[Senate Hearing 106-1048]
[From the U.S. Government Publishing Office]
S. Hrg. 106-1048
VIOLENCE IN THE MEDIA: ANTITRUST IMPLI-
CATIONS OF SELF-REGULATION AND CONSTITUTIONALITY OF GOVERNMENT ACTION
=======================================================================
HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 20 and 21, 2000
__________
Serial No. J-106-107
__________
Printed for the use of the Committee on the Judiciary
U.S. GOVERNMENT PRINTING OFFICE
74-413 WASHINGTON : 2001
_______________________________________________________________________
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC
20402
COMMITTEE ON THE JUDICIARY
ORRIN G. HATCH, Utah, Chairman
STROM THURMOND, South Carolina PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa EDWARD M. KENNEDY, Massachusetts
ARLEN SPECTER, Pennsylvania JOSEPH R. BIDEN, Jr., Delaware
JON KYL, Arizona HERBERT KOHL, Wisconsin
MIKE DeWINE, Ohio DIANNE FEINSTEIN, California
JOHN ASHCROFT, Missouri RUSSELL D. FEINGOLD, Wisconsin
SPENCER ABRAHAM, Michigan ROBERT G. TORRICELLI, New Jersey
JEFF SESSIONS, Alabama CHARLES E. SCHUMER, New York
BOB SMITH, New Hampshire
Manus Cooney, Chief Counsel and Staff Director
Bruce A. Cohen, Minority Chief Counsel
C O N T E N T S
----------
WEDNESDAY, SEPTEMBER 20, 2000
STATEMENTS OF COMMITTEE MEMBERS
Page
Biden, Hon. Joseph R., a U.S. Senator from the State of Delaware. 29
DeWine, Hon. Mike, a U.S. Senator from the State of Ohio......... 37
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah...... 1
Kohl, Hon. Herbert, a U.S. Senator from the State of Wisconsin... 9
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 3
WITNESSES
Brownback, Hon. Sam, a U.S. Senator from the State of Kansas,
prepared statment.............................................. 13
Pitofsky, Hon. Robert, Chairman, Federal Trade Commission........ 11
Prepared statement........................................... 11
THURSDAY, SEPTEMBER 21, 2000
STATEMENT OF COMMITTEE MEMBER
Page
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah...... 39
WITNESSES
Andersen, Crossan, ``Bo'', President, Video Software Dealers
Association, prepared statement................................ 53
Fithian, John, President, National Association of Threatre
Owners, prepared statement..................................... 49
Horovitz, Pamela, on behalf of the National Association of
Recording Merchandisers, prepared statement.................... 47
Rosen, Hilary B., President and Chief Executive Officer,
Recording Industry Association of America, prepared statement.. 42
Valenti, Jack, President and Chief Executive Officer, Motion
Picture Association of America, parpared statement............. 40
APPENDIX
Questions and Answers
Responses of Jack Valenti to Questions from Senator Hatch........ 63
Responses of Jack Valenti to Questions from Senator Leahy........ 64
Responses of Jack Valenti to Questions from Senator Thurmond..... 67
Responses of Crossan ``Bo'' Andersen to Questions from Senator
Hatch.......................................................... 68
Responses of Crossan ``Bo'' Andersen to Questions from Senator
Leahy.......................................................... 70
Responses of Crossan ``Bo'' Andersen to Questions from Senator
DeWine......................................................... 75
Responses of Pamela Horovitz to Questions from Senator Hatch..... 76
Responses of Pamela Horovitz to Questions from Senator Leahy..... 76
Responses of Pamela Horovitz to Questions from Senator Thurmond.. 82
Responses of Douglas Lowenstein to Questions from Senator Hatch.. 83
Responses of Douglas Lowenstein to Questions from Senator Leahy.. 84
Responses of Douglas Lowenstein to Questions from Senator Kohl... 86
Responses of Douglas Lowenstein to Questions from Senator
Grassley....................................................... 88
Additional Submissions for the Record
Lowenstein, Douglas, on Behalf of the Interactive Digital
Software Association........................................... 88
Sunstein, Cass R., Karl N. Llewellyn Distinguished Service,
Professor of Jurisprudence, University of Chicago Law School... 95
VIOLENCE IN THE MEDIA: ANTITRUST IMPLICATIONS OF SELF-REGULATION AND
CONSTITUTIONALITY OF GOVERNMENT ACTION
----------
WEDNESDAY, SEPTEMBER 20, 2000
U.S. Senate,
Committee on the Judiciary,
Washington, DC.
The committee met, pursuant to notice, at 10:10 a.m., in
room SD-226, Dirksen Senate Office Building, Hon. Orrin G.
Hatch (chairman of the committee) presiding.
Also present: Senators Grassley, Specter, DeWine, Leahy,
Biden, Kohl, and Feinstein.
OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM
THE STATE OF UTAH
The Chairman. If we could begin, good morning and welcome
to this Judiciary Committee hearing about violence in the
media. Today, we will examine the antitrust implications of
industry self-regulation and the constitutionality of
governmental action.
Our goal is to examine what appropriate action Congress can
take, given the confines of the First Amendment, to assist the
entertainment industry in limiting the exposure of our youth to
explicit sex, violence, and other harmful material in music,
movies, and video games, and I might add the Internet itself.
Last week, the Federal Trade Commission released a study
that demonstrated how American media companies may be
intentionally marketing harmful material to our children. The
study's findings can be summarized in one sentence: some in the
entertainment industry have deliberately forced violent and
unsuitable material on the most vulnerable members of our
society, our children, for the purpose of making money.
The harmful effects of violent entertainment are no
surprise to those of us who have studied this issue over the
years. A year ago, the Senate Judiciary Committee issued a
report entitled ``Children, Violence, and the Media: A Report
for Parents and Policymakers,'' which had similar findings.
But the point of today's hearing is not to belabor a
conclusion we have already reached, and I want to be careful to
avoid disparaging the entire entertainment industry because of
the actions of some. It is important to recognize that
America's entertainment industry can be a very positive force.
For example, I have seen a number of powerful films that
convey ideas that I believe are greatly beneficial to our
society. As a songwriter myself, I have experienced firsthand
the ability of music to uplift and inspire. And many in the
industry strive to do what is right. In short, it is not my
intention at this hearing to heap further attacks on the
entertainment industry. Rather, we are here to find solutions,
ways of empowering the industry to do what is best for our
country and our culture.
As we will hear more about today, the industry has made
some significant efforts to police itself. Each of the
industries at issue here--motion picture, recording, and video
games--has developed voluntary ratings systems that either
provide notice to parents about unsuitable content of certain
products or that attempt to restrict the sale of unsuitable
products to adults or mature audiences.
Unfortunately, as the FTC report confirms, these efforts
have failed to produce adequate or sufficient results. Some
producers demonstrate inadequate adherence to industry
standards, and retail stores do not enforce the guidelines. The
FTC report found that 85 percent of children who attempt to
purchase music or video games that contain unsuitable material,
as defined by the industry itself, have no trouble at all
purchasing these items. The report confirms the widely held
view that voluntary standards are meaningless unless followed
and enforced, and currently there is no enforcement of these
voluntary standards.
The failure of voluntary action necessarily raises the
question of whether Government regulation is appropriate. Some
proposals of Government regulation, however, run afoul of the
first Amendment. We all might remember in mid-1974 when the
House Appropriations Committee ordered then FCC Chairman
Richard Wiley to report on actions to be taken by the
Commission to protect children from violence and obscenity.
Chairman Wiley began a series of meetings with industry
heads, and in 1975 the broadcasters adopted a family viewing
policy as part of the broadcasters' code of conduct. This
family viewing policy was challenged by the Writers Guild of
America under the theory that the threat of Government
regulation amounted to State action and thus was not voluntary
self-regulation.
In 1976, a district court agreed with the Guild and
concluded that the FCC had engaged in, ``a successful attempt *
* * to pressure the networks and the NAB into adopting a
programming policy they did not wish to adopt,'' and barred the
NAB from enforcing the policy. Although this decision was later
overturned on jurisdictional grounds and the case was not
further developed due to the antitrust challenge to the overall
NAB code, the court's holdings should give us pause about the
constitutionality of proposals that might coerce,
``voluntary,'' action in regulating protected speech.
In looking toward solutions, we not only must be mindful of
the limitations of the First Amendment, but we also need to
look at the impediments that exist to the entertainment
industry's successful development and enforcement of meaningful
codes of conduct. Concerns have been raised that industry fears
about liability under antitrust laws are hindering successful
self-regulation.
For example, it has been suggested that the industry would
not boycott a video rental chain that routinely refuses to
enforce industry-imposed age restrictions out of fear of
antitrust liability. These fears stem largely from the 1982
case, United States v. National Association of Broadcasters, in
which the court ruled that the broadcasters' joint code of
conduct relating to television advertising violated the
antitrust laws.
Last fall, I offered a provision as a part of a larger
floor amendment to the juvenile justice bill to empower the
entertainment industry to collaborate in order to develop and
enforce their own voluntary guidelines without the risk of
liability under the antitrust laws.
While my hope is that such a law would result in the
industry limiting the sale to minors of material that the
industry itself deems unsuitable for them, I want to emphasize
that my proposal does not impose any particular code or
requirement. I was pleased that the Senate overwhelmingly
adopted this provision by a vote of 98 to 0, and I am hopeful
that we can enact that provision into law this year.
Today, we have the opportunity to examine howGovernment can
act both in a constitutional and in a constructive manner to enable
entertainment companies effectively to limit the exposure of our
children to materials the companies themselves deem inappropriate.
Let me just now turn to our distinguished ranking member,
Senator Leahy, for his statement, and then we will turn to
Senator Grassley after that.
You have no statement. Then we will turn to Senator Kohl.
STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE
STATE OF VERMONT
Senator Leahy. Thank you, Mr. Chairman. In the past few
years, we have seen tragic shooting incidents at schools across
the country. They have prompted a public firestorm of concern
about the causes of violent acts by our children. Even though
the rate of serious violence by juveniles in this country has
dropped dramatically by 33 percent between 1993 and 1997, each
tragic incident of school violence shocks us and makes every
parent or grandparent or responsible citizen struggle to figure
out what is happening.
In this regard, the FTC report that was released last week
states that, ``Exposure to violence in entertainment media
alone does not cause a child to commit a violent act and it is
not the sole, or even necessarily the most important factor
contributing to youth aggression, anti-social attitudes and
violence.''
We should know instinctively, and studies prove, that the
root causes of violence are multi-faceted. We can all point to
inadequate parental involvement or supervision, drugs, crimes,
poverty, overcrowded classrooms and oversized schools that add
to students' alienation, as well as a number of other factors
that are more influential that depictions of violence in
assorted entertainment media.
Senator Hatch pointed toward a major factor in his
testimony last week when he alluded to domestic violence
against children's mothers, siblings, and themselves. There is
no single cause, and also there is no single legislative
solution that is going to cure the ill of youth violence in our
schools or on our streets. And we delude ourselves if we think
otherwise.
But the President and the Congress tried to respond to the
concern that all of us have youth violence. Both the House and
the Senate took up and passed juvenile justice legislation
which included studies proposed by Senator Lieberman and others
on the marketing practices and guideline systems used by the
entertainment industry and on the causes and the ways to
prevent youth violence. In addition, the Senate-passed bill
included an amendment proposed by Senators Brownback, Hatch,
Lieberman, Kohl and others that would provide an antitrust
exemption to the entertainment industry for the purpose of
developing and enforcing content guidelines.
Now, of course, despite the strong bipartisan support for
these proposals, in particular, and for the juvenile justice
bill in general, they never became law. The Republican majority
has refused to proceed with the juvenile justice conference,
and so we do not have that bill and probably will not.
Fortunately, the Clinton-Gore administration did not wait
for the Congress to act. On June 1, 1999, the President ordered
the Department of Justice and the Federal Trade Commission to
conduct a joint study of the marketing strategies and practices
of the motion picture, music recording, and video game
industries to find out whether they are marketing to children
violent and explicit-content material.
That report was released Monday, and I am delighted to see
Chairman Pitofsky here to follow up on his testimony concerning
this report. Chairman Pitofsky and his department have done a
very great service, I think, to all of us because the FTC
report serves as an important wake-up call to those in the
industry and to us as parents.
There is good news in the report about the effectiveness of
the self-regulatory product rating and the labeling systems
adopted by the movie, recording, and electronic game
industries. The majority of parents not only understand, but
they find these systems and these ratings to be invaluable.
But there is also bad news. It is not acceptable for the
entertainment to target and market directly to children
products which the industry itself identifies as inappropriate
for children. It is not acceptable for the entertainment
industry to include children in market research tests for
products which the industry identifies as inappropriate for
them without parents' approval. And it is not acceptable for
over 80 percent of the children participating in an FTC survey
to be able to buy explicit-content labeled recordings and
electronic games without their parents' consent, and for 46
percent of unaccompanied children to buy tickets for entry to
R-rated movies without parental approval.
These findings do not occur in a vacuum. Parents share a
responsibility, too. Congress and Government cannot stand in
loco parentis on these types of things. The majority of parents
surveyed by the FTC felt they restricted a child's exposure to
inappropriate entertainment.
As a parent, and now a grandparent, I well appreciate the
challenge of limiting a child's exposure to media violence and
other inappropriate material. But no legislation we could
pass--and let's not kid ourselves; it is great to make campaign
statements about all the legislation we might pass, but no
legislation is going to be an effective substitute for parental
involvement. No filter, no software, no rules are an effective
substitute for parents.
We ought to remember that films like ``The Patriot,''
``Saving Private Ryan,'' ``Schindler's List'' and ``The
Hurricane'' are among those receiving R ratings that invite
parental permission before a teenager sees them. But many
parents very appropriately chose to have their teenagers see
those films, even though they contain very graphic scenes, and
to consider the important values and lessons and human history
those films depict.
At the same time, perhaps what we need to do is to have
ratings that more clearly tell parents what is in there. One of
the biggest blockbusters of the summer was a PG movie that had
100, 200 people murdered in the first few minutes in an
airplane. Now, that gets PG. If it had been a story of family
or something like that with no violence or anything else, but
may have had some nudity, it would have gotten an R rating.
Parents need to know better what the ratings stand for.
We have to be very vigilant about feel-good efforts to
involve Government either directly or indirectly in regulating
the content of movies, records, and games produced by the
entertainment industry. In every Congress,we expend a good deal
of effort on First Amendment issues. We also devote our time to
ensuring protection under our copyright laws. I hope that no one
intends to undermine the protection of our freedom of thought and
religion and political activity that flow from the First Amendment.
Some have come to me to complain, for example, about a
television commercial being run currently on behalf of gun
manufacturers. It shows an American flag being destroyed, as
the stars and stripes are ripped aside to leave a white flag of
surrender. It is a powerful and emotional image. It is jarring
and upsetting. I disagree with the gun manufacturers on this
even though I am a gun owner, and I certainly disagree with the
depiction of the American flag being torn apart in this way.
But it is an expression subject to the provisions of our First
Amendment.
This past weekend when speaking to the questions raised by
the FTC report, Lynne Cheney, the wife of the Republican vice
presidential nominee and former Chair of the National Endowment
for the Humanities, said there was no way to legislate or
regulate this issue without running afoul of the First
Amendment, and suggested these hearings were politically
motivated.
This hearing is focused on a proposal to grant the
entertainment industries an antitrust exemption. I have worked
to clarify antitrust laws with respect to joint research and
manufacturing efforts, and was a principal sponsor of the
National Cooperative Production Amendments Act, the first high-
tech legislation signed by President Clinton in 1993. But I
generally disfavor antitrust exemptions.
Senator Hatch and I have worked building on the efforts of
Senator Metzenbaum and Senator Bradley to end Major League
Baseball's antitrust exemption, something artificially declared
in 1922, I believe it was--I will check with Mr. Fithian out
here; I believe it was 1922--by the Supreme Court.
In general, I agree with Teddy Roosevelt and Al Gore--did
you get that, Mr. Chairman, Teddy Roosevelt and Al Gore?
The Chairman. Surprise, surprise. [Laughter.]
Senator Leahy. I agree with both of them that American
consumers benefit from competition and the protection of our
antitrust laws. Surely, the burden of persuasion is on those
who propose an exception to it.
I don't think the entertainment industries need a statutory
antitrust exemption in order to curtail inappropriate marketing
efforts by individual companies. I am wary of granting
antitrust immunity to the huge multi-national corporate
conglomerates that dominate so much of our entertainment
industries. Our antitrust enforcement agencies have said that
no antitrust exemption is necessary for the industry to engage
in voluntary efforts to develop and enforce guidelines for
children, and I think that can be done.
The Commerce Committee heard that the entertainment
industry is taking seriously the gaps in their self-regulatory
system, and I think that is very positive. So let's use the FTC
report as a tool for dialogue and not a quick legislative fix,
and then do the things that can help with violence.
For example, violence against women and children that
affect them for a lifetime. Let the Senate pass the Violence
Against Women Act 2000 without further delay. Every Senator on
my side of the aisle has agreed to let it be passed
immediately. These are things we can do, and then let us go
back one more time to what is most appropriate. Remember,
parents have an obligation.
We have a remarkable entertainment industry in this
country. There are things in it I don't like, movies I will not
see because I don't want to. That is my choice. And when my
children were young, it was also my choice what movies they
would see. They survived that, we survived that, and we have
got good kids as a result. And I would suggest that that might
be a lot better than those of us who might go on television to
say how we will take over for the parents.
Thank you.
[The prepared statement of Senator Leahy follows:]
Prepared Statement of Senator Patrick Leahy
Over the past few years, tragic incidents at schools across the
country have prompted a firestorm of public concern about the causes of
violent acts by our children. Even though the rate of serious violence
by juveniles in this country has dropped dramatically--by 33 percent
between 1993 and 1997--each tragic incident of school violence shocks
our conscience and makes every parent, grandparent and responsible
citizen struggle to find out why some children resort to violence.
In this regard, the FTC report released last week states that
``exposure to violence in entertainment media alone does not cause a
child to commit a violent act and [ ] it is not the sole, or even
necessarily the most important, factor contributing to youth
aggression, anti-social attitudes and violence.'' The root causes of
youth violence are multi-faceted. We can all point to inadequate
parental involvement or supervision, drugs, crime, poverty, over-
crowded classrooms and over-sized schools that add to students'
alienation as well as a number of other factors that are more
influential that depictions of violence in assorted entertainment
media. Senator Hatch pointed toward a major factor in his testimony
last week when he alluded to domestic violence against children's
mothers, siblings and themselves. There is no single cause and no
single legislative solution that will cure the ill of youth violence in
our schools or on our streets.
Nevertheless, the President and the Congress tried to respond to
the concern that all of us have about youth violence. Both the House
and the Senate took up and passed juvenile justice legislation, which
included studies proposed by Senator Lieberman, and others, on the
marketing practices and guidelines systems used by the entertainment
industry and on the causes of and ways to prevent youth violence. In
addition, the Senate-passed bill included an amendment proposed by
Senators Brownback, Hatch, Leiberman, Kohl and others that would
provide antitrust exemptions to the entertainment industry for the
purpose of developing and enforcing content guidelines.
Despite the strong bipartisan support for these proposals in
particular and for the juvenile justice bill in general, they never
became law because the Republican majority in Congress has refused to
proceed with the juvenile justice conference for over a year. Senate
and House Democrats have urged repeatedly that the majority reconvene
the juvenile justice conference and work to craft an effective juvenile
justice conference report and law. Despite numerous repeated requests
by Democratic members and the President to reconvene, the Republican
majority has rejected our pleas for action, as they have those of the
American people.
Fortunately, the Clinton-Gore Administration did not wait for the
Congress to act. On June 1, 1999, the President ordered the Department
of Justice and the Federal Trade Commission (FTC) to conduct a joint
study of the marketing strategies and practices of the motion picture,
music recording, and video game industries to determine whether these
industries are marketing to children violent and explicit-content
material. The result is the report that was released last Monday. I
welcome Chairman Pitofsky here to follow-up on his testimony concerning
this report to the Commerce Committee.
The FTC Report serves as an important wake-up call to those in the
industry and to us as parents. There is good news in the report about
the effectiveness of the self-regulatory product rating and labeling
systems adopted by the movie, recording and electronic game industries.
The majority of parents not only understand but also find these ratings
systems to be valuable tools in choosing what their children may see,
listen to and play.
But there is also bad news. It is not acceptable for the
entertainment industry to target and market directly to children
products which the industry itself identifies as inappropriate for
children. It is not acceptable for the entertainment industry to
include children in market research tests for products which the
industry identifies as inappropriate for them and without their
parents' approval. It is not acceptable for over eighty percent of the
children participating in an FTC survey to be able to buy explicit-
content labeled recordings and electronic games without their parents'
consent and for forty-six percent of unaccompanied children to buy
tickets for entry to R-rated movies without showing proof of age and
without parental approval.
These findings do not occur in a vacuum. As parents we have to
accept our share of responsibility. While the majority of parents
surveyed by the FTC felt they restricted a child's exposure to
inappropriate entertainment, almost eighty percent of children felt
their parents effectively restricted their movies and less than fifty
percent felt parents restricted their use of music and games.
As a father and a grandfather, I well appreciate the challenge of
limiting a child's exposure to media violence and other inappropriate
material. Yet, no legislation we could pass would be an effective
substitute for parental involvement. No filter, no software, no rules
are an effective substitute for parents. We must remember that films
like The Patriot, Saving Private Ryan, Schindler's List and The
Hurricane are among those receiving R ratings that invite parental
permission before a teenager sees them. Many parents chose to have
their teenager see those films, although they contain graphic scenes,
and to consider the important values, lessons and human history those
films depict.
We must be very vigilant about feel-good efforts to involve
government, either directly or indirectly, in regulating the content of
the movies, records or games a produced by the entertainment industry.
This Committee each Congress expends a good deal of effort on First
Amendment issues. We also devote our time and energy to ensuring
protection under our copyright laws. I hope that no one intends to
undermine the protection of our freedom of thought, and religion and
political activity that flow from the First Amendment.
Some have come to me to complain, for example, about a television
commercial being run currently on behalf of firearms manufacturers. It
shows an American flag begin destroyed as its stars and stripes are
ripped aside to leave a white flag of surrender. It is a powerful and
emotional image. It is jarring and upsetting, but it is also expression
subject to the protection of our First Amendment.
This past weekend when speaking to the questions raised by the FTC
report, Lynne Cheney, wife of the Republican vice presidential nominee
and a former chair of the National Endowment for the Humanities, said
there was ``no way to legislate or regulate this issue without running
afoul of the First Amendment.'' She characterized all the reports and
hearings and statements as posturing and politically motivated.
Ironically, this hearing is focused on a proposal to grant the
entertainment industries an antitrust exemption, a form of immunity
from laws that have been passed to foster competition and protect the
American consumer from companies getting together to make their
business lives easier and to collude, conspire and combine about
marketing practices that would otherwise be illegal.
While I have worked to clarify our antitrust laws with respect to
joint research and manufacturing efforts and was the principal sponsor
of the National Cooperative Production Amendments Act, which was the
first high tech legislation signed by President Clinton in 1993, I
generally disfavor antitrust exemptions. Building on the work of
Senator Metzenbaum, Senator Bradley and others, Senator Hatch and I
worked hard for several years to end major league baseball's antitrust
exemption. That was an exemption that had been declared by the Supreme
Court in 1922 when it found baseball to be a local matter not in
interstate commerce. That legal fiction served to insulate professional
baseball team owners for more than 75 years. Over the last several
years, I have helped the Senate think twice before enacting antitrust
exemptions for doctors to collude and possibly engage in price-fixing.
In general, I agree with Teddy Roosevelt--and Al Gore--that
American consumers benefit from competition and the protections of our
antitrust laws. Surely the burden of persuasion is on those who propose
an exception to our antitrust laws.
As we begin this hearing, I do not think the entertainment
industries need a statutory antitrust exemption in order to curtail
inappropriate marketing efforts by individual companies. I am wary of
granting antitrust immunity to the huge multinational corporate
conglomerates that now dominate so much of our entertainment
industries. I am skeptical of requests for immunity from law for
marketing practices in particular, because grants of such immunity can
too easily be used to coordinate marketing in too many ways, and have
the effect of providing cover to restrict access or affect price in
ways that disadvantage consumers generally. Much of the current
consideration of proposed mega-mergers has to do with ensuring access
and availability to competing entertainment and information sources. To
seek to impose moral values and restrict depictions of violence through
grants of antitrust exemptions is not without risks in my view.
Accordingly, it is with a dose of skepticism that I approach
legislative proposals for antitrust exemptions.
Our antitrust enforcement agencies have opined that no antitrust
exemption is necessary for the industry to engage in voluntary efforts
to develop and enforce guidelines to protect children from
inappropriate material, nor have the industries requested such legal
immunities as far as I know. Each segment of the entertainment industry
already has a rating and labeling system and a cooperative relationship
with retailers on how best to implement those systems. That has been
accomplished within the bounds of our antitrust laws and without the
need for antitrust immunity.
The Commerce Committee heard last week that the entertainment
industry is taking seriously the gaps in their self-regulatory systems
pointed out in the recent FTC report and taking steps to address them.
Just last week, for example, the recording industry committed to making
music lyrics available for parents; Disney announced it would review
and revise its marketing policy; and retailers Kmart and Wal-Mart
announced they would not sell violent video games to children under 17.
The initiative and effort of these industries deserve to be
acknowledged. Let us use the FTC Report as a tool for dialogue, not
some quick legislative fix that may pose risks for important First
Amendment values and for the protection to American consumers provided
by business competition.
There are laws we can pass that can make a difference. I return to
the issue of domestic violence--violence against women and children
that affects them for a lifetime. Let the Senate pass the Violence
Against Women Act 2000 without further delay. It was cleared for
passage by all Democratic Senators in July. It is past time to
reauthorize and build upon the historic programs of the Violence
Against Women Act and do all that we can to protect children from the
ravages and lasting impact of domestic violence.
The Chairman. Thank you, Senator.
The chairman of the Antitrust Subcommittee, Senator DeWine,
is in another committee markup, so we will certainly allow him
the option of giving opening remarks when he gets here, if he
desires. But we will call on the ranking member and then we
will turn to our witnesses.
Senator Kohl.
STATEMENT OF HON. HERBERT KOHL, A U.S. SENATOR FROM THE STATE
OF WISCONSIN
Senator Kohl. Thank you, Mr. Chairman.
Last week, the Federal Trade Commission reached the
conclusion that the entertainment industry often willfully,
consciously, and intentionally markets their most violent
content to our young. Examples of these practices are all too
easy to find. At last week's Commerce Committee hearing, a
senior Sega executive defended his company's practice of
placing ads for M-rated games, which are games with content
suitable only for persons aged 17 and older, in magazines with,
``close to a majority of readers over 18.''
Like too many others in his industry, he apparently thinks
it is fine to put an ad for his company's ``Resident Evil''
game into a magazine with over 60 percent of readers under age
17. Mr. Chairman, I strongly disagree. Those who purvey such
sleaze to our young are motivated by a selfish desire for
profit and do not care about the damage they do to our society.
But beyond denouncing the irresponsibility of these
companies for these practices, what can we actually do to make
a difference consistent with the First Amendment? We cannot
regulate content, as some might like, and while exposing the
industry's practices to public scrutiny has its place, I am not
satisfied with mere talk, no matter how eloquent or well-
intentioned. But I believe there are two steps we can take and
should take now.
First, we can enact legislation which will make clear that
antitrust law does not prevent entertainment companies from
voluntary joining together to create and enforce codes of
conduct which prevent companies from marketing violent or
explicit sexual content to minors. That is why many of us
joined you, Mr. Chairman, last year in cosponsoring an
amendment to the juvenile justice bill which does exactly this.
But we should not stop with this one measure. Surely,
marketing violent or sexually explicit entertainment to
children in violation of industry codes is a deceptive trade
practice, in violation of the FTC Act. The video game makers,
for example, have adopted a code prohibiting marketing to
under-age consumers, but some of these very same manufacturers
repeatedly ignore their own code. In fact, the FTC found that
91 percent of the video game companies surveyed targeted males
under 17 in advertising campaigns for violent M-rated games. We
should not tolerate such dishonest conduct by these companies.
Therefore, Senator DeWine and I today have written to
Chairman Pitofsky calling on the FTC to investigate and
prosecute companies for deceptive trade practices whenever they
violate their own codes of conduct by deliberately marketing
this material to children.
From our music to our popular music, from TV to video
games, American society is awash in a glut of violent and lurid
images. Sadly, many in the entertainment industry often have
little or no hesitance to market this inappropriate material to
our young people. The time has come now to do more than merely
denounce this behavior, though denounce it we should. We can
and should take sensible action by granting the industry an
antitrust exemption to enforce voluntary codes of conduct and
by prosecuting those who violate these codes for deceptive
trade practices, to do all we can to keep our children safe
from violence both on our streets and in the media.
Thank you, Mr. Chairman.
[The prepared statement of Senator Kohl follows:]
Prepared Statement of Senator Herb Kohl
Just last week the Federal Trade Commission reached the chilling
conclusion that the entertainment industry--movie studios, record
companies, and video game manufacturers--often willfully, consciously
and intentionally market their most violent content to our youth.
Examples of these practices are all too easy to find. At last week's
Commerce Committee hearing on this issue, for instance, a senior Sega
executive, Pete Moore, defended his company's practice of placing ads
for M-rated games--with content suitable only for persons aged 17 and
older--in magazines with ``close to a majority of readers over 18.''
Like too many others in his industry, he apparently thinks it's just
fine to put an ad for his company's ``Resident Evil'' game into a
magazine with over 60 percent of readers under 17.
Mr. Chairman, I strongly disagree. Those who purvey such sleaze to
our youth are motivated only by a base and selfish desire for profits
and care not in the least for the damage they do to our society. Their
irresponsibility is unconscionable. Let me state it as plainly as I
can: These rotten apples of the entertainment industry should be
ashamed of themselves, and I condemn them.
But beyond denouncing the irresponsibility of these companies for
these practices, what can we actually do to make a difference,
consistent with the First Amendment? We cannot regulate content, as
some might like. And while exposing the industry's practices to public
scrutiny has its place, I, for one, am not, satisfied with mere talk,
no matter how eloquent or well intentioned. But there are two steps we
can take, and take right now.
First, we can enact legislation which will make clear that
antitrust law does not prevent entertainment companies from voluntarily
joining together to create and enforce codes of conduct which proscribe
companies from marketing violent or sexually explicit content to
minors. That's why many of us last year joined you, Mr. Chairman, in
co-sponsoring an amendment to the Juvenile Justice bill that does
exactly this.
Establishment of codes of conduct, and industry self-regulation to
enforce these codes, are in no way contrary to the goals or principles
of antitrust law. The purpose of antitrust law is to protect consumers
by ensuring that members of industry engage in vigorous competition in
the price and quality of goods and services. This exemption will not
affect competition in the slightest. Indeed, these codes of conduct
will benefit consumers by ensuring that industry will clean up its act
and keep objectionable material out of the hands of youngsters.
But we should not stop with this one measure. Surely marketing
violent or sexually explicit entertainment to children in violation of
industry codes is a deceptive trade practice in violation of the FTC
Act. The video game makers, for example, have adopted a code
prohibiting marketing to underage consumers. But some of these very
same manufacturers repeatedly ignore their own code. In fact, the FTC
found that 91 percent of the video game companies surveyed targeted
males under 17 in advertising campaigns for violent M-rated games. We
should not tolerate such dishonest conduct by these companies.
Therefore, Senator DeWine and I today have written to Chairman Pitofsky
calling on the FTC to investigate and prosecute companies for deceptive
trade practices whenever they violate their codes of conduct by
deliberately marketing this material to children.
From our movies to our popular music, from TV to video games,
American society is awash in a glut of violent and lurid images. Sadly,
many in the entertainment industry often have little or no hesitance to
market this inappropriate material to our youth. The time has come now
to do more than merely denounce this behavior--though denounce it we
should. We can and should take sensible action--by granting the
industry an antitrust exemption to enforce voluntary codes of conduct
and by prosecuting those who violate these codes for deceptive trade
practices--to do all we can to keep our children safe from violence,
both on our streets and in the media.
The Chairman. Thank you, Senator.
Senator Brownback has been held up in a markup, as well. He
was our first witness. So we will turn to our second witness,
the Honorable Robert Pitofsky, Chairman of the Federal Trade
Commission.
Prior to his 1995 nomination to Chair the FTC, Chairman
Pitofsky was a Professor of Law at Georgetown University Law
Center. He is a person I greatly respect, and we really look
forward to hearing your testimony today, Mr. Pitofsky.
STATEMENT OF HON. ROBERT PITOFSKY, CHAIRMAN, FEDERAL TRADE
COMMISSION, WASHINGTON, DC
Mr. Pitofsky. Thank you very much, Mr. Chairman and members
of the committee. I am pleased to be here once again discussing
an antitrust question, this time the relationship between
antitrust and self-regulation. And I am particularly pleased
because it was this committee and so many members like Senator
Hatch, Senator Leahy, Senator Kohl, among others, who have been
so supportive of the FTC's project in this area from the very
beginning.
The issue the Commission has been asked to address today is
whether discussion or implementation of a rating system for
violent entertainment materials and associated directions to
its members not to market these products in ways that are
inconsistent with rating systems could raise serious antitrust
problems.
Let me start where the Commission report on violent
materials ended. The right approach here, if at all possible,
is industry self-regulation because of the important First
Amendment considerations that are involved here.
In Appendix K of our report, the Commission took the
position that if self-regulation is sensibly designed and
implemented, there should be no antitrust problem. Problems
could only arise if the self-regulatory program, the system,
were a cloak or camouflage to achieve an anti-competitive
effect, for example, to keep new players out of the
marketplace. We reviewed thousands of documents in the course
of our study and we never found any evidence whatsoever that
that had been the goal or the effect of this regulatory
program.
The question then is what could the antitrust problems be.
With respect to the rating system itself, it simply provides
information to parents and others about the nature and level of
violence in entertainment materials, and they are free to use
the information as they see fit. Scores of industries in this
country rate their products, usually as a matter of safety, but
no serious antitrust questions are raised if it is a legitimate
rating system and not designed to be anti-competitive.
With respect to a possible restriction on marketing that is
inconsistent with the rating, that too is highly unlikely to
have a serious anti-competitive effect. At its core, antitrust
is concerned with effects on price, on output, on innovation.
That doesn't appear to be the purpose in any respect of these
rating systems.
Also, this is a rating system that is grounded in a policy
frequently adopted by Congress, by State legislatures, by the
courts that treat young people as special and give them
protection against over-reaching marketing behavior.
The Commission violence study noted that self-regulation,
to be effective, requires some sort of sanction. And, arguably,
sanctions begin to move closer to the line where antitrust is
an issue, but the first question I would ask is what sanctions
are we talking about.
In other industries, sanctions have included publishing the
names of companies that do not abide by industry regulations,
denial of a seal of approval, or even expulsion from the
association. But I don't think those sanctions would be an
antitrust problem. It would only be an antitrust problem if the
company needed the membership or the seal of approval to stay
active in the marketplace. And if that is not the case, then I
don't think that history would indicate that antitrust would be
involved because it is hard to see how the sanction would have
an anti-competitive effect.
It doesn't appear that seals of approval are necessary to
compete here. I would add, however, that the program would be
even more invulnerable to challenge if there were some
procedural regulations, like notice and hearing, so the target
of the regulation would have some opportunity to argue that the
rating system was inappropriate.
It is only if the sanction moved in the direction of
industry-wide boycotts of those who did not go along with self-
regulation rules, including possible boycotts of retailers,
than antitrust concerns do begin to arise. But I have no reason
to believe that boycotts are the direction that these
industries are inclined to take.
I should add, as the chairman mentioned, that there are
some older cases that cast a shadow from antitrust on self-
regulation--the NAB case, Professional Engineers. I think they
are either distinguishable from what these industries are doing
or are inclined to do. And several of these cases I just don't
think would be decided the same way today. The courts are much
more generous toward self-regulation from the point of view of
antitrust than they were, say, 40 or 50 years ago.
Let me conclude. There are many self-regulatory programs in
effect in this country. The advertisers have an excellent
program; funeral directors, the direct marketers, among many
others. Antitrust enforcement officials have never challenged
any of those for an anti-competitive effect.
If self-regulators in the music, movie, and video game
industries are nervous about the issue, they could ask for an
advisory opinion from my agency, as the direct marketers did
just 2 or 3 years ago, and we gave them an advisory opinion
saying their self-regulatory program was not anti-competitive.
One of the advantages of that is theindustry submits a specific
program and a Government agency approves or disapproves it. Therefore,
you don't run the risk of an exemption that covers too much.
The three entertainment industry sectors that we have
discussed have already introduced self-regulatory programs and
they weren't worried at that time about antitrust. We have seen
that in many respects those programs are not effective. I don't
see how making those programs effective raises serious
antitrust questions.
Now, I do want to address this question. Maybe the industry
doesn't need an antitrust exemption, but what is wrong with
granting one? I mean, after all, maybe they will rest easier
knowing they don't have an antitrust threat.
There are several problems. One is--and it has already been
suggested this morning--we ought to be careful about giving out
antitrust exemptions.
Senator Feinstein. Could you speak directly into the
microphone, please, so we can hear you?
Mr. Pitofsky. Oh, I am sorry.
Senator Leahy. In fact, repeat that last one. [Laughter.]
Mr. Pitofsky. Yes. I want to underscore the point that
antitrust exemptions are frowned upon, and I think we should be
careful about giving them out if it is not necessary.
