas in which the law needs
to be understood or amended:
First, there are some who would interpret existing privacy laws,
originally addressed to intrusive practices such as wiretapping, so as
to support aggregated civil damages, and even criminal penalties,
against any touching of a peer-to-peer server--even where it only
involves the public ``out box,'' and the subject is clear, red-handed,
repeated piracy. Under such a legal interpretation, the more piracy
that is tracked from a single server, the greater the number of
incidents of ``touching'' that might be aggregated, by some court, into
``damages'' in favor of the pirate, against the owner of the illegally
distributed property. This is a complicated issue involving both
Federal and state law. The subject needs to be addressed with care,
with complete regard for the rights of consumers and technologists. But
unintended legal consequences cannot and should not persist, in state
or federal law, as a barrier to self-protection.
Second, existing law provides a disincentive for legitimate
institutions--businesses, universities, foundations, even congressional
offices--to audit and address their own unwitting activity in
supporting piracy through their own computer systems. The ``NET Act''
provides criminal penalties for use of such systems in piracy, but
rightly provides that the system operator is liable only if
specifically aware of the activity. But if the law stops there,
legitimate institutions will continue to have a strong incentive to
turn a blind eye to their own support of mass, piratical distribution.
Even companies that can point to millions or even billions of dollars
in losses as to their own products still have a very strong legal
disincentive to find out whose products their own employees are
distributing via their own systems.
What is needed is to go further--to provide a ``safe harbor'' from
criminal liability, under the NET Act, for entities that do try to find
out what is being illegally distributed via their own systems.
Remember, Mr. Chairman, most broadband exchanges today occur via
institutional networks. If major organizations and institutions had the
proper legal incentive to clean up their own computer servers, the
majority of the illegally posted movies, books, songs, software, games,
data, training manuals, and pornography that we find in our audits
could disappear overnight.
Thank you, Mr. Chairman, for the opportunity to have appeared
today.
Mr. Upton. Thank you.
Mr. Kraus.
STATEMENT OF JOE KRAUS
Mr. Kraus. Thank you, Mr. Chairman. Mr. Chairman, members
of this committee, good afternoon. My name is Joe Kraus, and I
am co-founder of a national membership organization dedicated
to safeguarding citizens' fair use rights to digital media.
Specifically, we want to be sure that any digital rights
management solution or legislation protects the rights of
consumers as well as the rights of the entertainment industry.
I am here to represent the views of the 35,000 Americans who
have become members since our formation 6 weeks ago, and on
their behalf we thank this committee for holding this hearing
and allowing us to testify.
Our members are not teenagers swapping songs on the
Internet. They are ordinary, law abiding citizens who insist
that Congress protect their historical fair use rights. They
are people like Gregory Brewsaugh, a self-described Republican
high school physics teacher in Huntington Beach, California.
Mr. Brewsaugh has purchased over 400 CDs. He has copied his CDs
onto his personal computer, which he now uses as a 4,000 song
personal jukebox to deliver endless varieties of music
throughout his home. Mr. Brewsaugh simply loves music and
enjoys his freedom to listen to the content in the manner of
his choosing.
DigitalConsumer.org members respect intellectual property.
We do not condone piracy. However, unlike what media companies
would like you to believe, not all unauthorized copying is
piracy. Let me say that again. Not all unauthorized copying is
piracy.
For example, we have all made mixed tapes of our favorite
music. We have all made copies of CDs to take to the gym or
listen to in the car. We have all recorded a sporting event to
watch after our child's soccer practice. None of these copies
were authorized by the media companies. Yet is there anyone on
this committee who believes that those are acts of piracy? Of
course not. Although they are unauthorized, they are examples
of legal, personal, fair use.
Unfortunately, the entertainment industry has consistently
denied the existence of consumers' fair use rights. In July of
2000, Hilary Rosen represented the RIAA before the Senate
Judiciary Committee. Senator Hatch asked if it was fair use for
him to copy a CD to take in his car or copy a CD to give to his
wife. She responded, ``none of those examples is fair use.''
Instead, they are examples of what she called, ``tolerance'' on
the part of the music industry.
We disagree. Consumers have fair use rights, and they
expect Congress not to tolerate any erosion of them. Fair use
is not a set of consumer expectations. Fair use is not a set of
tolerated behaviors. Fair use is a set of rights, and because
those rights are being encroached upon, they need to be
strengthened and affirmed.
We encourage the content industry to pursue pirates, but
that pursuit must not sweep so broadly that it also punishes
law abiding citizens; and, unfortunately, the media industry's
agenda goes far beyond piracy, and instead intends to create a
legal system that denies consumers their personal use rights,
and then charge those consumers additional fees to recoup them.
Let me give you some examples of the methods the content
industry is using to erode fair use rights. No. 1 is
technology. Copy protection technologies in the market today
have impacts beyond their stated goal of reducing piracy.
For example, my mother called me to insist her MP3 player
was broken, because she couldn't copy a recently purchased CD
to her portable player. She was surprised to learn the CD was
operating as intended. It was explicitly designed to prevent
her from making her legally allowed copy.
Method number 2 is legislation. As we all know, the content
industry is urging the passage of legislation like the Hollings
bill in the Senate, which does not fully protect fair use by
consumers.
Number 3, commercial exclusion: Ordinary people have
historically been excluded from decisions that affect how they
enjoy the media they pay for. For example, consumers had no
voice in deciding that DVDs could disable the menu button
during previews, thereby forcing consumers to watch the
previews.
A moment on the Broadcast Protection Discussion Group: The
erosion of fair use rights is occurring in many different
places. The forum that concerns us today is the Broadcast
Protection Discussion Group. We see three main problems with
the process adopted by the BPDG.
No. 1: No consumers are participating. As in previous
cases, citizens are not participants in a process that will
affect the way that they watch, record, and enjoy their
television.
No. 2: No provisions for fair use. Fair use is not
protected by the specification. In fact, it is not even
mentioned. While the interim progress report to this committee
briefly discusses some fair uses, the draft of the
specification ignores it completely. If we all agree that fair
use is going to be protected, then why haven't the parties to
the process included it in the specification?
No. 3: Too much control in industry hands. The charter of
the BPDG is to prevent the unauthorized retransmission of
digital broadcast television. That may be the charter, but the
document produced thus far establishes a technical regime which
would give a small subgroup of the BPDG members, which, by the
way, include no consumer representatives, far greater control,
control over how consumers watch, record, and enjoy their
digital television.
For example, the specification would allow the deployment
of technologies which could give media companies the control
over when your VCR recordings expired. Imagine recording all
Sesame Street programs to replay for your child whenever you
needed to, only to find out your recordings expired after 24
hours.
The entertainment industry wants you to ratify a regime
that gives them usage control without guarantees of fair use. I
would urge the members of this committee not to approve any
specification that does not explicitly assert and defend
consumer fair use rights.
In conclusion, I urge this committee that stopping piracy--
I urge this committee to recognize that stopping piracy is just
one goal of copyright law. That goal needs to be balanced
against the goal of protecting the rights of citizens. Congress
needs to pass into legislation a positive assertion of
consumers' fair use rights.
Your constituents need to rest assured that their historic
rights are safe. They need to know that no technology, no
legislation, no commercial exclusion and no industry consortia
will abridge their rights, and until such a positive assertion
is passed into law, consumers' rights will continue to be
eroded. Thank you very much.
[The prepared statement of Joe Kraus follows:]
Prepared Statement of Joe Kraus, Co-Founder DigitalConsumer.org
Introduction
Mr. Chairman and members of this committee, good afternoon.
My name is Joe Kraus and I am co-founder of DigitalConsumer.org, a
new consumer advocacy group dedicated to safeguarding citizens' fair-
use rights to digital media. To be more specific, we want to be sure
that any digital rights management solution or legislation protects the
digital rights of consumers in addition to protecting the digital
rights of the entertainment industry.
I am here to represent the views of the 35,000 Americans who have
become members since our formation 6 weeks ago. We thank the Committee
for holding this hearing and for allowing us to testify.
Our members are not teenagers swapping songs on the Internet.
They're ordinary, law abiding citizens who insist that Congress protect
their historical fair-use rights. They are people who respect
intellectual property but who also believe that their rights should not
be ``collateral damage''' in the ``war against piracy''. They're people
like Gregory Brewsaugh, a self-described Republican high school physics
teacher in Huntington Beach, California. Mr. Brewsaugh has purchased
over 400 CDs. He has copied his CDs onto his computer which he then
uses as a 4,000 song personal jukebox to deliver music throughout his
home. Mr. Brewsaugh simply loves music, loves electronics and enjoys
the freedom he has to listen to the music he lawfully acquired in a
manner and form of his choosing.
DigitalConsumer.org members are proponents of intellectual property
protection. We do not support or condone piracy. However, unlike what
media companies would like you believe, copyright does not confer on
the holder of a copyright the power to control every access, use, or
copy of a work from cradle to grave. Not all ``unauthorized'' copying
is piracy and not all consumers are potential criminals.
We've all made mixed tapes of our favorite music. We've all made
copies of CDs to take to the gym or listen to in the car. We've all
recorded a sporting event to watch after our child's soccer practice.
None of these copies were ``authorized'' by the content companies. Yet,
is there anyone on this Committee who believes that these are acts of
piracy? Of course not. Although they are unauthorized, they are all
examples of legal, personal, fair-use.
However, the entertainment industry has consistently denied the
existence of consumers' fair-use rights. In July of 2000, Hilary Rosen
represented the RIAA before the Senate Judiciary Committee. Senator
Hatch asked if it was fair-use for him to make a copy of a CD for him
to listen to in his car, or for him to make a copy of a CD to give to
his wife. Ms. Rosen responded that ``none of those examples is fair-
use.'' Instead, they are examples of what she called ``tolerance'' on
the part of the music industry. In other words, the recording industry
takes the view that these are examples of ``unauthorized'' uses that
the entertainment industry chooses not to take us to court for having
committed.
We disagree. Consumer's have fair-use rights and they expect
Congress to safeguard them. Congress and the courts have carefully
crafted a deliberate balance between the rights of copyright holders
and the rights of citizens. Generally speaking, rights holders have the
exclusive right to distribute and profit from artistic works. Consumers
who legally acquire these works are free to use them as they see fit,
so long as that use is personal and non-commercial.
We respect the right of the content industry to pursue pirates.
But, that pursuit must not sweep so broadly that it also punishes law-
abiding citizens. Unfortunately, the media industry's technical and
legislative agenda does precisely that--it goes far beyond preventing
piracy to prohibiting legal personal use. Content companies have used
anti-piracy laws to effectively criminalize what to date have been
``unauthorized'' but nevertheless legal uses of media. The result?
Consumers will wind up paying for what they have had previously been
allowed to do for free.
Erosion of our personal use rights
Let me give you some examples of the methods the content industry
is using to erode fair-use rights.
Method #1. Technological Barriers to Fair-Use. Copy protection
technologies in the market today have impacts beyond their stated goal
of reducing piracy. These technologies give content companies an
unprecedented ability to reduce or even revoke fair-use rights. My
mother called me to insist that her MP3 player was broken because she
couldn't copy a recently purchased CD to her portable player. She was
surprised to learn that the CD was operating as intended--it was
explicitly designed to prevent her from making her legally allowed
copies.
Similarly, my dad called to tell me his DVD player was broken
because the ``menu'' button wasn't working when the previews were
playing on his DVD (thereby preventing him from skipping the previews).
He was surprised to learn that existing law made it illegal to create a
DVD player that would skip through content that the media companies
flagged as ``must watch''.
The irony is that these technical barriers have been more effective
at preventing my mom from copying her legally bought music to her MP3
player than at diminishing major commercial piracy operations in China
and Taiwan. Copy protection isn't breakable by my mother, but it is
very breakable by computer hackers.
Method #2. Legislative Barriers to Fair-Use. In 1998 the
entertainment industry came to Congress with a proposition: give them
greater copyright protection and they would unleash a tidal wave of
legal, downloadable digital movies and music for consumers to enjoy. As
a result, Congress passed the Digital Millennium Copyright Act (DMCA).
Congress lived up to its end of the bargain but the entertainment
industry did not. Four years after the passage of the DMCA, consumers
are still waiting for the flood of legally available content; meanwhile
the law is being used to diminish or erase consumer's fair-use rights.
Now, the entertainment industry is back making claims similar to
those made in 1998: ``Give us more protection and great things will
happen.'' We have no reason to believe the outcome for consumers will
be any different this time around.
Method #3. Commercial Barriers to Fair-Use. Many decisions relevant
to fair-use are increasingly made by entertainment and consumer
electronics industry consortia with little or no input from citizens.
Ordinary people have historically been excluded from many of the
decisions that affect how they enjoy the media they legally pay for.
For example, consumers had no voice in deciding that DVDs could disable
the ``menu'' button during previews. Consumers had no voice when copy
protection technologies for CDs were developed that denied consumers
their ability to copy CDs onto their portable music players. Consumers
were not represented when it was decided that DAT tapes could only be
copied once (even if the voice on the DAT tape was your own). And no
members of the press were permitted to observe and report on the most
recent standards setting consortium--the so-called BPDG. In general,
consumers have not been allowed to participate in decisions that affect
their daily lives nor has the press been permitted to observe how these
decisions are made and report their findings to the public.
The terms of the debate
Most importantly, fair-use rights are being threatened by the way
that the entertainment industry is framing this debate. They would have
you believe that all copying that they have not authorized is piracy,
even though Congress and the courts have affirmed our rights to make
personal copies of movies and music. When my mom makes copies of a CD--
one to take to the gym, one to listen to on her computer, one to give
to her husband--that is not piracy.
The content industries have gone so far as to make a frontal
assault on the industries that support consumers' legal rights. They
have accused Apple, Intel and Gateway of sponsoring piracy simply
because they give citizens tools to exercise their fair-use rights.
The content industries complain that the rest of the country has
been slow to come to consensus on copy protection issues. But a
compromise will inevitably be difficult when the content industry
refuses to concede a fundamental fact--fair-use exists.
I urge Congress to recognize that stopping piracy is just one goal
of copyright law. That goal needs to be balanced against the goal of
protecting the rights of citizens. Citizens have been left out of this
debate even though they stand to be the most affected by the outcome.
Your constituents expect Congress to safeguard and assert their fair-
use rights.
The Broadcast Protection Discussion Group
The erosion of fair-use rights is occurring in many different
places. The forum that concerns us today is the Broadcast Protection
Discussion Group--a group this committee is very familiar with. We see
three main problems with the process adopted by the BPDG.
No consumer participation. Most importantly, the process has
excluded consumers. As in previous cases, consumers are not
participants in a process that will affect the way that they watch,
record and enjoy their television.
No provisions for fair-use. Second, fair-use is not protected by
the specification--in fact, it is not even mentioned. While the interim
progress report to this committee briefly discusses fair-use (section
2.7), the draft of the specification ignores it completely. If we all
agree that fair-use is going to be protected, then why haven't the
parties to the process put it in writing and included it in the
specification?
When I attended the most recent BPDG meeting I asked for a positive
assurance that fair-use rights would not be abridged by any technology
placed on the contentious ``table A''. Unless the Congress acts to
insure that fair-use rights will not be abridged by any technology
implemented pursuant to the BPDG, then how can it be sure that devices
which enable free time shifting, space shifting, multiple copies, or
even multimedia homework assignments, won't be prohibited by this
process?
Too much control in industry hands. Third, the BPDG members tell
you their intent is to prevent the unauthorized retransmission of
content over the Internet. That may be the charter, but the document
produced thus far establishes a technical regime which would give BPDG
members far greater control--control over how consumers watched,
recorded and enjoyed their digital television. Nothing in the
specification prevents the deployment of technologies which would:
allow media companies to control when your VCR recordings expired
(imagine going on a two week vacation only to find out that your
recordings of your favorite programs expired after a week); stop you
from taking your home recordings on your laptop to watch on the train
to work; or prevent you from watching recorded shows during primetime.
When I raised these issues at the latest BPDG meeting, I was told
that the technologies deployed would most certainly have ``baggage''
that would affect fair-use. While fair-use rights may be ``baggage'' to
the entertainment industry, those rights are cherished by citizens. And
citizens expect Congress to act in their defense.
It is one thing for the entertainment industry to grant their
blessing to one or more technologies that will erode the rights of
consumers. If consumers choose to adopt a technology that diminishes
their rights, that is their decision. However, it is quite another for
the Congress to give the entertainment industry's preferred
technologies the force of law. And that is precisely what this entire
debate is about.
The members of the BPDG say that Congress should enforce the
consensus of the content and technology industries or give the FCC the
power to do so. We believe Congress also has an obligation to safeguard
the rights of citizens who have not had a voice in this debate.
Congress should insist that consumer's fair-use rights be explicitly
asserted and defended in the BPDG specification.
Legislation to give more rights to copyright holders is not needed.
The entertainment industry is back in Washington asking for more
changes to the law. They claim that the marketplace has failed to help
them develop technologies to protect their intellectual property and
that therefore the government needs to step in legislate. We believe
this is the wrong path for Congress to take for several reasons.
First, Congress should think of this problem in terms of rights,
not in terms of technological mandates. Define the rights of the
respective parties (copyright holders and citizens) and let the market
develop technologies which adjudicate between the two. Copyright
holders have strong rights while consumers' rights are weak and ill
defined. Therefore, to help the market to work effectively, the first
step to solving the piracy problem is not a government mandate, but a
strong assertion of consumer rights.
Second, many computer science experts believe that a secure system
is not possible. Princeton Computer Science Professor Ed Felten, a
computer security expert, noted in his testimony to the Senate
Judiciary Committee on March 14, 2002 that ``a standard for copy
protection is as premature as a standard for teleportation''.
Further quotation from his testimony illustrates this point.
``Every copy protection scheme for general purpose computers that has
undergone serious public scrutiny has been found to be ineffective.