Second, my sense is that the industry is ready to move on
improving their own self-regulatory programs. And I would hope
that any suggestion that they need an antitrust exemption
doesn't lead to delay in their implementing reforms that I
think are necessary.
Finally, it is very hard to construct an antitrust
exemption that covers exactly what you want and goes no
further. However, if the exemption could be introduced
promptly, if it could be carefully tailored--and I am sure this
committee would do exactly that--then I still don't think it is
necessary, but I can't really oppose an exemption. I don't
think it would do any harm, and it is possible that there are
people in the industry who would move more promptly toward
self-regulation if they weren't worried about antitrust. They
don't have anything to worry about, but I can see where they
might be concerned.
Thank you, and I would be glad to answer questions.
The Chairman. Thank you, Mr. Pitofsky. If I could have you
delay for questions to take Senator Brownback's statement, you
can stay right there.
Senator Brownback, why don't we take your statement at this
time and then we will turn to Mr. Pitofsky for questions that
all of us have. We are happy to welcome you, Senator Brownback,
a good colleague and friend, and certainly a leader in trying
to do what is right in keeping our society in somewhat of a
protected mode for children and people who are vulnerable.
Senator Brownback.
STATEMENT OF HON. SAM BROWNBACK, A U.S. SENATOR FROM THE STATE
OF KANSAS
Thank you very much, Mr. Chairman and members of the
committee. It is a pleasure to be here with you. I appreciate
your leadership and work on this topic.
Mr. Chairman, I just want to note for you that the
conclusions of the report that came out last week were
considered by many to be common sense. Indeed, when I went home
this past weekend, people were asking well, what was the real
news here? They all knew from hard personal experience that the
entertainment industry was targeting their kids to push
entertainment that they, the parents, thought inappropriate.
We see that Hollywood has been making a killing off of
marketing violence to children. The FTC study--and I want to
commend Chairman Pitofsky for this--was excellent. The report
noted that in popular music, a hundred percent of the albums
that carried a parental-advisory sticker were marketed directly
to children. We have problems, as well, in the movie and video
games industry. This is not just irresponsible marketing, it is
a public health concern.
We now have six major public health organizations that have
said that exposing kids to violent entertainment causes
increased aggressive behavior among some children. The American
Academy of Pediatrics, child psychologists, the AMA, and three
others have all signed that document. This is a public health
concern.
One step we need to take to ensure that the industries can
enter into a code of conduct. I have previously introduced
legislation, S. 2127, the Children's Protection Act, that would
provide a very limited antitrust exemption that would enable,
not require, companies to do just that.
This is an important step and one that we can take
immediately. There is broad support for such a code of conduct.
Indeed, the provisions of S. 2127 were passed as an amendment
to the juvenile justice bill, which passed by a vote of 98 to 0
last year.
Paving the way for the entertainment industry to adopt a
code of conduct is a good idea, but it is not a new one. I have
modeled my legislation after the old National Association of
Broadcasters' code of conduct which was in effect for 3
decades, until questions were raised about whether it violated
antitrust laws. That is when that codewas done away with when
those questions were then raised. The Children's Protection Act would
provide a limited antitrust exemption to enable companies to either
revive the old NAB code or to formulate and implement a code of their
own.
There are several reasons why we need a code of conduct,
and why we should provide a limited antitrust exemption to make
such codes possible. First, given the enormous power that
entertainment companies wield, it is only right that parents
and consumers should know what their corporate standards are.
S. 2127 would encourage entertainment companies to define their
standards, what they will and will not do, what scenes they
will or will not show, and how low they will go. The public has
a right to know this, and entertainment companies have a
responsibility to tell them.
Second, providing an antitrust exemption to enable a code
of conduct will not only help inform parents and consumers, but
by doing so it will hold the entertainment industry
accountable. Parents will have a written code by which to judge
movies, music, television, and video games, and be empowered to
demand that companies live up to their professional standards.
Last, enabling a code of conduct acknowledges the reality
that the entertainment industry wields great power, and
therefore bears some corporate responsibility for the products
they produce, promote, and peddle.
There are other steps we should consider, including many of
the FTC's recommendations, but a rush to legislation is not one
of those.
Mr. Chairman, I have worked with the entertainment industry
and talked with them and pushed them on this issue for several
years since I have been in the Senate. I have tried to
encourage them to put forward better products that don't
directly target market violence and vulgar material to
children. I have met with resistance all along the way. There
have been a number of people within the industry that say: we
want to produce better products, but we have got to get more
edge to the product because we are aiming at that 18-to-24 male
audience. We are using, they were saying in some cases, the sex
and violence to get them hooked into the television and hooked
into watching or playing the video game or listening to the
music.
I think this legislation will empower the industry to do
what it wants to do, produce a higher-quality, better product
that people that are working in that business--the writers, the
directors, the producers, the actors, the technicians--can go
home at night feeling good about.
We need to provide this limited antitrust exemption so that
people within the industry will set standards and self-
regulate. By removing the barriers to self-regulation,
entertainment executives will be free to clean up their act--
and be accountable to consumers and parents if they fail to do
so.
So I would urge the committee to pass this limited
antitrust exemption. I would hope we could move it to the floor
and through this Congress, as well. Mr. Chairman, thank you
very much for allowing me this privilege to testify.
The Chairman. Thank you, Senator Brownback. We know your
time is valuable and we won't keep you any longer, but we
appreciate you coming.
Senator Brownback. Thank you.
[The prepared statement of Senator Brownback follows:]
Prepared Statement of Senator Sam Brownback
Mr. Chairman, I want to thank you for holding this hearing, and
giving a public airing to a most important public issue. When I
introduced legislation last year, along with several of my colleagues
here today, to authorize this FTC report, I did so because the
anecdotal evidence was overwhelming that violent, adult-rated
entertainment was being marketed to children. It's been said that much
of modern research is the corroboration of the obvious by obscure
methods. This study does corroborate what many of us have long
suspected--and it does so unambiguously and conclusively. It shows, as
FTC Chairman Robert Pitofsky noted, that the marketing is ``pervasive
and aggressive.'' It shows that Hollywood is making a killing off of
marketing violence to kids.
The problem is not one industry, but can be found in virtually
every form of entertainment: movies, music, and video and PC games.
Together, they take up the majority of child's leisure hours. And the
messages kids get, and images they see, often glamorize brutality, and
trivialize cruelty.
Take, for example, popular music. The FTC report found that 100
percent! of the stickered albums they surveyed were target-marketed to
kids. This is both troubling and fairly predictable: troubling in that
hyper-violent, misogynistic, and racist lyrics are target-marketed to
young kids--mostly young boys--whose characters, attitudes,
assumptions, and values are still being formed, and vulnerable to being
warped. And predictable in that there are few fans of such music that
are over 20.
Movies are equally blatant in their marketing to kids, and
appalling in their content. Movies have great power--because stories
have great power. When that power is used responsibly, it can edify,
uplift, and inspire. But all too often, that power is used to exploit.
I've seen some movies that are basically two-hour long commercials for
the misuse of guns.
The movie industry has had the gall to target-market teen slasher
movies to child audiences--indeed, the report notes that some movie-
makers used kids as young as ten in focus groups for R-rated movies.
They then claim that parents bear total responsibility, even as they
deliberately do an end-run around parents, and make it harder for them
to make decisions. Of course parents bear primary responsibility in
policing what their children watch--but that doesn't mean that
entertainment companies bear no responsibility at all. Moreover,
entertainment companies cannot simultaneously claim that it is a
parent's duty to make informed choices, and then make it as difficult
as possible for them to do so.
Or take video games. When kids play violent video games, they do
not merely witness slaughter, they engage in virtual murder. Indeed,
the point of what are called ``first person shooter'' games--that is,
virtually all M-rated games--is to kill as many characters as possible.
The higher the body count, the higher your score.
Common sense should tell us that positively reinforcing sadistic
behavior, as these games do, cannot be good for our children. We cannot
expect that the hours spent in school will mold and instruct a child's
mind but that hours spent immersed in violent entertainment will not.
We cannot hope that children who are entertained by violence will love
peace.
This is not only common sense, but a public health consensus. In
late July, I convened a public health summit on entertainment violence.
At the summit, we released a joint statement signed by the most
prominent and prestigious members of the public health community--
including the American Medical Association, the American Academy of
Pediatrics, the American Psychological Association, the Academy of
Family Physicians, the American Psychiatric Association, and the
Academy of Child and Adolescent Psychiatrists. This statement
concluded:
``Well over 1000 studies * * * point overwhelmingly to a casual
connection between media violence and aggressive behavior in some
children. The conclusion of the public health community, based on over
thirty years of research, is that viewing entertainment violence can
lead to increases in aggressive attitudes, values and behaviors,
particularly in children.''
There is no longer a question as to whether exposing children to
violent entertainment is a public health risk. It is--just as surely as
tobacco or alcohol. The question is: what are we going to do about it?
What does it take for the entertainment industry, and its licensees and
retailers, to stop exposing children to poison? And why do see so
little concern, and so much defiance, from an industry deliberately
harming kids to make a buck? What can be done to encourage them to
clean up their act--without resorting to any measure that restricts
free expression?
The first step we need to take is to ensure that these industries
can enter into a code of conduct. Consumers and parents need to know
what their standards are--how high they aim, or how low they will go.
I've introduced legislation, S. 2127, that would provide a very
limitedanti-trust exemption that would enable (not require) companies
to do just that.
This is an important step, and one we can take immediately. There
is widespread support for such a code of conduct; indeed, the
provisions of S. 2127 were passed as an amendment to the Juvenile
Justice bill by a vote of 98-0. And the President's Advisory Commission
on Public Interest Obligations unanimously called for a re-adoption of
the code of conduct.
Paving the way for the entertainment industry to adopt a code of
conduct is a good idea, but is not a new one. I have modeled my
legislation after the old the National Association of Broadcaster's
Code of Conduct, which was in effect for three decades, until the early
1980s, when questions were raised about whether it violated anti-trust
rules. The Children's Protection Act would provide a limited anti-trust
exemption to enable companies to either revive the old NAB code, or to
formulate and implement a code of their own.
There are several reasons why we need a code of conduct, and should
provide a limited anti-trust exemption to make such codes possible:
First, given the enormous power that entertainment
companies wield, and their insistence that parents and consumers bear
responsibility for their choices, it is only right that parents and
consumers should know what their standards are. S. 2127 will
encourage--without requiring--entertainment companies to define their
standards--what they will and will not do, what scenes they will or
will not show, and how low they will go. The public has a right to
know. And entertainment companies have a responsibility to tell them.
Second, providing an anti-trust exemption to enable a code
of conduct will not only help inform parents and consumers, but by
doing so, it will hold the entertainment industry accountable. Parents
will have a written code by which to judge movies, music, TV and video
games, and be empower to demand that companies lives up to their
professed standards.
Third, enacting a limited-trust exemption will enable far
more broad-reaching voluntary agreements than are now possible.
Although the video game industry has a code of conduct, for which I
commend them, the FTC report concludes that is not well-known,
certainly not well-followed, and definitely not enforced. Enacting an
anti-trust exemption takes away any reason for industries to avoid
enacting codes of conduct that include the cooperation of retailers,
and promoters, as well as producers, and to enforce them.
Last, enabling a code of conduct acknowledges the very
simple reality that the entertainment industry wields great power, and
therefore bears some corporate responsibility for the products they
produce, promote, and peddle.
There are other steps we should consider--including many of the
recommendations made by Chairman Pitofsky and the FTC in their report--
but a rush to legislation is not one. Hollow threats may score
political points, but won't do much good. Frankly, imposing six-month
deadlines on an industry one is actively fleecing for money is unlikely
to bring about lasting reform. We need to encourage responsibility and
self-regulation. We need a greater corporate regard for the moral,
physical and emotional health and well-being of children.
Ultimately, what we need is what Edmund Burke called ``obedience to
the unenforceable.'' Whatever we do in the Senate, there will be ways
for this multi-billion dollar industry, with all of its brigades of
lobbyists and lawyers, to find a loophole. We do need to take steps to
encourage greater self-regulation and self-restraint on the part of the
entertainment industry. But we need to change minds even more than
laws.
Appealing to conscience and reason, finding ways to better inform
and empower parents, and enabling long-standing and hard-hitting public
pressure for greater corporate responsibility is difficult work--it
takes time, effort, and offers little short-term political rewards. But
it is the best way to keep children protected, parents empowered, and
speech free.
The Chairman. Let me turn to you, Mr. Pitofsky. Now,
Senator DeWine has an opening statement, but he has kindly
deferred until after we question you so that you don't have to
stay here longer than necessary. I have just a couple of
questions to ask you.
You noted that you do not believe that the antitrust
exemption is needed to allow the entertainment industry to
develop responsible codes of conduct which include means of
enforcement. Yet, in the report you released last week, the
Commission acknowledged that, ``some industry members have
raised concerns that collective action to restrict youth access
to rated or labeled products would violate the antitrust
laws.'' Now, this is not new. These concerns have been
expressed by members of the industry in the past, and sometimes
with glee. The report also concludes that an effective solution
requires, ``mechanisms to ensure complianc.''
Could you first elaborate for us why you don't believe a
collaborative effort by the industry to develop a voluntary
system and have an effective mechanism to ensure compliance
would not violate the antitrust laws? And then I would like to
know what objection the Commission, or anyone for that matter,
could have to a limited exemption which makes clear that such
actions would not subject the industry to antitrust liability
from the Government or from an opportunistic private plaintiff.
Mr. Pitofsky. Senator, I want to be clear about this. I
don't think antitrust problems are raised generally, but that
depends a little bit on what sanction the industry chooses to
impose. And if the sanction were something along the lines of a
boycott, for example, that the producers of movies or of music
were to say with respect to a retailer, you are not doing the
job that we require you to do, we are not going to sell our
product to you, then we do have an antitrust concern.
The Chairman. That is a good reason to have this.
Mr. Pitofsky. I know that the bill that you have proposed
has an exception to the exemption, that there will be an
antitrust exception, but not for boycotts. So if there is to be
a bill, I think it is very important that it be designed along
the lines that you have already suggested.
If there is no boycott issue involved and it is not a
camouflage for some anti-competitive scheme--and really there
is no reason to think that that is what these companies are up
to here--then I certainly think they don't have a problem, in
my view. I would advise them that they don't have a problem.
If they think they have a problem, they could ask for an
advisory opinion. That is what the direct marketers did. We
gave them an advisory opinion fairly promptly, I think, which
relieved their minds of any concern. However, if the exemption
is narrowly tailored and if it can be introduced promptly so
there is no delay, then I agree with the implication of your
question, what harm is being done here, other than my concern
that giving out antitrust exemptions generally is not a good
idea.
The Chairman. Well, I share that concern.
Now, we will hear from a number of our witnesses who have
expressed concern over possible anti-competitive conduct which
may occur as a result of the industry's voluntary code of
conduct. The concerns relate to the possibility that content
producers such as movie studios and record companies could
possibly engage in an illegal boycott of a retailer whom they
conclude has not complied with the labeling or rating system
which they have instituted. As I understand it, such action,
unless affecting output or price to the consumer, would not
appear to violate the antitrust laws. I hope I am right on
that. If I am not, I will stand corrected.
Could you put these anti-competitive concerns in context
for us? You stated in your testimony that you submitted today
that appropriately structured collective action appears
unlikely to violate Federal antitrust laws. Can you provide
more details on such, ``appropriately structured collective
actions,'' and specifically address the anti-competitive
concerns raised?
Mr. Pitofsky. Let me try to make this more concrete.
Suppose you had a retail chain selling CD's, selling music at
less than the suggested retail price, and the producers of
music were very unhappy about that. What they might do is cut
off the price-cutter and then claim that the reason they are
doing it is the price-cutter isn't paying any attention to the
self-regulatory scheme. That is where the antitrust laws would
kick in.
If the exemption is so broad as to allow that kind of
behavior, then the exemption is a bad idea. But you have
anticipated that by having an exception to your exemption which
would not cover boycotts, and I think that is well designed and
appropriate. So like every exemption, one worries that it will
be used to cover conduct that is not really designed for some
worthy purpose but is used as a cloak for some kind of anti-
competitive behavior.
I hope I have answered your question.
The Chairman. Well, thank you. You have been very helpful.
Let me turn to our ranking member.
Senator Leahy. Thank you, Mr. Chairman.
You know, we have debated the need and usefulness of
antitrust immunity for parts of the entertainment industry for
years. I recall--and Senator Biden and Senator Hatch were on
the committee at the time--the efforts of Senator Paul Simon in
the 1980's to pass an antitrust exemption for TV broadcasters,
and it became law, I think, from 1990 to 1993.
When that sunsetted, the Justice Department issued opinions
in 1993 and 1994 that really echo the position that you have
taken, Mr. Chairman, namely that no antitrust exemption is
necessary for the creation and operation of a rating system for
products that are inappropriate for children or for the
enforcement of such a rating system, enforcement against other
manufacturers and retailers of such products.
Are you aware of any incidents where concern over antitrust
liability has stopped any particular entertainment company from
participating in or enforcing a rating system?
Mr. Pitofsky. I have heard remarks indicating apprehension,
but I am not aware that anyone has declined to adopt a self-
regulatory system because of antitrust concerns.
Senator Leahy. Well, since self-regulatory systems that are
designed to protect children would be acceptable and legal
under the antitrust laws, as I understand it, as a reasonable
restraint on trade, do you have any concern that a grant of
antitrust immunity would only be necessary to shield
unreasonable steps from antitrust scrutiny?
Mr. Pitofsky. Well, that is exactly the point. I don't
think they need it, and it might end up being used in such a
way as to at least arguably protect behavior that we don't want
to see protected. We want the rating code, but we don't want
the other behavior.
Senator Leahy. After we passed the juvenile justice bill--
and there are two antitrust exemptions in there that are part
of the Brownback-Hatch amendment--I said at the time when that
was going through that I was concerned about the breadth of the
exemption, but that we would look at it in conference. It
turned out we haven't had a conference.
The Justice Department raised a concern that the
exemptions, ``would raise difficult constitutional questions
and would be vulnerable to constitutional challenge.''
Mr. Pitofsky, I won't take up your time now, but I am
wondering if you could have your staff review this Justice
Department analysis--I will get it to you to see if you have
the same sense.
The Brownback-Hatch amendment to S. 254, the juvenile
justice bill, would give broad antitrust immunity to a
consortium of industry members. They may refuse to sell their
products to certain retailers, including those retailers who
market the products of other manufacturers that are not part of
the consortium. The Justice Department pointed out that this
would restrict the ability of manufacturers outside the
consortium to distribute their own movies and videos and
records, and could stifle their speech in the marketplace.
Have you looked at that at all?
Mr. Pitofsky. Yes, I have.
Senator Leahy. And what did you think on it?
Mr. Pitofsky. Well, I read the Department of Justice's view
on the constitutionality of an antitrust exemption. I then read
Professor Cass Sunstein's analysis that comes to an opposite
conclusion, and what I decided was that is a very close call
and that you probably wouldn't know the answer to that until
the Supreme Court passed on it.
Senator Leahy. There was a suggestion here a bit earlier
perhaps--this is really not a question from me, this is more an
observation of mine that Vice President Gore and Senator
Lieberman, in criticizing an industry which they have also
supported, as many of us have, may not be being totally
forthright.
Governor Bush was paid over $100,000 as a member of the
board of directors of a company that produced dozens of R-rated
movies, slasher movies, but I don't think that makes him a bad
man or a bad parent. From everything I have seen, he seems to
be a very good parent. Or the tens of thousands of investors
who invested in that--I don't think they are bad people either.
I think we ought to be very clear that neither Vice
President Gore nor Governor Bush are bad people or bad parents.
I will certify right here that from everything I know about
them, they are good people and they are good parents, and
apparently good investors, too.
But I would still go back to my other point. I think we
could do more in making some basic changes in the rating
systems. It is not enough to say that PG-13 where a whole lot
of people get murdered is OK, or an R that may be is a love
story is not. I think what we should have at least some kind of
a synopsis that gives parents some idea of what they are going
to see and then let parents make some choices, because again
ultimately I am not going to vote for something that is going
to have us tell parents how they must decide what their
children can see or read. I mean, some parents have some books
they don't want them to read and other parents might think it
is very good. And I don't think we could if we wanted to.
I also would emphasize again that the best way of parents
enforcing the ratings they want or what they want is with their
wallet. If I don't like a movie, I don't go to see it. If I
don't like a TV program, I don't turn it on. I vote that way,
and maybe more of us should do that.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator.
We will turn to Senator Grassley.
Senator Grassley. I have three questions. I would like to
quote from your written statement. ``The Commission found
evidence of marketing and media plans that expressly target
children under 17.'' Do you mean by this comment that the
entertainment companies that you reviewed had the specific
intention of marketing violent material directly to minors, or
is it just that these companies adopted marketing plans which
had the effect of attracting minors to the product containing
violence?
I ask the question because I think there is a difference
between marketing to young adults which also happens to affect
minors, and marketing aimed at minors, since adults are more
likely to be more discriminating.
Mr. Pitofsky. I think both were the case in the documents
that we saw. I can't quote it exactly, but there was one
document that said our goal is to see to it that every young
person from 12 to 18 sees this movie. That is intent, as far as
I am concerned. Many of the other documents are really the
other kind that you described. They talk about a marketing plan
in magazines that have a very high percentage of young people,
or on MTV which we all know has a high percentage.
So, many of them had the effect of inducing young people to
see their movies or buy their products. But also a considerable
number clearly indicated intentional target marketing of an
inappropriate audience, inappropriate according to their own
rating.
Senator Grassley. In your written statement, again
referring to that, you discuss how the industry can impose
discipline on industry participants who don't comply with the
rules, such as not selling or marketing content labeled for
adults to minors.
Are there currently industry codes which prohibit the sale
or marketing of violent material to minors? And if so, have
these disciplinary powers ever been used to punish bad actors?
Mr. Pitofsky. Let me check on that one, Senator.There
certainly are codes which prevent marketing to minors. For example, the
alcohol industry has a code that covers that. Whether there is any code
around that talks about violent materials marketed to minors, I simply
don't know, but I can get back to you on that.
Senator Grassley. In a written response. Thank you.
Then I would ask my last question on something that Senator
Hatch has already brought up, but I would like to be more
specific. One of the witnesses that will follow you has
expressed concerns in his written testimony about creating an
antitrust exemption for the entertainment industry.
Specifically, he has concerns that an exemption would
effectively give the manufacturers of entertainment products a
monopoly over movie and video game rating systems, an exemption
would hamper the first sale doctrine, and an exemption could
seriously weaken competition at the retail level.
Do you have concerns about that, or whether or not that
testimony would raise a valid concern?
Mr. Pitofsky. Well, I mentioned the possibility that an
exemption could be used to weaken competition at the retail
level. I think, however, that a carefully tailored exemption
could address that, as this exemption now does, by taking
boycotts--if you are going to go this route, maybe we ought to
take all per se antitrust violations, like price-fixing, market
division, boycotts, and say with respect to those we don't mean
that is an exemption from the antitrust laws, only the rating
code and a provision that says the product should be marketed
in a way that is consistent with the rating code. I think you
would want to be careful to take into account what that witness
will testify to, and that is that an exemption could be misused
at the retail level.
Senator Grassley. Thank you very much.
The Chairman. Let me just clarify one point with respect to
the antitrust exemption proposal. The group boycott exception
does not apply to section 405. I believe to have effective
enforcement, you must allow for a limited group boycott. But as
you have pointed out, we would not intend to allow producers to
use a sham excuse to limit sales to a retailer who is pro-
competitive.
What would be the problem with the boycott of a retailer
who routinely violates the industry's own code and sells an
unstable product to the minor?
Mr. Pitofsky. The problem would be--and we have seen this
sort of thing--that they claim they are enforcing their self-
regulation against someone that is not abiding by the code, and
really what they are doing is cracking down on a retailer who
is unduly aggressive in marketing, and it is hard to tell the
difference. That is where the problem is.
The Chairman. Thank you.
Senator Kohl, you are next.
Senator Kohl. Chairman Pitofsky, today Senator DeWine and
myself are sending a letter requesting that you examine whether
entertainment companies engage in a deceptive trade practice
when they violate their own codes of conduct by marketing
violent or otherwise inappropriate entertainment to minors.
Can we expect you to answer this inquiry within 30 to 60
days?
Mr. Pitofsky. Yes, I believe we can do that.
Senator Kohl. Furthermore, if you find a deceptive trade
practice, will you commit to bringing an action in court
against companies that violate their own code of conduct?
Mr. Pitofsky. Yes, I think we should, yes. If we have the
authority to challenge that kind of behavior, if it is a
violation of law, certainly we would bring an action.
Senator Kohl. Well, then doesn't it follow that we have a
very fruitful avenue here of trying to alleviate this problem
by first doing whatever it is we need to do to encourage the
industries to develop a code of conduct, however we encourage
them to do that, and once that code of conduct is in place,
then the Federal Trade Commission has an ability to implement
the code of conduct if necessary by going to court?
Mr. Pitofsky. Senator, I am not sure we do under present
law. We have never brought a case like that. We have never
brought a case challenging as deceptive or unfair the marketing
of a product in a way that is inconsistent with their own code.
We are looking at that. It does have a feel of deception or
unfairness about it, but I would like some time to think
through whether or not we are over-reaching in that area.
And I have said from the very beginning that my hope is
that self-regulation is really going to be the first line of
defense in this area. But if it doesn't work out, then we will
have to think about litigation, and perhaps we can do that
under existing law.
Senator Kohl. Obviously, we are hopeful that the Federal
Trade Commission can be very useful in trying to alleviate the
problem, or we wouldn't be talking to you today. I don't know
whether I am reading you as being encouraging in your ability
to help us or discouraging or trying to straddle the fence.
I thought I heard you say a minute ago that you would
believe that you could bring a deceptive trade practice against
a company that violated their own codes of conduct signed with
other companies.
Mr. Pitofsky. Let me be clear.
Senator Kohl. Did you say that?
Mr. Pitofsky. Let me be clear. Step one: do we have the
authority to crack down on companies that market in a way
inconsistent with their regulations? Maybe I am straddling. I
would like some time to think that one through, and I have
asked the staff to give the Commission, my colleagues and
myself, a formal report on that. If we have the authority, then
I don't have any reservation about enforcing the law in a
situation like that.
Senator Kohl. The law would be a violation of their own
codes of conduct?
Mr. Pitofsky. Yes, which in turn would be a violation of
section 5 of our statute.
Senator Kohl. So I take it from that that you would lead us
to be encouraged this morning.
Mr. Pitofsky. Well, I am trying to duck; I am trying to
duck very hard here. [Laughter.]
We will have a report in 30 to 60 days, and I assure you
that we will answer these questions.
Senator Kohl. Do us a favor and don't make this, ``just
another hearing.'' Thank you.
Senator Biden. Could I ask a clarifying point?
Mr. Pitofsky. Sure.
Senator Biden. In terms of the code of conduct, wouldthe
violation lie in violating their code or would the violation lie in
violating what they said the record said? If the record has a label
that says ``no violence'' and there is violence in it, or ``no sexually
explicit language'' and there is sexually explicit language, I can
understand that being a deceptive trade practice. They have said one
thing and sold something else.
Is that what you guys are talking about, or are you talking
about the code? They violated the code, not what they said on
their product? Just a point of clarification.
Mr. Pitofsky. Well, that is exactly where the issue is.
Typically, advertisements for music or movies or video games
don't say anything about the level of violence in the material.
There may be a rating, a tiny little notice at the bottom of
the ad. I am not sure if that is a material fraud right there.
But in any event, yes, if they said this is for all
audiences or there is no problem here, there is no violence,
and then there was a lot of violence, that would be deceptive.
But that is not your typical ad for these materials. That kicks
you over to the question of whether or not it is somehow
unfair, and unfairness has been interpreted more liberally when
children or young people are the targets of the marketing
behavior, whether that is the violation here.
All I can say is we haven't brought that case in the past,
and I want to be careful about suggesting that we could bring
it in the future. If we can't bring it, as I said to Senator
McCain last week, then I think perhaps legislation which makes
that behavior an unfair trade practice if what ought to be
considered; that is, if self-regulation doesn't work.
The Chairman. Thank you.
Senator DeWine.
Senator DeWine. Thank you, Mr. Chairman. I did have an
opening statement. Do you want me to give that now or do you
want me to defer on that?
The Chairman. Why don't you wait until he finishes and then
we will turn to your opening statement?
Senator DeWine. That will be fine.
Let me ask you, if I could, to answer Senator Biden's
question, I believe that what we are potentially talking about
is both of what you were referencing. Either you violate the
code, you say you are going to do one thing and then you just
don't do it, and the question we have raised is, is that
deceptive. The other is obviously more micro and it is probably
an easier case to make, and that is that you label it one way
and it is clearly something else. So I think the answer is
both.
Chairman Pitofsky, when Hilary Rosen, the President of the
Recording Industry, testified before the Commerce Committee
last week, she took exception with certain aspect of your
Commission's report. She appeared to indicate that there were
only three or maybe four instances where younger teen audiences
were targeted to market products with explicit material. She
also was of the opinion that the report demonstrated that the
labeling and rating system was, in fact, adequate.
I wonder if you could respond to that testimony.
Mr. Pitofsky. Before I do, Senator, in my opening statement
I acknowledged the support of many on this committee for our
project, and I certainly want to mention your very strong and
constant support for what we have done here.
We did not set out to rate the rating systems. We weren't
asked to do it and I thought it was beyond our mandate. As far
as the music ratings system is concerned, speaking now only for
myself, I do have some reservations about it. My principal
reservation is that the rating is not done by an independent
third party, but by the artists and their distributors. I think
that is a matter of concern.
On the other hand, I can hear the response of the music
people that maybe it is the best way, maybe it is not, but
people aren't complaining. And indeed we looked at the
documents and people are not complaining about the rating that
is applied to most music lyrics.
As to how many instances where the music people overreached
in marketing to young people, I don't know the answer to that.
I can find out. I am pretty sure it is more than three or four.
Senator DeWine. Mr. Chairman, Mr. Lowenstein, the President
of the Interactive Digital Software Association, testified
before the Commerce Committee that he strongly disagreed with
the FTC's conclusions that game magazines, which the FTC
concluded have a majority of under-17 readership, are not
appropriate outlets for advertising M-rated games. His position
was that because these magazines have a substantial share of
older viewers, they are appropriate venues for advertising the
kind of products at issue.
Could you respond to that, please?
Mr. Pitofsky. Well, I think there is a point at which the
readership, the viewership is mainly adults, and we have no
business depriving the company of an opportunity to market
their products to the adults. Therefore, if it is 10, 15, 20
percent kids, that is the price you pay in a free-market
system. On the other hand, when the percentage of the market is
51 percent kids, 60, 70 percent kids, then it seems to me
troublesome.
I would not like to see violent entertainment material
broadcast on Saturday morning cartoon programs. That is the
extreme example of that. Where you draw that line--is it 35
percent, 50 percent, some other--that is a point that
reasonable people can argue over. But there ought to come a
point where there are so many young people in the audience that
advertising to that audience is inappropriate.
Senator DeWine. Thank you. Thank you, Mr. Chairman.
The Chairman. Thank you, Senator.
Senator Feinstein.
Senator Feinstein. Thanks, Mr. Chairman.
Mr. Pitofsky, I read your report with great interest. I
think beyond any doubt it establishes that the rating system is
badly broken. The question now is what can be done to fix it.
Giving the industry a limited antitrust exemption,
carefully tailored, it seems to me is the kind of nudge that
was spoken about in terms of saying, OK, industry, we are
prepared to do this, now it is up to you to sit down together--
and this is difficult because it is a very fragmented
industry--and try to overcome what is out there and see that
the system is enforced and corrected.
I was heartened to see that one large company did step
forward, and that, of course, is the Disney company. Disney
essentially said three things, as I understand. One, ABC,
asubsidiary, will no longer accept advertising for R-rated movies in
prime time before 9 p.m. in the evening. Second, Disney and its
subsidiaries will not target audiences under 17 for R-rated movies.
And, third, the company will provide additional information for parents
about why a film has been rated R. I think these are very good first
steps. I applaud Disney.
I would like to know, in your professional evaluation, how
far these steps go, and if they were replicated by all other
filmmakers, whether that would be a substantial improvement.
Mr. Pitofsky. They go a long way, and that would be a
substantial improvement, absolutely. I am very admiring of what
the Disney company did in this area.
Let me just take one extra minute. There is an interesting
aspect that you raise with your question. Most people are not
only satisfied, but they approve the rating systems that are
out there. If there is a criticism, it is the question of why
something got that rating. They want more information.
Therefore, if there is any criticism, it is, well, you gave
it an R rating, but tell us if it is bad language, nudity,
drugs, violence, sex. So the Disney people in moving in that
direction, I think, have taken a very constructive step.
Senator Feinstein. Thank you very much.
Second, it is my understanding that the theater owners will
not enforce the rating system. What can the industry do to
require that level of enforcement? That would be somebody comes
who is a juvenile, who is unescorted, and simply to make the
decision not to sell a ticket to them, I would assume it means
that the industry would have to hire someone in every theater
to do just that.
Mr. Pitofsky. Well, two questions there. What could be
done? First of all, the movie owners, NATO, the National
Association of Theater Owners, have taken the position that
they will respect the rating system and they will improve their
monitoring of young people buying tickets.
Senator Feinstein. May I ask you just for clarification on
that point, are they saying they will enforce it?
Mr. Pitofsky. I am not sure they have said. No, I don't
think they have. I don't think they have.
Senator Feinstein. I intend to ask them when they are here.
Mr. Pitofsky. It is hortatory. As a matter of policy, we
want to move in that direction, but I don't believe there has
been any suggestion that theater owners that essentially ignore
their obligations under the NATO self-regulation program will
be disciplined in any way.
Self-regulation means self-regulation, and therefore I
would like the industry to take the lead here. One of the
mildest forms of sanction would be to simply publish the names
of the theater owners who don't pay any attention to this rule.
I think that could do a lot of good.
Actually, I have the impression that more theater owners
are checking age at the ticket booth before they will sell a
ticket to a young person, but it is still around 50 percent, 46
percent, 50 percent. They could do more, they could do better,
and my hope is they would be willing to do so.
Senator Feinstein. Let me ask a third question. It is my
understanding that the youngsters at Columbine, the two
youngsters that carried out the murders, were obsessed with two
particular video games, which I am not going to name, spent
hours watching them.
What could be done essentially to encourage that industry
to take some steps to clean up its act?
Mr. Pitofsky. I suppose our main concern here is that those
video games--and we have documents to indicate that--those very
video games may very well have been marketed with a very young
target audience in mind. I seem to recall documents talking
about people who are 8, 10 and 12 years old. They ought to cut
that out.
But now I want to go back to what Senator Hatch said,
Senator Leahy said. The Government can't control that kind of
issue. In the end, parents are going to have to pay attention
to what kind of video games their children are playing.
Video games are not the sort of thing I ordinarily do, but
I tried out the video games that we are talking about here and
they are incredibly violent. But I think the obligation is on
the parents to watch to see what their young people are doing,
and for the industry not to be targeting young people with
those particular video games after they said they ought to be
available only for a mature audience.
Senator Feinstein. Thanks very much, Mr. Pitofsky. Thank
you, Mr. Chairman.
The Chairman. Thank you, Senator.
If we could go to Senator Specter now.
Senator Specter. Thank you, Mr. Chairman.
Chairman Pitofsky, this hearing which focuses on the FTC is
part of a broader effort by the Congress and others to find
some answer to juvenile violence, and I commend Senator Hatch,
the chairman, for the application of the antitrust laws, the
FTC, and the Clayton Act dealing with unfair or deceptive
practices.
Looking at the issue before coming to the antitrust
question more sharply focused, your comments are diplomatic
where you say although scholars and observers generally agree
that exposure to violence in entertainment media alone does not
cause a child to commit a violent act, there is widespread
agreement that it is nonetheless a cause for concern. I think
you understate the issue when you later testify about the video
games being very violent in and of themselves.
One of the concerns that I have in seeking to get to the
entertainment industry--movies, TV, records, video games--is to
have a congressional view that there are many other components
of the issue which need to be addressed. I have had a couple of
meetings with Mr. Valenti. He was a very forceful spokesman for
the movie industry. He has had a fair amount of experience at
it.
Our Appropriations Subcommittee on Health, Human Services,
and Education funding put about $800 million last year into a
program, and are now in the final stages of upping the ante to
almost 1.2 billion, looking at a variety of problems such as
character education, counseling in school, safe schools and
drug-free schools, and the impact of the National Institute of
Mental Health.
We are going to be having a report from the Surgeon General
in a few months which is going to look at the issues of
violence in a broader context as to what we do about them. And
my instinct is that if there is a broadercongressional view
which identifies the violence problems as only one part of the issue
that we may have reason to expect a little less reaction that the
entertainment industry is being picked on and being singled out when we
identify so many other causes. That remains in the broader picture of
the Congress with other committees.
But in focusing on the antitrust issues which are before us
now--and there is talk about a limited antitrust exemption--I
am always very leery about limited antitrust exemptions because
it is very hard to anticipate the impact as to where they are
going to go.
We have a limited antitrust exemption for pro football, and
pooling of receipts, and we have created a situation where
cities are being subjected to blackmail to keep teams or bring
teams. So when you talk about amending the antitrust laws with
respect to exemptions, I am very leery of that.