Consider what will happen if a government mandated protection measure
turns out not to work. Such a measure would do many things: it would
inconvenience honest consumers; it would raise the price of media
players; it would lengthen product development cycles; it would impede
the development of new and better standards. Everyone would suffer,
except the pirates. The industry that devised the measure would look
technically inept, and the government that mandated its use would look
worse.''
The solutions that the content industry has advanced to date have
been more effective at preventing consumers from copying their legally
bought music to their MP3 players than at diminishing major commercial
piracy operations. As we all know, copy protection isn't breakable by
the average citizen, but it is very breakable by software experts.
A government mandated technology standard will not be any more
effective at preventing piracy. Instead, the consumer will lose as
another technology that deprives them of control and flexibility is
forced upon them.
Third, putting the government in charge moves the decision from a
market-based one to a political one. The development of technology
should be driven by the private sector, not by a government agency.
Fourth, given the slow speed of a government-driven process, the
chosen standard will inevitably become outmoded and the process for
revising it and updating it will be slower than a market-based
approach.
Finally, while some in Hollywood claim that a government standard
is needed to ensure interoperability, legislation has not been needed
to guarantee other critical types of interoperability: CDs play in all
CD players, DVDs play in all DVD players, Internet Protocols allow all
computers to talk to one another. None of these examples required
government intervention.
A dearth of viable, legal alternatives.
We believe that one of the causes of the illegal copying of music
and movies (although not the only one) is the dearth of commercially
viable legal alternatives. MusicNet and PressPlay (the music industry's
legal alternatives) have serious flaws: they lack deep catalogs and
they don't provide consumers with the flexibility they expect from
their music. For example, in many cases consumers cannot transfer music
to portable players, or in the case of PressPlay the music ``expires''
as soon as users stop paying the subscription fee. Consumers are voting
with their feet and avoiding these services. I believe this is not
primarily because the competition is free, but because the competition
delivers what consumers expect: they can find the music they're looking
for and once they find it, they can do with it what they expect (i.e.
take it to the gym, listen to it in their car, etc). As the Economist
magazine (March 21, 2002) accurately observed, ``the meaner the
industry is over what people can do with the [content] they pay to
download, the more the studios' own services will be a second-rate
alternative to piracy''
It is instructive to contrast the approach of the media companies
with the approach of software companies in the digital world. As we've
heard many times in this debate, media companies claim to lose $3.5B
per year to piracy. But, software companies claim to lose $12B per
year. Therefore, one would logically expect the software companies to
have the same reservations about the digital medium that the media
companies have. One would expect that the software industry would be
clamoring for government mandates like the media industry. One would
expect that the software industry would be shying away from digital
distribution like the media industry.
But the software industry does not behave like the content industry
even though they suffer nearly 4 times the piracy. Unlike their media
company counterparts, software companies have generally chosen to
embrace the digital medium. A huge number of software titles are
available for digital download. Once downloaded, these software
programs behave just like software bought at the store.
We believe it's important to ask why the software companies who
lose so much more to piracy embrace the digital medium while the media
companies claim that their business will be ruined if they embrace
digital delivery in its current ``insecure'' state?
Along those same lines, it's important to ask why the Business
Software Alliance (an organization dedicated to detecting and stopping
piracy) does not support government mandated technologies for copy
protection. I believe the reason is that the software industry has been
down this path before and has found that it does not work. In the early
1980s, many major software companies decided to implement strong copy
protection schemes on their products. They discovered two things.
First, their schemes did not stop piracy. Dedicated commercial pirates
circumvented the copy protection. Second, their copy protection
alienated and infuriated paying customers because the copy protection
altered the expected behavior of the software. For example, consumers
could not back up their software, and if a consumer upgraded his
computer by buying a new one, they could not re-install the software on
that machine. Software companies discovered that treating all customers
as potential criminals was bad for business; it didn't stop theft and
it alienated the people who actually paid for their products.
Instead of forcing technical solutions that inconvenienced paying
customers, the Business Software Alliance shifted to a strategy of
actually pursuing pirates. Today the BSA investigates piracy
allegations, conducts raids, and assesses large fines on violators.
Through the enforcement of existing law, the BSA has been extremely
effective at diminishing piracy in the United States.
In short, computer security experts believe and software history
teaches that technical solutions will not solve the problem of piracy.
The only way to reduce piracy is to engage the market by offering
viable legal alternatives to consumers and to pursue the pirates, not
the average consumer.
Conclusion
Content providers have a right to pursue and prevent piracy.
However, law abiding consumers cannot have their personal use rights
swept away in the process. In order to protect consumers' rights from
further erosion and in order to ensure that any technical solution to
content protection respects consumer's fair-use rights, the members of
DigitalConsumer.org urge this Committee to make a positive assertion of
citizens' personal use rights. The vehicle is a set of principles we
call the Consumer Technology Bill of Rights and it is a statement of
fair-use principles grounded in history, legislation and the courts.
After years of successful litigation and legislative efforts, many
in the entertainment industry are back in Washington asking for more
changes to the law. All the while, they have been quietly developing
services, technologies and products that eliminate fair use for their
customers, your constituents. Many in the copyright community will not
admit that there is such a thing as fair use. This denial persists
despite 30 years of Congressional action and Supreme Court rulings
affirming consumers' fair use rights. And, while I am not a lawyer, I
do know this much: consumers believe they have personal use rights and
they expect Congress to insure that they are safeguarded. Before this
Committee considers yet another change in the law at the behest of the
copyright community--a change in law that would make ``unauthorized''
copying synonymous with piracy--I would respectfully urge you to insure
that the rights of consumers are protected and spelled out in the
legislation.
Thank you very much for the time to address this committee today.
Mr. Upton. Thank you all, and we all appreciate the
testimony and having a chance to review it last night as well.
I am going to work with Mr. Chernin here for the first
question. I am going to ask a question of both Mr. Chernin and
Mr. Parsons. I would like each of you to respond.
If we can get the broadcast flag done and maybe the analog
hole, to come pretty close to getting those accomplished, will
that be enough for the sake of the DTV transition to unleash
the content as we continue to move toward the other content
protection measures? For the purpose of that question, notice I
did not include peer-to-peer. I know we made some progress on
peer-to-peer but have not yet been able to resolve it. What are
your thoughts, each of you? Why don't we start with Mr. Chernin
first.
Mr. Chernin. Thank you, Mr. Chairman. I think that,
clearly, the broadcast flag is the single biggest impediment
for us making any digital--all of our digital content available
on digital television. So I think that will go a long way
toward solving our problems. Clearly, we would like to see
everything solved, but specifically related to the digital
transition on terrestrial television, I think the broadcast
flag is the single biggest issue, and I think its, hopefully,
imminent solution will allow us to rapidly speed up this
transition.
Mr. Upton. So you think, just with that, if we are able to
get that done, that, in fact, we will see the content be able
to flow?
Mr. Chernin. I think it is the single biggest current
impediment, and the removal of that impediment will do more
than any other single thing for, specifically, the digital
terrestrial transition. We would still like to struggle with
the other problems, but they are less related to the digital
terrestrial transition than the broadcast flag issue.
Mr. Upton. Mr. Parsons.
Mr. Parsons. Basically, I agree with Mr. Chernin in terms
of the way you have framed your question. Will that help speed
the DTV evolution? Moreover, we don't have a solution yet. I
mean the industry groups. It is the same group of engineers and
the same group of both technicians and lawyers who are working
on this.
So taking it incrementally, I think, actually makes some
sense, rather than trying to solve all the problems at once.
That is not to say, however, that solving the peer-to-peer file
sharing is not an enormous piece of a larger question, which is
how you protect intellectual property in the digital age. But
from the digital television perspective, I agree with Peter,
that the broadcast flag is probably 80 percent of it, and the
analog hole is probably 19 percent of that.
Mr. Upton. Mr. Parsons, in your testimony you are more of
an Upton/Markey individual: The glass is half-full, root for
the Cubs and the Red Sox.
Mr. Parsons. I wouldn't go quite that far, Mr. Chairman.
Mr. Upton. Well, but you are optimistic, in fact, that
things are on the right course, and I notice in Mr. Blanford's
testimony, he was more of a--I don't want to call him a
realist, but in his statement not anywhere close to getting
this resolved. Tell me what you think the two differences are,
and I will have Mr. Blanford respond as well.
Mr. Parsons. I can simply tell you why I have a sense of
optimism about it. I do not think we are there yet, but I think
real progress is being made. If you tick them off, we are
pretty close to being there, I think, on the broadcast flag
issue. We've got our arms around----
Mr. Upton. How close is close? Six months?
Mr. Parsons. Well, I think--I don't know that I can put it
in months but, you know, we have got the sort of technology
down, as I understand where the groups are. What they are doing
now is trying to formulate a uniform specification.
I think that not everybody in the industry is pleased with
where we are on that, but that there is a broad consensus among
the consumer electronics, information technology, and
entertainment industry that we have found the right place to
be. There are some people who have--and I am sure we will hear
from Mr. Blanford on it. Some people are aggrieved by that, but
I think within a matter of months----
Mr. Upton. I know there is a meeting next week, April 29.
Do you have some hopes on what you are going to be able to
accomplish at that meeting?
Mr. Parsons. Well, I think on the broadcast flag issue,
yes, I think that we are very close to having something that
most of the industry could get its arms around.
Mr. Upton. Mr. Blanford, would you like to respond?
Mr. Blanford. Yes. Thank you. I would say, first of all,
that we overall are optimistic that these problems can be
resolved and, certainly, Philips historically has been involved
in other similar endeavors. I think indeed we see that we will
get there. However, we are most concerned, as I related in my
testimony, that the process which we are using right now,
although some progress has been made, is fundamentally a closed
process, and that other technologies that could be helpful are
not being considered.
More importantly than the selection of the technology,
although that is important, is the fundamental decisions about
how that technology will work downstream of the flag. The
fundamental rules which guide how equipment will work, talk
with each other, is being controlled fundamentally by this
small group.
It is in the decisions and those rules where fundamentally
the balance of consumer use and content protection which, many
of the members here have certainly highlighted, is the balance
we are striving for. It is in the setting of those rules that
that balance is determined. Our concern is we have a very small
group setting those rules with not all participants being
involved.
That is why our suggestion for a more open process with
Congress, in one form or another, stepping up and helping to
provide some governance of the process to ensure it is open,
that it is transparent, and that that balance can be found.
Mr. Upton. Thank you. I know my time has expired. Mr.
Boucher. A series of votes have been called. I think we will
have time for Mr. Boucher, and then we will break for a time,
and then we will come back.
Mr. Boucher. Well, thank you very much, Mr. Chairman. I
want to express my appreciation to all of these witnesses,
those who are physically here today and Mr. Chernin who is here
by means of our video conferencing equipment, for the very
informative testimony that they have prepared and presented to
us, which I find to be very enlightening on the subject we are
addressing.
The operating principle that we have had for sometime is
that, as soon as the private sector working group can develop
the appropriate set of standards for protecting content, while
also observing home recording rights, that we in the Congress
would then be called upon to legislate in such a way as to
assure that all devices, receivers, players, and recorders
recognize and respond to the agreed upon standards.
My first question to you is what is the right time for us
to legislate? To date, there has been an agreement that would
protect content delivered by cable and by satellite. In fact,
that agreement has now been in place for a number of months.
I am told that just last night basic outstanding
differences were resolved on a means of protecting content
delivered over the air, and that now the various parties are
examining the various means by which those outstanding issues
were resolved, and that potentially, within a matter of days,
we could have the announcement of a final agreement that would
create a broadcast flag for protecting the content delivered
over the air to antennas and to rabbit ears.
That is truly substantial progress, and I am wondering if
the time to legislate is upon the conclusion of that agreement.
If, in fact, you do close that issue within the next several
days, can we here in this committee expect that you will be
coming to us with a legislative recommendation that we then
enshrine those agreements and require that devices respond?
Let me begin with Mr. Parsons.
Mr. Parsons. Not being at the table, Congressman, I can't
tell you exactly what was determined last night, but your
understanding and mine is about the same, that they have really
reached closure. The industry working group has reached closure
around the technological definition of broadcast flag, and now
they have to move to the next step, which is to design the
standard which we would then come and ask the Congress to have
made uniform throughout the land.
It is the same answer to the chairman's question. I think
that is not weeks but a couple of months. I do not think it is
6 months, but I think we are getting very close, and I think
what we are hearing to some extent from Mr. Blanford, and maybe
even to a lesser extent from Mr. Kraus, is that there may be
jots and tittles that can be added to it, but I would remind
the committee, in this area in particular, the perfect can be
the enemy of the good.
If we really want to get moving on DTV, you are going to
have to do something that constitutes good action, largely
consensus action, even though there may be on the outlier
people who feel aggrieved, for one reason or another.
Mr. Boucher. So you would agree that the proper time to
legislate is the time at which we do have agreement on
protecting cable, satellite delivered content, as well as over
the air content; and when you have done that, it is time for
Congress to do its part. Would you agree with that?
Mr. Parsons. I would say it would be the appropriate for
Congress to take a step, and particularly as relates to the
issue we are talking about, which is DTV and the broadcast
flag.
Mr. Boucher. Mr. Chernin, would you care to comment on that
question?
Mr. Chernin. Yes. First of all, I am probably even more
optimistic than my colleague, Mr. Parsons. I think we should be
able to come out with a recommendation within, at most, a
matter of weeks.
I guess the place where I do most agree with my colleague
is I do think we should approach this incrementally, and rather
than wait for everything and wait for government to do one big
thing, as we are ready to move on satellite and cable, as we
are ready to move on the broadcast flag, we can pursue limited,
targeted legislation to codify those solutions and get on with
the next one.
So I am quite optimistic that we are within a very short
time of coming and proposing a solution.
Mr. Boucher. Thank you. Mr. Liao, as the representative of
the 5C companies, would you agree with Mr. Parsons and Mr.
Chernin?
Mr. Liao. Let me tell you what the official schedule is.
The schedule is for the----
Mr. Parsons. You mean, all this time you had a schedule,
and you let me hang out there?
Mr. Liao. I am sorry, Dick. The schedule is for an issuance
of the final report on May 17. Now there are many issues that
we think are basically resolved, and as you referred to,
Congressman, last night the MPAA, the computer industry group,
as well as the 5C, came to some very important agreements on
how to move forward.
That does not mean that all members of the BPDG, the
Broadcast Protection Discussion Group, have agreed yet. In
fact, the proposal that is coming from these groups of
companies will be put on the website, I think, today. So that
it is going to take some more discussion, but we are very
optimistic that, by the deadline of May 17, in fact, there will
be an issuance of a final report. We certainly hope that will
be the case.
At the same time, the CPWG, which is a technical working
group--I should emphasize, a technical working group. It
typically does not deal with policy issues, but because of the
importance of this one, it has developed a parallel committee
that is investigating the sort of policy ramifications of this.
It is probably from that committee that will come sort of a
recommendation or at least an analysis of what kind of
legislation might be required, and definitely we are thinking,
I think everyone agrees, on some very limited legislation that
might be appropriate for this issue.
Mr. Boucher. Well, thank you. We will all look forward to
getting that report. My time has expired. I again want to thank
these witnesses for assisting us in this inquiry today.
Mr. Upton. I would note that there is a little less than
6\1/2\ minutes left in the vote on the floor. So at this point
we will take a break, and we will come back as soon as the
votes are over.
[Brief recess.]
Mr. Upton. Take our seats, please. We are done voting on
the House floor for the week. A number of us are going back to
our districts this weekend as well. I know that Mr. Chernin has
to leave at 3:30 Eastern time. So we will resume, and we will
resume with Mr. Barton.
Mr. Barton. Thank you, Mr. Chairman. I appreciate this
hearing. I focus, as you know, much more on energy issues as
chairman of that subcommittee, but I am a member of this
subcommittee, and I really, really enjoyed the hearing.
I don't have but one or two questions. I was sitting here
during the testimony, and we have these little fancy gadgets
now called blackberries. So I sent a message to one of my
constituents down in Texas, telling him what I was doing and
said, do you think you have the right to copy a CD or a video
that you buy?
The constituent e-mailed back immediately and said, ``I
already do with CDs anyway. I can see both sides of this issue,
but as a consumer I love the fact that I can copy or burn my
own CDs. In my opinion, the music industry is making a killing,
and they haven't been smart enough to keep up with today's
technology. If I was a musician, I would hate it, of course.
There's my two cents' worth. You are very busy today, aren't
you?''
So that kind of puts it in a nutshell. If you are on the
production side, you can see why we want copyright protection
that is enforceable, even in the home; and if you are on the
consumer side, as the gentleman on the end of the panel is, you
can see why people want to have the ability to at least, as I
think the buzzword is, have fair use.
I am more on the fair use side. I think that it should be
reasonable--that we should have a way technologically to
reasonably protect copyright, and I am with Mr. Boucher and
what he said about let's try to let the private sector and the
industry work it out. But I don't believe we need to go to the
extremes that some in the production side, some of the studios
and producers, would have us attempt to go to.
So I am going to--I would oppose the Hollings bill, if it
were to come over here, and hope that we can work out a little
better agreement.
I also see my good friend, Mr. Valenti, in the audience,
good Texan, new book out on LBJ, and I am sure you are going to
be mentioned in it. But I just want to send a message to your
folks. I went to see a movie not too long ago, and I don't go
to many movies anymore. But I went to see a movie in which the
plot was a group of renegade Marines that had assassinated some
people in El Salvador, and one of the Marines later went AWOL
and married, and then was tracked down by the FBI. It turned
out that his boss was the Marine general in charge of
Congressional affairs for the Congress.
He is shown wearing the Congressional Medal of Honor. Now
there is a Marine from my home town of Ennis, Texas, named Jack
Loomis who died in World War II, one of the few Marines from
Texas who won the Congressional Medal of Honor. I know we have
freedom of speech in the First Amendment, but it is a travesty
to have Hollywood showing a corrupt Marine general, in my
opinion, wearing the Congressional Medal of Honor, because we
don't give those away.
You know, we've got freedom of expression in this country,
but that really chapped my pants. So if you see some of your
friends out in Hollywood, remind them what the valor is in the
Congressional Medal of Honor. It is not just another award that
you put on somebody's uniform. ``Black Hawk Down'' is supposed
to be a pretty good movie, but I will get with you on that
privately, but it really chapped my tail.
My question: Mr. Liao, you in your testimony talked about
an agreement, and the staff apparently is not aware of that
agreement or not very aware of it. Could you enlighten us or
elaborate a little bit on that agreement?
Mr. Liao. Yes. First of all, the agreement happened very,
very late or, I should say, early this morning on the west
coast. So to be honest, I only learned about that agreement
today as well. So it is not surprising that your staff did not
know. I did not know.
As you know, since the--over the last few months, all of
the industry participants have been working diligently to solve
these issues, and the agreement, again, is focused on the
broadcast flag. So it only addresses that single issue, the
broadcast flag issue.
Also as you know, the way that the CPTWG works, it is a
public, multi-industry forum that even public interest groups
can and do attend. It is really kind of a venue for companies
to make proposals, to get feedback, and for the industry or the
multiple industries to kind of analyze those proposals. Then
some of these groups may or may not implement them in their
businesses.
In this particular case, three groups--so I want to
distinguish this. This agreement is not a BPDG agreement. This
is three groups who have in the past and, in fact, will
continue to make proposals to the CPTWG, either independently
or together, namely the MPAA, the CIG, the Computer Industry
Group, and the 5C group of companies.
They have agreed on some of the criteria by which
technologies might be deemed as useful for the--to be used in
conjunction with the broadcast flag.
Mr. Barton. Thank you. I yield back the balance of my time,
Mr. Chairman.
Mr. Upton. Thank you. Ms. Harman.
Ms. Harman. Thank you, Mr. Chairman. On the way to vote I
learned that this meeting last night concluded at around 1:30
in the morning. It is exciting to me to learn that the industry
keeps the same hours that Congress does.
I also am impressed that you can bring together the
disparate interests you describe. Maybe we should turn over the
Middle East, the problem of the Middle East, to you. My serious
point is that it would be wonderful to see real progress on
this issue. We know it is a hard issue, and we know it is
balancing a to of important interests.
As I listened to you, at least I heard you say the MPAA,
the CIG and the 5C group is all in the same place. That covers
a lot of territory, and I am happy to hear that. What is not in
the room is, at least if we define interests, maybe there is a
fourth set of interests, and those might be consumers.
Now I understand you are all consumers, too, but a separate
group of consumers. So I want to direct a few questions to Mr.
Kraus today, because I was interested in his testimony, and
anyone who can build an organization of 33,000 people in 6
weeks gets any politician's attention. How did you do this?
Mr. Kraus. Well, the short answer is there is actually a
lot of latent interest in the issue of fair use rights, and I
think people out on just the average consumer is very concerned
about recent trends. So while I think the average consumer
understands the notion that piracy is not a good thing, the
average consumer is concerned that the trends so far seem to be
overreaching in the other direction. So there is just a lot of
latent interest.
Ms. Harman. But who can join your organization? Can I joint
it?
Mr. Kraus. Absolutely.
Ms. Harman. Can Mr. Parsons join it?
Mr. Kraus. Yes. The organization is open to anyone who
wants to join, and essentially it is an ability--It is a
gathering point for consumers who are concerned about fair use
rights to be able to channel their interests to politicians and
to people who are making both industry decisions and policy
decisions regarding fair use.
Ms. Harman. Who sets your policy? Do your members set your
policy or does some governing board set your policy?
Mr. Kraus. We currently have a relatively informal
structure of an executive committee. We take input from our
member base, and we essentially use that input to define a set
of policies that we think our constituency is concerned about.
We represent that policy back out to our members, and they
vote with their e-mails and their feedback to us about whether
they approve of that or not. By signing up as members, this
group of people essentially are saying this is what I am
concerned about.
I have to stress that the membership is really most
concerned about seeing a positive assertion of their fair use
rights put into law, because I think the overall concern is
that, little by little, fair use rights get whittled away
without a legislative positive assertion of fair use rights. I
think consumers are worried that their interest will not be
protected.
Ms. Harman. Well, I appreciate that. Where are you located?
Mr. Kraus. We are currently located in Palo Alto,
California.
Ms. Harman. And so the goal here is to have, it sounds to
me like, a democratic organization which will sign up anyone
who wants to sign up, and which has a kind of interactive
agenda. So that if people don't like your agenda, they drop off
or they have a chance to vote no? I mean if they did not like
your consumer bill of rights, could they say we don't like
this, change it to that, and would you change it?
Mr. Kraus. Well, I mean, I think that the key is that there
is a governing body that essentially takes input from the
members and makes decisions, and then the consumers who are
members of those organizations essentially vote with their feet
and vote with their faxes to the Members of Congress.
Ms. Harman. Who is the governing body?
Mr. Kraus. The governing body essentially is a smaller set
of members and consumers. I myself am included. Graham Spencer,
also in Silicon Valley, is a member, and we are looking to
actively grow that executive committee to make sure that it is
as broad and representative as our members.
Ms. Harman. So is your model at some point--I realize you
are 6 weeks old, and it is highly impressively that you have
done this in 6 weeks.
Mr. Kraus. Thank you.
Ms. Harman. Is your model something like the Consumer
Federation of America or Consumers Union or--I am listening to
Mr. Markey at the same time--or Common Cause? I mean, what are
you trying to become, the digital version of one of those
things?
Mr. Kraus. Well, not being as familiar as maybe I should be
with those organizations, and not having actually done this
kind of organizing before, I don't really have a specific model
in mind, and I apologize for not being able to liken it to
anything else.
Again, I think our general goal is to use--I myself am an
entrepreneur and involved in the web. Therefore, I am familiar
with how to use the web as a wonderful organizing tool to
essentially give disparate consumers who share interests a
common voice.
So I don't have any particular model in mind that I can
point you to, but I can say that what is wonderful about the
web is that it is able to achieve and able to organize
consumers with disparate geographies into a common voice and
allow that voice to be channeled to policymakers and people in
industry.
Ms. Harman. Well, my reaction to what you have said is to
be impressed with your entrepreneurial expertise, but also to
be a little bit cautious, and I hope you are, too. This engine
you are creating really needs, as it operates, to represent
fairly, I would hope, the views of its members and to operate
fairly in a set of problems where what we really are seeking is
balance.
Mr. Kraus. Yes.
Ms. Harman. You wouldn't argue that fair use is the only
good here. I am sure you wouldn't.
Mr. Kraus. No. Let me be very, very clear.
DigitalConsumer.org does not support, condone in any way
piracy. I completely recognize--I am a businessman in my
professional career. I completely recognize the problems that
Mr. Parsons, Mr. Chernin are facing, absolutely. I understand
that those are important issues.
My constituency of DigitalConsumer.org, however, namely, is
concerned both about the issues that the industry is facing,
but also want to make sure that their rights are not taken away
in the process. So, believe me, this is an organization that
does take a balanced view and understands that there are
serious issues involved, is not looking to legalize or condone
piracy in any way, but also wants to defend the fair use rights
of consumers that, so far, have not actually, in our opinion,
been adequately represented.
Ms. Harman. Well, I thank the panel for all that you are
doing. I am always optimistic, but I am much more optimistic,
having heard all of you and having heard the progress made last
night, than I was when I came in here. Thank you very much.
Mr. Upton. Mr. Stearns.
Mr. Stearns. Thank you, Mr. Chairman. I would like to
direct my question to Mr. Litai, if you could. How old is your
company, Vidius?
Mr. Litai. Two years old.
Mr. Stearns. Two years old? How many employees do you have
now?
Mr. Litai. About 20 employees.
Mr. Stearns. Okay. And if your system were in use, would
protection measures still be necessary to keep content from
being uploaded to the Internet in the first place?
Mr. Litai. As I said, the technology that we are discussing
is part of a comprehensive solution which we think should be
made, and that should consist of elements to prevent the
leakage of the content onto the Internet in the first place,
and then because you cannot prevent all leaks onto the
Internet, then eventually interdict, search, find, locate and
interdict those copies which do appear on the Internet.
Mr. Stearns. So protection measures would not be necessary?
Mr. Litai. I think that protection measures in some form
will be recommended. Yes.
Mr. Stearns. This is to Mr. Chernin in Los Angeles. From
what you just heard, is that type of DRM enough to adequately
protect News Corporation content? If not, why not, and what is
not protected?
Mr. Chernin. Mr. Stearns, I am not sure I have enough
knowledge of the Vidius system to judge whether it is enough to
protect us. You know, my sense of it, just looking at it, was
that it was, more than anything, a way for companies to monitor
whether their employees were illegally putting illegal or
inappropriate video files up on the Internet, but I have no
basis other than the 2-minute demonstration I just saw.
I do think, you know, as I said earlier, this is an
incredibly complicated problem and is going to need careful
thought and the goodwill and participation of everyone at this
panel and lots of other people, and is going to involve
solutions that are technological, that probably will need some
legislation and, as much as anything, also need public opinion,
need us all to take an active role saying that, while we
believe in the fair use of consumers and we have no desire to
restrict them, we also must stop online digital looting.
Mr. Stearns. Well, let me ask you this. Is there anything,
in your opinion, out there right now that provides the
protection measures?
Mr. Chernin. No.
Mr. Stearns. No? Okay.
Mr. Chernin. I don't think there is. I think we have some
ideas, and I think some other companies have ideas, and they
involve some very traditional methods, because a lot of these
files end up on the Internet, you know, illegally. They are
stolen out of trucks. They are stolen from movie theaters. They
are used by camcorders. So we got to do a better job of that,
but then even once we get there, I think there are some
watermarking ideas we have.
I think the key is how do we stop the transmission of
inappropriate and illegally obtained files, and yet at the same
time not restrict in any way whatsoever consumers' fair use to
transmit files that are either legally obtained or transmit
their son's soccer game or their 1-year-old's birthday party.
Mr. Stearns. Well, let me ask you this. Are you doing
online streaming now, and how are you protecting yourself now?
Mr. Chernin. We are not doing any online streaming right
now.
Mr. Stearns. Okay. Mr. Litai, what precisely is the service
you would sell to a corporation whose equipment may be subject
to misuse? What happens when peer-to-peer networks evolve?
Would your system no longer work?
Mr. Litai. To answer No. 1, what we offer for corporations
is the reports of the data hosted on their network, along with
a very comprehensive itemized list of the specific users who
are hosting content on their machine so that the corporation
can actually go and remove that peer-to-peer from those
employees' computers.
In terms of what happens when the peer-to-peer networks
evolve, this is the reason that what we offer is basically a
service. There needs to be an ongoing evaluation of the peer-
to-peer networks as they evolve, and to change basically, or to
evolve the response system to those new peer-to-peer or to
these evolving peer-to-peer networks; because, certainly, the
hackers will continue to evolve their systems. So we will need
to, as well.
Mr. Stearns. Can you explain a little bit more about the
privacy issues associated with your system? What do you mean
that it, ``operates only on data that has been publicly
displayed to any inquiring computer,'' and, I guess, what are
your company's privacy policy regarding information on
consumers' viewing habits that may be identified by your
tracking system?
Mr. Litai. Okay. We do not access anybody's computer. It is
very important to understand. We do not access anybody's
computer. What we do is, using the peer-to-peer network,
basically, we use the peer-to-peer network within the confines
of the way it is intended for use.
So what we do is go to the peer-to-peer network and ask it
who hosts this file. Now we know how to do it in a very robust
and very efficient manner, but we go and ask the peer-to-peer
system where this content lies, the content that belongs to the
content providers.
What we do is receive these responses from the different
computers saying I have this over here. This is how we know
where the content is located, and where it resides. In terms of
the privacy issues----
Mr. Stearns. Sort of your privacy policies.
Mr. Litai. The privacy policies is that the information is
only made available to the owners of the content or to the
corporations who ask specifically for those reports.
Mr. Stearns. But if I was a corporation and you were doing
this on me, would you notify me that you are doing this?
Mr. Litai. In terms of--We get information from all over
the world, not just the U.S., all over the world.
Mr. Stearns. The specific question is: I am a corporation,
and you are doing this--you are taking this information that is
happening on my site. I mean, do I get notified at all? Is that
a fair question to ask? I mean, am I in the right ballpark
here? Should I be notified?
Mr. Litai. The question--because what happens is, when you
ask a peer-to-peer network,the peer-to-peer network does not
filter the answers. So as far as we are concerned, we get
results from computers everywhere, within corporations, outside
of corporations, on ISPs, and basically aggregate that
information.
Mr. Stearns. And it doesn't identify IBM, General Motors or
anybody like that?
Mr. Litai. It does, because the IPs in general tell you----
Mr. Stearns. You have all the IPs, but you never notify the
people that you are taking all this information?
Mr. Litai. We are not taking any information.
Mr. Stearns. Okay. Thank you, Mr. Chairman.
Mr. Upton. Thank you, Mr. Stearns. Mr. Markey.
Mr. Markey. Thank you, Mr. Chairman. Mr. Litai,
congratulations on Vidius. No one ever heard of Vidius before
this afternoon, but every person in the room has now written
down your company's name, and they are going to learn something
about it in the next week, or someone in their company is going
to learn about it for them, because they don't know whether it
is Vidius or invidious. So they are all trying to figure it out
now, and none of them are quite sure, but you've got
everybody's attention.
My concern is on peer-to-peer networks, but just in
general, you know, a philosophical question, because I know
that some people see peer-to-peer networks as kind of a
software access of evil, and I would like to get at the heart
of the philosophical positions which the people who are sitting
here.
The cultural mores of millions of youngsters and certain
adults have seemingly changed to the extent that they believe
that all information is free, that music and movies are all
made of digital data yearning to be free and liberated on the
Internet.
Some of the remedies for recalibrating the balance between
content protection and fair use from the content community
would simply prohibit home recorded digital data from being
uploaded or retransmitted on the Internet. I will leave aside
whether this is possible or not, but assuming it can be done,
it raises the question of what our policy should be.
So I think everyone realizes the right and the need for
content creators to safeguard their products. Digital copies
are, no doubt, easily copied, and there is a risk that, once
out in the marketplace, someone could massively distribute that
movie or TV show illegally, doing great financial harm to the
content owner.
Yet not every consumer is a potential thief. If a consumer
can legally record material in digital form, doesn't it make
sense, consistent with fair use, that a consumer would share it
or a portion of it with a friend or use it in school?
My question is: Is it pro-broadband to push the industries
to lock in a standard that prohibits all uploading of legally
copied content on the Internet? How can it be pro-broadband to
force people to use the U.S. mail or FedEx to deliver legally
copied, fair use content when the Internet exists to deliver
that same material? How can we make an Internet friendly
standard?
So on the one hand, we are impatient and pushing and
exhorting the industry to reach an agreement on a standard. On
the other hand, we may unwittingly lock in a standard that may
prove difficult to undo and seemingly embrace a policy that may
prove difficult to change, that limits or thwarts consumer
ability to use the Internet or fully use their broadband
connection, which we want to see increase exponentially in its
use?
Can any of you take that question and help us to get a
perspective in terms of this interrelationship between our
desire to see rapid broadband expansion in terms of use and the
need from some perspectives to protect copyright almost
absolutely? Mr. Parsons?
Mr. Parsons. I think, Mr. Markey, that you've put your
finger on one of the important balancing acts that not only the
industry but Congress is going to have to come to. In terms of
driving broadband, what will drive broadband--You know, what I
think what has been driving it so far is simply speed, but will
ultimately drive it and really cause it to be fully penetrated
throughout our country and indeed the world will be more and
more entertaining, compelling, rich media uses.
Those will be driven primarily not by consumers swapping
things back and forth but by people going to places where
content is created or aggregated and downloading it.
For our stake in this, we don't have--and I am talking now
about AOL Time Warner, but I think I can speak more broadly for
Mr. Chernin's company and the entertainment industry. No one
has a real issue with consumers making copies of things for
their use around their home, and that is using the extended
definition of home.
So if you can download something legitimately and make
numbers of copies so that you can play it in different rooms in
your house or carry it to the beach in your portable player or
put it in your car or make a copy for a friend, that has gone
on for time immemorial and will go on going forward.
The problem is when you can take a digital copy, upload it,
and send it not to a friend but send it to anyone in the world
or, for that matter, to everyone in the world. You know, the
nub of your question is do you continue to permit that until
you find some way to differentiate between that individual who
has a legitimate right to send a distinct copy to a specific
friend and, in the meantime, let the--In my statement that I
skipped over because I was running out of time, we are looking
at now probably--We looked at some of the Napster data about a
million files being shared every hour.
About 90 percent of that was of copyrighted material, as
opposed to material in the clear. So you know that the Internet
is being used to facilitate kind of broadband piracy of
protectable material.
Mr. Markey. Well, let me ask you this then. Is the Internet
only broadband friendly for the purposes of commercial
downloads but not for fair use downloads, or at least not yet
ready for fair use. Help us to just understand where we are or
where the industry is in terms of your perspective.
Mr. Parsons. First of all, the Internet, which is sort of a
network of connected computers, is indifferent to the bits that
are being moved around it. So it doesn't know whether it is,
let's call it for these purposes, a legitimate bit or an
illegitimate bit. What broadband does is it simply enables
people to move more around on the Internet more rapidly.
The issue, I think, that the industry is facing, and not
just the entertainment industry but software and, in fact, the
whole intellectual property establishment, is that it can
facilitate the wholesale pirating of material in which people
have lawful rights. So what we are trying to do is find ways to
secure those rights at the place of publication, and then to
make sure that the system honors that security after a
protectable piece of intellectual property is put out from
wherever it is being published. That's all.