But you say, ``An antitrust problem would arise if the
self-regulatory program was a cloak for an anti-competitive
scheme and not truly designed to protect young people from
inappropriate exposure to violent material.'' My question is do
you think that is realistic, that if there were self-regulation
it would be susceptible to being anti-competitive to keep the
little guys out, so to speak?
Mr. Pitofsky. Well, I certainly have seen absolutely
nothing to indicate the rating system as of now has ever been
used in an anti-competitive way. Could it be used in the
future? Well, we have seen self-regulatory schemes that were
used as a cloak to get at new entrants with innovative
products, so it is possible.
Senator Specter. Can you give us an illustration as to
where you have seen that kind of an anti-competitive effect so
that there might be some analogy to this situation?
Mr. Pitofsky. Not a direct analogy, but the Supreme Court
in Allied Tube. That is the leading case in this area. What
happened was the raters, the regulators stacked the deck and
got the group to agree that a particular product was unsafe.
Their purpose was really not to protect consumers. Their
purpose was to drive an innovator out of the market. It does
happen.
Senator Specter. Well, I understand that kind of a context,
but I would have to see something which was much closer to this
field to justify any antitrust exemption.
Thank you for an excellent report, Mr. Chairman.
The Chairman. Thank you, Senator.
We have 3 minutes left. There has been an objection to any
committee meeting raised on the part of the minority, any
committee meeting beyond 11:30 a.m. So I am going to apologize
to all of you in advance, but I want to give the remaining time
to Senator Biden.
STATEMENT OF HON. JOSEPH R. BIDEN, A U.S. SENATOR FROM THE
STATE OF DELAWARE
Senator Biden. Thank you. You turn to me because I am the
most concise member of the committee, Mr. Chairman. My
reputation is that. I have a lot of questions for Cass Sunstein
and some Jack Valenti. I guess I am not going to get to ask
them today.
I will get right to it. Did your report in any way indicate
whether or not the exposure of a manufacturer or a producer, a
television show, a movie, a recording that was engaged in what
some people would call predatory practices--that is, seeking to
expose 12- to 16-year-olds to untoward material--that if you
exposed who they were, if they were shamed, that it would
increase their record sales or diminish their record sales?
Was there any notion of what merely outing, if you will,
the bad guys would have on their performance?
Mr. Pitofsky. No, no finding on that.
Senator Biden. One of the things, it seems to me--and I
realize I am not going to get a chance to ask my questions, so
I will just make a statement. My mom, a pretty smart woman,
wondered here in this why the industry just doesn't do what
doctors don't do enough and lawyers don't do enough and just
point to the bad guy, just say, hey, look, there is xyz
company, they are deliberately trying to peddle this stuff to
12-year-olds.
There is freedom of speech. I am worried about us crossing
the line. I wanted to talk to Cass Sunstein about commercial
speech and non-commercial speech, and why non-commercial speech
is not protected as much. It is not an absolute standard that
the court applies; it is a more lenient standard in terms of
regulation of it, and so on.
But I just want the industry to know--and I respect a lot
of people in the industry, particularly Jack Valenti, whom I
have known for years.
Jack, freedom of speech works two ways. It seems to me one
of the ways we could deal with this in Congress is not passing
a law, but just start talking about how rotten certain people
in the industry are, name them, hold hearings and talk about
how bad they are. The only reason I wouldn't do that is it
might--I don't know if there are any studies, but that may
increase their sales. I am not being facetious.
The Chairman. They might start talking about how rotten we
are, you know. You never know.
Senator Biden. Well, that is part of the deal already. That
is already done, as it can be and should be.
But I guess what I am trying to say is it seems to me that
we are going to be going through this for a long, long time.
The idea that the industry is going to come up with a self-
regulating system is, I think, somewhat unlikely. I think the
idea that we are going to come to a consensus here on what laws
we pass to regulate the industry that don't trample on free
speech gets very tricky. I don't see why we need an exemption
to the antitrust laws for the industry to get together now.
Is there anything in your base of knowledge as a professor
at Georgetown, a dean down there, an incredibly well-informed
scholar, anything you have seen, that you have read, any cases
you are aware of that would prevent the industry getting
together now and setting out a code of conduct, not an
enforcement mechanism but a code of conduct? Is there anything?
Mr. Pitofsky. Just a code of conduct?
Senator Biden. Just a code.
Mr. Pitofsky. No. Even the old cases wouldn't----
Senator Biden. There is no requirement, so it really comes
down to the enforcement mechanism.
Mr. Pitofsky. Yes.
Senator Biden. That is the place where the rubber meets the
road. Well, that is a bad metaphor these days. That is the
place where we really get into the question of what constitutes
a violation of the antitrust laws or not, correct?
Mr. Pitofsky. Yes, absolutely.
Senator Biden. Well, obviously, the time is up, the hearing
is over. But I look forward to having a chance totalk to the
other witnesses at another time. And I am sure the chairman feels this
way, too. We apologize to all of you for there being an objection to us
meeting under the Senate rules. Someone on the floor of the Senate is
not letting any committees meet under a rule we have relating to you
can't meet beyond 2 hours after the Senate session goes in without
unanimous consent.
Senator Leahy. Mr. Chairman, if I might put a statement in
the record saying that one of the reasons I understand an
objection was made was the lack of judges being voted out of
this committee. I will put the whole statement in the record.
The Chairman. Well, I thought we might be able to get by
without another comment about that, especially since we have
appointed almost as many as the all-time high that we have
gotten through this committee.
But be that as it may, I apologize to you witnesses who
have taken so much time to get here and have put forth such an
effort. We were looking forward to hearing the rest of the
witnesses, but any Senator has a right to object to committees
meeting beyond 2 hours after the Senate comes into session. So,
that objection has been made for whatever reasons, and we have
to abide by it and I just want to apologize to all of you folks
who have made such an effort to get here. We will try to
continue this hearing at a future date, and please accept my
apologies for today. There is not much I can do about it, other
than abide by the rules.
So with that, we will adjourn until further notice.
[The prepared statement of Mr. Pitofsky follows:]
Prepared Statement of Robert Pitofsky
I. INTRODUCTION
Mr. Chairman and Members of the Committee, I am pleased to appear
before you to present testimony of the Federal Trade Commission
(``FTC'') on the issue of the antitrust implications of entertainment
industry self-regulation to curb the marketing of violent entertainment
products to children. The Commission recently released its study
concerning the marketing to children under 17 of violent entertainment
products labeled or rated with parental advisories, and I discussed the
conclusions of that study last week before the Senate Committee on
Commerce, Science, and Transportation.\1\
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\1\ See Prepared Statement of the Federal Trade Commission
presented by Robert Pitofsky, Chairman, before the Committee on
Commerce, Science, and Transportation, United States Senate, on
``Marketing Violent Entertainment of Children: A Review of Self-
Regulation and Industry Practices in the Motion Picture, Music
Recording, and Electronic Game Industries,'' September 13, 2000.
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The FTC is a law enforcement agency whose statutory authority
covers a broad spectrum of the American economy, including the
entertainment industry. The Commission enforces, among other statutes,
the FTC Act \2\ and the Clayton Act,\3\ sharing with the Department of
Justice authority under section 7 of the Clayton Act to prohibit
mergers or acquisitions that may ``substantially lessen competition or
tend to create a monopoly.'' \4\ In addition, section 5 of the FTC Act
prohibits ``unfair methods of competition'' and ``unfair or deceptive
acts or practices,'' thus giving the Commission responsibilities in
both the antitrust and consumer protection areas. The Commission also
provides advice and guidance to states and other federal regulatory
agencies on competition issues. Moreover, the Commission has experience
applying antitrust principles across many different industries.
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\2\ 15 U.S.C. 41-58.
\3\ 15 U.S.C. 12-27.
\4\ 15 U.S.C. 18.
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The FTC frequently considers issues involving self-regulatory
initiatives, from both competition and consumer protection
perspectives. In our competition role, we seek to preventself-
regulatory restraints that harm the competitive process by denying
consumers the full range of choices or by preventing new forms of
competition from emerging. We also play a role in counseling self-
regulatory organizations on how they can perform certain collective
functions without raising significant antitrust concerns. But we also
seek to prevent self-regulation that unnecessarily restricts
competition in the market. In our consumer protection role we have
emphasized the importance of self-regulation and we work with industry
groups to develop sound self-regulatory initiatives, often to
complement existing laws.
We frequently hear concerns expressed that the antitrust laws pose
obstacles to self-regulation efforts. We think a careful analysis of
current case law and enforcement agency guidance will alleviate much of
this concern. In particular, we believe it is unlikely that the
antitrust laws prevent the entertainment industry from adopting and
enforcing effective restraints against the target marketing to children
of violent entertainment products that industry itself labels or rates
with parental advisories. Self-regulation by the entertainment industry
is especially important considering the First Amendment protections
that prohibit government regulation of content in most instances.
However, antitrust problems would arise if the self-regulatory program
was a cloak for an anticompetitive scheme, and not truly designed to
protect young people from inappropriate exposure to violent material.
II. BACKGROUND
On June 1, 1999, following the horrifying school shooting in
Littleton, Colorado, the President requested that the Federal Trade
Commission and the Department of Justice conduct a study of whether
violent entertainment material was being advertised and promoted to
children and teenagers.\5\ President Clinton's request paralleled
congressional proposals for such a study.\6\ Revelations that the teen-
aged shooters at Columbine High School in Littleton had been infatuated
with extremely violent movies, music, and video games reinvigorated
public debate about the effects of violent entertainment media on
youth. While opinions vary, many studies have led experts and public
health organizations to believe that viewing entertainment media
violence can lead to increases in aggressive attitudes and behavior in
children. Although scholars and observers generally have agreed that
exposure to violence in entertainment media alone does not cause a
child to commit a violent act, there is widespread agreement that it
is, nonetheless, a cause for concern.
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\5\ See Letter from William J. Clinton, President of the United
States, to Janet Reno, Attorney General of the United States, and
Robert Pitofsky, chairman, Federal Trade Commission (June 1, 1999) (on
file with the Commission).
\6\ Legislation calling for the FTC and the Justice Department to
conduct such a study was introduced in both Houses of Congress
following the Columbine incident. See Amendment No. 329 by Senator
Brownback et al. to the Violent and Repeat Juvenile Offender
Accountability and Rehabilitation Act of 1999, S. 254, 106th Cong.
Sec. 511 (1999); H.R. 2157, 106th Cong. (1999); 145 Cong. Rec. S5171
(1999). In May 1999, the U.S. Senate Committee on Commerce, Science,
and Transportation conducted hearings on the marketing of violent
entertainment media to children. See Marketing Violence to Children:
Hearing Before the Senate Comm. on Commerce, Science, and Transp.,
106th Cong. (1999). Based on these hearings, in September 1999, the
Majority Staff of the Senate Committee on the Judiciary issued a
committee report on this issue. See Majority Staff of the Senate Comm.
on the Judiciary, 106th Cong., Report on Children, Violence, and the
Media: A Report for Parents and Policy Makers (Comm. Print. 1999).
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In response to the President's request, the Commission, with
financial assistance from the Justice Department, collected information
from the motion picture, music recording, and electronic game
industries regarding their self-regulatory systems and marketing
practices.\7\ The Commission requested information from the principal
industry trade associations, as well as the major motion picture
studios, the music recording companies, and electronic game companies.
In addition, the Commission contacted interested government agencies,
public health associations, academics, and parent and consumer advocacy
groups. We reviewed a substantial amount of information collected from
consumers through various surveys and polls, and also designed and
conducted our own surveys for this study. Specifically, we conducted a
survey of parents and children regarding their understanding and use of
the rating and labeling systems, and how they made purchase decisions
for these entertainment products. We also conducted an undercover
survey of retail stores and movie theaters to see if unaccompanied
children under 17 could purchase or gain access to products rated or
labeled as inappropriate or warranting parental guidance. Finally, we
reviewed Internet sites to study how they are used to market and
directly access these products.
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\7\ The Justice Department provided the FTC with substantial
funding and technical assistance to enable the FTC to collect and
analyze public and non-public information about the industries'
advertising and marketing policies and procedures, and to prepare the
Commission's written report and appendices. The analysis and
conclusions contained in the Report are those of the FTC.
---------------------------------------------------------------------------
The report answers two questions raised by President Clinton when
he requested this study: Do the motion picture, music recording and
electronic game industries promote products they themselves acknowledge
warrant parental caution in venues where children make up a substantial
percentage of the audience? And, are these advertisements intended to
attract children and teenagers? After a comprehensive 15-month study,
the Commission has found that the answers to both questions are plainly
``yes.''
Although all three industries studied have self-regulatory systems
that rate or label their products to help parents make choices about
their children's entertainment, the Commission found that members of
all three industries routinely target children in their efforts to
advertise and market entertainment products that have been rated or
labeled with parental advisories due to their violent content. The
Commission believes that these advertising and marketing efforts
undermine each industry's parental advisories and frustrate parents'
attempts to protect their children from inappropriate material.
III. THE COMMISSION'S FINDINGS
The Commission carefully examined the structure of these rating and
labeling systems, and studied how these self-regulatory systems work in
practice. We focused on the marketing of products designated as violent
under these systems. We did not examine the content itself, but
accepted each industry's determination of whether a particular product
contains sufficient violentcontent to warrant parental caution.
The Commission found that despite the variations in the three
industries' systems, the outcome is consistent: individual companies in
each industry routinely market to children the very products that have
industries' self-imposed parental warnings or ratings with age
restrictions due to violent content. Indeed, for many of these
products, the Commission found evidence of marketing and media plans
that expressly target children under 17. In addition, the companies'
marketing and media plans showed strategies to promote and advertise
their products in the media outlets most likely to reach children under
17, including those television programs ranked as the ``most popular''
with the under-17 age group, magazines and Internet sites with a
majority or substantial (i.e., over 35 percent) under-17 audience, and
teen hangouts, such as game rooms, pizza parlors and sporting apparel
stores.
Further, most retailers make little effort to restrict children's
access to violent products. Surveys conducted for the Commission in May
through July 2000 found that just over half the movie theaters admitted
children ages 13 to 16 to R-rated films even when not accompanied by an
adult. Even when theaters refuse to sell tickets to unaccompanied
children, they have various strategies to see R-rated movies. The
Commission's surveys also showed that unaccompanied children ages 13 to
16 were able to buy both explicit content recordings and Mature-rated
electronic games 85 percent of the time.
Although consumer surveys show that parents value the existing
rating and labeling systems, they also show that parents' use and
understanding of the systems vary. The surveys also consistently reveal
high levels of parental concern about violence in the movies, music and
video games their children see, listen to and play. These concerns can
only be heightened by the extraordinary degree to which young people
today are immersed in entertainment media, as well as by recent
technological advances such as realistic and interactive video games.
The survey responses indicate that parents want and welcome help in
identifying which entertainment products might not be suitable for
their children.
Since the President requested this study over a year ago, each of
the industries reviewed has taken positive steps to address these
concerns. Nevertheless, the Commission believes that all three
industries should take additional action to enhance their self-
regulatory efforts. The industries should:
1. Establish or expand codes that prohibit target marketing to
children and impose sanctions for noncompliance. All three industries
should improve the usefulness of their ratings and labels by
establishing codes that prohibit marketing R-rated/M-rated/explicit-
labeled products in media or venues with a substantial under-17
audience. In addition, the Commission suggests that each industry's
trade associations monitor and encourage their members' compliance with
these policies and impose meaningful sanctions for non-compliance.
2. Increase compliance at the retail level. Restricting children's
retail access to entertainment containing violent content is an
essential complement to restricting the placement of advertising. This
can be done by having retailers voluntarily agree to respect the codes
and check identification or require parental permission before selling
tickets to R movies, and not sell or rent products labeled ``Explicit''
or rated R or M, to children.
3. Increase parental understanding of the ratings and labels. For
parents to make informed choices about their children's entertainment,
they must understand the ratings and the labels, as well as the reasons
for them. That means the industries should all include the reasons for
the rating or the label in advertising and product packaging and
continue their efforts to educate parents--and children--about the
meanings of the ratings and descriptors.
IV. SELF-REGULATION AND ANTITRUST
The concern that the antitrust laws pose obstacles to self-
regulatory efforts has some basis in historical fact. Antitrust
enforcement has not always acknowledged the benefits of industry self-
regulation. Early enforcement was deeply suspicious of any kind of
cooperative undertaking among competitors, and not without reason.
Trusts and cartels were common. In contrast, industrial product
standardization was uncommon, the International Standards Organization
(``ISO'') did not exist, and the service sector of the economy was
quite small.
However, technological innovations and the growing integration of
the economy acrossregions spurred recognition among competitors and
enforcement officials alike that some kinds of cooperation were
important to efficiency and economic success, and beneficial to both
sellers and consumers. Today, in our interconnected, increasingly
networked world, many products such as computers, telecommunications,
and ATM banking systems need compatibility so that consumers can make
use of the widest and most convenient array of services.
The benefits of industry self-regulation are numerous. First, many
product standards developed through self-regulation enhance safety.
Industry self-regulatory bodies such as the American National Standards
Institute (``ANSI'') and the American Society of Mechanical Engineers
(``ASME'') have established thousands of voluntary standards regarding
matters such as product design, fire prevention, and ethical standards
of practice. By establishing a floor of common quality, such standards
increase product acceptability and familiarity, which helps facilitate
the emergence of new markets and the entry of previously unknown
products and suppliers. This enhances competition and innovation.
Second, industry regulatory standards can improve the efficiency of
industry members, leading to lower costs of production and
distribution. For example, industry standards can reconcile diverse
systems or products, permitting greater interchangeability of parts or
more compatible designs. This is critical in computer, high-tech and
network industries. As compatibility increases, so do opportunities to
achieve increased economies of scale and scope, lower costs, and higher
profits. Compatibility can also facilitate entry by new suppliers and
growth for smaller firms, thus enhancing competition. And if offers
consumers more choices by allowing them to interconnect or easily
substitute rivals' products.
Third, industry regulatory schemes can provide useful information
for consumers regarding product qualities, benefitting both consumers
and competition. As the Circuit Judge Breyer explained, the
promulgation of standards ``provid[es] information to makers and to
buyers less expensively and more effectively than without the
standard.''\8\ Many industry associations have testing or consumer
education programs, which are particularly important with resect to new
or highly complex products or services. When consumers know what
products to trust and how best to use them, they can make better
choices, and competition on the merits is enhanced. Such information
also facilitates the entry of new products and suppliers and promotes
innovation.
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\8\ See Clamp-All Corp. v. Cast Iron Soil Pipe Institute, 851 F.2d
478, 487 (1st Cir. 1988), cert. denied, 488 U.S. 1007 (1989).
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In addition, an industry group may engage in self-regulation to
enhance its reputation for fair and honest service by establishing
ethical standards and disciplining in a reasonable manner those who do
not abide by the standards. Through their power to repudiate and
reward, industry self-regulatory bodies can rapidly achieve a high
degree of compliance with this standards of competence, safety, design,
or responsibility to consumers. In most fields, a good reputation with
competitors, vertically-related industries, and consumers is vital to
success. Few companies want to jeopardize that reputation by failing to
abide by measures adopted by their peers. This risk of condemnation by
other firms, and thus possible rejection by consumers, can be a potent
sanction.
Of course, self-regulation can be anticompetitive. Competitors may
use the self-regulatory process to disadvantage new rivals or new forms
of competition, or to reduce the rigor of traditional forms of
competition. When that happens, the antitrust agencies will bring
enforcement actions. As the Supreme Court observed in connection with
standard setting:
There is no doubt that the members of [private standard-
setting] associations often have economic incentives to
restrain competition and that the product standards set by such
associations have a serious potential for anticompetitive harm.
Agreement on a product standard is, after all, implicitly an
agreement not to manufacture, distribute, or purchase certain
types of products. Accordingly, private standard-setting
associations have traditionally been objects of antitrust
scrutiny.\9\
\9\ Allied Tube & Conduct Corp. v. Indian Head, Inc., 486 U.S. 492,
500-01 (1988).
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In sum. prevailing antitrust doctrine is not inherently
antagonistic toward self-regulatory efforts. The Supreme Court has
expressly confirmed the substantial value of such activities.\10\ At
the same time, the court has recognized the possibility that self-
regulatory efforts can be abused. The role of government enforcers,
therefore, is not to interdict legitimate industry self-regulation but
to ensure that such efforts are consistent with the operation of
competitive markets.
---------------------------------------------------------------------------
\10\ California Dental Ass'n v. FTC, 526 U.S. 756, 781 (1999)
(procompetitive potential of self-regulation in restricting certain
discount advertising mandates ``a less quick look'' rule of reason
test).
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The antitrust laws are concerned about conduct that unreasonably
restricts competition (e.g., increases prices, reduces output, lowers
quality or variety, or lessens innovation) and harms consumers. Under
the antitrust laws, the legal test applicable to most kinds of self-
regulation is called the ``rule of reason.'' This test has two
components: (1) whether the conduct significantly restricts
competition; and (2) whether there are legitimate justifications for
the conduct that further, rather than restrict, the competitive
process.\11\ The rule of reason test requires a balancing of these two
elements. Violations of this rule of reason test involve agreements
that are not truly efforts at self-regulation, but rather are attempts
to fix prices or reduce output.
---------------------------------------------------------------------------
\11\ See, e.g., Chicago Board of Trade v. United States, 246 U.S.
231 (1918).
---------------------------------------------------------------------------
The Commission has followed the Court's guidance and has supported
those collective efforts that, on balance, have procompetitive benefits
for consumers. A recent example involves the efforts of the Direct
Marketing Association (``DMA``) to enable consumers to restrict their
receipt of unsolicited direct mail or telephone direct marketing by
providing a system that allows consumers to place their names on non-
solicitation lists. DMA submitted a proposal to the FTC that in essence
would require member firms not to engage in mail or telephone
solicitation of consumers on the nonsolicitation lists. In addition,
DMA proposed to require each member to notify consumers of its
information practices (for example, that the member sometimes sells its
customer list to other firms) and to allow consumers to prevent the
sale or other disclosure of their name, address, or other information.
In an advisory opinion, the FTC staff noted that the requirement
that DMA members not engage in direct mail or telemarketing
solicitation of consumers who request such treatment could be
considered a direct restriction on solicitation. Nonetheless, the staff
suggested that his requirement was not vulnerable on antitrust grounds,
because it would restrict solicitation only of consumers who
affirmatively communicated that they do not want the information that
direct marketers would otherwise seek to provide. The restraint did not
limit any information consumers desired. From another point of view,
the restriction improved the information available to consumers and
gave consumers new choices. Members firms now had to disclose their
marketing practices to consumers and permit them to opt out. This
option was previously unavailable to consumers, and was unlikely to
become available absent government action or self-regulation.
Similar efforts to provide truthful information to consumers and to
expand consumers' choices are likely to be found legal, as they would
advance the purposes of the antitrust and the consumer protection laws.
V. APPLYING ANTITRUST PRINCIPLES TO ENTERTAINMENT INDUSTRY SELF-
REGULATION
The analysis of current case law and enforcement agency actions
concerning industry self-regulation makes it clear under the special
circumstances here, including the unique role of children in the
marketplace and the nature of the material, that the antitrust laws are
not a serious impediment to a rational, legitimate effort to control
the target marketing to children of violent entertainment products
labeled or rated with parental advisories. A look at some of the
potential methods of restricting such marketing reveals considerable
procompetitive benefits.
Industry self-regulatory efforts to discourage the target marketing
and sale of entertainment media products with violent content to
children can take various forms, such as: (1) creation and operation of
rating or labeling systems to identify and classify those products that
warrant parental caution; (ii) industry self-regulatory codes that
prohibit members from selling, renting, or marketing such rated or
labeled products in a way that undercuts the effectiveness of parental
cautions; (iii) trade association rules that provide sanctions for
failing to adhere to such a self-regulatory code; (iv) actions by
manufacturers to discourage retailers from selling or renting to
children violent products containing parental cautions; and (v)
advertising restraints, such as codes that prohibit advertising violent
products in media with a substantial underage audience. Although each
of these measures has a somewhat different competitive implication, in
this instance none is likely to violate the antitrust laws so long as
the rules are sensibly designed and implemented to achieve the stated
objective and do not restrict competition in ways unrelated to the
basic objective.
Rating or Labeling Systems.--The creation and operation of a rating
or labeling system to identify and classify entertainment products that
warrant parental caution is unlikely to have a restrictive effect on
competition, because a rating or labeling system generally would not
restrict the products that may be produced or sold.\12\ Producers and
retailers are still free to make, market, display, and sell the
products. Rather, the function of such systems is informational. Like a
safety standard for products, rating or labeling systems convey
information about the suitability of a product for a particular use.
Rather than restrict competition in the market, a well-designed rating
or labeling system can enhance the functioning of the market by
enabling consumers to make useful comparisons and purchase decisions
with minimal search costs.\13\ A rating or labeling system may increase
overall demand for products by reducing consumer confusion or
uncertainty, and by increasing consumer confidence that the relevant
attributes of the product will be as advertised.\14\
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\12\ However, manipulation of a rating system to put a product in a
restricted category without substantial justification can be
problematic. See Allied Tube & Conduit Corp. v. Indian Head, 486 U.S.
492 (1988) (manufacturers of metal pipe unlawfully manipulated the
certification process to deny market access for manufacturers of
plastic pipe). Participation in the process by persons without an
economic interest in stifling competition can help ensure that the
result is not anticompetitive. See id. at 501 (``When * * * private
associations promulgate safety standards based on the merits of
objective expert judgments and through procedures that prevent the
standard-setting process from being biased by members with economic
interests in stifling product competition, those private standards can
have significant procompetitive advantages.'' (citation omitted)).
\13\ See Clamp-All Corp. v. Cast Iron Soil Pipe Inst., 851 F.2d
478, 487 (1st Cir. 1989) (Breyer, J.). See also Tropic Film Corp. v.
Paramount Pictures Corp., 319 F. Supp. 1247, 1254 (S.D.N.Y. 1970)
(independent movie producer sought preliminary injunction against movie
studio's refusal to distribute an unrated film, alleging violations of
Sections 1 and 2 of the Sherman Act and asking the court to enjoin
Paramount and the MPAA from engaging in an asserted industry-wide
refusal to deal in and distribute, advertise, and exhibit the film
Tropic of Cancer without an X rating; court denied the motion, stating
that the rating system was ``not designed to eliminate competition, but
to advise motion picture exhibitors and, through them, the public, of
the content of films which the Supreme Court has held that states have
the constitutional right to prevent minors under seventeen from
viewing'').
\14\ See generally Self Regulation and Antitrust, Prepared Remarks
of Robert Pitofsky, Chairman, Federal Trade Commission, Before the D.C.
Bar Association Symposium (Feb. 18, 1998).
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Restriction on Sales and Marketing to Children.--Industry codes
that prohibit members from selling, renting, or marketing certain
entertainment products to children constitute a higher level of self-
regulation and could be challenged as agreements to restrain
competition. So long as the industry limits the restraint to children
and pursues fair procedural rules, competition in sales to the adult
audience is not likely to be affected.\15\ Here, the restraints would
appear to reflect a determination by the industry, reflecting public
concerns, that sale to children of entertainment products that warrant
parental caution is inappropriate.\16\ In this situation, the sale of
such products to children could undermine the efficient functioning of
the market by creating mistrust of the industry rating system and
apprehension among consumers, possibly leading to a longer-term
dampening effect on overall sales.\17\ Consequently, restrictions on
sales and targeted marketing to children appear likely to have a
legitimate business justification if appropriately tailored.\18\
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\15\ Restrictions on sales of entertainment products to adults
inevitably raise First Amendment issues. The Commission's support for
enhanced industry self-regulation in the advertising context is
motivated in part by our strong belief in the benefits of self-
regulation, and in part by our concern that government regulation of
advertising and marketing--especially if it involves content-based
restrictions--may raise First Amendment issues. The First Amendment
issues that have been raised in the context of restricting or limiting
advertisements for media products are identified in Appendix C of the
Commission's Report (First Amendment Issues in Public Debate Over
Governmental Regulation of Entertainment Media Products with Violent
Content).
\16\ That the restraints have broader public origins, and are not
imposed solely by agreement of competitors, is a relevant consideration
under a rule of reason analysis. The Supreme Court has been skeptical
of arguments that competitors alone should be permitted to restrict
consumer choice on grounds that consumers may make ``unwise'' or
``dangerous'' decisions under competitive market conditions. See
National Soc'y of Prof'l Engineers v. United States, 435 U.S. 679
(1978). In Professional Engineers, an association attempted to justify
a ban on competitive bidding by claiming that such competition would
lead to ``deceptively low bids, and would thereby tempt individual
engineers to do inferior work with consequent risk to public safety and
health.'' Id. at 693. The Supreme Court rejected the asserted
justification, explaining that ``the Rule of Reason does not support a
defense based on the assumption that competition itself is
unreasonable.'' Id. at 696. In contrast, an agreement to refrain from
marketing restricted entertainment products to children would reflect a
broader societal view that children occupy a unique place in the
marketplace.
\17\ Further, it is not entirely clear that the prohibited
conduct--selling to children products that warrant parental caution--is
one that the competitive process is intended to foster. Professional
associations often adopt ethical standards to govern members' conduct.
Such agreements are permissible so long as they do not unreasonably
restrict competition.
\18\ Reasonable self-regulation to prevent targeted marketing of
restricted products to children, therefore, could be defended within
the parameters established by the ruling of the Supreme Court in
Professional Engineers, 435 U.S. 679, where the Court held that the
rule of reason analysis is limited to competitive considerations.
Reasonable self-regulation to prevent marketing of such products to
children can lend credibility to the rating system and thereby assist
the function of the market. The situation in professional Engineers was
different. In that case, an association attempted to justify a ban on
competitive bidding--i.e., on price competition--by claiming that such
competition would lead to ``deceptively low bids, and would thereby
tempt individual engineers to do inferior work with consequent risk to
public safety and health.'' Id. at 693. The Supreme Court rejected the
asserted justification.
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Disciplining Members for Non-Compliance.--Industry codes that
impose disciplinary measures on members that fail to adhere to rules
regarding the sale, rental, labeling, or marketing of restricted
entertainment products to children are yet another step in the self-
regulatory process. Possible forms of discipline might include
expulsion from membership in the association or withdrawal of other
membership privileges. Such rules could be challenged as an agreement
to restrain the competition offered by the disciplined member. Although
such disciplinary actions potentially could affect the disciplined
member's sales to only to children but also to other segments of the
market, they generally are unlikely to impose a significant restraint
on competition in this situation unless the withdrawal of membership or
of membership privileges would substantially impair the disciplined
member's ability to compete.\19\ This is unlikely in the entertainment
media industry. Association membership generally is not so important
that loss of membership would effectively exclude a firm from the
market.
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\19\ See Northwest Wholesale Stationers, Inc. v. Pacific Stationery
& Printing Co., 472 U.S. 284, 296 (1985) (expulsion from a purchasing
cooperative did not create a probability of anticompetitive effect
``unless the cooperative possess[ed] market power or exclusive access
to an element essential to effective competition'').
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The use of clear and fair procedures in the design, implementation,
and enforcement of such restrictions should further lessen any
antitrust concerns.\20\ Such procedural safeguards help ensure that the
self-regulatory group's actions are impartial and not calculated to
gain an economic or competitive advantage for particular members.
Further, such rules may be justified because the prohibited conduct, if
left unchecked, may subvert or distort the competitive process if other
firms succumb to a temptation to compete at the same level, and
consumers lose confidence in the industry's ability to market its
products properly. Thus, appropriately designed self-regulating code
mechanisms to enforce compliance with reasonably designed labeling
restrictions also are likely to avoid antitrust problems.
---------------------------------------------------------------------------
\20\ See, e.g., Allied Tube & Conduit, 486 U.S. at 501.
---------------------------------------------------------------------------
Actions Against Retailers.--Entertainment media producers might
also act collectively to discipline retailers that voluntary agree to
and yet fail to observe restrictions on selling or renting certain
violent-content products to children. Of course, there may be some
antitrust risk if manufacturers seek to preclude a retailer from
dealing with a non-member manufacturer, as in Fashion Originators'
Guild where the Supreme Court held that a group boycott of retailers
who dealt with price-cutting pirates violated section 5.\21\ However,
while issues relating to actions against retailers may raise some of
the most difficult concerns, appropriately structured collective action
of this type appears unlikely to violate federal antitrust laws.\22\
Other avenues that may be pursued include seal programs and ``Hall of
Shame'' type publication of offending retailers. And of course,
entertainment media producers could individually opt not to deal with
offending retailers.
---------------------------------------------------------------------------
\21\ See Fashion Originators' Guild v. FTC, 312 U.S. 457 (1941)
(group of designers of higher-priced dresses unlawfully boycotted
outlets that dealt with manufacturers that ``pirated'' the higher-
priced designs).
\22\ If retailers voluntarily agree to such a restriction, the
First Amendment should not be implicated. However, any legislation
giving producers power over marketing by retailers may raise First
Amendment issues. In Denver Area Educ. Telecomm. Consortium, Inc. v.
FCC, 518 U.S. 727, 737-39 (1996), all members of an otherwise divided
Court accepted the notion that First Amendment analysis should be
applied to enactment of a federal statute itself where that legislative
enactment alters the legal relations between private entities in a way
that empowers one category of private entities to control or suppress
the speech of other private entities.
---------------------------------------------------------------------------
Advertising Restraints.--Efforts by producers to place appropriate
limitations on the targeted advertising of products that are rated or
labeled as warranting parental caution need not restrict competition
unreasonably. If, as suggested above, it is reasonable to impose
certain restrictions on actual sales or rental of certain rated or
labeled products to children, it should be reasonable under the
antitrust laws to restrict advertising of these products to children.
So long as the content of, and means available for, marketing these
products to adult audiences are not unduly restricted, consumers will
continue to have access to product information, and sellers can
continue to compete for their patronage.\23\ Consequently, self-
regulation reasonably tailored to prevent the advertising of certain
entertainment products with violent content to children should not
impose a significant restraint on legitimate competitive activity. In
fact, reasonable self-regulation should further the competitive process
by focusing competitive efforts on legitimate marketing activities and
by lessening the need for government regulation.
---------------------------------------------------------------------------
\23\ Even if a restricted advertising venue has a substantial
audience suitable for the advertised product, as well as a significant
underage audience, competition will not be significantly affected if
firms have adequate access to other, permissible advertising venues
that reach adults. Only if the various advertising or marketing
restrictions, taken together, significantly restrict the flow of
information to adult consumers might there be an antitrust or First
Amendment concern.
---------------------------------------------------------------------------
VI. CONCLUSION
The Commission's exhaustive study of certain segments of the
entertainment industry reveals a continuous pattern of target marketing
to underage users. Industry self-regulation designed to eliminate this
marketing is unlikely to violate the antitrust laws. The kinds of self-
regulation that would be necessary are likely to be analyzed under the
rule of reason. Thus, the Commission concludes that an exemption from
the antitrust laws is unnecessary for the industry to establish or
expand codes that prohibit target marketing to children and impose
sanctions for noncompliance, increase compliance at the retail level,
or increase parental understanding of the ratings and labels.
[The prepared statement of Senator DeWine follows:]
[Whereupon, at 11:33 a.m., the committee was adjourned.]
Prepared Statement of Hon. Mike DeWine, a U.S. Senator From the State
of Ohio
Chairman Hatch, thank you for holding this hearing today. I had the
opportunity to testify just last week before the Senate Commerce
Committee regarding the Federal Trade Commission's (FTC) recent
findings on the marketing of violent entertainment to children. At that
hearing, we heard convincing evidence indicating that the entertainment
industry often employs marketing strategies designed to entice children
to watch violent movies, listen to violent music, and play violent
video games. These marketing ploys are encouraging kids to seek out the
very entertainment that the industry's current voluntary ratings
systems indicate is unsuitable for children.
At that hearing, we talked about the FTC's recommendations for
implementing tougher marketing standards and ratings systems to deal
with this pervasive problem. So, I asked the representatives from the
entertainment industry who were there if they believed that additional
antitrust protection would help them implement the FTC's
recommendations. And, I told them that if that's what they need--if
that's what it is going to take to get some action on this--then, by
all means, the Antitrust Subcommittee is ready to help. They didn't
answer my question, Mr. Chairman, so I will pose it again today to the
industry representatives on the panel: Do you believe that additional
antitrust protection would help you implement the FTC's
recommendations?
But, before we talk more about those antitrust concerns,
specifically, let me just say that I am very distressed by the FTC's
findings. I am convinced that the entertainment industry is at war with
parents. They are trying to get between parents and their children.
And, it is our children who are the casualties.
The FTC's findings are alarming and reveal a double standard that
prevails in the entertainment industry. For example, of the 44 movies
rated ``R'' for violence that the Commission selected for its study, 80
percent of them were targeted toward children under 17 years of age.
Marketing plans for 64 percent--that's two-thirds of those movies--
contained express statements that the films' target audiences included
children under 17, even though the ``R'' rating says children under 17
shouldn't watch those films without adult supervision. Unfortunately,
we all know, and the FTC report confirm this, that many children do
watch ``R'' rated movies without adult supervision. What that means is
that even if the motion picture industry admits that a film is
inappropriate for unsupervised children, they still encourage them to
go see it anyway--knowing full well that many will do so without adult
supervision. That defies the very logic of their own ratings system!
The industry says that it is up to parents to monitor what their
children do. And, of course, it is up to parents to use these ratings
as a guideline. But, the value of these voluntary ratings systems is
destroyed when individual entertainment producers go out of their way
to undermine parental decisions by enticing children to seek out
inappropriate entertainment. That's just plain wrong.