Mr. Markey. Mr. Chernin, can you take a shot at that
question?
Mr. Chernin. Yes. First of all, I think you are, as Mr.
Parsons said, getting to the heart of the issue, and it is a
very complex and difficult issue. I think the first part of
your question, I think nothing will speed up the adaption of
broadband and the spread of broadband as much as copyright
protection, because I think there is no more attractive product
than sort of high quality, rich media that is produced by
Hollywood, produced by the sporting leagues, etcetera; and to
the degree we are protected, I think that consumers will have
tremendous desire to get broadband in order to get legally
obtained, high quality product.
I think, when you get to the issues of fair use, these are
complex issues that need tremendous debate, that need a lot of
light shone on them in the new environment. I think guiding
fundamental principles are that all of us in the media business
acknowledge that people should have the right and the ability
to shift content for their own personal use around their home,
to multiple devices in their home, their cars, etcetera,
etcetera.
I think where the common sense and the more complex part
comes, what happens when they want to send it out of their
home, and how do you allow them--I think Mr. Parsons is correct
to say none of us would mind if they sent it to a friend or two
or three friends. The problem is that, if they do that, how do
we stop them from sending it to 10,000 friends, 1 million
friends, 10 million friends, in perfect digital copies?
Now we do have the right and the ability, or we will have
the right and the ability to instruct content to do certain
things. For example, we can sell copyrighted movies to people
and give them the right to transmit it over the Internet three
times or for a day or for things like that.
So I think that working with technology partners, we can
begin to put sets of instructions on this content which will
ensure its fair use, which I don't think there is anyone on our
side who is looking to restrict consumers' fair use, and yet at
the same time restrict the unlawful, potential massive illegal
copying.
I also agree with Mr. Parsons that the issue isn't the
Internet. The Internet is agnostic and just sends stuff back
and forth. The issue is how do we instruct content once it
appears on the Internet for the first time, and how do we
instruct it so that consumers are allowed to do lawful uses and
not allowed to do unlawful uses?
The final thing, if you will indulge me for one more
moment, is that I think we have to be careful about allowing
business model arguments to get into this. There are people who
say our content is too expensive and, therefore, it is right
for people to steal it. Well, in my opinion, it is never right
for people to steal and, furthermore, I think those of us
certainly in the movie and television industry work very hard
at making our content available in multiple ways.
You can see a movie for $10 in a movie theater. You can
rent it for $2 on video. You can see 60 of them a month on HBO
for a $10 subscription. You can see them for free on broadcast
networks. So there's lots of ways for consumers to get our
product and get it at reasonable prices and, even if there
weren't, there is no pricing that suggests that theft is a
viable or a legitimate usage.
Mr. Markey. Let me just conclude. Mr. Chairman, I thank
you. I appreciate the two of you helping us to analyze the
issue. We have got a conundrum in our country, on our
committee. People are not subscribing to broadband. Sixty, 70
million Americans have access to some form of broadband, but
only 8-10 percent are subscribing to it, and it is $70 a month,
you know, $50 more than narrowband. There's got to be something
there.
So one of the ways you can deal with it, of course, is to
have commercial goods on it, but another way is to have a fair
use policy where, if I want to send something to one friend of
mine online that I find interesting--I don't have 10 million
friends--that I would be able to just do that and not have to
go over to FedEx and pay $15 to mail the same thing to them.
Otherwise, I should be investing in FedEx stocks, not in
broadband stocks, because you are not giving me the flexibility
I need just as an individual to send something to my family, to
my friend, and just do one thing.
So we need to telescope the timeframe, in other words, that
we resolve the issue so that we can give some instructions to
the American people so that they can use broadband, because
that is a big part of this puzzle that we have that we have yet
to solve. Mr. Parsons. I'm sorry, Mr. Chairman.
Mr. Parsons. Just because I now have a clearer fix on your
question, people are not not taking up broadband because they
are limited in their right to send things to other people. They
are not subscribing to broadband, those who aren't, because
they don't see the value proposition. They don't see what they
are going to get out of it.
What Mr. Chernin just said, I think, is almost irrefutable.
Until we get to the point where you can get something different
on broadband than you can get on narrowband--that is to say,
different programming, media rich program--the mass market is
not going to be there. The only way you are going to get to
that point is if people who create content can put it out and
believe that it is protected.
Mr. Jacobson. Can I jump in on this, Mr. Markey? Just from
the technology side and our working in the marketplace with
content holders, what we are seeing--and we have to realize
that this industry is really just born in some respects. Yes,
the numbers are big, but the use of the Internet in a mass way
to consume media that we all know and love on broadcast and
cable and satellite is just beginning.
We are seeing what you are alluding to, which is a
different experience for rich media in broadband for people to
subscribe. So everything from your Red Sox game so you can
watch on a condensed basis after they are played, which doesn't
interfere with the live signal on broadcast, to Fox sports
material to CNN is all coming now in a very rich way into the
broadband market.
What we are finding is that part of the solution, which I
have not heard yet today, is a more active approach to creating
a system wrapped in digital rights management technology for
people who want to stay on us to have legitimate content
through broadband, and that is everything from the music to the
video business.
I think that the report is that we are getting started here
and that there are legitimate music services that are
available. They have problems associated with them which relate
to things like getting all the music aggregated so that they
can compete with these pirated sites, and also that the movie
industry is coalescing and licensing digital rights management
to release their movies via broadband, we are told by the Movie
Link organization, hopefully, sometime during the year.
So we are beginning to find that this mix of broadband
accessibility from the home matched with technology that
protects content on an affirmative basis and putting those
business models into place with the media companies is starting
to grow.
Mr. Upton. Congressman Markey, I just want to say we have
Mr. Chernin, and he has got to leave shortly. I know Mr. Tauzin
is ready as well. So we have gone long overdue. So we will come
back to you, if you need. Mr. Tauzin.
Chairman Tauzin. Thank you very much. Mr. Chernin, I
particularly want to thank you for appearing in this fashion
interactively with us. I was noting the technology.
This is technically a broadband connection, although it is
not yet the really great broadband connections we are
eventually going to have in this committee room, but what is
interesting is it still sort of looks like a Korean movie, you
know, where your lips are moving and we hear you a little
later.
As somebody commented, we can't even tell if you are
wearing pants over there, you know. But I do appreciate your
coming in this fashion. I think it is beginning to demonstrate
the capabilities of the technology, even as we consider issues
relating to the new technology. So thank you for that.
I would like your attention and perhaps Mr. Parsons' and
Dr. Liao's attention to an issue, and I apologize if you may
have covered it before I returned. I have been on the Senate
side celebrating prematurely the victory in the Senate for an
energy bill that this committee is, obviously, very invested
in.
I wanted to get to the broadcast flag issue with you very
quickly. We were told at one of the roundtable discussions that
there would likely be a resolution and an agreement on the
broadcast flag issue by March 31. That obviously did not
happen. Another meeting, we know, is scheduled for April 29. I
know that you came this close to getting an agreement before
this hearing, because you wanted to announce it at this
hearing, and I appreciate all the effort you made to try to do
that.
You obviously, are not quite there. But the questions I
have is, once you do have such an agreement, absent all the
other agreements that must come, would it be appropriate at
that point for us to have very specific legislation that would
enforce that agreement to ensure, in fact, that digital
receivers would be built with the broadcast flag technology
built in, so that we could at least begin to move this part of
the digital transition forward?
Perhaps anyone of you--Mr. Chernin, you may want to start.
Are you of a mind that that would be appropriate?
Mr. Chernin. Yes, Chairman Tauzin. First of all, I suggest
you study the expression on my face to see whether I am wearing
pants and draw your own conclusions.
Chairman Tauzin. I want you to know, I am wearing them,
too.
Mr. Chernin. I think we actually covered this briefly. We
are hoping our schedule to be done by May 17 to be there with a
full recommendation. I guess my point of view is that we should
keep legislation as narrowly targeted as possible. We shouldn't
burden it with trying to solve everything, and to the degree we
have a viable broadcast flag solution, which I am highly,
highly optimistic that we are days away from, we should have
narrowly focused legislation, hopefully, drafted and passed
quickly. Then we can check that off and get on with putting as
much rich digital content on broadcast terrestrial television
and, hopefully, speed up the rollout of digital TV.
Chairman Tauzin. I am glad you take that view. I will ask
Mr. Parsons and Mr. Liao the same question, but I want to
comment quickly. The reason I like that view is that gets the
content into play, and that gets more broadcaster networks
interested in doing more and more digital production and,
obviously, studios doing more digital production as well. I
think that advances the ball significantly when it comes to
content. But perhaps, Mr. Parsons, Mr. Liao, you would like to
also comment.
Mr. Parsons. Same answer. We think that proceeding
incrementally here as matters get resolved and issues become
clarified, taking steps is better than waiting for all the
issues to be resolved, and it will begin to create some
momentum here.
Chairman Tauzin. Mr. Liao. And I will also ask you, Mr.
Blanford, on behalf of Philips, to give us a similar response.
Mr. Liao.
Mr. Liao. I agree with Mr. Parsons and Mr. Chernin that we
are getting closer, and I am very hopeful that by May 17 that
we will have a final report that the entire industry--the
cross-industry groups can agree to.
My personal opinion is that the government will have a
role, but we need it to be a very specific role. In general,
government I see having many--well, has a role in two respects.
First, sometimes the government needs to step in when there is
no marketplace mechanism in place that could really enforce
something of this complexity.
The second place where government intervention is often
needed is to assure there is a level playing field. Often in
that case, it is because of past government mistakes.
Chairman Tauzin. I follow that, but in this specific case,
if flag technology is agreed upon, would you support targeted
legislation to ensure that the technology is built into all
digital receivers that go out to consumers?
Mr. Liao. Yes.
Chairman Tauzin. Thank you. Mr. Blanford, would you comment
for us?
Mr. Blanford. Yes. Philips supports the flag. I think the
question, Congressman, is what happens after the receiving
equipment sees the flag? That gets into then the whole DRM
issues that we have been talking about. That is where we are
struggling.
Chairman Tauzin. Yes, I understand that. But at least you
would support the notion of ensuring through legislative
requirement that the flag technology was in every digital
receiver, would you not?
Mr. Blanford. We support the flag technology.
Chairman Tauzin. Would you support the requirement that it
be in every digital receiver, once you agree upon flag
technology?
Mr. Blanford. I think we would like to see where the
continued discussion goes with respect to DRM after that flag
is, in fact, received.
Chairman Tauzin. So you, of all the four who have
responded, would take the view that we should not legislate
until we are prepared to legislate on enforcement of all the
agreements or at least the agreement on what happens once the
signal is received with the flag on it? Is that your view?
Mr. Blanford. Yes. We believe that the--again, what happens
after the flag is received is critical. I am not confident
that, without that understanding, we should go forward with the
flag in a legislative mode. I think we still need the benefit
of the process to determine what does happen after the
equipment receives the flag.
Chairman Tauzin. My time has expired. Obviously, the
concern I have and the concern we have discussed at some of the
roundtables was that, if we wait for all the agreements to be
reached and all the investments and upgrades to be made before
we begin the process of instituting such things as the
technology that will embrace the flag, that we again push back
our capabilities of reaching the 2006 date. We deny digital
content in the marketplace that could help invigorate
consumers' desires for these new technologies and products.
I would urge you to think about that. If I had a confidence
we could settle all the other issues in the next 3 or 4 or 5 or
6 months, I would say maybe you are right. We could do it all
at one time. But if we can't, would you rethink that position?
Mr. Blanford. I guess I am optimistic that many of those
other issues can be resolved, and I appreciate your comments
regarding the speed with respect to moving forward with
broadband and high definition content.
This is a decisionmaking process, and every decisionmaking
process that I am aware of does, though, need to balance speed
of decision, quality of decision, and the acceptance of the
decision. I am very fearful that we are moving too quickly.
Again, I am optimistic that, under the proper forum with
broader participation, we can resolve many of these issues. I
again state that we don't believe that there is that proper
forum, that the BPDG is not a standard setting body and is
fundamentally closed.
So I think, again, under the right forum, right principles,
right leadership, as we have suggested earlier, we can make
faster progress and meet your needs and do it in a holistic
way.
Chairman Tauzin. I know time is up. I would be very
grateful if you would communicate to us after this hearing what
might be the minimum conditions under which you would see
enough progress made on those issues where you would support a
targeted mandate to get the flag going.
Thank you, Mr. Chairman.
Mr. Blanford. I would be happy to do that, Congressman.
Mr. Upton. Thank you. Ms. Eshoo.
Ms. Eshoo. Thank you, Mr. Chairman. This has been a
wonderfully instructive hearing, and I think all of my
colleagues would agree with me in stating that. Thank you to
all of the participants, both interactively and the ones--the
gentlemen that are at the table.
First, I would like to just make a quick observation about
DigitalConsumer.org. There has been kind of an
interchangeability with the terms customer and consumer. I
think that the companies have customers and that, in a much
broader sense, we are here to look after the consumer, and I
don't think one is right and one is wrong.
I also think that an organization that can be up and
running with 35,000 people in 6 weeks is one heck of a
campaign, and as a politician I really respect that. I think it
is something that we need to pay attention to.
I think the whole issue of fair use is one that is
ultimately going to have to be built into this, and whether it
is out of respect for that organization that Joe Kraus heads up
or anyone else. So it simply cannot be left out. So consumer
rights and consumer protection and the embracing of where the
companies want to go with their customers--all of those things
are going to have to be balanced out. I say that with respect
to all of it. So that is just an observation.
To Mr. Chernin: Protecting content at the outset is
something that, I think, we have heard addressed over and over
again today, and how to do it, and then where the government
steps in to assure that, I think, we are still grappling with.
But protecting it at the outset and from the source is very
important.
We have heard that content is often copied by an
individual, and in some cases with a digital camera at a
theater. Can you tell us what steps you are taking to eliminate
that?
Mr. Chernin. There are tremendous efforts----
Ms. Eshoo. Excuse me. The next time I go to the movies, I
am going to look around in the dark to see if there is anyone
there with a camera. But do you have agreements with theaters?
How do you approach this?
Mr. Chernin. First of all, we ought to applaud your helping
us in the policing activities.
You know, actually, my friend and colleague, Mr. Valenti,
has helped us take the lead in this thing. I think----
Ms. Eshoo. He is our friend and colleague, too.
Mr. Chernin. I think that the MPAA through the member
motion picture companies spends, I believe, in excess of $20
million a year trying to fight piracy in all parts of the
world, and ranging from things like video cameras in movie
theaters to people stealing our prints to people in other
countries making illegal disks, etcetera.
So we do have agreements with theater owners to restrict
this. We look to law enforcement to help us. There are State
laws restricting it, and we play a very active and, I might
add, very expensive role through Mr. Valenti's leadership in
the MPAA.
Ms. Eshoo. Thank you. Let me ask--Is it Mr. Litai? Am I
pronouncing your name correctly? I have an odd name. So I am
sensitive about mispronunciation.
I am curious about the answer that you gave earlier to
Representative Stearns when you were asked does anyone know
that you are doing this, and you did not give a direct answer.
My sense is that people don't know. How appropriate is that?
Mr. Litai. Well, I would like to just make it very----
Ms. Eshoo. I mean, it sounds a little like a high security
meeting with Members of Congress where the agency has to inform
us of the appropriateness of what they are doing. I am not
casting aspersions, but it really raised a flag with me when
you didn't answer that directly.
Mr. Litai. The answer, first of all, is to say that
everything that we do, we do on public information that is
offered directly from the networks. We do not in any way, shape
or form access anybody's computer or anybody's system.
Regarding have we talked to people regarding this, the
answer to that is yes. There are people, lots of people,
companies, who are in this room and others who know what we do
and have seen this information.
Also, we make it a point to notify people that they have
problems regarding these types of situations.
Ms. Eshoo. So if find what you are looking for, you then
notify either the party or the company? Have you notified them
ahead of time that you are looking or do you notify them once
you have found something or do you report them to someone? How
does it work?
Mr. Litai. First of all, we don't look for specific--We
can't access computers. So we don't look for specific people. I
can't access anybody's computer, because they are, for example,
behind the firewall. So I can't go and access anybody's
computer nor do I want to.
What we receive is just as if someone would post it on
their website and say, look, this is my website. I am a
corporation, this is my website, and over here is a movie.
Click on this, and download a movie.
The peer-to-peer is the interface which basically the users
who put this content on the peer-to-peer network use to turn
this misinformation into public information which everybody has
access to, just like a website.
So there is nothing that we do that actually accesses
anybody's computer. There is nothing that we do that looks into
anybody's directories or anybody's information.
In regard to whether we do anything under any sort of
hiding it or anything like that, no, we do not.
Ms. Eshoo. I have two more questions. I appreciate your
response.
Is there anyone on the panel that agrees with the Hollings
approach? Why is this such a stumper?
Mr. Kraus. Silence is probably no, I would imagine.
Ms. Eshoo. Is that so? I mean, no one can voice it? Well, I
think that we heard----
Mr. Upton. Mr. Chernin has had to leave, but I think he
might----
Ms. Eshoo. Yes, I noticed. It would be two, four, six
against one. So that is a quick poll.
Let me ask out of curiosity, going back to what I first
referenced, consumers and customers: You have a working group.
Is it just industry or do you have representation relative to
consumers at the table? And if so, great; and if not, why?
Mr. Jacobson. I am happy to give my perspective and then,
certainly, expect the perspective of others.
I attended the last CPTWG and BPDG meeting--lots of
acronyms. There are really no consumer organizations in the
room, and it costs $100 if you want to attend. So----
Ms. Eshoo. Why?
Mr. Jacobson. Why? Because I imagine--I can't speak for
why. I imagine it is because they have a meeting room, and they
need to cover the cost of the meeting room and those sorts of
things, but it does cost money for anyone to attend.
The other unfortunate thing, I believe, is I have not seen
a member of the press attend. So even if consumers are
prohibited from the $100 fee--let's say that is not something
that they want to pay in order to express their opinion--my
concern also is that I have not seen members of the press being
in those meetings and able to effectively report out whether
consumers were being represented.
So consumer representation certainly is a concern of ours,
when it comes to these kind of inter-industry consortia.
Mr. Parsons. If I may, Madam Congresswoman, and then Mr.
Liao is going to speak. First of all, the working group at that
working group level, the issue is who brings knowledge to bear
to deal with the technical issues that have to be solved here,
and that is not necessarily--The purpose of those groups is not
to sort of mediate and balance the broad public interest versus
the interests of the industry. That, frankly, is for this body
to deal with.
I would just like to say--and in terms of the press, again,
the purpose of the working group is to try and find technical
solutions to technical problems and understand how the people
who have that knowledge and understand the operation of their
business would work, and then we will come back here, as we
have indicated, if we think we need a standard that has to be
enacted into, ``public policy.''
You made mention earlier about your concern about fair use.
The only thing I would ask the committee--You know, sometimes
what you call things can head you down an interesting road, and
you can lump a lot under it. But actually, the fair use
doctrine is, in my judgment, fairly named, and the question is
what uses are fair?
If you buy a CD or a movie, should you be able to invite
friends over to see that? Yes, that is pretty fair. Should you
be able to make a copy of that so that you can have it in your
car or upstairs in the bedroom and downstairs in the den? Fair.
Should you be able to make a copy of that so that you can give
that copy to your brother-in-law so he doesn't have to buy that
movie? Should you be able to make 100 copies of that so that
you can give it to your 100 best friends, so none of them have
to buy the movie?
I think, you know, we can lump a lot of things under fair
use, but one needs to think about our system, how it works,
what the source of its strength is, and how to balance the need
to protect property rights and allow people to exploit those
property rights with the legitimate needs of those who buy a
piece of property and how they can use it for their own
consumption.
Ms. Eshoo. It is an eloquent statement, but that is what we
are trying to figure out how to do. It is like trying to get
socks on an octopus. I mean, it is a pretty tall order. But I
appreciate what we have heard from all of you today, and I have
been enlightened in several areas.
I hope, more than anything else, that you all work out most
of it, because I think many times, when you come to the
Congress asking, you may get something you don't like or didn't
expect. So I think that there is a real charge to all of the
stakeholders in this to see what you can come up with, and then
come back to us and report that. I hope that the steps that the
Congress takes are smaller steps and not get into the area of
mandating the standards. I don't think we know how to do it. I
don't think, even if we hit the nail on the head, it would
change tomorrow, and we can't pass legislation fast enough to
keep up with product cycles and technological standards.
Thank you, Mr. Chairman.
Mr. Upton. Thank you, Ms. Eshoo. We are going to have just
a very brief second round, and I know Mr. Chernin had to leave.
I have a question. A year and a half ago I bought a digital
TV set. It works terrific. It is hooked up to cable. What is
going to happen if we sell this broadcast flag issue, if we get
the agreement made? What is going to happen to those folks who
have this type of TV with a tower, if they don't live in a
cable area, with an antenna? Tower and antenna are the same
thing. What is going to happen with the folks who have that
type of equipment?
Mr. Liao. First, the broadcast flag is meant to prevent
retransmission--or so that the content copyright owner could--
--
Mr. Upton. I am going to want to get that show. I want to
watch that.
Mr. Liao. So there is nothing to prevent you----
Mr. Upton. The Cubs and the Boston Red Sox will be on
digital by then.
Mr. Liao. So there is nor elation. You will get that show.
Mr. Upton. It will be okay, even with a flag on it?
Mr. Liao. Yes. The flag is only meant to prevent
retransmission, sort of republishing of the material over the
Internet.
Mr. Upton. Okay. So that will work for existing sets as
well?
Mr. Liao. Yes.
Mr. Blanford. Congressman, there is still an issue, though,
as to what happens with all of your equipment after that flag
is received, which is what I was trying to address earlier. For
instance, if you were to now take that show or game or whatever
and record it digitally on your DVD recorder and then take that
DVD out of the recorder in your family room and walk into the
bedroom and put it in your DVD player, it won't play.
So it's these issues after the flag is received that really
get into fundamentally the balance of rights, business rights
between all of the various industries, as well as consumer
rights. It is in that balance of rights that we have asked for
help from Congress or an agency like FCC to ensure transparency
in the process, not to mandate the solution, just to ensure
transparency in the process and to ensure that everybody is at
the table.
Mr. Upton. Go ahead.
Mr. Liao. If I may make a comment, I think the salient word
that Mr. Blanford mentioned is balance, and it is the balance
of all these different interests. It might be helpful for the
committee to understand the kind of structure by which this
protection is achieved, and I think this goes to the heart of
the issue that Mr. Blanford has been discussing.
The broadcast flag signals the TV receiver that this
content should not be retransmitted over the Internet. So sure
enough, that TV receiver will know this is a no-no, don't do
that. But there are outputs to the TV receiver. For example,
with the set top box there needs to be an output that brings it
to the television.
Those outputs may be analog in nature. They may be digital
in nature. If they are analog in nature, actually, the
agreements of all the industry participants--to my knowledge,
all the industry participants has been that the broadcast flag,
no matter what its setting, will permit, continue to permit,
that analog output to output the signal.
So for example, today if you have a receiver, it will
output that thing through the analog output and display it on
your display, perhaps the high definition display that you have
recently purchased. No problem. Or you could take that analog
output and put it into your DVD player or recorder and make a
very nice DVD recording, probably equivalent to the kind of
displays you are seeing because, after all, that is the same
output that you use for your display, and make a recording.
That recording, if you make it on the right DVD media, will
be able to play on the legacy players. For example, if you
bought a Panasonic DVD recorder today and recorded on DVD RME,
you could record it on that and play it on most of the legacy
players.
On the other hand, if it is a digital output, and it is
really digital protection that we have been talking about in
the Broadcast Protection Discussion Group, in order to protect
that digital copy, what we have been talking about is
encrypting it. Now why should it be encrypted? The reason it is
being encrypted is that is how you protect it from being
misappropriated at a later stage in some other part of the
chain.
Remember, the whole thing about today's network world is
that we are talking about going from one box to another through
all these networks. So in order to maintain that protection in
the digital world, we have taken the approach of encrypting it.
It was something that was not easy for all of us to agree to,
but it provides that kind of a balance between this protection
of that material and the use of the consumer.
The consumer can always make the recording and can make as
many recordings as they want. Those recordings will always play
in, for example, the recorder that they made it in, because the
recorder is made to play its own recordings. So there is never
a problem with playing a recording that he makes on a
consumer's own recorder--her own recorder. It will play, no
problem.
So this is the kind of balance we have had to struggle
with.
Mr. Blanford. I don't want to get into point-counterpoint,
but what was just described, though, locks the consumer to a
degree, a large degree, in the analog world; because, yes, you
can see the digital signal on your display, but to record it
you are not able to use it on the 35 million DVD players that
are in existence today unless you record it as analog. Then, I
mean, what is the point? We have locked the consumer in the
digital world, and we are not able to take advantage of the
full promise of digital.
So we are in a point-counterpoint. That is correct, but I
think, again, it is this fundamental balance that we are
speaking to in terms of who all should be at the table. The 5C
only represents four consumer electronics companies. I wish
that is all I had to compete against. Last I looked, I think it
is more like 15. So it is a very small group. It does not
represent the consumer electronic industry nor those other
constituencies that have not been represented either.
I think this is just a huge--I mean, we recognize it is
very complex. It is very huge. I think the consumer at the end
of the day is going to speak. I think, if we don't get it
right, your in-boxes are going to be very full.
Mr. Jacobson. Mr. Chairman, if I may. I applaud the notion
of a very narrow mandate at the BPDG when it comes to
preventing the unauthorized retransmission of content over the
Internet. I understand that. My concern is that, from what I
have seen of the specifications, and I am on the mailing list
for those specifications, the power of the specification is
actually far broader.
It gives the ability for, as far as I can tell, a small
group, subgroup, of BPDG to determine what technologies are
essentially approved, and the scope of those technologies
doesn't necessarily have to be limited to only retransmission.
So, for example, a technology could get approved. As I
mentioned in my testimony, nothing in the specification
prohibits, I might say--not necessarily that it will happen,
but nothing prohibits the ability of a technology to get
deployed which might make my VCR recordings expire. Yes, I
might be able to make them, but maybe they expire without my
choosing.
So what I believe--and there's been questions about when
should we give this specification the force of law. My interest
is not so much a question of when, but what. I believe that
this specification needs to have--and I am heartened by the
comments of Mr. Parsons and Mr. Chernin on fair use, but I
believe that the specification gives broad powers to a group of
people, and before you stamp that into law, I think you need a
fair use assertion in that document to make sure that none of
the provisions, none of the technologies that do get approved--
and consumers are not going to be in the room when that gets
approved. You need to make sure that what you pass, regardless
of when you pass it, has fair use assertions in that
specification itself.
Mr. Upton. Mr. Markey.
Mr. Markey. I have no further questions. I thank you all
for your excellent testimony.
Mr. Upton. Mr. Boucher.
Mr. Boucher. Thank you very much, Mr. Chairman. I will be
brief, since I am the last person to question this panel, and
it has been a long afternoon.
Mr. Blanford, I can't resist the opportunity of your
presence here today to discuss with you another subject. It is
also a subject relating to the protection of content in the
digital era, but from a very different vantage point. That is
the general matter of the introduction of copy protected CDs
into the U.S. market.
Philips, as I recall, was one of the companies that
developed the original standard for CDs.
Mr. Blanford. That is correct.
Mr. Boucher. I think, in fact, you own some intellectual
property in the brand. I will tell you that I am somewhat
perplexed by the rationale of those who are introducing the
copy protected CDs. If you look at the circumstance carefully,
you readily see that copy protected CDs will do virtually
nothing to guard against Internet free, peer-to-peer file
sharing. Someone will crack the code. That someone will put the
then unprotected CD up on the Internet. Once it goes up, it is
likely to stay there forever, and it will find its way into the
free peer-to-peer file sharing services.
I think that is absolutely inevitable. So copy protecting
the CD does not really protect against Internet peer-to-peer
file sharing, and we have heard repeatedly from the recording
industry that their greatest concern about the escape of their
digital content and the piracy of that content is with respect
to Internet peer-to-peer file sharing. Copy protecting doesn't
guard against that.
It does guard against the casual making of a CD at home and
giving that to someone else. Frankly, I don't term that fair
use, Mr. Parsons. I am a big fair use advocate, but I don't
think recording a CD at home and giving that to another person
is fair use. For your own purposes, it is. I mean for your own
convenience, it is, but once you give it to somebody else, I
think it is not.
Really, all copy protecting CDs does is guard against that,
and historically the record industry has more or less accepted
that, kind of tolerated that low level of piracy. That is
rather casual. So I am perplexed by the rationale for this.
On the other hand, introducing copy protected CDs is
angering a very large number of the best customers of the
recording industry who are now frustrated in their ability to
exercise their fair use right to make a copy at home of music
they have lawfully acquired, when that music is going to be
used for their own convenience and personal use in the home
setting or the extended home setting.
I suspect eventually millions of people are going to
express that same concern. Let me ask you as the developer of
the original format for your view of this general subject
matter or any concerns that you might have about the
dysfunctionality that attends the copy protection technology
that disables CDs from playing perhaps on a personal computer
or in a DVD drive, and I understand some of the technologies
have that characteristic.
Are you concerned that consumers will be confused? Are you
concerned that some of the blame will be directed toward the
manufacturers of equipment, potentially your own equipment, and
do you think that perhaps, assuming there is that confusion and
that misdirected blame, that the case is made for Congress to
step in and to require appropriate labeling when CDs are copy
protected?
Mr. Blanford. Congressman, I think you articulated the
issue extraordinarily well, and I am not sure I can add a lot.
Yes, we are very concerned that consumers will be confused,
that they will blame their equipment. Indeed as the copy
protected CDs do hit the market, in many cases they will not
play on existing equipment, leading to confusion, leading to
consumers that feel that their equipment is broken, leading to
calls to our consumer care centers.
There is already a fairly, I think, sizable revolt going
on, on the Internet. My own e-mail box is getting swamped with
letters from consumers who are actually supporting Philips as
we have been attempting to put the brakes on such copy
protection, and again making sure that we all understand what
we are doing as we go forward.
So it is a very serious area. I think you are also right,
to the true pirate they are going to find a way around it. So
it is casual copying that we are talking about, but a very
serious problem for us right now, and growing.
Mr. Boucher. Should we legislate to require appropriate
labeling when the disk is dysfunctional because of the copy
protection?
Mr. Blanford. Well, I think, you know, that would be
certainly--I mean, the ethical thing for the producer of that
particular disk to do would be to label, and we could legislate
that. Unfortunately, I think consumers will still be surprised.
They may not see the label. They are still going to take it
home, tear open the wrapper, put it in their CD player, and it
is not going to play.
So I am not sure if--I would support it, but I am not sure
that that is going to solve the problem, and it is another area
where, again, more discussion is needed.
Mr. Boucher. Well, thank you, Mr. Blanford. I think more
discussion is needed and, hopefully, this subcommittee will
take the opportunity to look at this issue at the proper time.
Thank you again.
Mr. Blanford. Thank you, Congressman.
Mr. Upton. Mr. Markey.
Mr. Markey. Fourteen years ago, we set up a screen in this
room, and we had the first international broadcast of an HDTV
signal from Canada into this room. The members on this
committee, they just fell over wanting to know where they are
going to be able to get the sets, when they were going to be
able to see all this programming in HDTV.
The policy that our country constructed was essentially 6
megahertz for the broadcasters, and then walk away. Even when
I, in 1997, had an amendment here that said that all television
sets sold in the United States that would be digital at least
have a digital--have an ability to receive a digital signal,
even if it was an analog set, by 2001, it was rejected like 35
to 7 here on the committee.
So just dealing with that one issue, the 6 megahertz,
doesn't really create a policy, if that is the only role the
government is going to play, because if you walk away, you wind
up with chaos. Same thing as here, and after I have heard all
of the testimony here today.
We can deal with flags or this or that or the other thing,
but we just can't deal with any one part of it. We have to deal
with all of it, and we have to deal with all of it at the same
time or else any un-dealt-with part of the puzzle has the
capacity to paralyze all the rest of the resolved issues.
My own personal experience now 14 years later after
conducting that hearing--I have been on the committee for 26
years--was the breath taking response from the committee
members. I think the same desire is there for a resolution of
all of these issues. That is the product that is promised to
the American public, this combination of broadband and content.
But in order to telescope the timeframe for us to have this
miracle, this product presented to the American public, in my
opinion, it is going to require an industrial policy.
It is going to require the Federal Government to intervene,
because I do not see any likely near term resolution of any of
these issues in a way that resolves the big issue of presenting
something to the consumer anymore than, in the absence of the
Federal Government intervening, do I see any ultimate
resolution of the HDTV conundrum; because there are so many
moving parts, you cannot ultimately rely upon any one industry
to resolve it. You have to have the Federal Government come in
and make very difficult decisions.
That is my recommendation, Mr. Chairman, and it would be
that this hearing be followed by a whole series of additional
hearings that can allow us then to go down the list of still
unresolved questions, because ultimately, I think, left to the
private sector, we will just have a repetition syndrome of what
has happened with HDTV, going back to 1988. We will not see the
full resolution of all of these problems.
Thank you, Mr. Chairman.
Mr. Upton. Thank you, Mr. Markey. I just want to say that I
know that your participation in our roundtable meetings has
been very constructive and productive, as we have all worked
together. We are looking to have another one next month, and we
will follow up with additional hearings. That is for sure, as
the country watches what is going to happen.
Thank you very much. The hearing is adjourned.
[Whereupon, at 4:23 p.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
Prepared Statement of the Association for Competitive Technology
introduction
The Association for Competitive Technology (ACT) submits the
following views on the subject of protecting digital content. ACT
represents over 3,000 information technology (IT) companies and
professionals, including those involved in creating solutions to
transmit digital content. We strongly believe that the marketplace,
without the assistance of additional legislation or regulation, is in
the best position to respond to the demands of consumers and copyright
holders. Legislative proposals that install government mandates for
security standards (or DRM) are unnecessary and will be
counterproductive.
The potential market for digital content is an estimated $270
billion, and Digital Rights Management (DRM) technologies and solutions
are the keys to unlock it. IDC has estimated that the market for
Digital Rights Management (DRM) software is expected to reach more than
$3.5 billion in revenue by 2005. Without a doubt, emerging and maturing
DRM technologies will enable a secure electronic marketplace where
content providers can be compensated for the use of their digital
content. Small and mid-size technology companies make up the bulk of
the DRM developers heeding the call to action.
Currently, the flow of legitimate online content is a trickle
compared to what it could be. Content owners are hesitant to release
content for fear that once a song or movie is lost to digital pirates,
all value in the investment and commercial opportunities are lost as
well. The IT industry and entertainment industry seem to agree that
it's going to take continued development of new technology and new
business models to provide DRM while expanding consumer distribution,
convenience, and choice. In other words, a DRM model needs to allow
consumers to rent, buy, time shift and place shift any piece of
lawfully acquired digital content. To that end, the industry is already
devoting billions in R&D to develop these technologies.
how drm works to protect digital content
DRM technologies can be grouped into three basic categories: 1) the
access control with authentication and/or encryption mechanisms; 2)
usage control according to rules that are set by the content
distributor, e.g., listen-only rights, where the user is unable to save
or distribute the music. 3) tracking mechanisms that allow the content
provider to track subsequent use with watermarking and digital
footprints.