So, where do we go from here? Last week during the Commerce
Committee hearing, I encouraged the FTC to provide Congress with an
annual report on the industry's marketing practices. With an annual
report, we can continue to monitor the industry and their
implementation of the FTC's recommendations.
In addition, today Senator Kohl and I sent a letter to the FTC,
asking them to investigate the video game industry for possible
deceptive trade practices. Specifically, most companies in the video
game industry have pledged to not market inappropriate video game
products to children, but, according to the FTC's report, many
companies appear to be doing just that. That said, I would like the FTC
to examine whether such conduct may constitute a deceptive trade
practice.
Regarding specific antitrust concerns, some in the entertainment
industry have raised antitrust concerns as an excuse--as an excuse for
why they cannot get together, agree to some sensible rules or
guidelines, and then police themselves. The FTC report indicates that
such guidelines--if carefully drafted and reasonably enforced--will not
pose any antitrust problems. As Chairman of the Antitrust Subcommittee,
I tend to agree with that assessment. However, I also believe, as I
think you do, Mr. Chairman, that as legislators and as parents, we have
an obligation to remove any possible barrier that the entertainment
industry feels currently impedes their ability to devise tougher
standards.
Also, several years ago, I worked with you, Mr. Chairman, as well
as Senators Brownback, Kohl and Lieberman on legislation designed to
give the television industry, specifically, antitrust protection
because some in the industry believed it might be necessary. Mr.
Chairman, I also co-sponsored your amendment to the Juvenile Justice
bill to do the same thing for the entertainment industry as a whole. I
will continue to support such legislation.
I will note for the record that I believe it is important that any
legislation continue to be drafted narrowly. We need to make it clear
that antitrust protection applies only to cooperative action that will
prevent the pervasive practice of marketing violent and other
inappropriate entertainment media products to children. We must also
make it clear that we expect the entertainment industry to live up to
its own ratings recommendations. Such legislation should take away any
excuses for this industry to ignore its moral responsibility to
parents--and especially to children.
It's time for the entertainment industry to live up to its
responsibility, and I will support any legislation that will help them
do just that.
Thank you, again, Mr. Chairman, for convening this hearing today.
VIOLENCE IN THE MEDIA: ANTITRUST IMPLICATIONS OF SELF-REGULATION AND
CONSTITUTIONALITY OF GOVERNMENT ACTION
----------
THURSDAY, SEPTEMBER 21, 2000
U.S. Senate,
Committee on the Judiciary,
Washington, DC.
The committee met, pursuant to notice, at 8:03 a.m., in
room SD-226, Dirksen Senate Office Building, Hon. Orrin G.
Hatch (chairman of the committee) presiding.
OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM
THE STATE OF UTAH
The Chairman. If we can begin, good morning. We are back to
continue our hearing from yesterday on violence in the media
and what Government can do. I extend my apologies to all of you
for what happened yesterday, with the minority objecting to any
Senate committee business beyond the 2 hours. We will just
chalk that up to election year politics.
I want to thank those of you who were able to come back for
taking time to continue the hearing this morning. This is an
important issue which should not get mired in politics, so I
appreciate you all being here. So let me introduce our
distinguished panel.
First, we will hear from Mr. Jack Valenti. Mr. Valenti is
President and CEO of the Motion Picture Association of America
and one of the great leaders of film in the world. He is a
former top staffer with President Lyndon Johnson, somebody that
I had a long relationship with. I appreciate you being here,
Jack.
Our next witness is Ms. Hilary Rosen, if she is here; if
not, when she gets here. Hilary is President and CEO of the
Recording Industry Association of America, and she has been a
leader in the field of digital copyright protection, as well as
a strong defender of the arts. So we will be happy if Hilary
can be here.
Next, we will welcome Mr. John Fithian, President of the
National Association of Theatre Owners, whose legal experience,
coupled with his time in the entertainment industry, provides a
unique perspective at our hearing today.
Next, we will hear from Ms. Pamela Horovitz, President of
the National Association of Recording Merchandisers.
Well, she will not be with us. I am sorry.
Mr. Douglas Lowenstein, President of Interactive Digital
Software, is also unable to be with us today.
But we will welcome Mr. Crossan ``Bo'' Andersen, President
of the Video Software Dealers Association. Mr. Andersen, a
former assistant U.S. attorney, has used his legal expertise to
defend and protect the First Amendment rights of video
retailers, as well as consumers.
Now, we are very happy to have you begin, Jack, and we are
going to make this record regardless of the time in the
morning. I am sorry. I know this is really early for some of
you folks, but I have been here since 6 a.m., so it is nothing
for me.
PANEL CONSISTING OF JACK VALENTI, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, MOTION PICTURE ASSOCIATION OF AMERICA, WASHINGTON, DC;
HILARY B. ROSEN, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
RECORDING INDUSTRY ASSOCIATION OF AMERICA, WASHINGTON, DC; JOHN
FITHIAN, PRESIDENT, NATIONAL ASSOCIATION OF THEATRE OWNERS,
ALEXANDRIA, VA; AND CROSSAN ``BO'' ANDERSEN, PRESIDENT, VIDEO
SOFTWARE DEALERS ASSOCIATION, ENCINO, CA
STATEMENT OF JACK VALENTI
Mr. Valenti. Mr. Chairman, you are going to get a terrible
reputation in this town for punctuality. At any rate, thank
you.
I want to congratulate you and Senator Leahy and your
colleagues for addressing this issue in such a sensitive and
sensible way, understanding the need for protecting
constitutional freedoms, and I am grateful to you for that.
When you testified before the Senate Commerce Committee, I
listened with interest in and approval of what you had to say.
I agree with you that the entertainment industry has much to be
proud of. I agree with you that parents should exercise more
responsibility with their children. I agree with you that faith
is indispensable in sustaining this free Republic and keeping
its moral compass on course. And, finally, I agree with you
that the motion picture industry has to stand up to its
responsibilities, and I might add has been.
One of the things that I want to point out is that I am not
an antitrust expert, which will come as a surprise, I know, to
you and all of your committee. But I am not sure that we need
this amendment yet. I agree with you that I think voluntary
action is much better. We are looking at this, and in all
candor I have to say we are not quite sure if we need it, but
whether we can do all the things that you think ought to be
done within the circumference of voluntary action.
By the way, I must say that the motion picture industry
probably is more attentive to the needs of parents and what
they have to have in helping shape the conduct of their
children than any other industry in the United States. For
almost 32 years, we have been giving advance cautionary
warnings to parents so they can better judge what movies they
want their children to see or not to see, and that is a power
that only parents are authorized to wield.
For almost 32 years, we have been turning away revenues in
order to redeem the obligation that we have made to parents. No
other non-entertainment industry in this country can make that
statement. For almost 32 years, we have been monitoring
parents' reactions to this rating system that we have proffered
to them.
Each year since 1969, the Opinion Research Corporation, of
Princeton, NJ, has been taking national surveys of between
2,300 and 2,600 respondents. The last one was just completed 2
weeks ago, and found that 81 percent of all parents with
children under 13 found this rating system very useful to
fairly useful in helping them guide their children's movie-
going.
And I might add that in an independent survey which is
contained in the FTC report, the FTC found a marvelous
coincidence. They found 81 percent of parents that they checked
were, ``satisfied,'' with the rating system. Nothing in the
last 32 years in this unfaithful, abrasive marketplace, Mr.
Chairman, unless they are providing some kind of benefit that
they aim to serve, in this case parents of America.
So I am saying to you that I believe that in a very
stalwart and enduring way, we are standing up to our
responsibilities.
Now, it is has been 9 days since the FTC report came out,
and I must tell you that in those 9 days I have been going
around the clock almost in conference calls and in face-to-face
meetings in California with the major studios, where we are
trying to put together our response, a responsible response, I
might add, to the recommendations made by the Federal Trade
Commission.
I am not prepared at this time to tell you exactly what we
will say because we haven't finished our deliberations, but I
can assure you that we will act on these. And I hope when we do
that you and Senator Leahy and others on your committee will
feel that we have had a serious response, and that our concern
is evidenced in the way that we do respond.
Now, about the exemption, as I said, I don't know if it is
required. I can certainly sympathize with the concerns of our
allies and partners and customers about what some antitrust
exemption might do to them. I can understand that. I will tell
you this: we are looking at this and sitting down to talk about
this with our allies and customers. And then if we feel that an
antitrust exemption is needed to do the things that you and
your committee feel we ought to do, then we will sit down with
you and work out with you some carefully tailored, carefully
shaped amendment that would allow us to do what it is that we
think ought to be done.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Valenti follows:]
Prepared Statement of Jack Valenti
Chairman Hatch, I congratulate you for addressing the issue of
media violence in a constructive manner that is respectful of First
Amendment freedoms. I listened with attention to and approval of your
testimony last week before the Senate Commerce Committee. I agree with
you that there is much to be proud of in the entertainment product of
this nation; parents must exercise responsibility in supervising their
children; faith is important to provide a moral compass in our society;
and yes, the entertainment industry must stand up to its
responsibilities to America's parents and their children.
I am not an antitrust expert. Having said that, MPAA agrees that
voluntary industry action, as distinguished from government intrusion,
is the best way to address the exposure of children to inappropriate
material.
MPAA has a long and distinguished record of voluntary initiatives
aimed at recognizing and meeting its responsibilities to parents and
their children. As you know, for almost 32 years, through our voluntary
movie rating system, we have been offering advance cautionary warnings
to parents about individual films so that parents can more watchfully
and carefully make their own decisions about the films they want their
children to see or not to see. Only parents, not government, should
have that power.
For almost 32 years, we have been monitoring parents' reaction to
movie ratings. In the latest of annual surveys conducted by the Opinion
Research Corporation of Princeton New Jersey, with 2,300 respondents,
the rating system got an all-time high in parental endorsement. This
year some 81 percent of all parents with children under 13 found the
movie rating system ``Very Useful'' to ``Fairly Useful'' in helping
them to choose the films they want their children to see or not to see.
Nothing lasts 32 years in this volatile marketplace unless it is
providing a benefit to the people it aims to serve.
Moreover, we have stepped up our efforts to make information about
ratings available to parents in many different locales. All advertising
carries the rating and a legend that defines that rating category. We
have web sites: (1) ``filmratings.com'' which allows a parent to get
specific reasons for ratings, (2) ``parentalguide.org'' which offers to
parents a guide to ratings systems for movies, TV programs, video games
and music, (3) ``MPAA.org'' gives specific reasons for ratings, (4)
Moviefone.com gives specific reasons for ratings, (5) Weekly bulletins
which catalogue movies rated that week along with reasons for the
ratings are sent to magazine, newspaper and TV movie critics. Reviews
of just about movie released appear in publications and on television.
There is no scarcity of ratings advice for parents.
For almost 32 years the movie industry has been the only segment of
our national marketplace, including all business enterprises, that
voluntarily turns away revenues in order to redeem the pledge we have
made to parents. No other non-entertainment American enterprise can
make that statement.
MPAA member companies have adopted and put in place an industry
``code of conduct'' which governs the marketing of films. All
advertising/publicity (newspaper and magazine ads, outdoor advertising,
previews of coming attractions, television spots, radio spots, Internet
sites) for rated movies must be submitted and approved for general
audiences prior to being shown to the public, and must contain nothing
that most parents would find objectionable for their young children to
see or hear.
Although I am very proud of MPAA's record, we are committed to do
more. It has been nine days since the FTC Report was released. While I
cannot tell you at this moment precisely how we will act on the FTC's
recommendations, I can tell you that we will act. As I reported I would
do, I am now in the process of sitting down with each studio
represented by the MPAA and talking with them about what it is that we
can and should do to do better in meeting our solemn obligations to
parents.
Because we have not had time to flesh out an action plan, I cannot
say that the antitrust amendment you propose is necessary to its
success. Quite frankly, I would prefer to take actions that would not
run afoul of current law. Even though the antitrust exemptions you have
proposed are for our benefit, I understand and sympathize with the
concerns such exemptions would create among those with whom we do
business.
We are committed to addressing the recommendations made by the FTC.
We will work within our industry and with our business partners in the
theater, home video and television industry to fashion a plan of action
that is effective and also consistent with existing antitrust law. If
we find that there are things we should be doing, then we would like to
work with you and other interested parties to fashion a narrow,
carefully crafted amendment that specifically addresses the actions
that need to be taken.
To conclude, Mr. Chairman, I commend you, Senator Leahy and other
members of this Committee for addressing this very complicated,
emotionally charged issue in a way that does no violence to our most
cherished Constitutional protections. I appreciate your giving me this
opportunity to appear before you and I look forward to working with you
and the Committee as we move forward.
The Chairman. Thank you, Mr. Valenti.
We will turn to you, Ms. Rosen. We are very interested in
what you have to say.
STATEMENT OF HILARY B. ROSEN
Ms. Rosen. Thank you, Mr. Chairman. My full statement will
be in the record, right, Mr. Chairman?
The Chairman. Without objection, we will put it in the
record.
Ms. Rosen. And I also want to associate myself with and ask
that Pam Horovitz' full statement be placed in the record.
The Chairman. We will place that in the record as well.
Ms. Rosen. She was sorry that she could not be here back
again this morning. She obviously doesn't live here.
The Chairman. We understand. I apologize for not being able
to pull that off yesterday, but that is just one of those
things we have to put up with.
Ms. Rosen. I understand.
I just want to share a few things with you today, and I
have to most especially say good morning to the loyal staff of
the Senate Judiciary Committee.
A few things this morning. I want to just remind you, Mr.
Chairman, that we have made significant changes to the parental
guidelines already that the FTC commented upon. I want to talk
a little bit about my concerns about a potential antitrust
exemption, and I want to compliment you and other members of
the committee in the way that you, in a bipartisan way, have
steadfastly avoided some of the constitutional pitfalls of
other kinds of proposals in this area.
As a practical matter--and Chairman Pitofsky touched upon
it yesterday--the FTC didn't really find problems with our
rating system, although they have a personal problem with it.
But they basically said that consumers and parents actually
find it useful. I don't see much changing in that because the
voluntary nature of the system is such that, with 26,000 albums
released a year, it is simply not practical for this system to
be administered any other way. Indeed, we don't simply have the
complaint that things that should have been stickered weren't
stickered. So in my view, the FTC's conclusions of parents is
well warranted.
There were a few marketing concerns that the FTC raised,
although in the music industry we are again somewhat unique
because we often offer edited versions of music. And what was
not clear in the FTC report was in those few instances where
there were marketing questions that seemed to have been
directed to younger teens whether those were edited versions of
albums or not.
The one thing that the FTC did find, I know, is something
that this committee is focusing on, which is that record
retailers will sell stickered product in certain areas of the
country to young people. This is a choice that they make for
their own local community, and frankly I don't think it is
something that we are very much in a position to do something
about, nor do I think it appropriate for us to attempt to
collectively try and stop.
And I guess that gets to the heart of the antitrust
proposals because while, in concept, I agree with Jack, there
is nothing wrong with an antitrust proposal, my concern would
be what this committee's expectations would be 6 months or a
year down the road, once such a proposal were passed, for
actually what changes would take place in the marketplace.
And to the extent that the results were expected to be some
sort of collective decision not to sell to certain retailers
because they chose to have individual policies that fit their
local community area, I think that is going to be a problem.
Chairman Pitofsky put it another way yesterday which I might
not have chosen, but I think he sort of bluntly said we can't
be trusted.
The other expectation that I think is problematic from the
retail level is that simply because this committee exempts
industries from engaging in individual activity, it doesn't
exempt individual retailers from liability for withholding
product or not having product available for individual adult
consumers. So there are some significant problems with
expectations on restricted sales, and Bo Andersen probably has
some more views on that.
The second area where I have some concerns is the idea that
we would fundamentally get together among industries and
develop different rating systems. Music is different than
movies, is different than video games, is different than
television. And despite the potential uncertainty as to whether
parents can accommodate these various systems in the
marketplace, the marketplace does seem to be accommodating
them. And we don't think, at least in the music community, we
are going to be able to come up with a uniform rating system.
So to the extent that that were an expectation of this
committee, I want to lower those expectations because the last
thing we want to do is disappoint the committee about their
expectations.
So I would be happy to answer any questions that you have,
and my statement has some more detail on those thoughts.
[The prepared statements of Ms. Rosen and Ms. Horovitz
follow:]
Prepared Statement of Hilary B. Rosen
I am President and CEO of the Recording Industry Association of
America. RIAA is the trade association of America's record companies.
Our membership is as diverse as our music:
I speak for thousands upon thousands of people in the recording
industry. Our views on youth violence and culture--just like those of
members of this committee and others who testify before it--are not
informed by their professional capacity alone.
They are informed by our dreams for our own kids--our concerns
about our community--and our commitment to our country.
We are proud to be members of an industry who work with artists to
create the most diverse music in the world filled with a multitude of
musical styles, lyrical imagination and cultural experiences. And we
are also proud of our 15-year track record of helping parents make
informed choices about their children's entertainment.
Throughout that period, the issue of how entertainment affects
children has wandered back and forth between the headlines from the
back pages. But we have been consistent.
Today, as the issue finds itself back on the front pages again, we
are proud to speak with you just as authoritatively and every bit as
passionately as we have for each of the last 15 years.
Mr. Chairman, I want to explain how the recording industry's
Parental Advisory system works, describe how it has been improved,
respond to some of the FTC's criticisms, and address some of the
antitrust issues this Committee is considering.
THE RECORDING INDUSTRY'S VOLUNTARY PROGRAM
The premise of our system is to balance an artist's right of self-
expression with a parents' need for information to make choices based
on their children's individual situation and their own values.
In 1985, we reached agreement on that approach with the National
Parent Teacher Association and the Parents Music Resource Center.
Within months, music releases with explicit lyrics, whether about
violence or sex, were identified.
I should add that despite the emphasis at these hearings on
recordings with explicit content, they comprise a relatively small
proportion of our industry's output and the themes and language
contained in all of our music is a part of today's society.
In an average retail store with 110,000 titles, about 500 will
carry the Parental Advisory logo. That's less than one-half of one
percent of that store's total inventory. And the major labels produce
clean versions of nearly all recordings that carry the logo.
And let me assure you, Mr. Chairman, that this industry is a very
tough customer. Recently a story in the New York Times carried this
headline: ``Recording Industry's Strictest Censor Is Itself.''
Is this system perfect? Of course not. Even if it had been,
entertainment is a constantly evolving industry.
So where our system was imperfect, We have tried to improve it.
Where entertainment media evolved, we have tried to adapt to them.
Some thought we hadn't gone far enough--that parents couldn't spot
the advisory easily.
So in 1990, we established a uniform, universally recognizable
Parental Advisory logo. It is one inch by a half-inch on cassettes and
CD jewel boxes.
We have launched extensive marketing campaigns to educate both
parents and retailers about the system.
With the advent of the Internet, we recently created standards for
applying the Parental Advisory logo to online sales.
We worked with retailers to use the logo in the way they feel best
squares with their own values and needs. Some retailers, for example,
chose not to sell recordings carrying the Parental Advisory logo to
minors. As I indicated before, we cooperate with this decision.
Indeed, we welcome it as an indication that this system is working
precisely as we intended--by giving people the information they need to
make their own decisions based on their own values.
Our most recent to fine-tune this system will take effect just over
one week from now, on October 1, with the implementation of RIAA's new
guidelines for the Parental Advisory label.
The revised guidelines cover the following areas.
First, they provide uniform standards to guide a label and artist
in deciding whether to apply the Parental Advisory logo. They advise
that this decision be made by weighing contemporary cultural morals.
They clarify that the logo should be applied to single-track recordings
when they are commercially released as well as full albums.
Second, these guidelines indicate that the Parental Advisory logo
should be applied in all advertising of a recording that carriers the
logo.
Finally, we created Internet guidelines for the first time. These
guidelines call for a specific display of a parental advisory logo for
on-linesales. The Parental advisory should be visible from the catalog
pages all the way through to the shopping basket.
We have done all this in a manner that you have supported, Mr.
Chairman--voluntarily.
Today, the recording industry's system has taken root in the public
mind and the popular culture. They are instantly recognized. And 74
percent of parents say they are effective.
WHAT DID THE FTC FIND?
From what I can tell, the FTC's findings can be summed up in few
sentences. Parents are satisfied with the industry's rating systems to
the extent that 74 percent said so, but the FTC is not. The majority of
CD's that carried the sticker were also available in edited form. So
far as I can tell, there was one--I repeat one--specific incident of a
television program where this music was advertised with a majority
under 17 years of age audience and three more that were questionable.
Hardly a sweeping industry condemnation. Indeed, since our guidelines
are only voluntary and have never contained any age specific
restrictions, there is nothing wrong with these companies leaving the
decision to parents to determine what their kids should own.
There were a few instances where an album was seemingly marketed to
younger teens (the actual specifics are not in the report) although
since the FTC report does not delineate whether or not those albums had
edited versions available, it is impossible to draw the conclusion that
younger teens were subjected to anything that might have been
inappropriate.
The report also says that all of its conclusions were reached prior
to having the revised guidelines issued by the RIAA, which addresses
these concerns.
The FTC recommends three things that all of the industry should do:
1. Establish guidelines for adversiting--we have
2. Increase compliance at retail--retailers make their own
decisions
3. Increase parental understanding of the label--77 percent
of the people have said that they are aware but we can always
do more education
the antitrust issues
Mr. Chairman, I want to compliment your longstanding effort to
avoid the constitutional pitfalls of other proposals by encouraging the
entertainment industry to voluntarily develop systems to better inform
parents and consumers about explicit content contained in entertainment
products.
I have no objection to the concept of simply permitting industry
competitors to come together without fear of being sued under the
antitrust laws to discuss ways to improve ratings and labeling
systems--in fact, we do this already in the music industry even in the
absence of an antitrust exemption. With regard to proposals to create a
legislated antitrust exemption for certain purposes, I do have some
concerns. Principally, I fear there may be an unstated expectation in
the granting of this exemption that we develop a universal ratings
system or create an ``industry code'' to prohibit the sale or marketing
of certain products. In such an expectation lies the greatest danger of
all--that of restraining sales to and by retailers of certain products
based on subjective analyses of the content of protected speech. And to
that, I respectfully but strenuously object.
As I have said many times before, we take our responsibility to
warn parents seriously, and remain committed to advising consumers when
an album contains explicit material that some may consider offensive.
We have a successful system in place, have recently adopted
modifications to our guidelines, and like the Federal Trade Commission,
believe we can implement these modifications with or without a specific
exemption in the antitrust laws.
Our members cooperate with merchandisers who have quite different
policies when it comes to selling labeled content: some, like KMart and
Walmart, refuse to sell labeled product, and our members often create
edited versions which are sold in these and other stores. The FTC found
that 82 percent of labeled recordings have edited versions available.
Other stores sell both edited and unedited versions of music which
is labeled with the Parental Advisory, and we are endeavoring to ensure
that customers are adequately informed about what the Parental Advisory
label means. We support a retailer's decision whether it is to carry
only edited versions of recordings or to sell recordings based on the
community in which they do business.
The point is that this is a matter of local choice and local
concern. I believe the Committee will hear more about this from the
National Association of Recording Merchandisers. Community standards
differ, and we don't believe it would be appropriate for an
organization like ours to dictate to local retailers what they can sell
to their customers, so long as their customers are adequately informed
about music lyrics that may be offensive because of explicit content.
Because we don't try to directly police sales to consumers or
control retail merchandising, and because we have an effective
voluntary system, we don't believe that antitrust concerns are raised
by our actions, and would certainly oppose any exemption that would
carry with it--explicitly or implicitly--a mandate to create a
mandatory system or to police sales.
Indeed, efforts to restrict distribution of certain music in an
official way is complicated immensely by changing technology. As
Members of this Committee know better than most, music distribution
today is vastly different than it was just five years ago. Thousands
and thousands of songs and albums are posted by individual creators (or
in some cases ``infringers''!) who are distributing them to as wide an
audience as possible without any formatted security or certainly
without regard to potential explicit lyrics.
We have created guidelines for the Internet which we hope
legitimate distributors will follow for music sales but the sheer
volume of music available and surging onto the Internet, by individual
artists and musicians of their own work, makes traditional sanctions
and enforcement efforts in this area extremely difficult if not
virtually impossible to monitor effectively.
THIS IS ABOUT MUSIC
This debate over music keeps coming back to the same thing. Despite
all of the trappings and new ways to look at the issue, the fact is
that some people just don't like the music. And that is not an
antitrust issue or a labeling system issue--it is a freedom of
expression issue.
The committee is concerned about violent and sexual lyrics. As a
parent, so am I. But I want to apply my own values--the needs of my
individual children--to decide what sources of entertainment are
appropriate for them.
If we attempt to apply any other standard, no bonfire will be tall
enough to burn the centuries of art that will have to go up in flames.
If violence is inherently demeaning to culture, then Verdi's
Rigolletto--in which he opens a sack to find it contains his dying
daughter--belongs on the pyre. So does Strauss's Salome--in which Herod
presents Salome with the head of John the Baptist on a platter. For
that matter the recent Dixie Chicks song ``Earl'' where a wife exacts
revenge for an abusive spouse by poisoning his food is, in theory,
equally violent. A new Steve Earle song talks about a death row killer,
his crimes and the value of life and death.
Incidentally, nobody has asked for an advisory label or restricted
sales for those CD's.
I fully understand those who, with utter sincerity, feel there is a
difference between rap lyrics and grand opera or country music. But
there really isn't.
Remember that these artists have been criticized. So were others
like them, from Picasso to Stravinsky, Flaubert to James Joyce, Charlie
Chaplin to Lenny Bruce to George Carlin to Imus--dismissed in their
time. Classics are rarely recognized in the momentary heat of
controversy.
And remember that the distinction between high art and the low road
is deeply rooted in individual values and perspectives.
For each person who believes rap lyrics portray a foreign world,
there is another who finds them deep and powerful because that world is
all too real.
And above all, we must remember this: In our country, expression is
not required to pass any test of validity, or even propriety, to be
both permitted and protected.
After all, the test of whether America allows free speech is not
whether it grants freedom to those with whom we mildly disagree. It is
whether we protect the freedom of those whose views--and language--make
us apoplectic.
Still, I testify today in a spirit of confidence and cooperation--
because I speak here as both an executive and a parent.
I care as deeply and passionately about my own children as I know
you do about your own. So do my colleagues in the recording industry,
from artists to executives.
The real test of commitment to our youth is not how strongly each
participant in this discussion can defend its positions or papers, but
whether every party can work together to address the complex blend of
challenges facing our children.
The last 15 years have proven that we can. And I am confident that
we can do so for decades to come. Thank you.
__________
Prepared Statement of Pamela Horovitz, on Behalf of the National
Association of Recording Merchandisers
Good morning. My name is Pamela Horovitz, and I am President of the
National Association of Recording Merchandisers, the trade association
for retailers and wholesalers of recorded music. I am also the mother
of a ten year old.
NARM has supported the RIAA Parental Advisory Program since its
inception in 1985. Over the years we have worked closely with RIAA on
improving the program, providing feedback from retailers who hear
directly from their store personnel and from parents about what is or
isn't working. Because of that feedback, the language, look and
placement of the logo have been refined, and more uniform guidelines
for applying the label have been developed. We have collaborated with
RIAA in publicizing the program to parents via posters and counter
cards in the stores. This past year we have been working with our
members and with RIAA to take the Parental Advisory online.
Our members use the Parental Advisory in a variety of ways. Some
companies choose not to purchase recordings that carry the sticker.
Some restrict the sale of these titles to 18 year olds, others to 17
year olds, others to 13 year olds. Some companies let the advisory
sticker speak for itself, and some companies place the responsibility
for how to handle the product in the hands of a local store manager who
is frequently most in touch with the needs of a specific community.
Last week, the findings of the FTC report on industry practices
with respect to violent entertainment were presented to the NARM Board
of Directors. We welcomed this study as a useful snapshot of how the
various segments of the music industry are addressing this important
issue, and also as a benchmark of comparison between music, film, and
videogames. We are in the process of publicizing the findings of the
FTC to our member companies along with the newest guidelines for the
Parental Advisory program.
We also discussed the recommendations of the FTC and concur with
the conclusion that marketing plans fro entertainment products should
be consistent with the content. We concur that the findings indicate
that we need to redouble our efforts to increase parental awareness not
just of the music industry advisory, but of all the entertainment
industry ratings programs.
The one recommendation with which we do not agree is the one which
advocates restricting access to this music by anyone under the age of
17 and which characterizes this as ``compliance'' with a system that
was never intended to be more than an informational aid to parents. Let
me tell you why we disagree.
The FTC report has a lot of good information in it, but sometimes
facts just don't tell the whole story. For example, here's one fact
that every parent knows: kids mature at different speeds and in
different ways. Some kids can play violent video games but have
nightmares after a scary movie. Some kids' neighborhoods are scarier
than any song will ever be. And Bobby Knight still isn't old enough to
go see Gladiator or play Doom or listen to Eminem. So what is
appropriate for one child isn't always appropriate for another child,
even if they're are the same age, or go to the same school, or are even
in the same family.
Several years ago, NARM and RIAA sponsored focus groups on the
Parental Advisory program. We learned about the wide variety of
responses that parents had to situations in which their kids had
purchased records that carried the PA sticker. Some parents returned
the CD to the store. Some parents threw the tapes in the trash and told
the kids they had just blown their allowances by purchasing something
they knew wasn't allowed. Other parents restricted play of such records
to personal listening devices because older siblings had permission to
hear the record, but younger ones didn't. Still other parents used the
appearance of stickered product in the house to listen to the record
themselves and later ask their kids why they were attracted to these
songs. The parents' interactions with the PA program were as varied and
unique as the kids themselves were.
If you try to restrict kids under the age of 17 from access to all
of this music, either through direct legislation prohibiting the sale
of such music to minors or through legislation that would enable
content providers to boycott retailers who sell stickered or rated
product, you are taking away every parent's opportunity to have these
kinds of interactions. You are saying, in essence, that Americans don't
have the right to practice their parenting in this area because
Congress has decided that they aren't up to the challenge. ``Parents,
you don't have to monitor entertainment products anymore, because we've
taken care of the problem by removing it from the marketplace.'' You
would have us believe that all kids, once they hit age 17, will somehow
magically be ready to hear, play, or watch adult material even though
they haven't had the benefit of any dialog with their parents
beforehand.
And you are also saying, at least in the case of the music
industry, that five giant companies, (all of whom are now beginning to
sell music over the Internet themselves) should get together and
jointly decide to boycott any retailer they claim has not complied with
the labeling system applicable to music products. Not only am I told
that such an exemption from antitrust law would be unprecedented, but
the opportunity for abuse--i.e., to eliminate from the marketplace
retailers with whom the five major music companies are themselves now
directly competing--is obvious and, quite frankly, frightening.
I believe America's parents and America's kids are much better
served by a retail environment in which the practices of retailers are
as varied as the families that they serve. This approach inevitably
means that more kids, including my daughter, will come in contact with
entertainment products that they're not yet ready to handle.
Each day that I send my daughter out the door, I know that
potentially she will encounter language that I don't approve of or see
behavior that I don't condone, not just in entertainment, but at the
softball game, at the playground, at the grocery store. I will have
nights when I'm too tired to do a good job of explaining a news story
on TV, and times when I will lose my patience at the constant barrage
of advertising masquerading as entertainment. But when I signed on for
this job of parent, I knew I wasn't going to get to pick which nights
would be sleepless and which battles would be easy. And even if I do a
less than perfect job, I still think it will be better than letting
some record company or retailer who doesn't know anything about me or
my daughter decide what's appropriate for my family.
The music industry is filled with people like me, who aren't just
in the business, but who are parents. We have worked hard at balancing
artist's rights with parents' rights. We recognize that businesses need
to thrive, but that kids do too. We will use all the tools available to
us to keep on improving our understanding of this issue, including the
feedback from parents as articulated in the FTC report. We know from
talking to parents year in and year out that they prefer a voluntary
information system to censorship and government regulation.
Accordingly, we object to censorship by a private trade association of
content providers that is given congressional authority to do what
Congress itself is prohibited from doing directly.
The Chairman. Well, thank you.
Mr. Fithian, we will turn to you.
STATEMENT OF JOHN FITHIAN
Mr. Fithian. Thank you, Chairman Hatch. I want to echo the
compliments on your leadership on this issue. I think it is
particularly appropriate that this committee is bringing a
reasonable deliberative approach to something that has been
subject to a great deal of heated political rhetoric lately. I
think the fact that you are willing to reconvene back at eight
o'clock in the morning and take these issues seriously shows
that this is a real legislative and deliberative process, and
that is a welcome change from what we have seen recently in
some of the campaign rhetoric.
My Association, the National Association of Theatre Owners,
represents over 730 companies in this country that show movies
on screens. They range from a few large national circuits with
thousands of screens to hundreds of little mom-and-pop
operators who have two or four or six screens. We operate in
every State in the country. Last week, I was in Park City
meeting with the theater owners in Utah and Colorado, talking
to them about the rating system.
I think the theme I want to emphasize the most today is
that enhanced voluntary entertainment rating systems can do
much more to protect America's kids than can any government
mandates. Concepts or proposals to take our rating system, to
write it into law, and then enforce it with other civil or
criminal penalties are a bad plan--violate the First Amendment,
unenforceable in many ways. And we are delighted that this
committee is seeking a different approach.
We have been partners with Jack and the MPAA for 32 years
in our rating system, and frankly we are quite proud of it. We
have turned away millions of dollars of business over those
years, denying kids the right to come into our theaters.
And I wish Senator Feinstein were here this morning. We
will go and talk to her personally. When she asked yesterday if
theaters enforce the rating system, I think the emphatic answer
is yes, and we know we have to do better. Last summer, we
announced a national policy to I.D.-check kids for R-rated
movies, the first time we put this policy into place just last
June.
The FTC report commenced just a few months after we started
that policy. Even so, the theater industry had the best
enforcement record of any of the industries surveyed by the
Federal Trade Commission. But we know that we need to do more.
We are working to develop a Web site on ratings information
that we can coordination with Jack's Web site at the MPAA.
We are distributing posters that explain what the rating
system means, and encouraging all of our members to post them
so that parents can learn even more about the system. And
parents already know a great deal about our system. The highest
numbers in the investigation were for awareness and support of
the movie rating system. Ninety-one percent of the parents
surveyed said that they knew about the system. And more
importantly, 90 percent said they actually use it. They check
the ratings and then they help to control and work with their
children on their movie-going choices. Those are numbers that I
think any politician would die for, and that comes from 32
years of history of constantly working to improve the
enforcement and the education about our rating system.
I will be meeting with all my members in the first week in
November to discuss additional ways that we can respond to the
report of the Federal Trade Commission because we do take it
very, very seriously. We have to be careful of course, in what
we decide to do and what Congress decides to mandate that we
do.
If you have read the business page lately, you know that
the exhibition industry is in some very troubled times. Four of
my largest members have declared bankruptcy in the last few
months, and I have several more who are very close to doing the
same. So we need to find ways to balance the importance of
improving our enforcement of our rating system without driving
up labor costs and driving our members out of the market at the
same time. But I am confident that we can do both.
You have asked about the antitrust exemption and how that
might help us in our collaborative discussions of what to do
with the rating system. Let me say that we are very willing to
work with you and Senator Leahy on crafting appropriate
language.
As you know, Chairman Hatch, over a year or two we did the
very same thing on the baseball antitrust exemption, and I
appreciate your leadership on that. I think if it were needed,
we could come up with appropriate language. We cannot support
the current draft of the amendment that was proposed on the
Senate floor last year. It is flawed in several ways.
First, the exemption doesn't apply to us. It only applies
to the producer of the product, so we could not be allowed to
be involved in the discussions. And as Jack knows even better
than I, we have been involved together with the Motion Picture
Association and the studios for 32 years. It is very much a
partnership. So if there were to be any legislation, we would
like to be able to be at the table. With or without
legislation, that is what we are going to do. Jack and I have
committed, and we have already begun talking about ways that we
can work together to improve the system.
Second, as Chairman Pitofsky illuminated yesterday, a
blanket antitrust exemption is dangerous if it doesn't take
care of certain types of violations. We would not support an
amendment, for example, that allowed group boycotts of our
theaters--a classic per se violation. There are other types of
per se violations that we would like exempted from the bill--
allocations of product or price-fixing, refusals to deal. Those
types of classic per se violations that traditionally Congress
has written out of antitrust exemptions need to be included in
whatever legislation this committee wants to consider.
And the reason for that, as Chairman Pitofsky alluded to,
is quite simple. If a small theater for some reason is not
liked by the studios--and I am not saying this would happen,
but theoretically it could--the studios, under the guise of
enforcing the rating system, could deny all their product to
that theater. That would put the theater out of business,
obviously. The way the amendment is drafted currently, we
couldn't even be involved in that discussion under the
antitrust exemption about whether or not the studios would deny
the product. That being said, there are other ways that an
antitrust exemption could be used to increase enforcement and
education, and I would be very willing to work with your staff
and Senator Leahy's staff if that were deemed necessary.
Again, I agree with Jack that we are taking the steps we
need to take. The FTC report and these congressional hearings
have been very helpful in pointing out areas for improvement
and we are working on them. And we think our own voluntary
efforts are the best way to go. But if Congress must legislate,
we would be delighted to work with you on what the language
should look like.
Thank you very much, Mr. Chairman.
[The prepared statement of Mr. Fithian follows:]
Prepared Statement of John Fithian
Chairman Hatch, Senator Leahy, and other members of the Committee.