DRM technologies offer content owners the aforementioned dynamic
solutions through passive and active methods. An example of a passive
DRM technique is consumer identification and trace back to find
illegally copied content. Methods include: serial numbers, digital
fingerprints, traitor tracing. In order to ensure the integrity and
authenticity of digital content, its accompanying metadata and the
hardware and software components of a DRM system, security features
such as digital signatures, fragile watermarks, and challenge-response
protocols are included.
In terms of active protections, DRM systems have been developed
that utilize specialized filters and marking techniques such as ``audio
fingerprinting'' or ``robust hash'' that block unauthorized access to
pirated content. In addition, fair-exchange protocols ensure
technically that the consumer receives access to protected content only
after having paid the appropriate price. If the DRM system detects a
security breach, it can revoke and disable compromised consumer
devices.
examples of ``applied'' drm
In order to be successful on the mass-market, DRM technologies must
continue to be effectively integrated into consumer devices. A positive
sign is that a number systems for playing digital content currently
utilize DRM technology. DRM components can be found in pay TV systems,
DAT and some types of compact disc players. The DVD system employs
various technological protection measures, including the Content
Scramble System (CSS). Other DRM standards include the High-bandwidth
Digital Content Protection (HDCP) for protecting digital video outputs,
and Content Protection for Recordable and Prerecorded Media (CPRM/
CPPM). DRM solutions are being integrated into new devices and software
including digital audio and video players, e-book readers, operating
systems and mobile devices. These solutions all have one thing in
common; they were created without technology mandates.
The technology industry remains focused on creating marketable
solutions. Content owners, device manufactures and IT companies have
agreed that the successful DRM solutions for digital content should
have these features:
<bullet> DRM software and devices should be so easy to use that they're
nearly invisible to the consumer, even as they move digital
entertainment content among their own household and personal
devices.
<bullet> Users should be able to recombine and share any of their own
digital content.
<bullet> DRM solutions should be inter-operable among devices and
distribution channels, and the technology should have
consistent enforcement of rights wherever the content goes.
<bullet> DRM technology should be flexible enough to adapt to different
business models (e.g., charges for a single use or for a
specified time period).
<bullet> DRM technology and devices should be capable of online updates
with new protection software.
<bullet> Content providers will need DRM databases and systems to
define and manage rights to their content.
<bullet> Enterprises such as corporations and educational institutions
need DRM systems to manage content and group rights.
No doubt integrating the above features creates challenges in
balancing the rights of content owners with the demands of consumers.
There should also be no doubt that thousands of technology developers
are racing to deliver solutions that meet those challenges. The
enormous value of the music market provides a powerful financial
incentive for DRM innovation, but it's up to content owners, the IT
industry and consumers to pick the winning solutions.
XrML
In the attempt to implement these features, one machine-to-machine
standard has emerged. The extensible rights Markup Language (XrML)
syntax provides content owners the opportunity to attach data about
royalty arrangements, ownership, listening limitations, and context
pricing (e.g., sale or rental) to the content, so it can ``travel''
across devices without degrading the copyright. XrML as been embraced
by Microsoft and is a primary feature of their DRM function. Moreover,
the number of licensees of XrML's is growing rapidly and is already in
the thousands. Now that XrML is emerging as the industry standard
language for digital rights, companies are taking initiatives that will
keep the DRM marketplace moving.
As mentioned above, XrML supports trial use, rental and sale
distribution models. This means that ``old'' models of selling music
will find ``new'' viability. For example, music content owners,
utilizing XrML based DRM distribution systems, can provide a consumer
the opportunity to listen to parts of songs for free, purchase singles
for a competitive price and purchase albums for download to a digital
device.
Eliminate the incentive
Technologists at RSA and Bell Labs have begun addressing the piracy
problem by developing a practical solution designed to make it less
economically viable to steal content. Their models are aimed at the
typical scenario most feared by content owners. The case is which a
pirate obtains a legitimate, secure copy, potentially alters, and then
distributes copies in order to make a profit. RSA and Bell Labs have
offered a solution currently targeted toward software, but applicable
to digital content, relying on periodic updates. The key is required
interaction between the owner of the content and the legitimate
distributor.
Subscriptions
DRM integrated into a subscription model allows content owners to
bundle a large number digital content for a fixed price. In a variety
of circumstances, a multi-product content owner can extract
substantially higher profits by offering one or more bundles of digital
media than by offering the same goods separately. At the same time,
bundling can be used to introduce new songs, movies, documents and
titles to create a continuous relationship with the consumer. This
relationship offers a foundation on which content owners can generate
revenues. The subscription model may represent a mix between indirect
and direct revenues with the option of consumption combined with
transparent pricing. Forrester expects additional revenues from digital
music subscriptions of $3.3 billion. Subscriptions provide flexibility
that will attract consumers. For example, a premium membership might
offer a flat rate, eventually combined with services from the second
scenario, while an advertising-based membership might limit access in
quantity, time or actuality.
By utilizing DRM technology to securely encrypt the music with a
key, the package can be digitally delivered to the consumer's device.
There, the locally installed trusted tool gains access to the digital
content with an unlock key which leaves the file locally encrypted and
streams the digital content into the memory for ``on the fly''
decryption. The user, who has agreed to the terms and conditions of
use, has now the license to access the content. His usage is recorded
and the transaction is reported to a clearinghouse to initiate payments
and backup system information. The content owner is being protected and
the content owner maintains control and determines payment collection.
Companies providing ``applied'' DRM
There are dozens of companies that are creating and deploying DRM
solutions for a number of scenarios. The table below lists some
emerging ones and their area of expertise:
------------------------------------------------------------------------
Company RM Solution
------------------------------------------------------------------------
Authentica................................ Focused on ``digital rights
management software for
protecting and controlling
valuable business
information shared
internally or across
company boundaries. Product
suite lets users share
valuable digital content--e-
mail, documents, and Web
content--without giving up
the rights to determine
what happens to it, no
matter who has it or where
it's stored.''
e-Vue..................................... ``e-Vue also integrates
digital rights management
(DRM) tools into its MPEG-4
solutions to provide a
powerful and secure
multimedia content delivery
engine.''
MediaDNA.................................. ``MediaDNA's patented
solutions provide business
enterprises and publishers
of valuable information
with a framework for safely
promoting and controlling
content distributed over
the Internet, intranets,
extranets, and other media
such as CD-ROM. MediaDNA's
approach is unique in that
its comprehensive solutions
not only include proven,
Digital Rights Management
(DRM).''
SealedMedia............................... ``[P]rovides Digital Rights
Management (DRM) technology
for organizations requiring
persistent control for
digital content delivered
over the Internet. Unique
to SealedMedia is its
support for multiple media
formats, its association of
licenses with people rather
than devices, and the
flexibility of the usage
models it enables.
SealedMedia customers
include ipicturebooks.com
(AOL Time Warner),
Harcourt, Pearson
Education, Congressional
Quarterly and Xansa.''
------------------------------------------------------------------------
government technology mandates are unnecessary and will do more harm
than good
History has shown that the market, not government regulators, is
responsible for bringing copyright protections to bear. The same can be
said in the digital media context. The DRM solutions in the section
above demonstrate that there can be any number of ways to address the
need to protect content owners while providing consumers maximum
utility. In this regard, the IT industry is currently working
feverishly to develop and deploy robust rights management technology.
We share with the content owners, the goal of providing rich
digital content to consumers at an attractive price. However,
legislation proposed by some content owners will frustrate our ability
to achieve this goal. The Consumer Broadband and Digital Television Act
(CBDTA) proposal is myopic with respect to rights management solutions
and have the potential of lock out promising technologies. Further,
CBDTA creates a scenario where companies not involved in digital media
will inadvertently find themselves in violation of a law never meant to
be applied to their business model.
ACT remains steadfastly opposed to government-mandated rights
management technology standards, for the following reasons:
<bullet> The government should not pick winners and losers through its
certification process; especially while the IT industry is
working to achieve an open DRM standard.
<bullet> These standards will ``freeze'' technology by requiring
government approval of design changes. Instead of real-time
innovation, we could easily end up with a one-size-fits-all
standard.
<bullet> Publishing standards on government web sites makes it too easy
for hackers to circumvent.
<bullet> Innovators can't receive government certification if your
copyright protection technology isn't ``reasonably priced''
according to a current draft of a legislative proposal.
CBDTA is out of touch with the realities of the DRM marketplace.
Not all solutions will have the same features. Currently, companies
focusing on DRM are able to quickly tailor their solution to the
evolving need of the content owners. CBDTA requires that content
owners, IT companies, devices manufactures and consumer groups come up
with standards for all permutations of digital media distribution in
one year. The history of DRM shows that there is no such thing as a
quick fix. Current technologies are years, not months in the making. It
is absurd to believe that all security standards can be discussed and
agreed upon in one year. Meanwhile, development of DRM will have to
slow pending the discussion. If not, the discussions would have to
continue in perpetuity or risk leaving some standards outside the law.
The bottom line is that the bill will cut off the development of
promising technologies.
Small technology companies, which are the bulk of the DRM
innovators, will also suffer under the CBDTA. The proposal calls for
representatives of content owners, IT companies, devices manufactures
and consumer groups to create security standards. Although the bill
attempts to bring all interested parties together, the reality is that
small companies will be shut out. Again, the result will be a cessation
of innovation. Only the most well funded companies will dare continue
because they will have the resources to switch gears when the standard
is announced. The smaller companies risk running afoul of the law by
putting out illegal software. There is no doubt that venture capital
and other funding sources will find ``safer'' places to put their
money. Widespread DRM development will become a distant memory. The net
effect will be fewer companies able to provide cost effective, targeted
DRM solutions for content owners.
Finally, CDBTA is overly broad and invites unintended consequences.
Its definition of ``digital device manufacturer'' was created to
capture any type of digital media software and hardware. Such a
definition must be written broadly lest it create loopholes for digital
pirates. Its application to ``any'' type of software that can transmit
digital content captures an array of software (and the companies that
develop them) that are not intended to transmit content. Companies that
develop and ship spreadsheets, word processors and e-mail programs
would be in violation of the law unless they implemented security
standards. These vendors will face the Hobbesian choice of either
raising prices to cover the new development costs (which will not sit
with consumers) or break the law (which doesn't sit well with anyone).
These problems are inherent within legislative approaches like
CBTDA are unwarranted and should be avoided. ACT and the IT industry
are not alone in taking this position. Even content providers such as
Pressplay (an online music distributor created by music labels), have
urged Congress to focus on applying existing law to the marketplace
instead of creating new laws.
conclusion
Development of DRM technology will take two things: continued
innovation and time. Unfortunately, government technology mandates do
not encourage either. Given the tremendous opportunity for a digital
media marketplace, nothing should stand in the way of technologies
aggressively competing to create solutions that protect the rights of
content owners while meeting the needs of consumers. The only way this
will happen is through an unfettered market.
______
Prepared Statement of Steve Griffin, CEO and Chairman, StreamCast
Networks, Inc.
I would like start out by asking a simple question. What would life
be like in America today, if you could not go down to the local
Blockbuster and get a movie on a Friday night?
Since 1906 when music publishers fought the introduction of the
player piano to today, content companies have tried to slow down or
eliminate technologies that they believe threaten their rights and
their methods of business.
In the early 1980's the climate surrounding advancements of
technology was just as confused as it is today. Then it was the call to
arms by the entertainment industry that VCRS needed to be recalled from
consumers' homes and banned from sale. We are in the latest chapter of
a familiar story; one of content companies vs. technology companies.
I am pleased to have the opportunity to share the story of Morpheus
and discuss with you today our vision Peer-to-Peer (P2P) communications
and the role it will play in this universe of Digital Media.
The Fear of Technological Innovation
As they say, hindsight is 20-20. Today we have the benefit of
looking back and seeing that the VCR was not the threat the motion
picture had imagined it to be. Indeed, without the introduction and
acceptance of the VCR, entire industries would not exist, the
entertainment industry would not have experienced the powerful and
profitable growth it has enjoyed, and consumers would have continued to
be forced to watch media either in a theatre or on TV.
The ability to enjoy the freedom to go down to your local
Blockbuster and get a movie if you chose and watch it in your own home
is provided only by the Supreme Court decision in the Sony Betamax
case.
I look forward to the day when we will all look back on the early
fears of Morpheus and other P2P technologies and recognize them as just
as misplaced as the fears of the Betamax were.
P2P Allows People to Communicate Directly Like Never Before
I believe that P2P networks will become as common as the telephone,
where people can connect directly to one another without having the
operator listen in on your calls.
There has been a lot of misunderstanding surrounding P2P Networks
and products like Morpheus by the press and by the community. A true
P2P software product, like Morpheus, allows consumers to connect
directly with each other and to exchange any type of information--
anything--recipes, family photographs, a poem from a budding poet,
commentary on public issues, anything. Once the consumer has downloaded
the Morpheus software they choose what electronic information that they
want to make available to people around the world.
With Morpheus our business model started with advertising and has
provided us a revenue platform to achieve profitability. This year we
will introduce several additional revenue streams as we attempt to be
responsive to the Morpheus users, potential business partners and new
marketing strategies. We are passionate about incorporating different
tools that empower consumers to communicate and exchange information
while protecting the creators' content.
When consumers launch the Morpheus software, they join and help
create a self-organizing, self-sustaining network of users around the
world. The more users that join the network and share content--the
richer the experience. It is a true decentralized P2P network since
StreamCast has no involvement with the consumer as it relates to the
sharing of information. Consumers can chat using Morpheus just like AOL
instant messenger. They can post promotional brochures, they
communicate in multiple languages.
In short, Morpheus allows consumers to directly connect to each
other like the Internet was intended to be. In fact, many call
decentralized P2P ``the New Internet.'' It is a new gateway or
alternative to the World Wide Web.
Decentralized P2P offers the most cost effective and efficient
distribution that exists in the world today. By leveraging millions of
consumers' computers and their distributed bandwidth, enormous cost of
goods savings can be realized. With the Morpheus software a file can be
transferred very rapidly. In fact the more copies of the same file that
are on the P2P network means a couple of significant things: First the
file is persistent so any time night or day a person joining the user
created network can find any information that they want. Second, by
having a very sophisticated file transfer protocol, parts of a file are
downloaded from multiple sources. This means that even a 56K modem
contributes to the richness of the user created network. Our bench
testing indicates that it only takes approximately 10,000 copies of a
file for it to achieve persistence around the world. The cost to
deliver this persistence for a music CD is under $500.
Consumers Have Voted--They Want P2P
Let me share a few numbers about the Morpheus User Network. Since
April of last year we have had somewhere around 90 million downloads of
our software product. It is even been exchanged on other P2P platforms.
For the past year we have averaged an estimated 6 million new users per
month who download the software. Over the past year on the Morpheus
User Network, approximately 3 million unique users use Morpheus each
day. Furthermore, 24 hours a day, seven days a week the user network
averages 1 million simultaneous users connected together. An
independent study just released indicates that 49.7% of Morpheus users
use broadband. Around 45% of the users are from outside the United
States.
The reason that I am so passionate about the technology platform of
P2P is that this ``New Internet'' is capable of providing a world wide
societal change. In this new world consumers are no longer receivers of
information, they are also senders. And it is my belief that consumers
around the world represent an incredible opportunity to release
creative expression. They have never had a platform for distribution or
a chance to monetize their expression. Now they do with Morpheus.
Today we are in a time of great conflict and great confusion. And
it is no wonder--marketing messages are inundating the consumer with a
message of freedom. They hear ``rip it, strip it, and burn it''.
Manufacturers provide millions of writable CD's to assist in the
process. Many different companies make software that allows consumers
to create MP3 files. Millions of media files are attached to emails
using Microsoft Outlook, and many others attach files to an AOL instant
message. How is a consumer to figure out what they can do with the
media companies' approval and what they can't do? Why is it that the
media industry has not chosen to litigate against the companies that
make these products?
StreamCast will continue to support the evolution of the P2P
platform so that in the near future even consumers will be able to
create content and securely publish it with micro commerce with any one
around the world. StreamCast has developed the CintoA technology to
allow content to be wrapped in a secure Morpheus wrapper so it actually
becomes a software program. This program allows rules to be generated
by the content owner. The wrapped content can be freely traded across
the Morpheus User Network via downloads which eliminates the un-
scalable cost of sales that affects centralized download and streaming
initiatives. Once downloaded the consumer can listen to, view, and
review the information. Each wrapper will include a buy button, which
allows the Morpheus user to complete a Micro payments transaction and
unwrap and then fully enjoy the content.
Two Buckets of Content and Two Ways to Look at Content
We believe there are two buckets of content in this brave new
digital world. Consumer created and commercially created. There are
also two ways to look at content, today backwards and today forward.
Today back is the situation we are in today where content has been
unprotected and today forward is the time when content owners choose to
protect and wrap content. It is our strong opinion that the concept of
today backwards and today forwards needs to be understood and different
compensation models need to be created for each timeframe. The media
companies are attempting to convince everyone, including Congress, that
we need a one-bucket solution to a two-bucket problem.
We believe that a solution for today back is best represented by
the continued perception of a free model represented by 75 years of
successful experience in broadcast radio and television. In this model
content is paid for by advertisers but perceived ``free'' by the
consumers. The today forwards model most likely will require a pay to
listen or pay to view. A one price fits all system does not benefit the
consumer!
Today, Morpheus, with its 90 million software downloads, along with
millions of other consumers using other decentralized P2P platforms,
are being forced into discussion between the value of content companies
and technology companies. I would argue that consumers are confused and
wondering what this fight is really all about. Is it about copyright,
creativity, and growth of science and the human spirit? Or is it about
control, power, money and maintaining the status quo?
We Must Find Common Ground
We need to understand that there are two very important issues: one
of content and technology and how they converge. One that can have a
dramatic impact on both industries. At StreamCast we believe that P2P
is an important technology that not only can create important societal
changes but itself reflects important societal changes that have
already taken place. Individuals--on their own, unaided by the
communications giants--are finding their own new ways of connecting, of
communicating, and of creating and controlling their own communication
channels. Their will--connected and empowered--will prevail. It is
prevailing now and we cannot forget them.