I am pleased that the Senate Committee on the Judiciary is holding this
hearing. I especially appreciate your leadership in bringing a
deliberative approach to a set of difficult issues that have been
subject to much heated rhetoric.
I serve as the President of the National Association of Theatre
Owners, or ``NATO.'' NATO is the largest trade association of theatre
owners and operators in the world. We represent over 700 movie theatre
companies, ranging from a few large national circuits with thousands of
screens, to hundreds of small operators with only a few screens. Our
members operate more than 27,000 movie screens in the United States, or
approximately 70 percent of all domestic screens. NATO members operate
in every state in the union.
THE VOLUNTARY RATING SYSTEM AND THE FTC REPORT
The theme of my remarks is simple--enhanced voluntary entertainment
rating systems will do more to protect America's kids than will any
attempt by the government to censor speech and regulate commerce. For
over thirty years the movie rating system has served to provide
America's parents with the information necessary to make informed and
responsible decisions about their kids' movie going choices. NATO co-
founded the system with the Motion Picture Association, and we continue
to work on improvements.
There are two components to our efforts--enforcement and education.
For three decades our members have turned away millions of dollars in
business to enforce the ratings. And we work continually to tighten
enforcement.
Last year, NATO announced a new national ID-check policy for ``R''
rated movies. We have distributed materials and training video tapes to
our members to assist them in their enforcement efforts. I travel
around the country often to speak to our theatre managers about the
importance of the system.
We note that our enforcement record is the best of the three
industries surveyed by the Federal Trade Commission. The Commission
found that theatre circuits included in their investigation ``have
taken responsible measures to increase enforcement of the minimum age
requirement for the purchase of tickets to R-rated features since the
Columbine shootings.''
That said, we certainly are not satisfied with the enforcement
numbers reflected in the report and will be redoubling our efforts. The
FTC's investigation began just a few months after we adopted and
announced our new ID-check policy. We are confident that as our members
continue to train their employees, and as we develop new ways to
tighten up enforcement, our numbers will improve even more.
Education is equally important. The rating system is a shared
responsibility between the entertainment industry and America's
parents. We work to make ratings information available while parents
must strive to become informed. As the FTC noted, over 80 percent of
America's parents are satisfied with the movie rating system.
What's more important than parental satisfaction is the fact that
parents use the ratings. Ninety-one percent of the parents surveyed by
the Commission indicated their awareness of the moving rating system,
and 90 percent said they consulted the system and restricted their
child's movie going as a result. Those numbers were considerably higher
for movies than for the other industries surveyed for the report.
Through increased education, NATO hopes to involve more parents in
their children's movie-going decisions. For example, we are
distributing free ratings posters for our members to display so that
even more parents can learn what the ratings mean. We are developing a
new NATO web site which will contain ratings information, and will be
linked to the MPAA's rating sites as well. At our annual membership
meeting in November, we will be discussing additional ways to provide
information about the ratings, and to improve enforcement.
ECONOMIC VIABILITY OF THE THEATRE INDUSTRY
As we and Congress examine our system, we must work to improve
education and enforcement without driving up costs. If you have read
the business page lately, you are aware that the motion picture
exhibition industry faces very tough economic times currently. Four
major theatre circuits have declared bankruptcy in the past few months,
and others may follow soon. Better policies won't mean a thing to a
theatre that closes it doors to the public. We must redouble our
efforts to improve the workings of the voluntary system while keeping a
careful eye on costs. I am confident we can do both.
The Commission recognized these pressures in its report, by noting
that ``theaters must strike a delicate balance between the need for
enforcement (including the costs associated with measures beyond
identification checks) and the need to maintain a friendly and
welcoming environment'' (parenthetical included in the original).
The release of the Federal Trade Commission's report last week,
combined with these congressional hearings, provide important
government oversight to the entertainment culture in our country.We got
the message, Now we industry leaders must take what we've learned from
the oversight and apply it, by working within the voluntary system.
FIRST AMENDMENT ISSUES
As I did at the beginning of this testimony, I emphasize the
voluntary nature of the system. Proposals to codify the industry's
voluntary code, or to impose a new government system, would be tied up
in the courts for years and eventually declared unconstitutional under
the First Amendment.
The FTC report, which advocates continued self-regulation, notes
that ``most commentators agree that any law requiring the rating or
labeling of entertainment media products would raise the
[constitutional] issue of `compelled speech'.'' Moreover, courts have
uniformly invalidated the enforcement of the industry's ratings by
government officials. See Drive-In Theatre v. Huskey, 305 F.Supp. 1232
(W.D.N.C. 1969), aff'd 435 F.2d 228 (4th Air. 1970) (enjoining sheriff
from prosecuting exhibitors for obscenity based on ``R'' or ``X''
rating); Engdahl v. Kenosha, 317 F.Supp. 1133 (E.D.Wisc. 1970); and
MPAA v. Specter, 315 F.Supp. 824 (E.D.Pa. 1970).
Although oversight is healthy and productive, Congress must also be
cautious not to threaten the industry to improve its voluntary system
or face government regulation. Courts have found that industry self-
regulation can be unconstitutional if it is undertaken merely because
of the threat of government regulation. As the FTC report noted, the
First Amendment applies to private activity if ``the government has
exercised coercive power or provided such significant encouragement
that the challenged action can fairly be attributed to the
government.'' See FTC Report, Appendix C at 2 (citing Rendell-Baker v.
Kohn, 457 U.S. 830 (1982); Lugar v. Edmonson Oil Co., 457 U.S. 922
(1982); and blum v. Yaretsky, 457 U.S. 991 (1982)). Furthermore,
government pressure compelling industry self-regulation has been found
to violate the First Amendment. Cf. Writers Guild of America, West,
Inc. v. FCC, 423 F.Supp. 1064 (C.D. Cal. 1976) (holding that the
television industry's adoption of the ``family viewing hours'' was
unconstitutional state action because if was adopted in direct response
to the threat of government regulation.)
Some in Congress and on the campaign trail have repeatedly
threatened the industry with regulation if additional self-regulatory
steps are not taken. Such continued threats would increase the
likelihood that additional self-regulation will be successfully
challenged in court. The proper role of Congress is oversight--to
highlight the need for further education and enforcement without
threatening unconstitutional government regulation. Working together,
Congress and industry can improve on a rating system that has grown
over thirty years.
ANTITRUST LEGISLATION
Chairman Hatch's staff has also asked us to consider legislation
which would grant a limited antitrust exemption to permit the industry
to work together better on matters involving the voluntary rating
system. NATO is willing to work with the committee to fashion
appropriate legislation in this regard.
In an earlier career, I worked with the leaders of this very
committee on legislation to clarify the application of the antitrust
laws to Major League Baseball. We knew then that antitrust exemptions
are dangerous, and that antitrust legislation must be carefully
crafted. As Senator Leahy said during the baseball debate, ``Our
antitrust laws are intended to protect competition and benefit
consumers. No one is or should be above the law.'' And as Chairman
Hatch cautioned, we must ensure that antitrust exemptions do not allow
businesses to ``conspire and collude without restraint--the precise
practices the antitrust laws were designed to prohibit.''
If the committee were to consider antitrust legislation, it should
do so very carefully. For example, legislation should not exempt any
so-called ``per se'' violations, such as price fixing, boycotts,
refusals to deal or allocation of territories, when Congress has
considered antitrust exemption in the past, it has tended to protect
the application of antitrust scrutiny to per se activities.
Sometimes Congress used general language to cover per se
violations. See the limitations section of The Television program
Improvement Act of 1990, P.L. 101-650, Section 501(d). Other times
Congress specified which type of actions would be exempted and which
would not. See the limitations section of The National Cooperative
Research Act of 1984, and The National Cooperative Production Amendment
of 1993, codified at 15 U.S.C. Sec. 4301(b).
As for the ``rule of reason'' violations that might be exempted by
the bill to help facilitate useful dialogue within the industry, we are
willing to work with the committee to craft appropriately limited
language.
We would also recommend that the committee consider limiting the
duration of any antitrust exemption legislation. The Television Program
Improvement Act, for example, expired after three years.
The movie rating system began in 1968. Since that time it has been
tooled and re-tooled to reflect societal changes as they relate to
parents, their kids and the movies they see. This is both the beauty
and the strength of our voluntary system. We look forward to working
with the committee and others in our industry to improve upon this
valued parental tool.
Thank you for the opportunity to testify, and for your leadership
on these important issues.
The Chairman. Well, thank you, Mr. Fithian. I am serious
about getting an antitrust exemption and I would like all of
your input on how that might best be written. I am not caught
up in any language, although we did pass the amendment 98 to 0.
So I am serious about it because I can't see where--well, we
will get into that in a minute.
Mr. Andersen, we will take your testimony.
STATEMENT OF CROSSAN ``BO'' ANDERSEN
Mr. Andersen. Good morning, Mr. Chairman. Retailers welcome
the opportunity to appear this morning, and appreciate the
attention that this committee has brought to the need for
bringing more information to parents about the content of
movies and video games. I should say in opening that retailers,
video retailers in particular, believe that motion pictures and
video games should be marketed consistent with the age groups
to which they are intended.
I do represent video retailers and video distribution
companies, but I am also the father of a soon to be 4-year-old
daughter and two post-teen children, all of whom I am immensely
proud of, but that is another story. I also should mention on
the personal side that I started my legal career in the
Antitrust Division, and for me that was a high calling for more
than 10 years.
I mention that because I do want to address at least
briefly some of the problems presented by the chairman's
suggestion and the chairman's amendment to the Child Protection
Act involving an antitrust exemption for these purposes.
First, concerning the notion of a need for more intensive
enforcement of ratings in video stores, particularly rental
video stores, there is simply a misconception. There is no
evidence of a failure of denying access to children of M-rated
video games and R-rated movies in the rental context. The
Federal Trade Commission report recognized this in several
ways, and the core of their recognition of that was a statement
that in the home video context the involvement of parents is
required. By the very nature of the rental arrangement in video
stores, parents are involved.
I admit that perhaps too few parents know that they can
make individual choices about products to be rented to their
children individually for their children in home video stores.
We have a program which is called Pledge to Parents, branded
that way, and that brand is available to any video retailer.
The Blockbusters and Hollywoods among the video retailers have
this program under different names. But what it means is that
parents can register their individual choices, more restrictive
or less restrictive, for their individual children. And I doubt
that we should intervene between parent and video retailers, or
that Congress would want to.
Where parents have not registered a specific choice or
control, video retailers default to the ratings and do not rent
R-rated videos or M-rated video games to children under 17,
unless there has been that level of parental intervention and
parental consent.
This program is not an 11th-hour conversion. This has been
a program available in video stores for at least 10 years, and
there is no evidence that it is not working well and that it is
not serving the needs of parents. These programs have been
called ratings enforcement programs. I think of them as
parental empowerment programs, and as I said, parents have used
this system for more than a decade.
But I think equally important to this debate that the
committee will have is that parents often just start with the
video and video game rating. They use other rating systems, the
Internet. The Hollywood Reporter yesterday listed 14 family-
focused Internet sites rating and reviewing movies. They use
religious publications, and they use probably most widely the
advice of neighbors and family members.
So, often, the MPAA rating or the ESRB rating is only the
start of a process. And, often, parents use the MPAA rating as
only a starting point and then make individual adjustments,
setting either a higher or a lower age for their individual
children for access to M-rated and R-rated products. In other
words, we think that there is some danger in elevating a
single, monolithic rating system and denying parents the
attention that they would give to other systems, other ratings,
other reviews that they might prefer to trust.
We ask the committee to examine on the antitrust question
how studio executives might use the antitrust exemption that is
contained in section 405. And here I am not speaking of the
sham use of the exemption that Chairman Pitofsky referred to
yesterday. Instead, I am referring to the potential use of the
antitrust exemption and the boycott power specifically with
reference to the enforcement of supplier-run ratings programs.
Let me ask the chairman to consider a hypothetical. Suppose
an independent rating system, perhaps entitled Movie Ratings
2001--this independent rating system, one of several, assume
that it had been too hard, if you will, on the products of the
major motion picture studios and that it was hurting their
sales to video rental and hurting box office.
An exemption would allow the studios to boycott a retailer
who promoted these ratings in his advertising or enforced these
ratings in a more restrictive way as a default in his stores. I
agree that perhaps it is more likely that the exemption would
be used to manage the inventories of independent video stores
or small chains of video stores.
By that I mean who would studio executives react to the
dominance of unrated products in a video store which was
cutting their access or cutting the shelf space of the major
releases? Would they be authorized to agree to quotas ofunrated
and rated products, and apply it to retailers? Could they prohibit the
use of competing rating systems because it might confuse consumers?
And then there is the issue of unrated films. Presumably,
if the rating systems will remain voluntary, there will always
be unrated product. But any significant economic imperative
that the studios could place by way of a threatened boycott on
video retailers that would limit or cut shelf space for unrated
product would create an economic imperative to rate the product
and cut off a choice, and would make the rating systems less
than voluntary.
What concerns us most as retailers, however, is probably
the loss of freedom that retailers have enjoyed. Traditionally,
home video retailers have not purchased directly from the
studios, and this fact, plus the first sale doctrine, has given
them a high degree of freedom over the stocking of and the
rental and sale of products once the studios have sold them
into the stream of commerce.
Video retailers chose to share this level of control with
parents with respect to the content for youth and children, and
I think that opportunity for sharing that control in varied
ways should be continued. Particularly, our view that the
antitrust exemption would be dangerous and problematic is
supported by the absence of any evidence that these controls
are not working well in the home video rental context. In our
view, this would be problematic and perhaps a little bit
dangerous.
Beyond that, Mr. Chairman, we are willing to consider and
work with the committee to consider a voluntary approach in
which retailers would participate in establishing and enhancing
ratings and finding ways to voluntarily enforce them at the
retail level. But the exemption that is proposed in section
405, we feel, is currently unnecessary.
Thank you.
[The prepared statement of Mr. Andersen follows:]
Prepared Statement of Bo Anderson
Mr. Chairman: Thank you for inviting the Video Software Dealers
Association (VSDA) to testify at this hearing on antitrust law and the
entertainment industry's efforts to restrict marketing and sales of
violent entertainment to children.
My name is Bo Anderson and I am president of VSDA. VSDA is a not-
for-profit international trade association for the $17 billion home
entertainment industry VSDA represents over 3,000 companies throughout
the United States, Canada, and 22 other countries. Our core membership
comprises the full spectrum of video retailers (both independents and
large chains), as well as video distribution companies.
VSDA is pleased that the recently released Federal Trade Commission
(FTC) study, ``Marketing Violent Entertainment to Children,'' supports
what we have long said: There is no better place than a home video
store for parents to control the content of the movies and video games
to which their children have access.
I want to assure the committee that VSDA and its members are
concerned about the level of youth violence in our society. While we
have no expertise in the relationship between depictions of violence in
entertainment and real-world youth violence, the home video industry
believes it has a role to play in helping parents ensure that their
children do not gain access to movies and video games that the parents
deem inappropriate for them. We want to share with you the actions
video retailers take to assist parents in this regard through ratings
education and effective, voluntary parental control programs.
While the home video industry supports and indeed actively utilizes
voluntary ratings programs, we strongly oppose proposals to grant
antitrust immunity to the producers of entertainment so that they may
enter into restraint of trade agreements to enforce their ratings
systems at the retail level. These proposals would allow entertainment
media executives to gain unprecedented control over the sale and rental
of movies and video games by video stores, to the detriment of both
video stores and their customers.
FTC REPORT AND VIDEO RETAILERS
Individuals who have not read the FTC report will assume, given the
report's recommendation for retail enforcement of motion picture and
video game ratings, that the FTC found deficiencies in ratings
enforcement by video stores.
In actuality, the FTC report portrayed the rental of movies and
video games positively. Specifically citing the policies of Blockbuster
and Hollywood Video, the FTC acknowledged that ``[p]arents have
significant controls over the videos their children rent because of
limitations established by the major rental outlets'' and the rental of
videos ``requires a degree of parental involvement.'' VSDA believes
these findings are true also for the vast majority of other chains and
independent video retailers, as video stores of all sizes have
effective parental control policies.
The FTC report also found that the only major brick and mortar
sellers of videos that it examined that had policies restricting the
sale of R-rated videos to children were stores that also rent videos.
It correctly noted that retailers that both sell and rent videos are
``more attuned to the issue of parental consent in this area.''
In light of the findings regarding video stores, the FTC's
statement that ``[c]hildren's access to violent movies on home video
differs according to whether the video is rented or purchased,'' would
have been more accurate had it said that access differs according to
whether the rental or purchase occurs at a video store or a non-
specialty retailer.
In sum, the FTC study does not support the inference that there is
a ratings enforcement problem in video stores. Quite the opposite is
true.
Regarding sales of movies and video games outside of video stores,
most of which are conducted by mass merchants, enforcement of industry
ratings is more difficult to manage. We are pleased to note that major
retailers such as Wal-Mart, Kmart, and Toys R Us have resolved to work
through the logistical barriers to ratings enforcement in their stores.
VSDA is prepared to serve as a facilitator and manager of more
widespread adoption of ratings-based ``stops'' and ``ID checks'' in
checkout lines of mass merchants. We feel that the ``checkout time''
devoted to this effort will be understood by consumers and will reflect
positively on mass merchants that choose to adopt such approaches.
VOLUNTARY USE OF INDUSTRY RATINGS.
The FTC report encouraged retailers to check IDs or require
parental permission before selling or renting R-rated movies and M-
rated video games. It also suggested that steps be taken to better
educate parents about movie and video game ratings by providing ratings
information in retail outlets. I am pleased to report that these steps
are already being taken in video stores, and have been for many years.
The video retailers of VSDA agree with this Committee that the best
control is parental control. As stated in ``Children, Violence, and the
Media: A Report for Parents and Policy Makers,'' issued by the
Committee in September 1999: ``[P]arents should realize that there is
simply no substitute for close adult supervision of, and involvement
in, the lives of their children. Parents must take the time to learn
what their children are viewing and playing.'' We are also pleased to
note that the FTC acknowledged that ``parents must become familiar with
the ratings and labels, and with the movies, music, and games their
children enjoy.'' Accordingly, we insist on approaching this as an
issue of enforcing ``parental control'' rather than enforcing ratings.
VSDA-member retailers have taken action to aid parents in making
more-informed entertainment choices for their families. They do this
through voluntary ratings enforcement programs, such as the company-
specific programs used by VSDA members Blockbuster, Hollywood Video,
and Movie Gallery and VSDA's own ``Pledge to Parents'' program.
The centerpiece of Pledge to Parents, established by VSDA in 1991,
is a commitment by participating retailers:
1. Not to rent or sell videos or video games designated as
``restricted'' to persons under 17 without parental consent, including
all movies rated ``R'' by the Motion Picture Association of America and
all video games rated ``M'' by the Entertainment Software Rating Board.
2. Not to rent or sell videos rated ``NC-17'' by the Motion Picture
Association of America or video games rated ``Adults Only'' by the
Entertainment Software Rating Board to persons aged 17 or under.
In addition, as part of the Pledge to Parents program, many
retailers solicit from customers written instructions regarding what
types of movies and video games can be rented or purchased by family
members. For instance, a customer can limit all of his or her children,
regardless of age, to videos rated ``G'' by the Motion Picture
Association of America, or indicate that one child is permitted to rent
``G'' games while another can rent ``PG-13.'' Thus, our voluntary
system allows parents, if they so choose, to be even more restrictive
than any industry- or government-enforced system would be.
The program also includes educational materials to make parents
more aware of and better utilize movie and video game ratings.
In 1999, we updated our Pledge to Parents materials and provided
the revised kit, at no cost, to each retail member of VSDA.
Each Pledge to Parents kit contains the following:
Customer Flyer and Parental Consent Form--These materials
provide information about the Pledge to Parents program and allow
customers to indicate their restrictions or authorizations on video and
video game rentals and sales by their family members.
Terminal-Topper Sign--This sign, to be displayed near the
cash register, draws customers' attention to Pledge to Parents and the
retailer's ratings enforcement policy.
ID Check Sign--We encourage retailers to post this sign,
which indicates that IDs will be checked when appropriate, throughout
their store.
MPAA Theatrical-Size Ratings Poster--This poster provides
customers with movie ratings information to further assist them with
their selection of movies.
Video Game Ratings Poster and Brochures--The poster and
brochures are designed to help customers make informed decisions
concerning their children's video game rentals.
We encourage VSDA members to make maximum use of the Pledge to
Parents materials and proving ratings and content information to
customers of all ages. We also strongly urge our members to check IDs
whenever appropriate. We are pleased to report that the response to
this program from our members has been extremely positive.
VSDA educates consumers about the entertainment ratings systems and
video stores' voluntary parental control programs. As part of the
relaunch of Pledge to Parents, we conducted a substantial public
outreach campaign that reached millions of consumers through
television, radio, newspapers, and the Internet. The purpose of this
campaign was to make parents aware of the resource available to them in
video stores.
The voluntary Pledge to Parents demonstrates our industry's
commitment to the communities in which we live. Video stores and their
employees are part of the neighborhoods where they are located. They
often know their customers by name. They know what is acceptable and
what is not acceptable in their communities. They take pride in the
entertainment they bring into people's homes. And they realize that
their reputations and livelihoods are on the line every time they sell
or rent a movie or video game. Video retailers do not put their
businesses at risk by providing to children movies and video games that
their parents don't want them to have.
ANTITRUST EXEMPTION TO ENFORCE INDUSTRY RATINGS SYSTEM
VSDA is opposed to providing the producers of entertainment with
antitrust immunity to enter into restraint of trade agreements to
enforce their ratings systems at the retail level.
Sections 404 and 405 of the Juvenile Justice Act (H.R. 1501), as
passed by the Senate, would grant antitrust exemptions to the
entertainment industry for agreements to reduce the impact on children
of violence in entertainment products. Section 405 would exempt from
the coverage of the antitrust laws agreement among entertainment
industry organizations to ensure enforcement of ratings and labeling
systems by video retailers, theater owners, and others. Section 404
would provide a separate exemption for agreements to develop and
disseminate voluntary guidelines ``to alleviate the negative impact''
of movies, video games, and other entertainment that contain depiction
of violence, sexual activity, or criminal behavior, so long as the
guidelines do not result in a boycott of any entity.
We oppose Section 405 and similar proposals for three principal
reasons. First, they would effectively give the manufacturers of
entertainment products a monopoly over movie and video game ratings
systems.
VSDA supports the ratings systems of the Motion Picture Association
of America and the Entertainment Software Rating Board. In fact, we
have formally endorsed each, in 1987 and 1994 respectively. We do not
object to an antitrust exemption for entertainment industry
organizations to develop and disseminate guidelines regarding the
content of their products, should Congress determine that such
authority is necessary. However, we strongly oppose granting the motion
picture studios and game manufacturers the power to strip from parents
the right to make decisions regarding what movies and video games are
right for their individual children.
The customers of video retailers are sophisticated consumers who
rely on a variety of reviews and rating systems to determine their
viewing choices. They seek guidance from family, friends, reviewers,
critics, religious leaders, and informed retailers. There are numerous
opinions in the marketplace concerning movies and video games, but none
of the sources of opinions currently have the power to impose their
views on others. Most importantly, parents are currently the final
arbiters of whether, for example, their 15-year-old may rent
Schindler's List or Saving Private Ryan, two highly acclaimed R-rated
movies that many parents may definitely want their teenagers to see. An
antitrust exemption for entertainment industry executives would place
competing independent ratings systems at a competitive disadvantage,
place at risk the current parental control over whose guidance to
follow, and grant ultimate authority to entertainment industry
executives, the very individuals who create the product that is being
evaluated.
Second, we must not lose sight of the implications such an
exemption would have for copyright law. The power of copyright owners,
recently expanded by Congress to unprecedented levels, would be
expanded once more to create a dangerous exception to the first sale
doctrine.
The first sale doctrine, as codified in Section 109 of the
Copyright Act, provides that the owner of a lawfully made copy of a
movie, video game, or other copyrighted work is entitled, without the
consent of the copyright owner, to sell or transfer possession of that
copy. The first sale doctrine is the legal underpinning of the home
video retailing industry. It gives retailers the right to rent and sell
prerecorded videos and video games without the authorization of the
copyright holder. The United States' longstanding policy against
restraints on alienation of property has served us well for more than
200 years, and we believe it would be a very dangerous precedent indeed
to given copyright owners the right to continue to control the
distribution of copies of their works after they have transferred title
to them.
VSDA has fought hard through the years to maintain the independence
of video retailers and their ability to sell and rent movies and video
games to the public without interference from the motion picture
studios and game manufacturers.
VSDA was formed, in part, as a response to the motion picture
studios' efforts to abolish the first sale doctrine and prohibit the
rental of movies. It is difficult to believe today, when home video
represents approximately one-half of the total domestic film revenues
of the studios, but the studios tried to destroy the video rental
industry in its infancy. Legislative initiatives such as the ``Consumer
Video Sales/Rental Amendment of 1983'' (H.R. 1029.S. 33, 98th Congress)
sought to require anyone wishing to rent videotapes to obtain prior
permission from the copyright owner, which would have effectively
precluded video rentals. VSDA was instrumental in defeating efforts to
undermine the first sale doctrine. In doing so, we ensured the
phenomenal growth of the home video industry and contributed to the
financial health of the studios.
An antitrust exemption would jeopardize our hard-won right to rent
movies and video games and allow entertainment industry executives to
dictate to video stores what they can sell and to whom.
Third, we oppose granting the manufacturers of entertainment
products an antitrust exemption to control retail distribution because
such an exemption could seriously weaken competition at the retail
level.
There is a very real possibility that the studios would use this
authority to force video stores to adopt a certain product mix or buy
specific genres or titles. They could even use it to preclude stores
from offering unrated product or ``NC-17'' or other adult videos and
video games. This would deny adult consumers the full range of
entertainment choices to which they are entitled under the
Constitution.
Given the studios' historic antagonism towards home video, the
studios might use the antitrust exemption to restrict competition
within the industry and engage in otherwise impermissible group
boycotts.
We also fear that the enforcement power would be used selectively.
It is natural to assume that the studios would be loathe to use the
enforcement power against major retailers from whom they gain
significant revenue, and would be more willing to use it against
retailers who have little economic power.
Restrictions on product, group boycotts, and selective enforcement
are most likely to be directed at independent video retailers, a market
segment that has shrunk tremendously in recent years due to changing
business models and heightened competition. Because of the nature of
video retailing, retail consolidation financially benefits the studios.
We must also add that it is inconceivable to us, given the
excellent job that video retailers have done in empowering to keep R-
rated movies and M-rated video games out of the hands of their
children, that Congress is seriously considering granting ratings
enforcement authority to the very companies the FTC has determined
routinely target those products to children.
In addition to being unwise, we believe the antitrust exemption
proposals for enforcement by entertainment media producers are
unnecessary given the voluntary programs of video stores I mentioned
earlier to enforce parental control, and the recent actions of major
mass-merchant retailers to institute similar programs.
We believe a more appropriate course of action would be for the
home video industry to police itself. Consistent with the FTC report's
call for entertainment industry trade associations to ``actively
monitor compliance [with self-regulatory programs] and ensure that
violations have consequences,'' VSDA will examine whether we should
require our members who engage in video retailing to certify that they
have effective policies for ratings education and of parental control,
and impose sanctions on members that violate those policies.
Allowing the home video industry to regulate itself would reassure
parents that they can rely on their neighborhood video stores to help
them control their children's access to entertainment. It also would
allow VSDA to police conduct that the public believes is inappropriate,
but for which there is no other effective or legal control mechanism.
Due to its expertise and experience in video retailing, VSDA is best
suited to evaluate alleged violations and has a strong interest in
ensuring the integrity of its programs.
It is our opinion that existing antitrust laws allow us to take
such actions and we require no further legal authority. However, if the
Congress disagrees with our interpretation, we would not oppose
legislation clarifying our authority in this regard.
CONCLUSION
Finally, we must keep in mind that, in addressing the issue of
violence in American society, the government cannot infringe the
constitutional rights of video retailers and consumers--or of parents
to raise their families as they see fit. Ultimately the responsibility
for raising children lies with their parents, not the government and
certainly not video store clerks. As you said last week, Mr. Chairman,
we must ``recognize that the responsibility for what our children are
watching is not the burden of someone else but our own.''
The nation's video stores are doing their part to make sure that
America's children are not exposed to R-rated movies and M-rated video
games without their parents' consent. The FTC report supports the
premise that home video provides parents with the greatest control of
their children's movie watching and electronic game playing. Voluntary
programs, such as VSDA's Pledge to Parents, are the best way to help
parents exercise that control, and appropriate self-regulation by the
retail community can ensure that such programs exist and are utilized.
The Chairman. I want to thank all of you. I am going to
submit the questions because I have gotten you up early enough
here. Some of the questions are very specific and very legally-
oriented, and I would like to submit questions to you and have
you answer them by next Monday. We will get them to you today
and if you can get the answers back by next Monday, it will
help us in making a final determination on what to do.
Now, look, there are a lot of problems here. There is a lot
of demagoguery about the movie industry, the music industry,
the videotape industry, the Internet, and so many other aspects
of entertainment in our society today. Everybody knows my
feelings about protecting children from salacious and
detrimental materials.
On the other hand, I am really offended, to be honest with
you, with politicians who are trying to make hay at the expense
of these industries, when there are great aspects to every one
of your industries. And you know it and I know it. Our country
would not be nearly as good today or as viable or as enjoyable
or as successful today in creating materials that literally
uplift if it wasn't for your respective industries.
On the other hand, we do know that there are people in your
industries who don't give a damn about anything. They don't
care about our children, they don't care about any moral high
road in our society. In fact, there is a moral bankruptcy that
is developing in this country that is starting to bother a lot
of people.
But to demagogue about it and to scream and shout about it
and to act like you can pass laws that are literally going to
enforce or impose voluntary rules and regulations on your
respective industries is just total BS, and you know it and I
know it. And it is done for political purposes, and that is
offensive to me.
That doesn't mean we can't be political in a political
institution like the U.S. Senate or the Congress of the United
States, but I think we ought to be really careful about working
on these First Amendment rights and freedoms in ways that
really make sense.
This hearing is very important because my own personal
feeling is it would be helpful to you to have a limited
antitrust exemption, if it is written properly, that would
provide a means whereby we might be able to get rating systems
that can be enforced voluntarily by you, without Congress
trying to put you through years of litigation contesting the
constitutionality of what really are political statements by
Congress rather than true constitutional approaches.
In the process, a lot of people are critical because people
within the industry themselves do the rating, and therefore it
can't be valid and it is a phony system. I don't agree with
that, but I do think that we need to resolve a lot of problems.
I would like to have your input on just how rating systems
should be done, who should do them, how should they be
enforced, what is voluntary. These are all questions that are
very important to me.
I respect each of your industries and I see a lot of good
that comes from your industries, and I do see a lot of bad that
occasionally crops up that really can hurt our children.
In the music industry, Hilary, you know as well as I that
there are things being put out today that are extremely
detrimental, although for the life of me it is hard to
understand the lyrics sometimes. The music overrides the lyrics
anyway. But on the other hand, there are some bad things.
Jack, you know that in the movie industry there are some
very detrimental things that hurt everybody in the industry.
And there are some people who don't give a darn about anything
except the almighty buck. I think it is important to be
profitable so that you can continue, but it is also important
to have some measure of consideration for the community as a
whole.
Well, I don't mean to lecture you folks. I just have been
grateful to have your testimony here today. I am sorry to put
you through this eight o'clock thing, but I am not going to put
up with that stuff. If they want to play that game, we will
start our hearings at eight o'clock, and we will at least have
until 11:30 a.m. everyday, it seems to me.
But it is important that you showed up here today. It is
important that you gave the testimony that you gave, and it is
important that you answer any questions that we send to you so
that we can approach this in an intelligent, non-political, or
at least as apolitical as we can way that might help to resolve
some of these problems so that parents and communities and
churches and other institutions will have some degree of
confidence that what we are doing in these various
entertainment industries is not totally detrimental to our
children and our society.
So with that, rather than ask a lot of questions and keep
you here any longer, I would rather put them in writing so that
you can take some time to answer them. These are significant
and important questions that we will put into the full record.
[The questions of Senator Hatch are located in the
appendix.]
The Chairman. We will keep the record open until next
Monday for anybody who would like to submit statements. I know
there are some of you who would like to have testified here
today. We will take your statements and make them part of the
official record.
So with that, I appreciate all of you coming and we will
adjourn until further notice.
[Whereupon, at 8:41 a.m., the committee was adjourned.]
A P P E N D I X
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Questions and Answers
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september 21, 2000
Responses of Jack Valenti to Questions From Senator Hatch
Question 1. The entertainment industry has repeatedly cited
potential antitrust violations as a reason for not developing voluntary
codes of conduct with a meaningful enforcement mechanism. In response,
the Senate has already voted 98 to 0 for an antitrust exemption that
removes the legal barriers to acting responsibly. In light of the
concerns expressed by your industry, please elaborate on why you would
not fully support a limited exemption that gives you legal certainty to
collaborate, develop and enforce a set of responsible codes of conduct
that could limit the exposure of minors to material your industry finds
unsuitable.
Answer. The Motion Picture Association and its member companies are
fully committed to acting responsibly in fulfillment of our solemn,
long-enduring obligations to parents. That commitment is at the heart
of voluntary initiatives, like the movie rating system and the MPAA
advertising code, that are designed to help parents make their own
decisions about what films they want their children to see or not to
see, and to limit exposure to material that parents may find
objectionable. Moreover, as a result of these obligations taken very
seriously by us, the movie industry has been the only segment of our
national marketplace, including all business enterprises, that for
almost 32 years has voluntarily turned away revenues in order to redeem
the pledge we have made to parents. Thus far the antitrust laws have
not stood as barriers or prevented us from undertaking such voluntary,
responsible efforts.
As I indicated in my testimony, while I am proud of MPAA's record,
we are committed to doing more in light of the findings and
recommendations of the FTC Report. I am confident that the antitrust
laws similarly will not get in the way of our determined efforts to
respond to the FTC's findings. I am confident we can work within our
own industry and with our partners in the exhibition, home video, and
television industries to respond in a way that does not impose
unreasonable restraints on trade in contravention of existing antitrust
principles.
As you know, the member companies of the MPAA and Dreamworks SKG
recently announced a 12-point set of voluntary initiatives that
responds to each of the FTC's recommendations. I attach a copy of these
initiatives--which were delivered to you prior to their being made
public on September 26--for your reference. Each of these initiatives
is fully consistent with current antitrust principles and, I believe,
when implemented, will address in a serious and significant way the
concerns raised by the FTC Report. Included in these initiatives is a
commitment to work with theater owners--who are our partners in the
voluntary rating system--to improve on-the-ground enforcement. These
initiatives mark significant new commitments on the part of our studios
and should be given a chance to work. If in implementing these
initiatives we find that there are things we can and should be doing to
better fulfill our commitment to parents, and that antitrust law
prohibits us from doing those things, then we will work with you and
other interested parties to fashion a narrow, carefully crafted
exemption that specifically addresses the actions that need to be
taken.
Question 2. In a legal memorandum prepared for the Recording
Industry by David Kendall, it was concluded that a government imposed
labeling system--like that proposed by Senator and Vice Presidential
candidate Lieberman--would likely be unconstitutional. Such a labeling
system would be unconstitutionally vague or overbroad, and would like
not be the least restrictive means of dealing with the government
interest in limiting violence to minors. Kendall's memorandum
suggested, ``Perhaps the most obvious alternative involves augmenting
collaborative efforts among the media industries to expand currently
existing voluntary labeling endeavors.'' Isn't that what the antitrust
exemption I have proposed would allow you to do, without the fear of
antitrust liability?
Answer. I agree that a government imposed labeling system would be
constitutionally deficient for a host of reasons, including those you
describe. I commend you for your longstanding commitment to addressing
these issues in a manner that does not compromise First Amendment
freedoms. I also agree that renewed attention to voluntary rating and
labeling systems is the logical and most effective alternative in
addressing concerns regarding exposure by children to material that
parents may deem objectionable. It is not clear to me, however, that an
expansion of these existing endeavors, as referred to in Mr. Kendall's
memorandum, would run afoul of antitrust principles thereby
necessitating an antitrust exemption.
Question 3. Professor Sunstein, a member of the President's
Advisory Committee on Digital Television and Violence, noted in an
article that members of the industry have raised antitrust as the
reason to oppose developing ``any code.'' He also noted, ``[T]his is
very odd, because in private discussions, members of the NAB treated
the possibility of an antitrust violation asextremely good news. It is
not often that high-level corporate officials are smiling when they
discuss the possibility that certain action would be found unlawful.''
How would you respond to Professor Sunstein's comments?
Answer. I do not speak for the NAB. I wish only to note that any
consideration of an antitrust exemption by the NAB and its members must
be viewed in the historical context of the NAB's experience with
antitrust scrutiny of the earlier-adopted NAB code of conduct. the
voluntary initiatives of the motion picture industry have rightly not
been the subject of similar scrutiny, and those initiatives continue to
be effective and well-received by parents. I think if it far better to
seek solutions that would not be found unlawful under current antitrust
principles as unreasonable restraints on trade. One resorts to
antitrust exemptions only when otherwise lawful means prove
insufficient or ineffective in meeting our obligations to parents.