I have no doubt that P2P will become as ubiquitous as the
telephone. To StreamCast this is not about content. It is not about
media. It is about recognizing the freedom, and the power, of consumers
to connect directly with each other and share and exchange information
and communications. It is about developing an architecture that works
with individuals, that provides tools that respect individual control
and empowerment, and that offers pleasing and satisfying opportunities
for communication and commerce. We must never lose sight of our common
ground, that this is really all about the consumers and our future
together with them.
______
Prepared Statement of Jack Valenti, President and Chief Executive
Officer, The Motion Picture Association of America
This document sets forth the goals that the American movie industry
urges the Congress to seriously examine. The future of these unique
creative story-telling works is in danger of being shrunk and
squandered by an increasing thievery on the Internet. We cannot stand
mute and observe the slow undoing of a formidable American economic and
creative asset, which would cause terrible injury to the consumers of
America.
Broadband (high speed, large pipe entry to the Internet) is an
OPPORTUNITY to make available to consumers another delivery system for
transporting visual entertainment to their homes. This means more
freedom of choices for consumers.
The Economic Worth of the Copyright Industries
What kind of asset is at stake here and what does it mean to this
country? The facts are these: The Copyright Industries (movies, TV
programs, home video music, books and computer software) are America's
greatest trade export prize. They are responsible for some five percent
of the GDP of the nation. They gather in more international revenues
than automobiles and auto parts, more than aircraft, more than
agriculture. They are creating NEW jobs at three times the rate of the
rest of the national economy. The movie industry alone has a SURPLUS
balance of trade with every single country in the world. No other
American enterprise can make that statement. And all this at a time
when the country is bleeding from a $400 Billion trade DEFICIT.
Which is why we come to you with a clear statement of what is
needed to preserve this extraordinary economic/creative engine of
growth in a broadband world.
As you may surmise, producers of visual entertainment are
enthusiastic, ready and eager to offer their creative works on the Net.
And to dispatch those works LEGALLY, at a fair and reasonable price to
those American homes who choose to view them. It should be noted that
``fair and reasonable'' will be defined by the consumer and no one
else.
But there is an obstacle. Consider this: The cost of making and
marketing movies, for example, has risen to nerve-shattering heights.
In 2000, the total cost to the major studios for making and marketing
their films was, on the average, an astounding $82 Million! Only two in
ten films ever retrieve their total investment from U.S. theatrical
exhibition. Those films must journey through various marketplace
sequences: airlines, home video, satellite delivery, premium and basic
cable, over the air TV stations and internationally. They must make
that journey to try to break-even or ever make a profit.
Today as that movie travels its distribution compass course, it is
exposed to great peril, especially in the digital environment. If that
movie is ambushed early on in its travels, and then with a click of a
mouse, and without authorization, sent hurtling at the speed of light
to every nook and cranny of this planet, its value will be seriously
demeaned. Who on earth would continue to invest huge sums of private
risk capital when the chances of redeeming that investment become
remote, if not impossible?
Broadband entices and allows piracy of films and TV programs on a
massive, unprecedented scale. And at this precise moment, movies and
other visual entertainment works are in ever-multiplying numbers
swarming illegally throughout so-called file-sharing sites (a more
accurate description would be ``file-stealing'' sites). And this is in
an environment where most people's broadband connections are not fast
enough to enable speedy downloads of these illegally copied files
(funny how people will wait a long time for something when it is
free!).
Thus, the problem will only get worse as the speed of broadband
increases. University-based piracy provides especially troubling
evidence of this phenomenon, because university Ethernet systems are
state-of-the-art, large pipe, highest speed broadband connections.
These university systems are over-run and heavily burdened by student
downloading of pirated movies and TV shows. It's easy. It's fast, and
it's free. It is also illegal.
Gresham's Law works its will in such a landscape. Just as cheap
money drives out good money, so we are afraid that pirated movies will
spoil the market for broadband delivery of high-quality films with
superior fidelity to sight, sound and color once these high-speed
connections proliferate. A consulting firm has estimated that more than
350,000 movies are being illegitimately brought down EVERY DAY. Who
would choose to pay for movies when you can have them delivered to you
FREE? It is this infection which corrodes the future of creative works.
But if through technological measures, producers of visual
entertainment could defeat the spread of pirated movies populating
``outlaw'' Net sites, the Net would be cleared of illegal debris and
able to hospitably welcome legitimate, superior quality entertainment
in a user-friendly format. The Consumer Electronics and Information
Technology industries have been working cooperatively with us to find
methods to deliver our legitimate content in a more secure digital
environment. The largest beneficiary of such an environment would be
American consumers.
The THREE GOALS I outline below are designed to protect valuable
creative works in visual entertainment, and at the same time expand the
reach and attraction of broadband in the consumer society.
How to achieve these GOALS? First and foremost both the House
Energy and Commerce Committee and the House Judiciary Committee must be
involved because these goals are umbillically connected to the
oversight jurisdiction of both Committee.
Our Three Goals, whose Objective it is to Protect movies, TV
programs and other visual entertainment on the Net.
Goal One: to create a ``broadcast flag'' which would prevent
broadcast programs exhibited on over the air TV stations from being re-
distributed on the Net, which is a form of thievery.
Because just about all such TV creative material is in ``deficit,''
(that is, its production costs are higher than the license fees it
receives from the network) TV series and other high value broadcast
material must go to ``syndication'' when they leave the network.
Syndication means those programs must be licensed to local and
international TV stations in order to recoup their total investments,
and hopefully make a profit. If such programs are re-distributed on the
Net while they are still on the network, it shrinks and decays the
earning power of that program in the syndication market. As of last
week, a technology for constructing the ``broadcast flag'' was nearing
agreement among the Information Technology, Consumer Electronics and
movie industry companies. We are deeply appreciative of these efforts.
Action: The parties will need to agree on how to achieve this goal,
either through narrow congressional or agency action.
Goal Two: To ``plug'' the ``analog hole.''
This is technical jargon. Let me sort this out in plain English.
All digital protection designs can only work in a digital environment,
which is the environment of the Internet. When a digital signal comes
down to a TV set in the consumer home, that TV set in 95% or more of
American homes is an ``analog'' set. This means the digital signal is
immediately transformed into an analog signal in order for the consumer
to watch it. If the analog signal is then converted back to digital, it
cannot be protected by any known protection device. This is called
``the analog hole.'' One way to ``plug the hole'' could be through a
``watermark detector.'' The ``watermark'' is an ingenious design, which
commands the signal converter in the TV set to respond to the
instructions on the movie. This can be accomplished through a concord
agreed to by the Information Technology, Consumer Electronics and Movie
industries.
Action: To reach this goal, Congressional assistance will be
necessary.
Goal Three: To stop the avalanche of movie theft on so-called
``file-sharing'' Web sites, such as Morpheus, Gnutella, etc. (the more
accurate name would be ``file-stealing'' sites).
Unhappily, neither the ``broadcast flag'' nor ``plugging the
analog'' hole will stop this relentless thievery that is endemic.
We have not hesitated to spend considerable resources to fight
these sites and services in the courts. But litigation alone cannot
possibly provide an adequate solution, particularly as these services
become increasingly decentralized, fragmented and anonymous.
Constructive discussions need to take place with the Information
Technology and Consumer Electronics industries to determine how best to
develop effective technical solutions to crush online theft of our
valuable creative works.
Action: Continuous negotiations must take place to develop
technical solutions, which may require legislative enforcement.
There is one truth that sums up the urgency of this request to the
Congress to enlist in the battle to preserve and protect an American
economic and artistic asset, which attracts the enjoyment, the
patronage and a most hospitable reception by every creed, culture and
country throughout the world.
That truth is: If you cannot protect what you own, you don't own
anything.
______
Prepared Statement of the Video Software Dealers Association
The Video Software Dealers Association (VSDA), the international
trade association representing the home video industry and video stores
across the nation,<SUP>1</SUP> submits this statement for the record of
the hearing on ``Ensuring Content Protection in the Digital Age.''
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\1\ Established in 1981, VSDA is a not-for-profit international
trade association serving the $19 billion home entertainment industry.
VSDA represents more than 1,700 companies throughout the United States,
Canada, and a dozen other countries. Membership comprises the full
spectrum of video retailers (both independents and large chains), as
well as the home video divisions of major and independent motion
picture studios, and other related businesses that constitute and
support the home video entertainment industry.
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We respectfully suggest that Congress focus not only on protecting
digital content from copyright infringement but also on protecting the
rights of the owners of lawfully made copies of digital works. We are
concerned that digital rights management constructs are being used not
only to prevent piracy and to ensure payment for purchases, but also to
circumvent constitutional and statutory limitations on the copyright
monopoly.
For example, digital rights management systems can be used to:
1. Prevent a lawfully purchased, digitally delivered movie from being
played more than a certain number of times, or from being
played on any machine other than the first computer or player
on which it is played (thereby preventing rentals, resales,
lending, or gifts of previously viewed movies).
2. Lock out, delete, or disable lawfully made copies of motion pictures
residing on a computer hard drive or other storage system.
3. Prevent consumers from privately performing a work over a home
network.
4. Lock up material that is not copyrightable or is in the public
domain.
5. Effectively expand the term of the copyright monopoly indefinitely.
This overreaching promises to undermine copyright law and the
public policies it serves, suppress consumer choice and retail
competition, and ultimately impede the development of online
entertainment, to the detriment of consumers, retailers, and copyright
owners.
copyright law and home video
Having built the world's first home distribution system for motion
pictures on the strength of the first sale provision of the Copyright
Act,<SUP>2</SUP> video retailers may have as much at stake in this
discussion as any other market segment.
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\2\ 17 U.S.C. 109(a).
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Copyright law provides the legal foundation that has facilitated
the phenomenal growth of the home video industry over the past two
decades. The copyright monopoly supplied motion picture copyright
holders with the economic incentive to develop new markets for their
motion pictures, which led first to the emergence of videocassettes,
then digital versatile disks (DVDs), and most recently, Internet-based
``video on demand.'' These innovations have enhanced the consumer's
access to motion pictures and created a vibrant, competitive industry.
When videocassette recorders (VCRs) first emerged as a consumer
electronics product in the late 1970s, few imagined how ubiquitous they
would become in America's homes and how popular watching a prerecorded
video of a motion picture would be. For an overwhelming majority of
America's 250 million plus consumers, renting and buying prerecorded
videocassettes and DVDs is an integral component of their entertainment
options. More than 90% of the households in the U.S. own at least one
VCR. And although the DVD is a relatively new format, it is projected
that approximately 24 million U.S. households now own a DVD player. It
is estimated that almost 3 billion videotapes and DVDs were rented in
2001. Approximately one-third of all video-equipped households rent a
videotape or DVD weekly, while 50% rent at least once a month. More
than 60% of video-equipped homes have a video library of some sort. The
average videotape library contains 75 titles, while the average DVD
collection contains 19 titles. Consumer spending on video rentals in
2001 was a record $8.42 billion. More than $10 billion was spent
purchasing the most popular videotapes and DVDs in retail
establishments.
Essential to the success of the home video industry is the first
sale doctrine of copyright law, codified at 17 U.S.C. 109(a). By giving
retailers the right to sell and rent lawfully made videos and video
games without restriction by the copyright owner, the first sale
provision benefits society by promoting retail competition and
maximizing distribution of creative works.
Although the motion picture studios strenuously resisted the
emergence of the VCR and the creation of the video rental industry,
even going so far as petitioning Congress to eliminate the first sale
doctrine for prerecorded videos of movies, the home video industry
today is an enormously profitable enterprise for the studios. Over the
past several years, revenue from home video has accounted for more than
half of the studios' gross domestic film revenue. Total revenue to the
studios from domestic video sales and rentals totaled $10.7 billion in
2000.
Video retailing, while experiencing some of the consolidation and
slowing of growth of a maturing industry, remains a vibrant competitive
enterprise. There are 24,000 video rental specialty stores in the U.S.
These stores include the major public chains such as Blockbuster,
Hollywood Video, and Movie Gallery, and a significant number of
independent retailers. It is estimated that more than 40% of video
specialty stores currently are single-store operations. Another 4,000
non-specialists, primarily supermarkets and drugstores, also rent video
as a regular part of their business, and numerous other retail outlets
sell prerecorded videos.
Home video has flourished precisely because copyright holders could
not control the home video rental and resale market. The freedom to
rent and resell videos guaranteed by the first sale provision has
provided consumers with access to a wide variety of affordable, quality
entertainment from different sources, generated a tremendous revenue
stream for the copyright holders, and created a thriving industry with
a high level of competition.
the first sale doctrine
Copyright law maintains a careful balance between protecting the
intellectual property of copyright holders and promoting the broad
dissemination and enjoyment of protected works. The Constitution
provides Congress with the authority to enact copyright laws ``[t]o
promote the Progress of Science and the useful Arts, by securing for
limited Times to Authors and Inventors the exclusive Right to their
respective Writings and Discoveries.'' <SUP>3</SUP> The intent of this
provision is to encourage authors to create and to disseminate their
works. Nevertheless, copyright law carefully limits the scope of the
copyright monopoly. The copyright holder and the owner of a lawful copy
of a copyrighted work each have distinct rights under the Copyright
Act, and the rights of each must be respected.
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\3\ U.S. Const., art. I, cl. 8.
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One of the essential rights of an owner of a lawful copy is
embodied in the first sale provision. Section 109(a) provides that,
notwithstanding a copyright owner's distribution right, the owner of a
particular copy lawfully made under U.S. copyright law ``is entitled,
without the authority of the copyright owner, to sell or otherwise
dispose of the possession of that copy.'' The first sale provision
applies to ``copies,'' including digital copies fixed in a tangible
medium,<SUP>4</SUP> without regard to where or how they were made.
Moreover, the Copyright Act also makes clear that the first sale
doctrine need not involve a sale. Rather, the pivotal question is
whether the person asserting the first sale doctrine right is the
``owner'' of a ``lawfully made'' copy. There is no requirement that the
tangible medium of expression have been sold by the copyright holder.
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\4\ U.S. Copyright Office, ``DMCA Section 104 Report,'' 78 (2001).
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Copies can be mass produced at a factory or singularly by the
consumer at a home computer. The owner of a lawfully made copy may
assert his or her first sale rights regardless of whether the copy was
purchased or, after the purchase of a blank medium, ``made'' by
exercising a license to make a copy.<SUP>5</SUP>
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\5\ See United States v. Sachs, 801 F.2d 839, 842 (6th Cir. 1986);
see also United States v. Cohen, 946 F.2d 430, 434 (6th Cir. 1991)
(``This [first sale] doctrine recognizes that copyright law does not
forbid an individual from renting or selling a copy of a copyrighted
work which was lawfully obtained or lawfully manufactured by that
individual''); M. Nimmer and D. Nimmer, Nimmer on Copyright
Sec. 8.12[B][3][c].
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Thus, a person who lawfully makes a copy of a motion picture
through a digital download at a retail location or at home is
authorized, under Section 109(a), to sell it to the highest bidder,
loan it, trade it, or give it away, and the copyright owner is
powerless under the Copyright Act to prevent it. Video retailers would
also be free to rent them for profit, just as is the practice today
with audiovisual works lawfully reproduced on videocassettes and DVDs.
private performances
The Copyright Act gives copyright holders the exclusive right to
perform a work ``publicly,'' but reserves to the public the right to
perform privately copies they own.<SUP>6</SUP> Theater owners need a
license to show a motion picture, but the person who sneaks into a
theater without paying infringes no right of the copyright owner.
Owners of lawful copies need licenses to play them in public for pay,
but need no one's permission to play them at home for private
enjoyment. In short, there is no copyright to control or in any way
limit private performances.<SUP>7</SUP> To limit such performances is
like preventing parents from reading books to their own children.
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\6\ Under 17 U.S.C. 101, ``[t]o perform or display a work
`publicly' means--(1) to perform or display it at a place open to the
public or at any place where a substantial number of persons outside or
a normal circle of a family and its social acquaintances is gathered;
or (2) to transmit or otherwise communicate a performance or display of
the work to a place specified by clause (1) or to the public, by means
of any device or process, whether the members of the public capable of
receiving the performance or display receive it in the same place or in
separate places and at the same time or at different times.''
\7\ Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 155
(1975).
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``limited downloads'' and ``online rentals''
Today, technological restraints have been fashioned to give
copyright holders de facto control over the distribution and use of
copyrighted works where de jure control has been denied to them. These
restraints seek to disable the protections that copyright law provides
to legal owners of lawfully made copies of copyrighted works--and
expand the limited privileges granted to copyright holders by Congress
in order to give them control over the lawful distribution and use of
copyrighted materials, control Congress has expressly denied to them in
the Copyright Act. They seek this control in order to impose a business
model under which they can charge for repeated use or multiple users of
copyrighted works.
Copyright holders have taken the position that they are free to
control the distribution and use of digitally delivered copyrighted
works by reclassifying the transfer of ownership of digitally delivered
copies of copyright works as ``limited downloads'' or ``online
rentals.'' The classifications are imposed on the owners of lawfully
made copies through digitial rights management constructs such as non-
negotiable contracts and access control technology.
Non-negotiable contracts in the digital environment are most
commonly presented as ``click-thru end user license agreements.'' These
contracts of adhesion typically incant that the download does not
transfer ownership of the copy of the work and declare that there are
restrictions on the length of time or number of times the purchaser can
view or listen to the product, the ability to transfer ownership of the
copy, and/or the number of devices on which the product may be played.
The restrictions are enforced by ``access control technologies'' that
automatically disable the copy after a certain amount of time or number
of plays (``timing out'') and/or prevent the copy from being played on
any device other than the device on which it was downloaded
(``tethering'').