Responses of Jack Valenti to Questions From Senator Leahy
Question 1. The Congress has been debating the need and usefulness
of antitrust immunity for parts of the entertainment industry for
years. As a result of the efforts of Senator Paul Simon in the 1980s,
an antitrust exemption for television broadcasters became law for three
years from 1990 and 1993. After that antitrust exemption sunset, the
Justice Department issued opinions in 1993 and 1994 that echo the
position of the FTC in 2000: namely, that no antitrust exemption is
necessary for the creation and operation of a rating system for
products inappropriate for children or for the enforcement of such a
rating system against other manufacturers or retailers of such
products. Are you aware of any incidents since 1994 where concern over
antitrust liability has stopped any particular entertainment company
from participating in or enforcing a rating system?
Answer. I do not recall any incidents since 1994 where concern over
antitrust liability has stopped an MPAA member company from
participating in or enforcing a rating system.
Question 2. Since self-regulatory systems that are designed to
protect children would be acceptable and legal under the antitrust laws
as reasonable restraints on trade, do you have any concern that a grant
of antitrust immunity would only be necessary to shield unreasonable
steps from antitrust scrutiny?
Answer. You are right to point out that an antitrust exemption is
necessary, by definition, only to shield conduct that would otherwise
be prohibited as an unreasonable restraint on trade. I most
respectfully petition the Congress and industry not to rush to hasty
judgment, and in the doing to abandon reasonable, voluntary, and lawful
mechanisms for addressing the needs of parents and children. Such a
swift and unnecessary action would also significantly undercut the
public confidence in the existing rating system and the partnerships
that have made it successful.
For nearly 32 years the motion picture rating system has been a
working partnership between the movie studios and theatre owners, as
well as through our relationships with video retailers. All this
rapport works to the benefit of parents. Studios, theatre owners, and
retailers are committed to working together to improve the usefulness
and enforcement of the existing rating system. We are committed to
continue our service to parents, without running afoul of the antitrust
laws. To suggest that otherwise unreasonable and unlawful measures--and
thus an exemption from the antitrust laws--are now somehow necessary to
the success of the voluntary rating system absolutely contradicts the
high parental endorsement that parents accord the movie rating system
(81 percent of all parents with children under 17 find the rating
system `very useful' to `fairly useful' and comports with the FTC own
independent poll which found that 81 percent of parents are `satisfied'
with the voluntary movie rating system). Perhaps, even more
importantly, to expressly sanction unreasonable and otherwise unlawful
restraints on trade in the name of ratings enforcement could
substantially impair the cooperative relationships between theatre
owners, retailers, and motion picture studios that are absolutely
necessary for the success of any voluntary system.
Question 3. The FTC report says that restrictions by manufacturers
on inappropriate retail sales, pursuant to a self-regulatory system to
protect children, would pass muster under the antitrust laws. In light
of this opinion by an antitrust enforcement agency, do you believe that
an antitrust exemption is necessary to enforce a rating system against
retailers?
Answer. As I said in my testimony before the Committee, I am not an
antitrust expert. I give substantial deference to Chairman Pitofsky's
judgment on such matters. I am concerned, however, by the implications
of a regime whereby the ratings system is to be ``enforced against''
retailers. Retailers, like theatre owners, are our business partners,
not our adversaries, and the government ought not force on us a most
unsuitable relationship which would enfeeble our partnership. That
partnership is the prime reason for the success of our voluntary
system. It is for that reason the MPAA member companies are committee
to working cooperatively with our retail and exhibition partners to
ensure that the needs of parents are met through voluntary, industry-
led initiatives.
Question 4. The Brownback-Hatch amendment to S. 254, the juvenile
justice bill, appears to grant broad antitrust immunity to a consortium
of industry members who may refuse to sell theirproducts to certain
retailers, including those retailers who market the products of other
manufacturers that are not part of the consortium and do not abide by
the consortium's rating and labeling systems. a. Do you believe this
goes too far?
Answer. Yes, it goes too far. The example posited in this question
is a good example of why the enactment of a broad antitrust exemption
would threaten to undermine the public confidence in the existing
rating system and undercut the cooperative relationships between
studios, exhibitors, and retailers. I find it hard to believe that the
Senate intended to sanction this sort of group boycott when it adopted
the Brownback-Hatch amendment to the juvenile justice bill. Again, I do
not believe that any antitrust exemption is necessary to implement
successfully the rating system and our responsibilities to parents.
Even so, such an example demonstrates the need to give far greater
scrutiny to any proposed exemption to the antitrust laws than has been
afforded any antitrust exemption currently before Congress.
Question 4b. The Justice Department has expressed concern that this
amendment would restrict the ability of manufacturers outside the
consortium to distribute their own movies, videos and records and pose
the risk of stifling their speech in the marketplace. Do you share this
concern?
Answer. I am concerned that even the perception that such a result
could flow from the implementation of the voluntary rating system
through an antitrust exemption would undercut the public confidence in
the rating system and with it its usefulness to parents.
Question 5. Professor Sunstein testified before the Antitrust
Subcommittee in 1997 regarding a proposed antitrust exemption for TV
broadcasters, staging, ``In my view, a general grant of permission, by
the Congress, for broadcasters to engage in collusive behavior would
probably be unconstitutional . . . and in any case would depend on a
judgment that, in practice, legislative authorization for concerted
action had serious consequences in limiting diversity for the viewing
public.'' Would it be fair to say that Congress should only grant
antitrust immunity with great caution since opening the door to
unreasonable collusive behavior would do far more harm than good?
Answer. I believe Congress should treat grants of antitrust
immunity with both skepticism and caution.
Question 6. Do you agree that the entertainment industry should
stop marketing directly to children products which the industry itself
identifies as inappropriate for children? What steps is the
entertainment industry taking to this end?
Answer. Much of the current debate turns on a misperception of what
the ratings mean and a view that the industry has rated certain movies
as ``inappropriate for children.'' The ratings (other than NC-17)
merely alert parents when a movie contains material that may not be
suitable for children and allow them to choose whether to allow their
children to view those movies. The ratings system does not offer
`recommendations' to parents. All the ratings do or should do is to
provide parents with advance cautionary warnings, so that parents can
make their own judgments. That is a decision they and only they are
empowered to make.
It is particularly important to recognize that the ``R'' rating
does not mean ``adults only.'' That is the province of the ``NC-17''
rating. The ``R'' rating clearly and openly informs parents that
children are admitted to R-rated movies if accompanied by a parent or
adult guardian. Many parents take their children approvingly to R-rated
movies, and many parents allow their children to attend R-rated movies
with other adults. The selection of such movies for attendance by
children is a choice that parents, and parents alone, are qualified to
make. The rating system, most assuredly, does not intervene in such
choices. All the ratings system is designed to do is offer an advance
cautionary warning to parents so they can decide whether or not a
specific R-rated movie is appropriate for their own children. It would
be both improper and impertinent for industry or government to attempt
to stand in the shoes of parents in this regard.
Having said that, I testified that I believe it is unsuitable to
``target'' very young children in advertising R-rated movies. That is
wrong. I believe the FTC report and its recommendations merit very
serious consideration and substantive response. As you know, the MPAA
member companies and Dreamworks SKG have embarked on a 12-point set of
initiatives that respond seriously and responsibly to each of the FTC's
three basic recommendations. I attach a copy of these initiatives--
which were delivered to you prior to their being made public on
September 26--for your reference. some companies may--as some have
already done--go beyond these initiatives, but these basic 12 points
form the platform on which all the eight companies stand. The companies
have just now begun the process of implementing these changes, which
will be reviewed regularly by each company and annually by the MPAA. I
will be personally in contact with the compliance mechanisms that all
the companies are constructing, so that what we said we will do, we
will do.
Question 7. Do you agree that the entertainment industry should
stop including children in market research tests for products which the
industry identifies as inappropriate for them without their parents
approval? What steps is the entertainment industry taking to this end?
Answer. As I indicated in my answer to the previous question, the
motion picture ratings system does not pretend to make judgments as to
what is or is the appropriate for children. Again, having said that,
included in our 12 point set of initiatives is a commitment by each of
the MPAA member companies and Dreamworks SKG to not knowingly include
persons under the age of 17 in research screenings for films rated R
for violence, or in research screenings for films which the company
reasonably believes will be rated R for violence, unless such person is
accompanied by a parent.
Question 8. Chairman Pitofsky made clear in his testimony that
giving out antitrust exemptions was not good policy but that a narrowly
drafted antitrust exemption may do no harm, particularly if group
boycotts, which constitute a per se antitrust violation, were excluded
from the exemption. a. Are there other types of per se violations that
should be expressly excepted from any antitrust exemption the Congress
may consider?
Answer. I defer to others more expert in the intricacies of
antitrust law to answer this question. I do believe, however, that this
is the type of question that would need to be considered and addressed
very carefully before the Congress chooses to enact an antitrust
exemption.
Question 8b. If so, please provide examples of anti-competitive
conduct that should also be excepted from such an antitrust exemption.
Answer. Same as (a).
Question 8c. Given the difficulty in specifying every example of
anti-competitive conduct that should be excluded from an antitrust
exemption, is it fair to say that a congressional grant of an antitrust
exemption to the entertainment industry poses the risk of
unintentionally shielding some forms of anti-competitive conduct?
Answer. I believe this is a real risk. I believe that risk would be
enlarged and infected by the failure to explore fully these questions
in the legislative process, which has not occurred to date.
Question 9. Some witnesses have expressed concern about the
expectation that the Congress would have actions by the entertainment
industry if an antitrust exemption were granted, particularly in the
face of current cooperative efforts ``to discuss ways to improve
ratings and labeling systems * * * even in the absence of an antitrust
exemption.'' Do you have any concern that congressional pressure to
fulfill those expectations could implicate any First Amendment rights?
Answer. Absolutely. As you indicated, a number of the witnesses
addressed this concern in their testimony, including a discussion of
the relevant judicial precedents which insist that Congress cannot,
consistent with the First Amendment, compel industry to do by private
agreement what it cannot achieve directly through governmental action.
I will not repeat the legal analysis here. I will merely note the FTC's
own findings that the First Amendment can be brought to bear when ``the
government has exercised coercive power or provided such significant
encouragement that the challenged action can fairly be attributed to
the government.'' See FTC Report, Appendix C at 2.
There is no question that recent legislative proposals granting
antitrust immunity express a desire on the part of Congress, if not an
expectation, that the entertainment industry act to restrict
voluntarily expressive conduct protected by the First Amendment. These
proposals are often described as an ``alternative'' to more onerous
proposals that are, at best, of questionable constitutionality. This
backdrop lends credibility and coherence to the argument that voluntary
industry action taken under a grant of antitrust immunity would be
subject to constitutional challenge.
Question 10. The hearing elicited a number of important
observations regarding the possible anti-competitive consequences and
effectiveness of any antitrust exemption and, specifically, the
antitrust exemption adopted as part of S. 254, the juvenile justice
bill, including that the antitrust exemption would: (i) not protect a
company from civil lawsuits under state antitrust laws; (ii) not
address the practical concerns of developing a sanctions policy; (iii)
effectively give the manufacturers of entertainment products a monopoly
over movie and video game rating systems; (iv) place competing
independent rating systems at a competitive disadvantage; (vi) place at
risk the current parental control over whose guidance to follow: (vi)
expand the power of copyright owners over the distribution of their
products, even after transfer of title of such products, to an extent
that may undermine the first sale doctrine, as codified in section 109
of the Copyright Act; (vii) empower manufacturers of entertainment
products to preclude retailers from offering unrated products or adult
videos and video games; and (vii) empower manufacturersof entertainment
products to adopt a certain product mix or buy specific genres or
titles. Do you believe these observations and concerns are valid?
Answer. These observations raise serious questions that merit
careful and thorough review. Moreover, each of these expressed concerns
demonstrates the often-ignored complexity of this issue and the fact
that a grant of antitrust immunity would affect different sectors of
the entertainment industry in very disparate ways. Many of these
observations go to the heart of the concerns of our partners in retail
and exhibition and make very clear some of the reasons why a grant of
antitrust immunity would threaten to thwart the cooperative efforts
between these parties that are so essential to the successful
implementation of a voluntary rating system.
______
Response of Jack Valenti to a Question From Senator Thurmond
Question 1. Mr. Valenti, should the entertainment industry allow
its members to market violent movies, music, and other products to
children without consequences?
Answer. I do not believe one can say that depictions of violence
per se are inappropriate for under 17 audiences. This is reflected in
the rating system itself, which allows for different ratings depending
on the type, intensity, context, and frequency of violence, among other
considerations.
As I have said in my answers to the questions posed by Senator
Leahy and in my testimony before the Committee, there are movies
depicting violence that are entirely appropriate for youth audiences,
and which parents may--and do--what their children to see. The move
Amistad, for example, was a wonderful movie of great educational and
social value. That movie received an R-rating based on, among other
things, ``strong brutal violence'' in the depiction of the 19th Century
slave trade. I myself recommended to high school students that they see
Saving Private Ryan--rated R for ``intense'' and ``prolonged'' war
violence--so that they might understand how brave American warriors
bled and died so that this loving land could remain free. You were
among those, Senator, who were there on June 6, 1944 and who fought so
valiantly for a great battle triumph. That film needed to be seen by
youngsters, so they would maybe for the first time understand that the
liberties and freedom they so casually take for granted were purchased
for them at a terrible price. I do not believe there is anything
inappropriate about producers letting teenagers know about such movies.
The point is, whether a movie is appropriate for any child is a
decision that only a parent can make. We are committed to do our part
to give parents advance cautionary warnings so they are better informed
to make the right choices about their children's viewing habits. This
commitment is reflected in the 12-point set of initiatives adopted by
the MPAA member companies and Dreamworks SKG in response to the FTC
Report, which is attached. I have pledged to personally monitor the
compliance mechanisms which each company has committed to construct.
Our aim is to redeem the pledge we have made to Congress, and to keep
our promises to the parents of America.
INITIATIVES OF MPAA MEMBER COMPANIES
1. Each company will request theater owners not to show trailers
advertising films rated R for violence in connection with the
exhibition of its G-rated films. In addition, each company will not
attach trailers for films rated R for violence on G-rated movies on
videocassettes or DVDs containing G-rated movies.
2. No company will knowingly include persons under the age of 17 in
research screenings for films rated R for violence, or in research
screenings for films which the company reasonably believes will be
rated R for violence, unless such person is accompanied by a parent or
an adult guardian.
3. Each company will review its marketing and advertising practices
in order to further the goal of not inappropriately specifically
targeting children in its advertising of films rated R for violence.
4. Each member company will appoint a senior executive compliance
officer or committee to review on a regular basis the company's
marketing practices in order to facilitate the implementation of the
initiatives listed above.
5. The MPAA will review annually how each member company is
complying with the initiative listed above.
6. The MPAA will strongly encourage theater owners and video
retailers to improve compliance with the rating system.
7. The companies will seek ways to include the reasons for the
ratings of films in its print advertising and official movie web sites
for such films.
8. The MPAA has established or participated in the establishment of
the following web sites: ``mpaa.org''--``filemratings.com''--
``parentalguide.org.'' ``Mpaa.org'', among other things, describes the
rating system and includes database listing almost every movie rated
since the commencement of the rating system in 1968.
``Filmratings.com'' is a separate site devoted exclusively to providing
ratings information on all rated movies, including the reasons for the
ratings on recent releases. ``Parentalguide.org'' was established by
MPAA in conjunction with the electronic game, music, cable and
television broadcast industries. The site is intended to provide
parents with one central site where they can obtain information about
each of the ratings systems that have been developed in those
industries. To insure that this information reaches a wider audience,
each company will link its official move web site to mpaa.org,
filmratings.com and parentalguide.org.
9. Henceforth, each company will include on all packages of new
rated releases for its videocassettes and DVDs the rating of such film
and the reasons for the rating.
10. Henceforth, each company will include in the preface to its new
rated releases for videocassettes and DVDs the reasons for the rating
of the film, plus information about filmratings.com web site.
11. The MPAA and each company will strongly encourage theater
owners to provide reasons for the ratings of films being exhibited in
their theaters in their customers call centers.
12. Each company will furnish newspapers with the reasons for the
ratings of each of their films in exhibition and will request that
newspapers include those reasons in their movie reviews. The MPAA and
each company will seek newspapers' cooperation in printing a daily
column listing films in exhibition, their ratings and the reasons for
the rating.
__________
Response of Crossan ``Bo'' Anderson to Questions From Senator Hatch
Question 1. Concerning whether we still have concerns about the
anticompetitive effects of a limited antitrust exemption to facilitate
the development and enforcement of entertainment industry ratings
systems after having heard the testimony of FTC Chairman Pitofsky and
Professor Sunstein.
Answer. The answer is emphatically ``yes.'' Chairman Pitofsky's
testimony underscored that validity of our concerns, as he described
how easily ratings enforcement strategies could be used as a pretext
for fundamentally anticompetitive purposes, such as terminating a
retailer who sells below the manufacturer's suggested retail price
under the pretext that the discounter had violated one of the terms of
the industry's rating system. As Chairman Pitofsky noted, ``issues
relating to actions against retailers may raise some of the most
difficult concerns.'' Although he noted that ``appropriately structured
collective action'' might be permissible, the only examples of an
appropriate structure were where the retailer voluntarily agreed to
adhere to the norm, or where ``seal [of approval]'' or ``Hall of
Shame'' lists were used.
Professor Sunstein, in contrast, appears to have misconstrued the
proposed sections 404 and 405 as authorizing only voluntary action. No
retailer in America would believe that enforcement against retailers of
a standard set through legalized voluntary collusion on the part of its
suppliers would be voluntary in any meaningful sense of the word. It
also appears that Professor Sunstein's analysis was developed from his
background in the First Amendment rules applicable to broadcasting,
which are substantially different because of the public ``ownership''
of the airwaves, limited frequencies available, and other unique
characteristics. Perhaps Professor Sunstein's views would be a step
forward in relation to other countries where he renders advice
(according to his biography at http://www.law.uchicago.edu/faculty/
sunstein/, he ``has been involved in constitution-making and law reform
activities in a number of nations, including Ukraine, Poland, China,
South Africa, and Russia''), but his advocacy of a revisionist approach
to the First Amendment offers what is most certainly a step backward in
American First Amendment jurisprudence. Nevertheless, Professor
Sunstein himself concluded that even if not compelled by existing law,
in his own view ``a general grant of permission, by the Congress, for
broadcasters to engage in collusive behavior would probably be
unconstitutional--at least if the consequence of the grant was sharply
to reduce diversity over the airwaves.'' Statement of Cass R. Sunstein
Before the Senate Judiciary Committee September 20, 2000. Given that
Congress has less authority to control dissemination of speech where
the airwaves are not involved, we believe Professor Sunstein's concern
that Section 405 could be unconstitutional is well-founded.
Your question not only raises a legal these legal issues, but also
raises concern that Congress approach this issue from a sound factual
basis. Your first question states that retailers of entertainment
products are an integral part of any voluntary codes that ``delineate
what is appropriate for minors.'' We respectfully suggest that one of
the difficulties with the various proposals to enforce a voluntary code
is precisely this premise, which VSDA believes to be a false premise.
None of the current industry codes for any entertainment media
delineate what is appropriate for minors, much less for all minors.
Rather, as noted in your reference to FTC Chairman Pitofsky's testimony
in the next paragraph of your first question, these ratings and
labeling systems seek to identify ``those entertainment products that
warrant parental caution.'' These systems are not intended to
objectively declare what is or is not appropriate for all minors nor
could they possibly do so.
Given the wide diversity of minors, even minors of identical ages
in identical communities, and given the wide diversity in parental
values, child-rearing approaches, and both moral and faith-based norms,
these parental advisories reflect nothing more than a rough estimate of
where most parents might either draw the line, or at least want to be
cautioned about the content before allowing their respective children
to enjoy the product. To put it simply, the entertainment industry has
never declared any of its products unsuitable for all minors of all
ages under all conditions. No parents should be deemed unfit because
their judgment of what is or is not appropriate for their own child
differs from the judgment of industry-appointed panels or lawmakers,
nor should any retailer be penalized for adopting a different rating
system or for following the parents' instructions. It is the
prerogative of the parent, not the entertainment industry, to decide
whether to allow a teenager to watch an R-rated movie before his or her
seventeenth birthday, and that is certainly every parent's prerogative.
it is the prerogative of the parent to use these ratings systems as
merely a starting point--an ``advisory'' that cautions them to pay
close attention to whether a particular product is appropriate for a
particular child.
It is for this reason that VSDA members have taken a lead in
empowering parents to control these sensitive decisions. For nearly a
decade, VSDA has been advocating and improving upon its Pledge to
Parents program described in my testimony. This week, the VSDA Board of
Directors carefully considered the FTC's recommendation that trade
associations enhance their programs regarding children's access to
certain entertainment products. The Board voted unanimously to accept
this recommendation by launching a three-point ``Parental Empowerment
Program'' (1) endorsing and encouraging every retailer (including those
outside of VSDA) to use parental control programs relating to movie and
video game ratings, (2) directing that VSDA's popular ``Pledge to
Parents'' materials continue to be made available to all video
retailers, including non-members, and (3) authorizing VSDA staff to
develop a certification program for video retailers who provide
parental education and empowerment tools regarding their control over
access by their children to movies and video games at the retail level.
The objective is to make certain that consumers cannot miss this
important starting point in their evaluation of the suitability of
entertainment products for themselves and their families, and that
parents be empowered to exercise as much control as they desire over
their children's choices.
Question 2. Concerning how industry guidelines for keeping violent
material out of the hands of children should be enforced at the retail
level.
Answer. The home video industry already enforces the ratings
systems of the motion picture and video game industries, and has for
many years. Retail enforcement is achieved through company-specific
programs used by VSDA members Blockbuster, Hollywood Video and Movie
Gallery and VSDA's own ``Pledge to Parents'' program, which has been in
existence since 1991.
It is important to reiterate that the FTC report found the programs
in video stores that it examined to be effective. The FTC acknowledged
that ``[p]arents have significant controls over the videos their
children rent because of limitations established by the major rental
outlets'' and the rental of videos ``requires a degree of parental
involvement.'' VSDA believes these findings are true also for the vast
majority of other chains and independent video retailers, as video
stores of all sizes have effective parental control policies.
The FTC report also found that the only major brick and mortar
sellers of videos that it examined that had policies restricting the
sale of R-rated videos to children were stores that also rent videos.
It correctly noted that retailers that both sell and rent videos ``are
more attuned to the issue of parental consent in this area.''
The FTC report did not identify a single specific instance of a
video store renting an R-rated video or an M-rated game to a person
under 17 years of age. It is important to note that the FTC's ``Mystery
Shopper'' program did not include attempts by persons under age 17 to
rent movies or video games or to purchase R-rated videos.
Regarding sales of movies and video games outside of video stores,
most of which are conducted by mass merchants who are not video
specialists, the FTC found less ratings enforcement. However, major
retailers such as Wal-Mart, Kmart, and Toys R Us have resolved to work
through the logistical barriers to ratings enforcement in their stores.
The FTC report made a valid suggestion that trade associations
enhance their self-regulatory programs. As noted in the answer to
Question 1, the VSDA Board has done precisely that, and VSDA staff have
already begun to carry out the Board's unanimous directive.
______
Responses of Crossan ``Bo'' Anderson to Questions From Senator Leahy
Question 1. Concerning whether we are aware of any incidents since
1994 where concern over antitrust liability has stopped any particular
entertainment company from participating in or enforcing a rating
system.
Answer. VSDA is unaware of any such incidents.
Question 2. Concerning whether a grant of antitrust immunity would
only be necessary to shield unreasonable restraints on trade from
antitrust scrutiny.
Answer. This is precisely the problem with the proposed antitrust
exemption. Many restraints of trade have long been permitted. It is
only the unreasonable restraints on trade that are prohibited by the
antitrust laws. The antitrust laws prohibit only those agreements
``which were unreasonably restrictive of competitive conditions.''
Standard Oil Co. v. United States, 221 U.S. 1, 58 (1991). Accordingly,
an exemption to engage in such restraints means, a fortiori, that the
only new restraints authorized by the proposed exemption are the
restraints that are currently considered so unreasonable as to carry
serious civil and potentially criminal penalties. We see no reason to
condone such conduct.
Question 3. Concerning whether, in light of the FTC report, we
believe that an antitrust exemption is necessary to enforce a rating
system against retailers.
Answer. For the extensive reasons outlined in our written statement
and our oral testimony, VSDA believes it is inappropriate and wholly
unnecessary to grant entertainment manufacturers an antitrust exemption
to enforce their ratings systems at the retail level.
Moreover, when we speak of allowing manufacturers to enforce a
rating system ``against retailers,'' an important fact that has been
missed in this debate is that some major retailers are also
manufacturers (acquiring exclusive rights in films), and some
manufacturers have already begun to develop a retail presence,
particularly over the Internet and through emerging digital delivery.
Retailers that are also manufacturers would thus be given power to
negotiate and enforce a manufacturer-imposed rating system against
their direct competitors at the retail level. Certainly this can be of
no benefit to consumers.
Question 4. Concerning the Brownback-Hatch amendment to S. 254,
granting broad antitrust immunity for manufacturers to engage in
concerted refusals to deal with retailers who market products of other
manufacturers outside of the consortium, and who do not abide by the
consortium's rating and labeling system.
Answer. Part a (whether it goes too far). VSDA believes that the
Brownback-Hatch amendment to S. 254 would allow a consortium to affect
the products of competing manufacturers outside of the consortium, such
as by restricting retail channels that market (and perhaps even favor)
the products of the competing manufacturers who choose not to
participate in the consortium's rating system or to adopt a competing
rating system. Therefore, it would naturally tend to victimize
retailers caught in the crossfire between competitors. Because some
retailers are also market participants at the manufacturing level, and
some major manufacturers are also engaged in retail sales, it would
allow these vertically integrated companies to gain a significant
competitive advantage over non-integrated companies, such as smaller
independent retailers.
Part b (whether we share the Justice Department's concern). VSDA
certainly shares the concern of the Department of Justice stated in
this question. Because each motion picture is unique, none are
fungible. That is, the consumer demand for each motion picture is for
that motion picture itself, and the retailers who purchase them are
motivated to purchase each individual title at the volumes necessary to
service the consumer demand which they anticipate for that title.
Although each retailer's monthly purchasing budget is limited, cheaper
copies of other titles are simply not an effective substitute, so
suppliers have a limited ability to increase their market shares purely
by price cutting. However, if manufacturers are permitted to form
consortiums that use a joint ratings system to compete with
manufacturers outside of theconsortium, the consortium members will be
able to restrict retail channels for their competitors and thereby be
assured that the retailer's limited purchasing dollars will flow to
films of the consortium members.
Question 5. Concerning whether a grant of antitrust immunity
encouraging unreasonably collusive conduct impinging on freedom of
speech would do more harm than good.
Answer. Allowing unreasonable conduct in restraint of competition
is inherently harmful. As FTC Chairman Pitofsky indicated, any
manufacturers who wish to institute reasonable restraints may do so
now, and if they have any doubt concerning the legality of the measures
they may be considering, they are free to seek guidance from the FTC or
the Department of Justice. Moreover, because the purpose in allowing
the use of unreasonable restraints of trade to enforce an industry-
sponsored ratings system has both the purpose and effect of limiting
public access to constitutionally protected material, the harm is not
just to competition, to individual retailers and to manufacturers
outside of the consortium. The harm is also to the creators and
consumers of artistic works, and thus to civil rights protected by the
Bill of Rights.
Question 6. Concerning whether we agree that the industry should
stop marketing certain products to children.
Answer. It is important to note that the FTC study was critical of
the marketing activities of manufacturers, not retailers. We are
unaware of any allegation that the home video industry at the retail
level has targeted children in its marketing of R-rated movies of M-
rated video games. We will defer to the manufacturers of entertainment
products to describe the actions they have taken as a result of the FTC
study.
Nevertheless, VSDA members realize that it is impossible for any
product advertisement to be entirely shielded from children. For
example, children are regularly exposed to television commercials for
products that are exclusively for adults, ranging from shaving cream to
retirement programs, even though the advertiser has no interest in
attracting children to the product. The same can be said for many
entertainment products. It is simply impossible to shield everyone
under seventeen from all R-rated movies. Ironically, the very young may
have no interest in an advertisement for an R-rated movie, while those
who are closer to the age of seventeen would probably have a greater
interest.
Precisely because it is impossible to shield everyone under
seventeen from the knowledge that R-rated movies and M-rated video
games exist, VSDA supports providing more product information to inform
consumers, including children and their parents, concerning the content
of the home video entertainment products they wish to consider. It is
for this reason that VSDA welcomes the announcement by the major motion
picture studios and the MPAA that videos with clearer content
descriptors will soon be arriving in our members' stores. VSDA will
continue to encourage reliance upon the MPAA rating system as a
starting point, while encouraging customers to continue to look beyond
the rating to determine the suitability for their family of every
contemplated movie purchase or rental, regardless of the rating.
We note, also, that this question rests on a false premise. The
``industry itself'' does not identify certain motion pictures or video
games as being ``inappropriate for children.'' Rather, in the case of
motion pictures and video games, the industry has ratings which simply
reflect the informed opinion of a panel of individuals concerning which
video games or motion pictures the panel believes warrant a consumer
advisory as a guide. This guidance is a far cry from condemnation of
the material as being harmful for minors, much less a determination
that all minors under a specific age must be shielded from the material
until a requisite birthday is reached.
In the final analysis, VSDA agrees with the proposition that if a
supplier has reached a determination that a given product may not be
appropriate for children below a certain age--regardless of the
rating--the supplier should not specifically target that age group in
its marketing and should be selective in its general marketing to avoid
creating demand among unintended audiences. While VSDA cannot speak to
the marketing practices of our suppliers, it is precisely because of
these difficult questions that the home video retail industry has
chosen to use the predominant industry rating systems as only a
default, while giving preference to empowering parents to control the
decision concerning whether entire categories of products or specific
products within a ratings category are appropriate for their children.
Question 7. Concerning the use of children in certain market
research tests.
Answer. VSDA strongly condemns the use of children in market
research tests for products that the motion picture studios and game
manufacturers identify as inappropriate for them without their parents'
approval. We are unaware of any such tests having occurred in the home
video industry, and therefore would defer to others to detail what
steps they are taking.
Question 8. Concerning the possible exclusion of per se violations
of antitrust law from the exemption.
Answer. VSDA shares the concern of the National Association of
Recording Merchandisers (NARM) about the anticompetitive consequences
to retailers, and joins in the response to this question by Pamela
Horovitz, NARM's President. We add the following observations.
Answer. Part a. VASDA opposes any exemption from antitrust law that
would give any power over suppliers to control their products beyond
their current power under the Copyright Act. You have asked whether, in
the event Congress were to grant an exemption from antitrust laws,
there are per se violations in addition to group boycotts that should
be expressly excepted from any such exemption. It should be noted,
however, that the line between conduct that warrants per se treatment
or is subjected to a rule of reason analysis is not a clear one. Under
current law, courts will often employ a rule of reason type of analysis
to determine whether certain conduct will be given per se treatment.
Generally speaking, however, other types of violations which are
condemned outright under per se treatment, or are ordinarily condemned
unless certain saving facts can be shown, are price fixing, bid-
rigging, market or customer allocations, and product tying. In this
context, an agreement which does not boycott a retailer directly but
encourages retailers to refuse to deal with certain consumers,
encourages consumers to refuse to deal with certain retailers, or
encourages suppliers (including retailers who are also suppliers) to
penalize a retailer for what amounts to a difference of opinion, should
also be excluded from any exemptionunder the same principles that give
rise to per se treatment--there simply is no conceivable pro-
competitive basis to support such conduct, particularly in light of the
constitutionally protected rights of retailers and their customers to
the entertainment products of their choice.
Part b. As for examples of other types of anti-competitive conduct
which should be excluded from any exemption, the short answer is that
all anti-competitive conduct should be excluded. This would include all
per se violations of the antitrust laws and also all conduct which,
when judged under the rule of reason, constitutes an ``unreasonable''
restraint on trade. The fact is that we believe it is fundamentally
unreasonable to allow suppliers to agree with each other on how they
will do business with retailers, even if under the guise of preventing
some Americans from having access to what the suppliers may deem to be
unsuitable for them, unless it can be shown that the purpose and effect
of the agreement is not anticompetitive and has either procompetitive
benefits or other social value. One principal reason for this position
is that suppliers often compete with retailers at the retail level (and
this is happening with greater frequency through the use of Internet-
based retailing models), and an increasing number of retailers are able
to enter into direct competition with other suppliers at the production
and distribution level. For example, it is estimated that more than one
hundred films were produced or entered production over the past year by
companies whose primary business is video retailing.
The threat of possible pretextual and anticompetitive use of a
ratings enforcement program as described by Chairman Pitofsky is not
just a speculative proposition. VSDA has already been rocked by
controversy within the home video industry. In particular, small
independent retailers have been troubled by the ability of larger
retailers to acquire exclusive rights in films, which can then be
marketed on an exclusive basis. A group of independent retailers are
currently engaged in an antitrust lawsuit against another retailer and
the major motion picture studios alleging what is, in plain English,
favorable treatment to one retailer. These plaintiffs are
understandably alarmed at the prospects of the defendants in their
lawsuit being given the power to agree upon, and enforce against the
plaintiffs, restrictions on their freedom to continue to market freely
and competitively. Though I do not wish to imply that the defendants
would take advantage of the proposed tool to control the plaintiffs,
what is being proposed is a permanent change in our antitrust laws at a
time when emerging new technologies are giving rise to new business
models and strategic relationships in a market with increasing vertical
integration and rapid consolidation. This is simply not the time to
interfere with the free market, even if out of a genuine concern for
encouraging parents to alter their parenting choices.
Part c. A grant of an antitrust exemption to the entertainment
industry poses not only a risk, but a certainty that the exemption will
serve to shield forms of anti-competitive conduct that Congress would
never condone directly. This is primarily because so many suppliers are
also retailers, and so many retailers are also suppliers. For example,
under current law, a supplier could unilaterally refuse to sell its
product through any retail channels but its own, or grant exclusive
access to only one or a small number of select retailers. Similarly, a
major retailer which owns the copyright to a new release may keep it as
an exclusive product for its own stores. It would be a very simple
process for such a supplier/retailer to explain its refusal to deal as
being necessary to prevent children form having access to the product,
and not trusting the competing retailers to do a good enough job of
enforcing the supplier-imposed restriction.
Question 9. Concerning whether we have any concern that
congressional pressure to fill expectations could implicate First
Amendment rights.
Answer. You have raised a very important issue because, in our
judgment, which we share with NARM, the increasing pressure upon
members of the entertainment industry to do by agreement with each
other what Congress cannot lawfully do outright raises a very real risk
that what would otherwise be lawful private action will be challenged
and condemned under the long line of cases exemplified by Shelley v.
Kramer, 334 U.S. 1 (1948). To put it simply, the greater the
congressional pressure upon the entertainment industry to take
``voluntary'' action (under frequent threats that failure to act will
be addressed by more restrictive legislation), the greater the
likelihood that what might otherwise be lawful private action will be
converted into ``state action'' and subject to challenge under 42
U.S.C. 1983. It would be both ironic and disappointing if the zeal and
urgency with which some members of Congress are pressing private actors
to do what Congress cannot do directly would so infect otherwise
voluntary private action that it will be found to be coerced state
action in violation of the First Amendment.
We do not raise this concern in a vacuum. For many Americans, the
memory of government ``encouragement'' of private action to deny equal
rights to persons on the basis of race remains fresh. For example,
although private landowners are free to seek enforcement of the
trespass laws against trespassers even if they file charges on a
racially discriminatory basis, the Supreme Court reversed the trespass
conviction of sit-in demonstrators where local government actors had
encouraged such private voluntary action by condemning the sit-ins and
publicly stating that the government was prepared to prosecute anyone
charged with trespass. Lombard v. Louisiana, 373 U.S. 267 (1963).
``The line sought to be drawn is that beyond which the state
assists a private person in seeing to it that others behave in a
fashion which the state could not itself have ordained.'' Pollak,
Racial Discrimination and Judicial Integrity: A Reply to Professor
Wechsler, 108 U. Pa. L. Rev. 1 (1959). In Lugar v. Edmondson Oil Co.,
457 U.S. 922 (1982), the Supreme Court reviewed several of the factors
which the Supreme Court has used over the years, in different contexts,
to determine whether what may appear to be private conduct is in fact
the conduct of a ``state actor'' for purposes of liability for
infringing constitutionally protected rights, id. at 939 (noting the
``public function'' test, the ``state compulsion'' test, the ``nexus''
test, and the ``joint action'' test). It concluded that, regardless of
the test used, ``the first question is whether the claimed deprivation
has resulted form the exercise of a right or privilege having its
source in state authority. The second question is whether, under the
facts of this case, respondents, who are private parties, may be
appropriately characterized as `state actors.' '' Id. Concerning the
latter question, the Court quoted approvingly from United States v.
Price, 383 U.S. 787, 794 (1944), the Court reiterated: ``It is enough
that [the private person] is a willful participant in a joint activity
with the State or its agents.'' (Edmondson Oil Co., 457 U.S. at 941.)
Thus, the proposed antitrust exemption, which has the fundamental
purpose of empowering private parties to engage in conduct, currently
prohibited, to deprive persons of their constitutional right to freedom
of speech, places retailers in an untenable position. If they resist
this action, they can be penalized to the point of bankruptcy. If they
cooperate with thegovernment scheme, they become exposed to liability
for violation of civil rights under 42 U.S.C. Sec. 1983.