For example, a download from a soon-to-be-launched ``video on
demand'' online delivery service for motion pictures reportedly will
have to be watched within 30 days from the date of download and will be
operable only for 24 hours after the first viewing, after which the
movie will be rendered as inaccessible code. In addition, the download
will be tethered to the computer on which it is downloaded. The video
on demand service is a joint venture of copyright owners.
The limited download construct is designed to gain the revenue
stream consumers might be willing to pay for access to public
performances of these works, while at the same time enjoying the
control and efficiencies (but not the limitations) of a single digital
reproduction (the download). It is intended to turn every digital
player into a pay-for-play video jukebox, where the consumers own the
copies, but lose their federal right to privately perform them or
transfer to others the physical medium on which they are lawfully
recorded without permission from or further compensation to the
copyright owner.
In fact, non-negotiable contracts and access control technology can
be used to restrict the redistribution and use of a copyrighted work
even after the copyright in the work has expired, effectively extending
the copyright term in perpetuity.
Unfortunately, Section 1201 of the Digital Millennium Copyright
Act, which prohibits circumvention of technological protection measures
such as access control technologies, is being misinterpreted to apply
even where the technological protection measure does more than just
protect the copyright from infringement, but also furthers objectives
unrelated to copyrights. Under this interpretation, which is contrary
to Congress' intent,<SUP>8</SUP> technological protection measures
cannot be circumvented so as to limit their effect to only lawful
objectives.
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\8\ The anticircumvention provisions of the DMCA ``[do] not apply
to the subsequent actions of a person once he or she has obtained
authorized access to a copy of the work . . . even if such actions
involve circumvention of additional forms of technological protection
measures.'' H. Rpt. No. 105-551, Part 1, at 18 (1998).
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Non-negotiable contracts and access control technology are being
used not only to prevent piracy, but to restrict the legal rights of
lawful owners to give away, sell, rent, and view the digital copies
they own. Although technological measures may lawfully be used to
prevent copyright infringement and to ensure payment for the
reproduction, they should not be used to permanently control the lawful
distribution and use of copies once the legal right to do so has been
exhausted.
Because the first sale provision furthers the important public
policies of promoting competition and maximizing dissemination of
copyrighted works, the rights it confers cannot be extinguished either
by non-negotiable contracts or technological controls. To conclude
otherwise would make the rights granted by the first sale doctrine
merely contingent on the technological prowess or goodwill of copyright
owners.
antitrust concerns
Non-negotiable end-user license agreements and access control
technology can be abused to suppress retail competition, to the
detriment of consumers and retailers. It must be understood that
entertainment products are not fungible. A consumer that seeks to view
``Shrek'' will not be fully satisfied by substituting ``Training Day.''
Rather, for motion pictures, the retail competition occurs not between
products, but between retailers, who compete on price, selection,
terms, location, customer service, and other factors.
The proliferation of non-negotiable contracts and excessive access
control technology will deprive consumers of the value and flexibility
they currently receive from packaged entertainment. It could eliminate
retail competition and substitute uniform pricing and other uniform
terms and conditions on the sale of movies, effectively extending the
carefully delineated rights contained in sections 106 and 106A of the
Copyright Act into wholesale controls over distribution to the ultimate
consumer.
Such technologies are also capable of being used to obliterate the
lawful secondary market for used entertainment. Consumers could then be
prevented from loaning movies to a family member or friend, reselling
them, donating them to charitable organizations, or even, according to
some of the current business models, bequeathing them in their wills.
The U.S. Copyright Office recognized the anticompetitive potential
of these technologies in its DMCA Section 104 Report to Congress. The
Copyright Office noted that access control technologies that tether
digital downloads to a single computer and non-negotiable ``click-
thru'' contracts that attempt to override copyright law may negatively
impact consumer choice and retail competition.<SUP>9</SUP>
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\9\ U.S. Copyright Office, ``DMCA Section 104 Report,'' 75-76, 164
(2001). We do take issue, however, with the Copyright Office's
conclusion that the problems raised by access control technologies and
non-negotiable contracts are speculative, or premature, or beyond the
scope of its report. The restrictions on retailers' rights to
distribute and consumers' rights to transfer and use fully the products
they lawfully purchase and download are not speculative and
consideration of their impact is not premature, as evidenced by the
video on demand joint venture referenced above. These issues also fall
squarely within the Copyright Office's mandate from Congress. Yet the
Copyright Office's report makes no mention of the video on demand joint
venture, despite the fact that it was public knowledge that this
service was being developed. The problems created by overly restrictive
access control technology and non-negotiable contracts need to be
addressed now, not at some indefinite time in the future. To fail to do
so leaves to the designers of access controls the allocation of rights
between consumers and copyright owners, a function that previously was
the exclusive responsibility of Congress.
---------------------------------------------------------------------------
Competition in the distribution of copyrighted works is largely
non-existent until the product passes to distributors and retailers. If
video retailers cannot participate in the distribution of digitally
downloaded movies, either as a lawful reseller or a rental outlet, the
neighborhood video store will rapidly fade from the scene. They would
be replaced by a small number of approved providers, to the exclusion
of competing retail channels. Consumer choice and competition would be
further eroded.
criteria for digital rights management
Retailers are firm believers in protecting copyrighted works from
piracy. In fact, because the retail sector often feels the most
immediate effects of piracy, it is not unusual for retailers to
complain that copyright holders are too lax in enforcing their
copyrights against pirates who compete directly with retailers. Despite
the strong leadership of retailers in fighting piracy, they are
unwilling to give carte blanche to copyright holders to control all
distribution and uses of their works.
Claims that the digital sky is falling as a result of piracy need
not lead to a wholesale shift in power to copyright owners. First,
copyright holders need not take away public rights to protect their
copyrights. For example, the technology to prevent a motion picture
from being copied is different from the technology needed to ``lock'' a
legal copy 24 hours after its first use. In addition, the Supreme Court
has admonished that the rights of the public as against copyright
holders are just as important, under the Constitutional framework, as
the rights of copyright holders against the public.<SUP>10</SUP>
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\10\ See, e.g., Fogerty v. Fantasy, Inc., 510 U.S. 517, 527 (1994)
(because of the social value of increased public exposure to a musical
work, ``a successful defense of a copyright infringement action may
further the policies of the Copyright Act every bit as much as a
successful prosecution of an infringement claim by the holder of a
copyright'').
---------------------------------------------------------------------------
Accordingly, there should be two criteria for security standards:
1. The degree of security against copyright infringement. As a
practical matter, the only rights at issue here are the rights
of reproduction (Section 106(1)) and public performance
(Sections 106(4) and (6)).
2. The degree of accountability for lawful reproductions and public
performances. That is, the extent to which the technology can
assure that the copyright owner is being compensated for the
number of reproductions or public performances actually
licensed and made.
conclusion
Copyright law is a balance between the protection of intellectual
creations and the promotion of broad public dissemination of these
creations in a manner that benefits society as a whole. Congress must
ensure the proper balance is maintained between the rights of copyright
holders on the one side and consumers and retailers on the other so
that lawful digital distribution can move forward.
Security technologies that protect true intellectual property
rights from infringement are commendable. Video retailers have long
supported Macrovision encryption of analog copies of motion pictures
and the CSS system of protecting DVD copies of motion pictures from
unauthorized reproduction. Such systems derive their legitimacy from
the fact that they only protect the right of reproduction from
infringement.
However, VSDA is deeply concerned about the overreaching that is
part of some technological controls for online entertainment. For the
first time in history, copyright holders have the power to control mass
distribution of their works (at least those in digital form) from the
point of manufacture all the way to the end consumer and beyond. They
are now able to distribute copies to millions of people in a matter of
a few minutes, simultaneously distributing at the wholesale and the
retail level. At the same time, digital technology gives copyright
holders the unprecedented power to control and suppress the lawful use,
resale, and rental of digitally delivered entertainment.
The issue is indeed quite simple. Copyright holders do not have a
right of private performance, so they should not be permitted to force
consumers to pay for private performances. Holders of copyrights in
audiovisual works do not have a rental right, so they should not be
permitted to prevent rentals. No copyright holder has the right to
control redistribution of lawfully made copies, whether made in a
factory, in a retail store, or at home, so they should not be permitted
to use technology to prevent redistribution, nor to charge the new
owner or renter a fee for access.
Video retailers see tremendous possibilities in digital
distribution and want to see this market grow. They do not fear a free
market, and believe that copyright holders should not be able to expand
the limited privileges granted to them under the Copyright Act to lock
out or limit retail competition. They ask only for the opportunity to
compete fairly for consumers in the digital marketplace. They disagree
with the notion that any single participant in the marketplace should
be allowed to dictate the winners and losers.
While it can be argued that, ultimately, business models that rely
on consumer-unfriendly technology will fail, in the interim some
retailers may be driven out of business and the development of the
market for digital delivery will be severely impeded.
Therefore, public policies for digitally delivered copyrighted
works must: (1) maintain the balance of rights and limitations of
copyright; (2) promote competition for consumer allegiance; (3) protect
consumer rights; and (4) stimulate creativity. Such policies are
necessary to facilitate artistic, business, and technological
innovation that benefits society, enhances the quality of life, and
fuels economic growth.
Thank you for the opportunity to present our views.
______
Prepared Statement of Hilary Rosen, President and CEO, Recording
Industry Association of America
I would like to thank the Subcommittee, under the leadership of
Chairman Upton and Representative Markey, for the opportunity to submit
written testimony today about the most important issue facing the
recording industry--rampant digital music piracy and possible
technological solutions to help control piracy.
The Piracy Problem
Any discussion concerning the use and protection of copyrighted
works on the Internet, and certainly any discussion of digital music
issues, has to begin with an understanding of how large a problem
piracy is. Put simply, the quantity of digital music piracy is
staggering. The International Federation of the Phonographic Industry
(``IFPI'') recently estimated that for every CD purchased legitimately,
another one is ``burned'' on a computer. This rate of unauthorized
reproduction--that is, 100% of the legitimate market--is unheard of in
any industry. Just imagine if half of the automobiles, computers or
shoes in the market were illegitimate.
The biggest sources of unauthorized copies of recordings are the
various ``peer-to-peer file sharing'' systems. I use the term ``peer-
to-peer file sharing'' because everyone does, but I should be clear
that there is no true sharing involved. Everyone involved in the
``sharing'' process gets to keep his or her own copy. These services
are also ``peer-to-peer'' only in the sense that there is no
centralized storage of our works. That term obscures the fact that they
are organized networks specifically designed and operated to further
the unauthorized distribution of copyrighted works. And they accomplish
their objective with great efficiency. Just one of these peer-to-peer
services alone is responsible for over 1.8 billion unauthorized
downloads per month. In fact, it appears that in any month this one
service provides more infringing downloads than the total number of
tracks contained on the legitimate products shipped by the entire U.S.
recording industry.
These peer-to-peer systems are so widely used that one analyst
recently estimated that over half of the broadband traffic in the
United States is attributable to the unauthorized ``file sharing'' of
copyrighted works. In some places it is worse--one university has found
that over 80% of its network traffic is dedicated to the use of KaZaA,
the leading peer-to-peer application.
Peer-to-peer systems aren't the only problem facing the recording
industry. CD ``ripping,'' which is the process of converting CD
recordings into computer files, and ``burning,'' which is the process
of turning those computer files into CD recordings playable by
conventional CD players, on a mass scale is also a substantial threat
to our industry. The hardware and software necessary to rip and burn
CDs has become standard equipment on personal computers. Indeed, 40% of
active music consumers now own CD burners--up from 14% in 1999. This
has led to troubling results:
<bullet> 77% of active music consumers with CD burners have used their
burners to copy music.
<bullet> 50% of those who have downloaded music for free copy the
downloaded music onto a burned CD or a portable MP3 player.
<bullet> 23% of active music consumers say they did not buy more music
last year because they downloaded or copied music for free.
The piracy problem has reached a level that threatens to cause
serious damage to those of us who create and market music. Last year,
record sales in the United States were down 10%. IFPI recently reported
that record sales were down almost 7% worldwide. Moreover, piracy has
had particularly significant effects on sales of the top hits that
provide the profits that allow us to invest in the development of new
artists and creation of new music. In 2000, the top ten albums sold a
total of 60 million units. In 2001 the top ten albums sold only 40
million units--a drop of 33%. These trends hurt all of us who earn our
livelihoods from the music industry. They also hurt our business
partners, the legitimate digital music services, which find it hard to
compete against infringing services that provide consumers all of the
same content for free.
It would be difficult to overestimate the long term consequences if
these trends continue. The creation of new recorded music involves
enormous levels of cost, amounting to hundreds of millions of dollars.
Thereafter, the cost of marketing and promotion may amount to many
hundreds of millions of dollars more in order to create a demand for
the music. The current levels of piracy will not long allow us to
sustain this level of investment. That not only will impose economic
pain on every participant in the digital music value chain, but it also
will deprive consumers of the rich musical diversity they have come to
expect from our industry and of the promise the Internet provides for
legitimate commerce in copyrighted works.
Technological Solutions
Despite the rather gloomy picture I've just painted for you, I
truly believe that the music industry has a bright future. Record
companies look forward to embracing technology in two ways--to curb
piracy and to form new business models with technology partners and
licensees to deliver music in new ways at new price points to
consumers, offering more choices in the legitimate marketplace
Record companies are looking at and testing various digital rights
management and copy protection technologies that balance personal use
with the piracy concerns of both record companies and artists. There
are technologies available that can offer some useful degree of
protection against uncontrolled copying of recordings. For example, CDs
can be copy protected to inhibit ripping. The mere protection of CDs
alone, however, is not a solution to the piracy problem. It is very
difficult to maintain the security of valuable intellectual property
against the relentless incursions of new copying and distribution
technologies so long as computer products and consumer electronic
devices provide easy and open opportunities for piracy.
The solution to the piracy problem, then, lies not in any
technological silver bullet, but in an ongoing cooperative relationship
between the music and technology industries. Such a cooperative
relationship could create robust systems for digital copy protection.
For example, all commercially released CDs are encoded with certain
copyright management information for use in those devices that support
the Serial Copy Management System (``SCMS''), which is the system
required by the Audio Home Recording Act. CD ripping products have
access to this copyright management information too, but their
designers have chosen to ignore it. Why shouldn't there be
technological solutions that take advantage of this information and
respect it in devices not covered by the AHRA as well as those that are
covered by the AHRA? Perhaps these solutions could include ``secure
ripping,'' whereby CD ripping and burning products would protect the
resulting copies, or simply refuse to copy, when appropriate given the
available SCMS information. One could certainly imagine solutions built
on other copyright management information, such as ``watermarks,'' as
well.
Cooperation between the copyright and technology industries also
could make it possible to close what has been called the ``analog
hole,'' which is the ready ability of users to circumvent digital
copyright protections through conversion from digital to analog to
digital. The ``analog hole'' exists because digital music must be
converted to analog sound waves to be audible to people--we humans
can't just listen to 1s and 0s. In this process, a secure piece of
digital music loses its security at some point in the transmission from
processor to sound card to speaker. Currently, it is rather simple to
turn analog signals back into digital copies without regard to the
security in place on the original and without a significant degradation
in sound quality. A cooperative relationship might produce technologies
to close the analog hole, or at least make the process sufficiently
difficult or result in such poor copies that most people would not
bother to try to exploit it.
Similarly, there are possible technical solutions to the problems
created by peer-to-peer networking. Technologies have been developed to
recognize the ``fingerprints'' of copyrighted works, or to embed
watermarks in those works, such that the unauthorized distribution of
those works over the Internet can be recognized and either slowed or
halted. Some universities and other Internet access providers are using
software applications called ``bandwidth shapers'' that recognize peer-
to-peer file sharing and can either stop or slow that activity. We saw
some evidence of the success with which technologies can be used to
address peer-to-peer file sharing in our litigation against Napster.
During the early stages of the case, Napster vehemently protested that
it would be impossible for it to screen for copyrighted works. Yet
under the order of a court injunction, Napster blocked a substantial
part of its former traffic in copyrighted music.
What is required to develop and implement the potential solutions
is a commitment from the technology industries to be partners in the
process of promoting legitimate commerce in copyrighted works by
restricting the unauthorized distribution of copyrighted content. I am
excited about the opportunities that the Internet, personal devices and
other new technologies offer for the distribution and enjoyment of
music, and by the developing market for digital music. I hope that the
market for digital music will develop into one of the strongest
components of the music industry and prove rewarding for artists,
record labels, technology companies and service providers alike. Thus,
I believe that both the copyright and technology industries could
benefit from a cooperative relationship to promote legitimate
distribution of music and prevent piracy.
We should be working together to develop technical standards that
can be implemented in new devices and systems that will be secure and
foster innovative business models, but avoid confusing or aggravating
consumers through technical incompatibilities. Such standards could
spur sales of both technology products and recorded music. At the same
time, such standards would ensure that software and device
manufacturers need only build certain technology into their products to
provide access to works obtained through legitimate channels while
helping control infringement.
The recording industry believes that the free market is always the
best choice for the development of any of these types of technological
standards, and would never embrace government regulation lightly.
Congress should analyze, however, and actively monitor, whether the
marketplace is creating the incentive for technology companies to work
with copyright owners to protect copyrighted works. The rampant and
growing digital music piracy has reduced the incentives of technology
companies to cooperate with copyright owners. Technology companies may
see little reason to protect content when their products and services
are already selling, even though those products and services are being
used to acquire intellectual property illegally. Indeed, the growing
sales of CD burners and blank CDs may actually provide a disincentive
for technology companies to engage in constructive efforts to protect
copyrighted material. Thus, digital piracy is likely to continue to
flourish. So long as voluntary negotiations of security and digital
rights management standards are not adequately addressing these
problems, there may be a role for the government in restoring the
incentives for the technology and copyright industries to work
together.
I again thank the Committee for its time and for the opportunity to
address you on these important issues.
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