Question 10. Concerning several important observations regarding
the possible anticompetitive consequences and effectiveness of any
antitrust exemption.
Answer. VSDA continues to believe that the concerns we expressed at
the hearing are valid and should lead to the conclusion that an
antitrust exemption for entertainment manufacturers to enforce their
ratings systems at the retail level should not be granted. In fact, if
anything, the hearing heightened our concern because of the statement
of the Chairman that he seeks to remove any question that the
entertainment industry could engage in a group boycott of ``a video
rental chain'' that does not adhere to industry age advisories for
their products. Retailers and their customers must remain free to
disagree with their suppliers concerning such a sensitive matter.
Congress did not put Joe Camel in charge of dictating to tobacco
retailers and consumers what the appropriate smoking age should be.
Where the Constitution reserves such a right to the people and
prohibits congressional abridgement of that right, Congress should not
delegate power that it does not have to entertainment product
suppliers.
Although VSDA's position in relation to the issues raised in this
question is addressed in my written testimony, we wish to give special
attention to the issue in (vi) concerning the effect that this proposed
antitrust exemption would have on a well established body of copyright
law--the first sale doctrine.
The Constitutional authority vested in Congress to enact copyright
laws is for the purpose of promoting 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.''
(U.S. Const., art. I, cl. 8.) Early on, the courts determined, however,
that one of ``the ordinary incidents of ownership in personal
property'' is ``the right of alienation'' of that property, which is
``attached to'' the ownership. Harrison v. Maynard, 61 F. 689, 691 (2d
Cir. 1894). Accordingly, the right to vend (or the distribution right)
is exhausted once exercised. This is commonly referred to as the
``first sale doctrine,'' which has now been codified in Section 109 of
the Copyright Act.
Section 109(a) provides that, notwithstanding the copyright owner's
distribution right, the owner of a particular copy or phonorecord
lawfully made under U.S. copyright law ``is entitled, without the
authority of the copyright owner, to sell or otherwise dispose of that
copy or phonorecord.'' Accordingly, America's retailers of copyrighted
artistic and entertainment works are entitled to sell them without
interference from the copyright owner as to what price they may sell
them, or to whom they may sell them, or how they will merchandise them.
Thus, the proposed exemption from antitrust law, ostensibly
intended to allow copyright owners to enforce their own ratings system
as against all others, would in fact upset over 100 years of copyright
jurisprudence and hand to copyright owners an unprecedented right to
continue to control the distribution of copies of their works long
after they sold them. They could control distribution by, in the name
of ``enforcing'' a ratings system, restrict how their products are
merchandised in every retail store, designate specific classes of
consumers to whom the copies could or could not be sold, place
additional burdens on retailers to perhaps keep records of the names
and addresses of all persons to whom they sold or rented titles of a
given rating, and effectively control all retail and other reselling
channels for their works, long after they had conveyed all right, title
and interest in a given copy.
Recently, copyright owners have been seeking greater control over
copies of their works by trying to avoid the effect of Section 109 of
the Copyright Act and purporting to ``license'' copies of their works.
Under the Uniform Computer Information Transactions Act, copyright
owners are seeking to gain a foothold in controlling distribution by
making a end run around Section 109 where copies are made and
distributed in digital format. The copyright power grab would continue
if copyright owners are given a direct exemption from antitrust laws
for the specific purpose of controlling and limiting public access to
copies of their works which they no longer own. In other words, this is
not just the power to limit output and keep our competition that is
anathema to antitrust law, but also a power to continue to control
distribution of copies long after copyright law would extinguish that
right and give it to the retailer and the consumer.
``One of the most important limitations on copyright owners'
exclusive rights is embodied in Section 109 of title 17, United States
Code,'' H.R. Rep. No. 735, 101st Cong., 2d Sess. (1990) (Statement of
Legislative History, Title I, pagination unavailable). This right has
even been recognized as implicating First Amendment rights. United
States v. Bily, 406 F. Supp. 726, 735, n.15 (E.D. Pa. 1975). We
therefore urge Congress to not allow the rush to encourage private
censorship through antitrust exemptions and collusion among copyright
owners to restrict distribution and trample such a mainstay of
copyright law.
______
Response of Crossan ``Bo'' Andersen, to a Question From Senator DeWine
Question 1. Mr. Andersen, you have raised concerns about
entertainment producers having an antitrust exemption for the purpose
of enforcing their ratings at the retail level. Will you agree to work
to establish enforcement provisions at an association level that will
ensure that inappropriate products are not sold to children by your
members without parental involvement?
Answer. VSDA is committed to continuing and enhancing the home
video industry's voluntary programs to empower parents to control the
movies and video games to which their children have access. We
appreciate your emphasis on parental involvement, an emphasis we
embrace.
At the outset, it bears repeating that video stores already have in
place parental empowerment programs that provide parents with
information about the motion picture and video game ratings systems and
ensure that children do not have access to movies and video games that
their parents determine are inappropriate for them. The study of the
Federal Trade Commission, ``Marketing Violent Entertainment to
Children,'' showed these programs to be the most effective of any that
the FTC examined and did not identify a single specific instance of a
video store renting an R-rated video or an M-rated game to a person
under 17 years of age. The study supports the contention that a video
store is the best place for parents to control the content of the
movies and video games to which their children have access.
Yet, VSDA recognizes that, to keep our pledge to parents, we must
constantly look for ways to improve the parental empowerment programs
of video retailers. We appreciate the recommendation of the FTC that
entertainment industry trade associations ``actively monitor compliance
[with voluntary self-regulatory programs] and ensure that violations
have consequences.'' Just two weeks after the issuance of the FTC
study, the Board of Directors of VSDA discussed this recommendation and
took action on it.
At a September 25, 2000, meeting, the VSDA Board of Directors voted
unanimously to: endorse members' parental empowerment programs related
to movie and video game ratings; direct that Pledge to Parents kits
continue to be made available to all retailers, members and nonmembers
alike (Pledge to Parents is VSDA's model ratings education and
enforcement program); and authorize the establishment of a retailer
certification program for parental education on movie and game ratings.
The retailer certification program is intended to provide parents
with a recognizable ``seal of approval'' for video retailers who
prominently provide ratings information and train their employees in
the ratings systems of the Motion Picture Association of America and/or
the Entertainment Software Rating Board, as appropriate.
In light of the existing effective parental empowerment programs of
video stores, the lack of any suggestion of systemic failures of
ratings enforcement by video stores, and the difficulty in devising and
implementing a punitive enforcement system (see the testimony of
Douglas Lowenstein, President, Interactive Digital Software
Association, for a discussion of these difficulties), VSDA believes
that an aspirational program that provides positive incentives for
retailer action will serve parents best.
Finally, we are compelled to add a clarification. Although we
understand and appreciate the spirit and intent of the question, we are
reluctant to ``agree'' with Congress not to provide constitutionally
protected materials to an individual otherwise entitled to receive
them. Video retailers have voluntarily adopted programs to ensure that
certain products are not rented or sold to children without parental
involvement. This voluntary private conduct is not the result of an
agreement with members of Congress. If it were, it would place these
programs and participating retailers at risk. To put it simply, the
Supreme Court has determined that private actors can become state
actors, and be subject to liability for civil rights violations, if
their conduct is the result of too much encouragement, cooperation, or
agreement with the state. The analysis would be fact intensive, and we
hope that you understand our reluctance to create any factual basis for
a disgruntled consumer to challenge under 42 U.S.C. Sec. 1983 a
retailer's voluntary decision not to sell or rent a particular product
to him or her. It could result in a serious set-back to positive
programs of video retailers.
__________
Response of Pamela Horovitz, to Questions From Senator Hatch
Question 1. With respect to a limited exemption for record
companies for developing voluntary and enforceable guidelines, what
actions from record companies concern us and why?
Answer. NARM has no objection to entering into discussions with
record companies for the purpose of reviewing the findings of the FTC
report and developing ways of improving the voluntary Parental Advisory
program. We think this is an appropriate use of the FTC report and
there is no need for an antitrust exemption to have this conversation.
However, if an antitrust exemption is granted for the purpose of
recommending improvements to the Parental Advisory program, the
exemption should extend to include the retail community.
We take a different position with respect to an anti-trust
exemption for the purpose of ``enforcing'' the Parental Advisory.
Because ``enforcement'' translates to mandating restrictive retail
sales policies on a program which is not age based, we believe that if
record companies are granted even a limited exemption in which they
have the opportunity to impose sanctions on companies with which they
compete, there is potential for abuse.
The music industry is rapidly moving to the internet for the
marketing and delivery of music. While digital delivery holds much
promise for retailers, it also heralds the entrance of suppliers into
the marketplace as direct competitors. All five major recording
corporations already own or control web sites which sell directly to
consumers in direct competition with NARM member retailers. While NARM
member retailers do not fear competition (even from suppliers) and are
confident of their ability to compete for consumers, our members are
concerned about the ability to compete on a level playing field in a
digital world. NARM is now in the middle of litigation against Sony
Music in which we seek to limit their unfair marketing to consumers via
hyperlinks on the Internet. It is not hard to imagine a scenario in
which an online retailer could be punished for selling a title to a
minor responding to the marketing of the record company doing the
punishing.
Any anti-trust exemption which is given to a few companies who
control the vast majority of copyrights for music must be scrutinized
against their behavior in the existing marketplace. Their strategies
clearly indicate a desire to control content, delivery mechanisms,
pricing models, and marketing strategies on a worldwide basis. Adding
to this list their ability to control ratings programs is both
inappropriate and unwise and would facilitate collusion in a highly
concentrated market.
Because antitrust analysis is a complex area of the law, we have
developed NARM's legal concerns in greater detail with the assistance
of counsel in our response to Question 8 by Senator Leahy.
Question 2. How would we suggest enforcing guidelines for keeping
violent material out of the hands of children at retail?
Answer. NARM opposes the concept of ``enforcing'' guidelines at
retail and believe that America's parents and children are better
served by the variety of programs now at work in the marketplace. The
FTC findings did not include any indication that parents are demanding
that all retailers restrict sales of Parental Advisory recordings.
Because retailers must be responsive to the individual communities in
which they operate in order to be successful, we believe that the
variety of policies and programs now in place is the best reflection of
the degree to which parents needs are already being met.
______
Responses of Pamela Horovitz, to Questions From Senator Leahy
Question 1. Are you aware of any incidents since 1994 where concern
over antitrust liability has stopped any particular entertainment
company from participating in or enforcing a rating system?
Answer. No.
Question 2. Since self-regulatory systems that are designed to
protect children would be acceptable and legal under the antitrust laws
as reasonable restraints on trade, do you have any concern that a grant
of antitrust immunity would only be necessary to shield unreasonable
steps from antitrust scrutiny?
Answer. Suppliers, retailers, and government representatives may
have differing definitions of what constitutes reasonable or
unreasonable restraints on trade. However, for music retailers, who
increasingly face competition from their own suppliers, any steps which
give a marketplace advantage to suppliers and have the potential to
drive them from the marketplace as cause for concern.
Question 3. Do you believe that an antitrust exemption is necessary
to enforce a rating system against retailers.
Answer. NARM disagrees with the premise that an effective rating
system requires enforcement actions against retailers, regardless
whether an antitrust exemption were necessary to achieve that
objective. NARM opposes the notion of ``enforcing'' at retail a program
which is not age based by design (the FTC arbitrarily assigned 17 as
the appropriate age for all music carrying the RIAA Parental Advisory
sticker), and which was created with the intent of being advisory only.
We believe that the range of options available to parents under the
diversity of programs now available in the marketplacebetter serves the
needs of parents who may have differing views of how intrusive they
wish retailers to be in parenting decisions.
Question 4a. Does NARM believe the Brownback-Hatch amendment goes
too far?
Answer. Yes. We believe the voluntary self-regulation program can
be improved without the measures outlined in the Brownback-Hatch
amendment. The benefits of the amendment are far outweighed by the
potential for abuse and offer parents the false hope that they need not
be concerned with the media their children may be exposed to because
Congress is ensuring that no exposure can occur.
Question 4b. Do we share the Justice Department concern that the
amendment would restrict the ability of manufacturers outside the
consortium to distribute their own movies, videos, and records?
Answer. Yes. The antitrust exemption places no limit on the
creative uses to which such power could be placed. Critics have already
noted that the cost of submission of a movie for the MPAA rating is a
barrier to emerging independent film companies. The grant of what would
amount to a monopoly on a single rating system could easily be used
through licensing or service fees to raise competitors' costs and
increase barriers to entry.
Question 5. Do we think granting anti-trust immunity would open the
door to collusive behavior and do more harm than good?
Answer. Yes. See response to Question 8.
Question 6. Does NARM agree that the entertainment industry should
stop marketing directly to children products which the industry itself
identifies as inappropriate for children?
Answer. NARM believes that the findings of the FTC report were a
useful snapshot of the practices of certain segments of the
entertainment industry with respect to marketing to children. However,
NARM disagrees with the notion that industries as diverse as music,
motion picture and video games can be treated as one industry, nor
should retailers be painted with the same brush as the suppliers who do
the marketing. For example, we wish to point out that music retailers
were not accused of marketing to children inappropriately in the FTC
report. NARM believes that the vast majority of advertising and
marketing plans executed by our retail members target mass market
audiences and are designed primarily to alert the buying public to the
new titles which are available in any given week. Artist-specific
marketing is generally executed by the labels, although certain
merchants may be ``tagged'' in a given ad. We support the revised
guidelines of the RIAA which specifically preclude advertising
recordings which contain the Parental Advisory in media with 50 percent
of the demographics below the age of 16.
Question 7. Does NARM agree that the entertainment industry should
stop including children in market research tests for products which the
industry identifies as inappropriate for them without their parents
approval?
Answer. We certainly agree that market research activities should
not target young children if an age based rating does not indicate the
content is suitable for them. However, NARM is not aware of any music
retailers conducting any market research projects for any artist
specific projects, so no steps are necessary to end a practice which
does not exist for our segment of the entertainment industry.
Question 8. In light of Chairman Pitofsky's testimony, a. Whether
other types of per se violations of antitrust law, in addition to
boycotts, should be excepted from the antitrust exemption? b. If so,
give examples. c. Whether the grant of an antitrust exemption for the
purpose of ratings enforcement poses the risk of unintentionally
shielding some forms of anti-competitive conduct.
Answer. NARM's concerns about the anticompetitive consequences to
retailers are rooted in the basic premise that there is no need for an
antitrust exemption to facilitate the development of a truly voluntary
code governing the appropriate content for entertainment products for
minors. This type of activity is governed under the Sherman Antitrust
Act pursuant to a ``rule of reason'' analysis that permits such
activity, provided, however, it does not result in an unreasonable
restraint of trade or commerce. Voluntary standards or codes, which are
unbiased and the product of objective and legitimate expert judgment,
do not require an antitrust exemption. American Society of Mechanical
Engineers, Inc. v. Hydro-Level Corp., 456 U.S. 556 (1982). However,
when such standards or codes negatively impact competition or create
circumstances that facilitate anticompetitive collusion, such as
boycotts or other per se type violations, there is no sound public
policy reason to exempt them from antitrust proscriptions even if the
goal is to satisfy some societal purpose.
The Supreme Court's decision in National Society of Professional
Engineers v. United States, 435 U.S. 679, 692-93 (1978) provides an
excellent rationale for not exempting concerted or collusive conduct
from antitrust scrutiny. In that case, an association's canon of ethics
ostensibly designed to protect public health and safety, and to protect
consumers from inferior engineering work, was viewed as nothing more
than a pretext to stifle competitive bidding for engineering services.
We share FTC Chairman Pitofsky's concern that exempting group boycotts
from antitrust scrutiny would permit the exemption to be used
pretextually to the competitive disadvantage of retailers. This is
particularly true where, as here, the markets for the supply of
recorded music and motion pictures are both highly concentrated--five
suppliers control over 90 percent of the sound record market, and seven
suppliers enjoy similar control in the motion picture market. Those
very suppliers are in direct competition with retailers for Internet
sales or the digital delivery of entertainment products to consumers.
Conversely, there is increasing competition between those suppliers and
certain retailers who function at the supplierlevel in attracting
recording artists and producing recorded music, or in acquiring
copyrights in motion pictures.
Granting an antitrust exemption, which permits boycotting or
refusals to deal aimed at retailers who are also direct competitors at
the retail level and, in several cases, also at the supply level, is
fraught with serious anticompetitive concerns. The proposed legislation
discriminates against retailers by permitting boycotts an similar
restrictions against them while at the same time excluding boycotts and
advertising restrictions aimed at suppliers. Compare Section 404(b)
with the absence of any similar language in Section 405. It is our
position that boycotts or refusals to deal raise such serious
anticompetitive concerns as to preclude their exemption from antitrust
scrutiny. Where there is high market concentration with few suppliers,
such as exists in the market for prerecorded music and motion pictures,
an antitrust exemption facilitates collusion due to the centralization
of power in determining what types of entertainment products are
acceptable.
Per se violations are those that almost always restrict competition
and have little or no redeeming value in enhancing competition. Thus,
price fixing, bid rigging, territorial and customers allocations by
competitors fall within the per se category. Jefferson Parish Hosp.
Dist. No. 2 v. Hyde, 406 U.S. 2, 9, 15-16 (1984); Northern Pac. Ry.
Inc. v. CBS, 356 U.S. 1, 5 (1958). Where suppliers have market power
other practices such as tie-in sales, group boycotts or refusals to
deal are treated as per se violations. Even boycotts by groups without
market power are per se unlawful if they are designed to obtain higher
prices. FTC v. Superior Court Trial Lawyers' Ass'n, 493 U.S. 411, 432-
35 (1990).
Even the exclusion of boycotts from the proposed exemption would be
inadequate because it would not cover a number of other per se
violations or predatory conduct. The complexities of definition alone
argue against granting any exemption particularly where it is
unnecessary. At a minimum these complexities certainly would require
extensive hearings and investigation to evaluate the impact that an
antitrust exemption would have in industries as diverse as those
encompassed by the ``entertainment industry.''
It should also be noted that the courts frown upon and do not
lightly infer antitrust exemptions. United States v. National Ass'n of
Sec. Dealers, Inc., 422 U.S. 694, 719-20 (1975). A group boycott or
refusal to deal by competitors targeting other competitors generally
falls within the per se category of antitrust violations. The courts
view such conduct as so antithetical to the public policy favoring
competition as to be beyond justification. A statutory exemption for
such conduct would be unprecedented and unwise public policy,
especially where the objective--a voluntary code aimed at protecting
minors--can be achieved without an antitrust exemption. The McCarran-
Ferguson Act, 15 U.S.C. Sec. Sec. 1012(b)-1013(b), which excludes
boycotts from its limited insurance antitrust exemption, is instructive
with respect to the parameters of the term ``boycott.'' Under this
provision, ``boycott'' includes more than an absolute refusal to deal;
it also includes conditional refusals to deal and partial boycotts--
refusals to engage in some but not all transactions with the target.
Hartford Fire Insurance Co. v. California, 509 U.S. 764, 801 (1993). In
Hartford Fire Insurance, Justice Souter, based on Supreme Court
antitrust precedent, included an even broader array of activity where a
group uses coercion and intimidation as part of its enforcement
activities. Id. at 786-88.
In Fashion Originators' Guild of America, Inc. v. FTC, 312 U.S.
457, 467-68 (1941) the Supreme Court held that a program to detect
``style piracy,'' under which industry members agreed not to deal or
purchase products from other manufacturers who engaged in style piracy,
violated the Federal Trade Commission Act and was a per se violation.
The Court viewed the program as setting up an ``extra-governmental
agency'' which prescribed a restraint on interstate commerce. Indeed,
the Court analogized the practice of imposing sanctions as the
assumption of judicial and legislative powers by a private group. To
the extent that the proposed legislation would exempt boycotts or
variants of boycott activity as enforcement mechanisms, it certainly
would smack of delegating governmental powers to private groups.
Sanctioning boycotts and concerted refusals to deal that negatively
impact competition cannot be justified under some generalized public
policy goal.
It cannot be overemphasized that the danger of the proposed
exemption is that it provides governmental approval of a standard
setting program or voluntary guidelines which encourage or facilitate
collusion or monopolistic activity in a highly concentrated industry
setting. XIII H. Hovenkamp, Antitrust Law para. 223lb at 349 (1999). It
makes it relatively easy for those in control to establish a standard
or rule--ostensibly neutral on its face--to remove mavericks or
aggressive marketers at all levels from the market or raise their costs
of doing business. Id.
Providing the umbrella of governmental approval to such a program
or standard-setting process raises serious issues concerning whether
such a program's ratings and enforcement activities could be viewed as
governmental action impinging upon important First Amendment rights.
Were Congress to confer such power to private entities, albeit for
social welfare benefits, it is difficult to perceive how such a
statutory scheme could not implicate first amendment concerns. Even
Professor Sunstein conceded as much in his statement:
. . . a general grant of permission by the Congress for
broadcasters to engage in collusive behavior would probably be
unconstitutional--at least if the consequence of the grant was
sharply to reduce diversity over the airwaves. But this
conclusion is not compelled by existing law, and in any case it
would depend on a judgment that, I practice, legislative
authorization for concerted action had serious consequences in
limiting diversity for the viewing public. A statute that
allowed collusive and monopolistic activity would of course
count as state action.
Statement of Cass R. Sunstein, Before Senate Judiciary Committee
(Sept. 20, 2000). Despite Professor Sunstein's efforts to distinguish
the proposed legislation from this characterization, the proposed
legislation suffers from the same infirmities: it has the earmarks of
governmental or state action, in all likelihood has the potential of
serious consequences limiting diversity, and facilities collusion and
anticompetitive activity.
The proposed legislation would certainly be vulnerable to challenge
as governmental action impinging upon fundamental First Amendment
rights. Despite the government's legitimate interest of protecting
children, there are less restrictive or more tailored means of
achieving that goal without granting an antitrust exemption to insulate
boycotting or refusals to deal that could limit diversity and which
appear to be the product of Congressional intimidation or coercion.
See, Denver Area Ed. Telecommunications Consortium, Inc. v. FCC, 518
U.S. 727, 755 (1996). A proposal that discriminates against retailers
by permitting them to be targets of boycotting activity or group
intimidation and coercion by the very suppliers with whom they compete
and who have substantial market power, raises serious constitutional
problems when the same legislation protects those same competing
suppliers from such conduct.
Question 9. Does NARM have any concern that congressional pressure
to fulfill expectations concerning voluntary industry action if an
antitrust exemption is granted could implicate any First Amendment
rights?
Answer. Not only is NARM concerned that First Amendment rights
might be implicated if the antitrust exemption is granted, but we
believe that congressional pressures, accompanied by individual threats
that direct legislative action might be taken if voluntary measures are
not implemented, may have already placed existing voluntary measures at
risk of being challenged as ``state action'' under 42 U.S.C. Sec. 1983.
We join with VSDA in the following observation: The increasing pressure
upon members of the entertainment industry to do by agreement with each
other what Congress cannot lawfully do outright raises a very real risk
that what would otherwise be lawful private action will be challenged
and condemned under the long line of cases exemplified by Shelley v.
Kramer, 334 U.S. 1 (1948). Thus, the more pressure the government puts
on the entertainment industry to take ``voluntary'' action to fend off
enactment of restrictive legislation, the greater the likelihood that
what might otherwise constitute lawful private action will be converted
into ``state action'' and subject to challenge under 42 U.S.C.
Sec. 1983. It would be both ironic and disappointing if the zeal and
urgency with which some members of Congress are pressing private actors
to do what Congress cannot do directly would so infect otherwise
voluntary private action that it will be found to be coerced state
action in violation of the First Amendment.
We do not raise this concern in a vacuum. For many Americans, the
memory of government ``encouragement'' of private action to deny equal
rights to persons on the basis of race remains fresh. For example,
although private landowners are free to seek enforcement of the
trespass laws against trespassers even if they file charges on a
racially discriminatory basis, the Supreme Court reversed the trespass
conviction of sit-in demonstrators where local government actors had
encouraged such private voluntary action by condemning the sit-ins and
publicly stating that the government was prepared to prosecute anyone
charged with trespass. Lombard v. Louisiana, 373 U.S. 267 (1963).
``The line sought to be drawn is that beyond which the state
assists a private person in seeing to it that others behave in a
fashion which the state could not itself have ordained.'' Pollak,
Racial Discrimination and Judicial Integrity: A Reply to Professor
Wechsler, 108 U. Pa. L. Rev. 1 (1959). In Lugar v. Edmondson Oil Co.,
457 U.S. 922 (1982), the Supreme Court reviewed several of the factors
which the Supreme Court has used over the years, in different contexts,
to determine whether what may appear to be private conduct is in fact
the conduct of a ``state actor'' for purposes of liability for
infringing constitutionally protected rights, id. at 939 (noting the
``public function'' test, the ``state compulsion'' test, the ``nexus''
test, and the ``joint action'' test). It concluded that, regardless of
the test used, ``the first question is whether the claimed deprivation
has resulted from the exercise of a right or privilege having its
source in state authority. The second question is whether, under the
facts of this case, respondents, who are private parties, may be
appropriately characterized as `state actors.' '' Id. Concerning the
latter question, the Court quoted approvingly from United States v.
Price, 383 U.S. 787, 794 (1944), the Court reiterated: ``It is enough
that [the private person] is a willful participant in a joint activity
with the State or its agents.'' (Edmondson Oil Co., 457 U.S. at 941.)
Thus, the proposed antitrust exemption, which has the fundamental
purpose of empowering private parties to engage in conduct, currently
prohibited, to deprive persons of their constitutional right to freedom
of speech, places retailers in an untenable position. If they resist
this action, they can be penalized to the point of bankruptcy. If they
cooperate with the government scheme, they become exposed to liability
for violation of civil rights under 42 U.S.C. Sec. 1983.
Question 10. Does NARM believe the following concerns and
observations are valid: a. the antitrust exemption would not protect a
company from civil lawsuits under state antitrust laws.
Answer. As a general rule, the federal antitrust laws do not
preempt state antitrust laws. In this case, given the effort to affect
purely local concerns at the retail level, it is unlikely that
preemption would be availing, particularly not where the legislation
does not expressly preempt state law, there is no Congressional intent
to occupy the whole field, and no actual conflict exists between
federal and state provisions. California v. ARC America Corp., 490 U.S.
93, 101 (1989). Moreover, given that the purpose of the antitrust
exemption has nothing to do with Congress' power under the Commerce
Clause, but has the clear intent of causing private parties to abridge
the First Amendment rights of others, the proposal is not likely to
have any possible shielding effect from state antitrust laws.
NARM's concern does not end with state antitrust laws, however.
Many music retailers have experimented with restrictive sales policies
over the years in an attempt to find the right program for a specific
community. What is surprising to many legislators is the fact that
restrictive sales programs are not uniformly met with enthusiastic
support from parents. Retailers have been criticized by parents for a
variety of reasons (``You mean my kid is old enough to drive to your
store by himself but not old enough to buy a record once he gets there?
'' , the most important of which is anger over intrusion into their
parenting decisions (``How dare you tell me how to raise my
children!''). In other cases, retailers have been picketed for being
racists (``How dare you put all the rap music behindthe counter?'') and
accused of fraudulent selling practices for stocking edited or
``clean'' versions of recordings which carry the Parental Advisory.
Given that the industry has been subject to numerous class action suits
in the past (Milli Vanilli, pricing), it is not unreasonable to expect
that civil litigation against retailers would be a tool used by
consumers whose views differ from those of Congress on restrictive
sales policies regarding stickered music. Their standing to bring a
claim under 42 U.S.C. Sec. 1983 is discussed in response to Question 9.
Question 10b. The antitrust exemption would not address the
practical concerns of developing a sanctions policy.
Answer. There is an existing voluntary program for street date
violations in the music industry where the practical concerns of
imposing sanctions may be useful to consider in terms of the likely
issues to be faced for a content based program. It has been extremely
difficult for individual companies to determine at what point sanctions
should be triggered. If a retailer has a thousand stores and millions
of transactions each month, is it reasonable to impose sanctions for a
single violation? What about multiple violations occurring on the same
day in the same store? What if the store manager is a new employee?
What if different employers were responsible for different violations?
Is it fair to impose a different standard on the owner-operator of a
single store? Deciding what is appropriate an appropriate sanction can
also be extremely difficult. If product is withheld, should it be just
the title in question? Should just the violating locations lose
product? If the product was purchased through a sub-distributor, should
the sanctions apply to the sub-distributor as well? How long does the
sanction last? If a fine is imposed, what level is appropriate (and
should it vary with the size of the retailer) and to whom should the
money go? Who polices the marketplace, and who bears the cost of such
policing? Should there be an arbitration procedure? If a company is
damaged by a sanction, can they sue? These issues have been extremely
challenging for individual companies who have explored sanctions as a
means of enforcing a voluntary policy in the marketplace and would
become exponentially more complicated if they needed to be coordinated
at an industry level.
Question 10c. The antitrust exemption would effectively give the
manufacturers of entertainment products a monopoly over movie, music,
and video game rating systems.
Answer. In the existing music marketplace, market dominant
retailers have the ability to command the release of edited versions of
titles simply by having a policy of refusing to stock recordings which
carry the Parental Advisory. Other retailers have internal programs in
place which supplement the RIAA program. If only one supplier-run
program is used as the benchmark for retail and parental use, the
incentive for other companies to offer alternatives would disappear.
Retailers who disagree with decisions made by record labels over
applying the Parental Advisory would be reluctant to challenge them for
fear of reprisals. In fact, it would be in the retailer's self interest
never to impose more restrictive policies, even if more suitable to a
given community or more in keeping with the retailer's own standards,
so as to avoid being subject to sanctions.
Question 10d. The antitrust exemption would place competing
independent rating systems at a competitive disadvantage.
Answer. The formal advisory programs already in place by the
different segments of the entertainment industry can now be
supplemented by the additional information which can be obtained
through alternative sources now available in newspapers, magazines,
online, and through various private organizations. However, if only the
formal programs run by the respective industry trade associations can
be used by retailers, the economic underpinnings of these competing
programs will be at risk. If parents desire or require additional
information about a specific recording, they will be limited to what is
made available by the formal industry sources.
Question 10e. The antitrust exemption would place at risk the
current parental control over whose guidance to follow.
Answer. The antitrust exemption will essentially mandate that the
views of a small group of industry insiders regarding a product's level
of appropriateness for children be applied to every child in the
country. In a free enterprise society, these views inevitably come in
conflict with the dictate to maximize profits and audience. Therefore,
one must question the wisdom of placing such decisions in the hands of
a few executives, who, no matter how well intentioned they may be,
cannot be expected to meet the needs of all children. Because each
child's needs and rate of maturity differ, parents are best positioned
to make decisions relating to the type of entertainment they will
permit for each child.
Question 10f. The antitrust exemption would expand the power of
copyright owners over the distribution of their products, even after
the transfer of title of such products, to an extent that may undermine
the First Sale doctrine.
Answer. NARM shares the concern of the Video Software Dealers
Association (VSDA) about the impact this exemption would have on the
first sale doctrine, and joins in the response to this question by
Crossan ``Bo'' Andersen, VSDA's NARM's President. The two associations
have filed Joint Comments in response to a Request for Public Comment
by the Copyright Office and the National Telecommunications and
Information Administration of the Department of Commerce concerning the
effect of the Digital Millennium Copyright Act and electronic commerce
on Section 109 of the Copyright Act (the codification of the first sale
doctrine).
Question 10g. The Antitrust exemption would empower manufacturers
of entertainment products to preclude retailers from offering unrated
products or adult videos or videogames.
Answer. In the music industry, the vast majority of sound
recordings are ``unrated,'' in the sense that only a relatively few
sound recordings have been determined to warrant the Parental Advisory
label. Thus, NARM does not believe that an antitrust exemption would
place unrated sound recordings at risk. Nevertheless, NARM is concerned
that such an exemption would empower manufacturers to preclude
retailers from facilitating the dissemination of competing product
reviews or the implementation of a given retailer's own policies based
on different criteria.
Question 10h. The antitrust exemption would empower manufacturers
of entertainment products to adopt a certain product mix or buy
specific genres or titles.
Answer. Yes. The proposed antitrust exemption places no limit on
the creativity of manufacturers to use the ratings enforcement power to
achieve all manner of market controls.
______
Responses of Pamela Horovitz to Questions From Senator Thurmond
Question 1. Do I think that advisory labels on music generally
prevent young people from getting access to restricted music?
Answer. The FTC report indicates that 71 percent of American
parents either purchase music for their children or are with their
children when music purchases are being made. Since the advisory labels
were created for the purpose of informing parents and retailers about
the nature of the content in a recording, and since 74 percent of
American parents indicate that they are satisfied with RIAA's Parental
Advisory program, we believe that it's appropriate to assume that
parents who wish to restrict access by their children to certain titles
are doing so. The FTC findings did not include any indication that
parents are demanding that all retailers restrict sales of Parental
Advisory recordings to all people below the age of 17.
Additionally, the FTC report included the findings of the 1999
Roper Youth Report and the Media In the Home 2000 Study, both of which
indicated that while parents have different ``styles'', one aspect of
parenting which is consistent is the fact that parents are more
restrictive with their children's use of media below the age of 12, and
are more permissive with their older children. (The exception was the
Internet). In this context, it is interesting to note that the results
of the FTC ``Mystery Shopper'' tests show that it was harder for 13 and
14 year olds to purchase music at retail than it was for 15 and 16 year
olds. This finding is consistent with NARM's understanding of the
various restrictive sales programs of our members, many of which are
designed to be consistent with the prevailing parental norms of their
communities. The FTC report states that ``Parents give older children
greater freedom in selecting and purchasing entertainment products than
they do to younger children, and are less likely to restrict older
children.'' (p. 7, Appendix F).
Question 2. If industry guidelines for retailers on the sale of
products to young people are entirely voluntary, what incentive do
music or game retailers have to restrict children's purchases.?
Answer. Retailers must be responsive to the individual communities
in which they operate in order to be successful. Therefore, the fact
that a variety of restrictive sales programs already exist in the
marketplace confirms that sufficient incentives exist without
government involvement. The fact that not every retailer has the same
program is a reflection of the fact that parents differ in terms of how
intrusive they wish retailers to be in their parenting decisions
regarding entertainment products. We believe that the variety of
policies and programs now in place is the best reflection of the degree
to which parent's needs are already being met. This belief is confirmed
by a lack of a finding in the FTC report that parents are asking for
more restrictive sales policies from retailers for music.
______
Responses of Pamela Horovitz to a Question From Senator DeWine
Question 1. Ms. Horovitz, in your written testimony you state that
access to products with explicit content should not be withheld from
children under the age of 17, partly because allowing sales to kids
encourages parents and their children to address what type of content
is appropriate. It seems to me that your argument supports a policy of
limiting the sale of explicit labeled products to children under the
age of 17. Wouldn't such a policy, which in effect, requires a child to
go to a parent before a purchase can be made, both encourage parental
involvement and allow the parent to assess whether the child is mature
enough for the product.
Answer. The excellent question posed by Senator DeWine is one which
has been debated within the retail community since the inception of the
RIAA Parental Advisory program. Let me preface my answer by noting that
the question misstates my characterization of the interface between
parents and children on this topic. My written testimony noted that
there were a variety of responses from parents in those situations
where they found music with the Parental Advisory designation in the
hands of their children. Not all parents simply concluded that the
content was inappropriate for their children. For some parents a
discussion with their kids resulted in a restriction of playing the
content through a device with headphones so that an older child could
still be permitted to listen, but a younger sibling would not have
access. For other parents, the interface presented an opportunity to
learn why a son or daughter was interested in certain lyrics, and to
discuss the family's values against the values reflected in the lyrics.
Some of the most poignant responses from parents involved situations in
which violent lyrics related to the topic of suicide and provided and
opportunity to explore death and dying with a teenager.
The FTC reports that ``When asked how they should respond if their
child came to them to ask about buying an explicit-content album, one
third (33 percent) of parents indicated they would not allow their
child to purchase that music.'' (p. 16, Appendix F). This means two-
thirds of parents would still allow the purchase. If these figures had
been broken down further, we believe they would likely have reflected
the higher levels of permissiveness parents have for older children as
opposed to younger children.
We think it's also important to note the finding in the FTC report
regarding the fact that parents regard music differently than they do
television, movies or videogames.
``Parents report placing greater restrictions on the
viewing of movies than on the playing of games or the listening of
music.'' (p. 6, Appendix F)
``By comparison, children have greater autonomy to both
select and purchase music than to select and purchase movies or
electronic games.'' (p. 14, Appendix F)
``Parents mentioned profanity (28 percent of the overall
sample) and sexual content (9 percent of the sample) as the principal
content concerns for the restriction. Violence was also mentioned as a
concern by some respondents (6 percent of the sample) but was not as
salient in parents' minds as profanity.'' (p. 14, Appendix F)
All of the FTC findings are consistent with what retailers
experience in the day-to-day selling of music. Retailing companies have
different programs for handling Parental Advisory products because they
occupy different niches in the marketplace which meet different needs
for different families. If there were a great hue and cry from parents
for different programs, certainly retailers would already be hearing it
from their customers. We think the FTC report indicates that parents
are calling on the industry to provide more information about why a
title carries the Parental Advisory. This is a request which NARM has
previously passed on to the RIAA. We did not find any data supporting a
conclusion that parents are looking for all music retailers to restrict
the access of all children to Parental Advisory titles.
__________
Responses of Douglas Lowenstein to Questions From Senator Hatch
RESPONSE TO QUESTION 1 FROM SENATOR HATCH
Our members cannot rely on an exemption unless it offers
unmistakable protection. This means protection from federal actions for
alleged boycotts and from actions under state laws. Any actions to
enforce codes of conduct present a legal risk under state antitrust
laws, which parallel federal laws and thus raise precisely the same
need for an antitrust exemption that exists under federal antitrust
laws. An exemption from the federal antitrust laws, even if well
crafted to give industry the protection it needs, will be meaningless
if a company against which the rules are enforced can bring the same
lawsuit under state antitrust law instead of the federal one.
Similarly, the most effective action that an industry group could
take against a retailer who routinely sells inappropriate material to
children is to refuse to deal with such a retailer. Such an action
against retailers could be characterized as a boycott that would
subject a supplier to the risk of antitrust litigation. We understand
that there may be some confusion as to whether the bill would protect
actions against retailers from federal antitrust lawsuits. The FTC's
Chairman, for example, believed that the legislation offers no such
protection. Our members cannot rely on an exemption unless it offers
unmistakable protection. Further, any actions to enforce codes of
conduct would also present a legal risk under state antitrust laws,
which parallel federal laws and thus raise precisely the same need for
an antitrust exemption that exists under federal antitrust laws. An
exemption from the federal antitrust laws, even if well crafted to give
industry the protection it needs, will be meaningless if a company
against which the rules are enforced can bring the same lawsuit under
state antitrust law instead of the federal one.
RESPONSE TO QUESTION 2 FROM SENATOR HATCH
The alternative suggested by Mr. Kendall to ``augment collaborative
efforts among the media industries'' is not entirely clear to us.
Nevertheless, as I stated in my written testimony, the video and PC
game industry has been committed to effective self-regulation since the
formation of the IDSA in 1994. We have consistently and continuously
sought to respond to concerns about the small number of our products
that contain significant violence, balancing our absolute commitment to
creative freedom with our commitment to empowering consumers to make
informed choices.
In the last year alone the IDSA has launched several initiatives on
rating enforcement, rating awareness, and game marketing. The IDSA is
proud of the efforts it has taken voluntarily with respect to
advertising initiatives as well as efforts to encourage voluntary
retailer enforcement of the rating system. We believe that voluntary
industry efforts have been effective, especially as evidenced by the
recent announcements from Toys R Us, K Mart, WalMart, and Target that
they will enforce the M rating. We will continue to work to ensure that
the self-regulatory regime meet the needs of industry and consumers
alike.
In our view, the antitrust exemption you have proposed is
unnecessary in order for us to continue the steps described above and
outlined in more detail in my written statement. Where the exemption
potentially could be helpful is if we need to work collectively on
strengthening retailer enforcement, but in this regard the exemption
does not provide the legal protection we need, as explained elsewhere.
RESPONSE TO QUESTION 3 FROM SENATOR HATCH
The imposition of antitrust liability arising when industry
standards are established is a serious concern for all industries.
While the IDSA has not objected to an antitrust exemption, in theory,
any such exemption that fails to provide adequate protection to
participating industries will not have the desired impact of
encouraging the development and enforcement of industry codes.
Moreover, as we note in our testimony, with or without an exemption, we
do not think it is feasible for our industry to develop any codes
governing game content. That is, and will remain, a matter for
individual software developers and publishers and consumers.
______
Responses of Douglas Lowenstein to Questions From Senator Leahy
RESPONSE TO QUESTION 1 FROM SENATOR LEAHY
IDSA has not found antitrust liability to be an impediment to
establishing and enforcing our ratings system and compliance with most
of our ratings and advertising guidelines and standards has been very
high. On the other hand, taking collective industry action against
retailers, in the absence of broad antitrust immunity against state and
federal antitrust, raises significant concerns.
As FTC Chairman Pitofsky stated at your hearing and in his written
testimony, enforcement of industry codes that discipline retailers that
fail to observe restrictions on selling or renting certain products to
minors could be potentially unlawful. For example, the most effective
action that an industry group can take against a retailer who routinely
sells inappropriate material to children is to refuse to deal with the
retailer.
In his testimony Chairman Pitofsky explicitly stated that the
legislation would provide no protection for claims that the industry
had engaged in such a boycott. He also stated that industry actions to
discipline members for failure to comply with the advertising or
marketing restrictions could violate antitrust laws where ``the
withdrawal of membership or of membership privileges would
substantially impair the disciplined member's ability to complete.''
Since the denial of a rating may substantially impair a company's
ability to compete, the FTC's analysis would suggest that such an
action would entail serious risks.
RESPONSE TO QUESTION 2 FROM SENATOR LEAHY
To the extent that Congress is pressing the industry to take action
that affects the marketing of products, it is important that a broad
antitrust exemption is granted. Without a broad antitrust exemption
that applies to actions under federal and state antitrust laws,
publishers will hesitate before taking joint actions that affect market
access and could subject them to liability.
RESPONSE TO QUESTION 3 FROM SENATOR LEAHY
IDSA believes that there is too much legal uncertainty for
manufacturers to restrict inappropriate retail sales without risking
being sued under the antitrust laws.
IDSA is concerned that enforcement actions taken by manufacturers
against retailers will expose the IDSA to claims that it engaged in a
group boycott. Absent a clear provision that protects IDSA members
against both federal and state lawsuits, IDSA members who attempt to
enforce the ESRB ratings by refusing to supply retailers who do not
adhere to its guidelines could face antitrust lawsuits from retailers
at the state and federal level alleging that they were impermissibly
denied access to product. Moreover, even with such a broad exemption,
our testimony makes it clear that from a business standpoint,
withholding of product from market would be extremely difficult and
potentially disastrous for individual software companies and thus is
not a viable course of action.
RESPONSE TO QUESTION 4 FROM SENATOR LEAHY
(a). We are concerned that developing an enforcement mechanism to
discipline retailers who violate rating enforcement policies would be
quite challenging and would bring with it some practical and legal
risks, notwithstanding the antitrust exemption that is being proposed.
For example, suppose retailers and publishers agree on a policy
barring all retailers from selling M rated games to persons under 17.
In effect, this policy means that a company with an M rated game cannot
sell it to persons under 17, even though the product is legal and the
actual rating itself does not actually bar that person's use of the
product (remember, ESRB ratings are advisory--an ``M'' rating says
``content may be suitable for persons ages 17 and older''; it does not
say content is unsuitable for persons 17 and under). By denying a
retailer access to software if they violate codes of conduct, the
industry could be exposed to legal liability. Even if the legislation
cleared up all ambiguities by providing ironclad protection against
federal antitrust lawsuits for such actions, the industry would likely
face lawsuits under state antitrust laws or the numerous state laws
that regulate commercial conduct.
(b). Yes, we share this concern. Please see our response to
Question 4a above.
RESPONSE TO QUESTION 5 FROM SENATOR LEAHY
IDSA agrees with those members of the Committee, the Chairman of
the FTC, the Department of Justice, and others who urge that any
granting of an antitrust exemption be done only after the exercise of
great caution and consideration. We share the concern that even the
most well-meaning antitrust exemption could be used inappropriately. We
are pleased at the tremendous progress made to date by our industry and
we believe industry self-regulation is the best and most effective
means of strengthening retailer enforcement. We also note that one
unintended consequence of such exemptions may be a weakening of self-
regulation, not a strengthening of it.
RESPONSE TO QUESTION 6 FROM SENATOR LEAHY
Yes, IDSA agrees that our products should only be marketed to those
people for whom they are appropriate, as determined by the industry's
independent ratings body, the Entertainment Software Ratings Board
(ESRB). IDSA and its member companies have taken a number of voluntary,
proactive steps to address concerns over advertising and marketing
which are detailed in my written statement. However, it's important to
note that an ``M'' rating on a game is an advisory to the purchaser, 85
percent of whom, according to the FTC, are parents. An ``M'' rating
indicates that the ``content may be suitable for persons ages 17 and
older'', which does not necessarily mean that the content is unsuitable
for all persons 17 and under. Our ratings system is aimed at providing
parents the information they need to help make purchasing decisions.
RESPONSE TO QUESTION 7 FROM SENATOR LEAHY
While currently our industry's advertising guidelines do not
specifically address the issue of including children in market research
testing, we will include this topic among the agenda items when our
Board meets to discuss issues stemming from the FTC report, and we will
recommend that the guidelines explicitly address this issue.
RESPONSE TO QUESTION 8 FROM SENATOR LEAHY
In thinking about enforcement mechanisms, the only effective one we
know to control retailers would be some concentrated group effort to
withhold product (if such action is even practical from a business
standpoint.) As we have noted elsewhere in our responses, as well as in
my written testimony, taking collective industry action against
retailers, in the absence of broad antitrust immunity against state and
federal liability, raises serious concerns.
With respect to enforcing codes of conduct, if they could even be
devised (which we note elsewhere is problematic) we also doubt there
are any industry sanctions that could force compliance. For example, it
has been suggested that non-compliant companies be expelled from
association membership and the names of non-compliant companies be
published so consumers would have access to that information. This is
certainly possible but we doubt its efficacy. Moreover, we submit such
``enforcement'' systems would be no more effective than leaving it to
the press, Members of Congress, and consumers to condemn or not buy
offensive content.
Also, please see our response to Question 1 by Senator Leahy.
RESPONSE TO QUESTION 9 FROM SENATOR LEAHY
Yes, we share the concern expressed by some that unreasonably high
expectations may be created if our industries were exempted from
antitrust laws and encouraged to collaborate on content codes of
conduct and ratings enforcement mechanisms, and my written testimony
addresses our First Amendment concerns.
RESPONSE TO QUESTION 10 FROM SENATOR LEAHY
Yes, IDSA shares in some of these observations and concerns, a few
of which have been outlined above.
For example, suppose retailers and publishers agree on a policy
barring all retailers from selling M rated games to persons under 17.
In effect, this policy means that a company with an M rated game cannot
sell it to persons under 17, even though the product is legal and the
actual rating itself does not actually bar that person's use of the
product. By denying this company access to under-17 consumers with a
legal product, IDSA could be open to civil lawsuits under state
antitrust laws or the numerous state laws that regulate commercial
conduct. For example, a publisher could claim that the standards were
applied in a discriminatory manner to exclude its kind of business and
favor large competitors. Or an excluded retailer could claim that
publishers tortiously interfered with its contractual relationships.
Beyond this, while the amendment gives antitrust protection to
those who seek to enforce the system, we are also concerned about a
series of practical issues that make development of a sanctions policy
difficult, and I address a number of these in my written testimony.
______
Responses of Douglas Lowenstein to Questions From Senator Kohl
RESPONSE TO QUESTION 1 FROM SENATOR KOHL
First, it should be noted that the FTC data on GamePro refers to
60% of readers as 17 and under. As you know, by including 17-year-olds,
it skews the data since an ``M'' rating indicates content that may be
suitable for persons who are 17 and older. Thus, the key data point
would be how many GamePro readers are under 17.
With respect to what percentage represents targeting, a general
standard would be if a magazine or TV show's primary target audience is
persons under 17, such as Sports Illustrated for Kids, I would regard
this outlet as off limits to mature product. As to what an appropriate
across the board percentage cutoff would be, I think this is a fair
question to ask, and it is an issue we will be discussing within the
IDSA in the coming weeks. I will be happy to report back to you when
these discussions are complete.
RESPONSE TO QUESTION 2 FROM SENATOR KOHL
No, no companies have been found in violation of the code for
advertising to children. It is important to understand, though, that
IDSA does not have access to marketing plans and can only make its
findings based on actual ad placements. When IDSA was responsible for
enforcing the ad code through February 2000 (as you know this
responsibility has been transferred to the new Ad Review Council of the
ESRB) we interpreted violations of the ad code's targeting provision to
require ads to be placed in outlets primarily targeted at kids. We
rarely found such instances. Moreover, we did not regard ads for M
rated titles in game enthusiast magazines--all of which routinely
review Mature rated games as part of their editorial sections--to
constitute a violation of the anti-targeting provision so omission
would not have acted in such cases. We understand that the FTC and
others believe that ads for M rated games in outlets where 35 percent
or more of readers are under 17 (an M rating is for persons 17 and
older so this is the standard which should be applied) could be
construed as targeting to minors and, as noted, this is an issue we
will be discussing internally in the coming weeks.
RESPONSE TO QUESTION 3 FROM SENATOR KOHL
No, we have not considered doing so to date. However, as the FTC
itself noted, some companies have started to move voluntarily to
require that the packaging for action figures based on Mature rated
games (many of which are sold to collectors over the age of 17, by the
way) carry information about the game's ratings. IDSA intends to
actively encourage this as an industry practice.
In addition, I understand the new Ad Review Council is examining
this issue as well. As a footnote, it is important to understand that
some of the action figures frequently offered as examples of target
marketing by video game companies are actually products licensed by
independent businesses and the publisher of the game associated with
the character is not involved in any way.
RESPONSE TO QUESTION 4 FROM SENATOR KOHL
The ESRB, with the support of the IDSA, has and continues to engage
in a series of steps to raise parental awareness of the rating system.
Last Fall, ESRB launched an extraordinary campaign to raise awareness
and use of its ratings, with the centerpiece being a PSA featuring
Tiger Woods urging parents to ``Check the Rating'' of games they buy;
we purchased advertising in major national publications with
significant parent readership, such as Good Housekeeping, Parenting,
and Newsweek, ESRB placed pull-out flyers in major parent-oriented
publications, such as Child Magazine, it redesigned its consumer
brochures, and distributed millions to leading retailers, and we
reached out to leading national grassroots organizations with ties to
schools and parents, such as Mothers Against Violence in America and
the PTA seeking ways to partner with them to get the word out to
consumers, especially parents, about ESRB ratings and how to use them.
We were disappointed that some groups critical of the industry, such as
the American Academy of Pediatrics (check if this is group we
approached) who can reach millions of parents, declined to partner with
ESRB to distribute its parent's guide to video game ratings.
In addition to our grassroots efforts, the IDSA sent letters to
major national retailers asking them to make a commitment to consumers
to use their best efforts not to sell Mature rated games to persons
under 17, a step we had also taken in October, 1998. As you know, Toys
`R' Us was the first retailer to adopt this policy and in the last week
K-Mart, Wal-Mart and Target have as well. IDSA supports those efforts.
We believe other retailers will soon follow suit.
This past July, the industry renewed its commitment to another paid
media campaign this holiday season to promote the ESRB. Further, IDSA
has offered to fund 50 percent of the cost of producing in-store
educational materials for retailers on the ESRB. To that end, we met
individually with every major retail chain and presented a series of
in-store promotional options for them to consider based on what is best
for them. We are currently working closely with several major chains to
implement this co-op program.
We're proud that Sen. Lieberman continues to call the ESRB the best
rating system in the country and we've appreciated your supportive
remarks about ESRB over the years as well. We are committed to raising
awareness of the ESRB. We would welcome your support and help in
working with other groups to get the word out about the ESRB ratings
and hope we can find common ground on some initiatives in this area.
Finally, one must note that the FTC report found that 49 percent of
parents who are familiar with the rating system do not use it. No
amount of industry promotional efforts can force parents to use the
tools we provide. The control is ultimately in their hands.
______
Responses of Douglas Lowenstein to Questions From Senator Grassley
RESPONSE TO QUESTION 1 FROM SENATOR GRASSLEY
In fact, ``adult'' games do not sell more quickly than other games,
nor are they more popular. In 1999, Mature rated games represented five
percent of all computer and video games sold in the United States; none
of the top 20 best selling computer and video games in 1999 were rated
M and so far in 2000, only 1 of the top 20 best sellers are M rated
titles. Finally, only about 10% of the 1,800 games released in the year
carried an M rating.
RESPONSE TO QUESTION 2 FROM SENATOR GRASSLEY
Yes. In the period when IDSA itself was handling ad code
enforcement, we sent out scores of letters over the years to companies
in connection with potential or actual violations of the advertising
code. In some cases, the violations were minor and inadvertent,
especially in the early years of the rating system when companies were
adjusting to its existence. In some cases, companies were required to
take corrective action to remedy more serious ad code violations at
their own expense. As we explain in the testimony, earlier this year,
we strengthened our commitment to self-regulation by asking the ESRB
ratings body to create a new unit solely responsible for monitoring and
enforcing the ad code, shifting this mission from the trade association
to the autonomous ratings unit. The new ESRB Ad Review Council unit has
more resources devoted to this process and considerable teeth. Under
its rules, companies that violate ad guidelines face a range of
sanctions, from loss of the rating (which would be commercially
disastrous) to taking corrective steps, to referrals to the FTC or
other agencies.
Additional Submissions for the Record
----------
September 21, 2000
Prepared Statement of Douglas Lowenstein, on Behalf of the Interactive
Digital Software Association
Good morning, and thank you for inviting me to testify today on
proposals to provide antitrust immunity for the entertainment
industries to develop codes of conduct and retailer enforcement
policies. I am testifying today on behalf of the Interactive Digital
Software Association,\1\ the trade body representing U.S. video and
computer game software companies. Our members publish games for use in
the home. In 1999, the industry generated $6.1 billion in retail
software sales. IDSA's 32 members account for 90 percent of the
edutainment and entertainment software sold in the US. While IDSA's
member companies publish much of the software sold in the US and
elsewhere in the world, it is important to note that many titles are
developed by independent small business development teams from
literally all over the world. A group called the Computer Game
Developers Association represents the industry's creative community and
thus has a direct interest in any legislation that would regulate the
type of content they can produce and market.
---------------------------------------------------------------------------
\1\ IDSA's members only publish software for the home. The arcade
game business is a different sector with its own representatives.
---------------------------------------------------------------------------
I would like to divide my testimony into three sections: first, a
discussion offering some critical and important background about our
industry, our markets, and our products; second, a review of self
regulatory initiatives we have taken over the years to ensure the
responsible labeling and marketing of video and computer games to
consumers; and third, comments on the antitrust issues before this
hearing.
INDUSTRY BACKGROUND
Majority of game players are adults, not kids
First, let me address two of the great myths about the video game
industry, to wit: (1) video games are played predominantly by teenage
boys; and (2) most video games are rated Mature and have significant
levels of violence. Both are wrong.
In fact, the primary audience for video games is NOT adolescent
boys. According to research by Peter Hart earlier this year, the
average age of computer and video game players is 28 years old, and 61
percent of all game players are age 18 and over. A remarkable 35
percent of game players are over 35 years old, and 13 percent are over
50; 43 percent of the 145 million Americans who play computer and video
games are women. IDSA's own consumer research reveals that 70 percent
of the most frequent users of computer games and 57 percent of the most
frequent users of video games are also over 18.
Unlike other entertainment products, most newly released video
games cost anywhere from $40-60. Thus, it's not surprising, when you
add this to the fact that a majority of consumers are adults, that IDSA
research finds that nine out of every ten video games are actually
purchased by someone over 18. Furthermore, 84 percent of the kids who
do buy games say they have the permission of their parents to do so.
Similarly, in a survey completed by Peter Hart last fall, 83 percent of
parents said they ``try to watch or play at least once every game that
their child plays to determine whether it is appropriate.''
Notably, the FTC's own survey confirms these findings. ``It is
clear that most parents are able to play a watchdog role when they
choose to do so. . . . According to parents' responses even more
parents (83 percent) are involved in the actual purchase transaction;
38 percent report that they usually purchase or rent the games, and
another 45 percent of parents do so together with the child.''
So any discussion of how our industry's products are marketed or
sold must take into account the fact that a majority of those who buy
and use our products are adults, not kids. While it may be accurate to
say that a child can still buy an M rated game, the data from both the
FTC and IDSA clearly confirm that in the vast majority of cases, a
parent is involved in buying the game for the child. Thus, if a 12 year
old has a Mature rated game, chances are he or she got it from the
parents who either ignored or were not bothered by the game rating
information and the quite obvious packaging information establishing
the game's theme and content. As the FTC said,
This level of parental involvement, either at the point of
selection or purchase, means that most parents have the
opportunity to review rating information or to check the
product packaging to determine whether they approve of the
game's content.
This does not mean our industry does not have an obligation to
market products responsibly and to label them accurately. But it does
mean that parents are the first, last, and best line of defense against
products that are not appropriate for their children.
70 percent of games appropriate for everyone; only 9 percent are rated
mature
With the demographics of the industry changing rapidly, so too has
the type and mix of products published by game companies. Contrary to
popular perceptions, most games do not contain significant levels of
violence. In fact, the video game rating system the industry
voluntarily set up six years ago, and which Sen. Joe Lieberman has
repeatedly praised, has rated over 7,000 titles of which only 9 percent
carry a Mature rating. Seventy percent are rated for Everyone over six.
In 1999, only 100 out of 1,500 titles released were Mature games, and
these representedjust 5% of total sales.
Not only are most games appropriate for everyone, but also most of
the best sellers are not violent. For example, in the last six months,
the top selling games have been Pokemon, Who Wants to be a Millionaire,
SimCity 3000, and racing and skateboarding games. So far in 2000, only
two of the top selling PC and video games are rated M, and 16 are rated
Everyone. What this reflects is the fact that video games are now mass
market entertainment and the range and diversity of products has
widened, resulting in a substantial market for casual games like
puzzle, board, and card games, and hunting and fishing titles, in
addition to staples like racing, football, and action games.
In short, this industry has seen its sales double since 1995 and
the bulk of that growth has been fueled by consumers over the age of 18
and by games whose content has broad appeal.
COMMITMENT TO EFFECTIVE SELF-REGULATION
The video and PC game industry has been committed to effective
self-regulation since the formation of the IDSA in 1994. We have
consistently and continuously sought to respond to concerns about the
small number of our products that contain significant violence,
balancing our absolute commitment of creative freedom with our
commitment to empowering consumers to make informed choices. We are
guided by our belief that the ultimate responsibility for controlling
the games that come into the home lies with parents--not industry, not
Congress, and not federal or state governments. According to the FTC,
45 percent of parents who are aware of the video game rating system say
they do not use it. I submit to you that no one has yet conceived of a
law that can mandate sound parenting.
Initiatives on game ratings
In 1995, the IDSA created the Entertainment Software Rating Board,
or ESRB, which uses teams of independent, demographically diverse
raters to review each and every video game. ESRB issues ratings
suggesting--and that is a key word ``suggesting'' but not dictating--
the age appropriateness of a title. An M rating means ``the content of
this game may be suitable for ages 17 and older.'' Importantly, and not
by accident, it does not say it is unsuitable for those under 17.
That's because ESRB felt it should not substitute itself for a parent
and make choices for them; rather, it seems its role as providing
information and guidance but empowering parents ultimately to decide
what is appropriate for their kids. In addition, ESRB ratings provide
simple but clear information about the content that influenced the
rating, such as animated violence, strong language, or suggestive
themes. This content information is unique and is one reason Sen.
Joseph Lieberman and others have called ESRB ``the best entertainment
rating system in the country.''
At the same time the ESRB was created, IDSA voluntarily created an
Advertising Code of Conduct requiring that the ratings and content
information issued by ESRB be placed on packaging and in advertising.
The Ad Code also contained a provision advising that ``companies must
not specifically target advertising for entertainment software products
rated for Teen, Mature, or Adults Only to consumers for whom the
product is not rated as appropriate.''
Starting in 1995, the ESRB maintained an active program to provide
information on the ESRB to retailers and consumers. It established a
toll free number which has logged millions of calls since its
inception, created a multilingual web site where consumers can get
information on the age and content rating of over 6,000 video games,
and distributed millions of Parent Guides to ESRB Ratings to retailers
and advocacy groups throughout the country, as well as to the Attorney
General of Illinois.
In 1997, recognizing the emergence of the Internet, the ESRB
launched a new rating service called ESRB Interactive, or ESRBi.
Through this service, ESRB offers companies the opportunity to rate
their websites and video games distributed online. More and more
companies are now rating online games and game websites with ESRBi.
In May 1999, in the weeks after the Columbine tragedy, I appeared
before a hearing of the Senate Commerce Committee and made a series of
new commitments in response to renewed concerns about entertainment
violence. Specifically, IDSA said:
1. we would launch a stepped up campaign to educate consumers
about the rating system;
2. we would reach out more aggressively to retailers to
encourage them both to increase the amount of rating
information available in stores and to enforce the ESRB
ratings; and
3. we would examine industry advertising practices and
explore ways we could address concerns in this area, both as to
the content of ads and to the targeting of these ads.
We have redeemed every commitment made that day.
Retailer Education and Enforcement
We have always believed that it was critical to educate consumers
about the rating system and encourage retailers to uphold the integrity
of the ratings at the point of sale. We are pleased at the tremendous
progress made to date and believe it suggests that this sector is
moving on its own to put in place an effective retailer rating
enforcement regime.
Specificaly, we have been proactive on retailer enforcement even
without the antitrust exemption offered in the pending bill.
In late 1994, we asked major retailers to consider adopting
policies pledging not to carry products that did not contain one of two
ratings available from competing rating services; and many opted to
implement such policies.
Also, as early as 1994, the Video Software Dealers Association
(VSDA) representing the video retail community added the enforcement of
the ESRB's voluntary ratings to their ``Pledge to Parents'' in which
video retailers pledge to uphold both the ESRB and MPAA's ratings at
point of sale. The ESRB has continued to work closely with VSDA to
encourage retailer support of the ESRB guidelines including attending
the VSDA's yearly convention at which rating brochures, posters and
information are distributed.
In early October 1998, we sent a letter to all major retailers
asking them to enforce the ratings at the point of sale.
In the fall of 1999, the IDSA sent letters to major national
retailers asking them to make a commitment to consumers to use their
best efforts not to sell Mature rated games to persons under 17. We
were pleased when Electronics Boutique, Babbage's, and Funcoland all
signed the pledge. We were especially pleased when Toys 'R Us announced
its new policy to seek IDs from people purchasing M rated games.
In July, I met individually with every major retailer and urged
them to adopt some form of control system. As you know, most recently,
K-Mart, Wal-Mart, and Target have all adopted policies to prevent the
sale of M rated games to persons under 17. IDSA supports those efforts
and we believe other retailers will soon follow suit. (It's worth
noting that while this is a legitimate issue for discussion, retailers
universally report to us that they have never received a complaint from
a parent about the purchase of an M rated game.)
In addition to all these steps, the IDSA Board this past July
renewed its commitment to another paid media campaign this holiday
season to promote the ESRB, and offered to fund 50 percent of the cost
of producing in-store educational materials for retailers on the ESRB.
Initiatives on Advertising and Marketing
In September 1999, the IDSA Board took the extraordinary and far
reaching step of asking the ESRB to create a new Advertising Review
Council (ARC) within the ESRB. The ARC is empowered to ensure that all
advertisements by those who use ESRB ratings adhere to strict content
standards covering such areas as violence, sex, and language, and to
enforce compliance with all other provisions of the industry ad code,
including the anti-targeting provision. In addition, the IDSA shifted
responsibility for the ad code and its enforcement from the association
to the new ESRB ad council, and provided a major increase in resources
to support expanded staffing and more aggressive monitoring and
enforcement of advertising standards. This initiative was undertaken
long before the FTC report was completed, and reflected our own
judgment that our industry needed to revamp and step up our approach to
monitoring and enforcing our advertising standards. The ARC unit began
operations February 1--coincidentally the cutoff date by the FTC of its
monitoring effort--and one of its first successes was convincing
virtually all the top game enthusiast magazines--the primary
advertising vehicles for our industry--to adopt the ARC principles and
guidelines as their own. In addition, Ziff-Davis, IDG, and Imagine, the
three top publishers of game magazines, sit on the ARC Board of
Directors. Since February, ARC has been meeting extensively with IDSA
members to educate them on the ad code and ensure compliance.
ANTITRUST EXEMPTIONS FOR RETAIL ENFORCEMENT AND INDUSTRY CODES OF
CONDUCT
I'd like to comment here on the proposal to offer a limited
antitrust exemption to various industries for the purposes of
developing ways to enforce existing rating and labeling systems. We
understand and sympathize with the motives behind this proposal.
Undeniably, it would be helpful to find ways to ensure universal
enforcement of ratings at the retail level, even if different
enforcement methods are used. And it makes sense to seek ways to give
those enforcement systems teeth. but as I said above, we believe the
existing voluntary approach is working and no legislation is required.
Nonetheless, if the Committee does proceed, we certainly welcome
the concept of an antitrust exemption and were it to be enacted, we
would take advantage of its protection to, at a minimum, discuss within
our industry and with our retailers, whether there are reasonable and
practical ways to accomplish the goals without creating secondary
problems down the road.
At the outset, it must be noted that we are talking about
restrictions on the sale of a legal and constitutionally protected
product. While there is considerable medical opinion that violent video
games are harmful, there is also--though many choose to ignore it--a
large body of independent scientific literature from all over the world
that takes issue with these oft-stated claims. For example, the
Government of Australia completed an exhaustive report last December
examining all the research over a twenty-year period on video games and
aggression, including that most recent research, to determine whether
there is a basis for regulating such products. The conclusion was
absolutely unambiguous:
After examining several attempts to find effects of
aggressive content in either experimental studies or field
studies, at best only weak and ambiguous evidence has emerged.
Importantly, these studies have employed current games or
concerned contemporary young players who presumably have access
to the latest games. The accumulating evidence provided largely
by researchers keen to demonstrate the games, undesirable
effects does indicate that it is very hard to find such effects
and that they are unlikely to be substantial.
So while we support voluntarily efforts by retailers to adopt
policies appropriate for their stores to enforce the ESRB ratings, we
are very wary of more formalized approaches that are based on claims
that games themselves are harmful to the tens of millions of children
who play them routinely without any adverse reactions.
In thinking about retailer enforcement issues, we see two
challenges: first, how to develop a uniform system which works for all
retailers. Each retailer is different in terms of its relationships to
its customers, the products it carries, the systems it uses at check
out, its computer technology, the layout of its store, the number and
experience of people it hires, etc. Seeking to impose a uniform
approach on all retailers, regardless of their many differences, will
be difficult and quite costly to many of them. What might work for a
mass merchant might not work in a smaller, mall-based store. For
example, I am advised that it could literally cost a million dollars or
more to install a register prompt system to trigger clerks to ask for
IDs. Developing a sanctioning system for retailers who violate rating
enforcement policies would be quite challenging as well, and would
bring with it some practical and legal risks, notwithstanding the
antitrust protection in place.
For example, suppose retailers and publishers agree on a policy
barring all retailers from selling M rated games to persons under 17.
In effect, this policy means that a company with an M rated game cannot
sell it to persons under 17, even though the product is legal and the
actual rating itself does not actually bar that person's use of the
product (remember, ESRB ratings are advisory--an ``M'' rating says
``content may be suitable for persons ages 17 and older''; it does not
say content is unsuitable for persons 17 and under). By denying this
company access to under-17 consumers with a legal product, IDSA could
be open to civil lawsuits under state antitrust laws or the numerous
state laws that regulate commercial conduct. For example, a publisher
could claim that the standards were applied in a discriminatory manner
to exclude its kind of business and favor large competitors. Or an
excluded retailer could claim that publishers tortiously interfered
with its contractual relationships.
Beyond this, while the amendment gives antitrust protection to
those who seek to enforce the system, we are also concerned about a
series of practical issues that make development of a sanctions policy
difficult.
For example, Wal-Mart has over 3,000 stores across the country. How
does industry actually monitor compliance with Wal-Mart's policy not to
sell to underage users? Does industry have to hire its own cadre of
expensive agents to conduct regular sting operations of its own
retailers? How often would we have to do so?
Another problem is what triggers a violation of the enforcement
standard? A single incident? Ten incidents a week? 100 incidents over a
year? If Wal-Mart sells one million M rated video games and in the
course of a year 100 are sold to minors, that's a pretty low violation
rate. Does it trigger sanctions? When do sanctions get imposed, how,
and by whom? Let's assume that we learn of violations at some Wal-Mart
stores. Do you punish only those stores or the entire chain? Do we
strip product off the shelf immediately? Do we withhold future M rated
product or all titles, thus potentially putting a speciality software
retailer out of business? Who does that? How long does the sanction
last? What does Wal-Mart have to do to return to good grace and who
judges that? None of these questions lend themselves to simple answers.
In discussions with staff, and reading the FTC report, the notion
has been floated that companies individually or collectively could
withhold product from offending retailers as a punishment for violating
the rating enforcement guidelines, and as a way to incentivize good
conduct by retailers.
Let me address this briefly. It takes software companies two years
or more to develop a single game, and the average development cost is
about $4-5 million, and continues to skyrocket as new technology and
computing power permits creators to do even more than they could even
six months earlier. The development process is so intense that many
products literally go to final code days before shipping. An entire
company's future might well ride on sales of its product. In the weeks
and months leading up to release, it has likely been heavily reviewed
in the game enthusiast publications; a website has probably been up to
preview the game to potential consumers; demand is building; and
release dates have been widely published.
Given these realities, it is highly unlikely and perhaps even a
breach of fiduciary responsibility that a company, given the enormous
investment and stakes in a product's timely release, would voluntarily
withhold product from the retail channel when it's ready to ship
because a retailer failed to enforce an ESRB rating at some point.
Understand that most products have about a 30-day window to take off in
the market and the loss of a single day of potential sales could be
devastating.
While it may be seen that publishers have the clout in the retail
relationship, bear in mind that for many retailers game sales are a
tiny portion of their overall product mix. They sell everything from
lawnmowers and barbeque grills to clothes and software, and the
possible loss of a few games, many of which don't generate significant
revenue, may be a blip on their balance sheets. But for a publisher,
loss of access could literally wipe out the business and an investment
of $5 million or more, not to mention 24 months of work.
Finally, it must be said that there may be a point where self-
regulation becomes so onerous that the regulated themselves question
its value. In the case of retailers, we'd be very concerned that
excessive self-regulation could lead many to reconsider their interest
in carrying all or certain titles, endangering the continued growth of
the industry. In the case of publishers, perhaps we'd reach a point
where some would question the very essence of a rating system which, in
its original form was meant to be an advisory to empower consumers, and
has evolved into a hard and fast standard with the force of law behind
it, controlling the sale of an entirely legal and constitutionally
protected product.
SUMMARY
In the end we believe the voluntary efforts already underway are
delivering the results many seek and they remain the preferable way to
reach the goal of effective enforcement of video game rating systems.
We know from the FTC's own report, and IDSA's own data, that 83 percent
of parents are involved in buying the games their kids play. There is,
in fact, no evidence of an epidemic of 12 year olds buying Mature rated
video games without their parents' knowledge. We submit that a
combination of continuing to strengthen existing efforts at retail
enforcement, coupled with continued stepped up consumer education, is a
combination that will reach the shared goal of enhance retailer
enforcement of rating labels without government involvement.
CODES OF CONDUCT
Proposals to give our industry antitrust immunity to develop
voluntary codes of conduct are well meaning. They are an appealing way
to try to rid the market of content some find objectionable. But
proposals for content codes, voluntary or otherwise, suffer from one
major and overriding defect: they inevitably represent the collective
views of a self-appointed few who would censor and even chill the
creative expressions of others. Whether that censorship is coming from
the government, or whether it is coming from within an industry, it is
equally troublesome. In the case of the electronic entertainment
industry, we depend on the First Amendment, and creative freedom.
Sometimes this freedom takes authors to places we with they hadn't
gone, and perhaps even to places some of us would even agree are
lacking in artistic merit. But many others soar to extraordinary
creative heights. In either event, I do not believe anyone in this
industry believes we can impose the collective views of an elite group
of what is art and what is not, on the development and publishing
community we serve.
This Committee is well aware of some of the difficulties. How do
you define too much violence? How can you write standards that are so
specific and bright that creators know in advance what is and is not
permissible since failure to be precise is clearly chilling? Whose
standards will inform these guidelines? The standards of people in New
York, in Utah, or in Kansas, for it's clear that people in different
regions and of different backgrounds are willing to accept different
types of content? Then there is the question of definition: how many
limbs must be severed in Saving Private Ryan before it becomes
excessive and gratuitous? Who can say? How many Germans must die in a
video game based on liberating a concentration camp before it is
excessive and gratuitous? How much blood and gore in a civil war
computer game is too much blood and crosses the line? Some may be
comfortable answering these questions. We are not.
Part of the problem, of course, is in the eye of the beholder, and
the morals, values, and sense of art he or she brings to the
discussion. I can say with all candor that if you put three groups of
20 game developers, designers, and publishers in a room, none would
reach any agreement on an industry standard for content. This is not
because they wouldn't try, but because they simply won't be able to
mesh conflicting views and perceptions into a common standard
acceptable to people of varying tastes. We also struggle with the
constitutional issue of developing a code which could have the effect,
if enforced, of denying adults access to material they are
constitutionally entitled to view. For the fact remains that the
average age of game players is 28 years old; many are adults with
varied tastes. Content codes raise the risk of homogenizing games,
forcing people to write to a single standard, and striking at the very
creativity and originality which has helped spur this industry's
growth.
Further, one struggles to find an effective enforcement mechanism.
There arehundreds of developers and dozens of publishers, and many are
not in the IDSA. It seems highly doubtful that effective sanctions
exist to force people to conform to industry content standards. More to
the point, it strikes us as clear and wholly inappropriate to seek to
impose such standards.
Finally, while it takes two years or longer to develop computer and
video games, the technology changes almost monthly. Things not possible
during the initial game design phase suddenly become possible along the
development curve. Any content code for this industry would literally
have to be revisited annually to keep it current with technological
change. This raises the awkward prospect of a company starting a
product while one code is in place and finishing while another is in
place, adding a layer of uncertainty and confusion to an already
difficult process.
A BRIEF WORD ON THE FTC REPORT
We were pleased that the recent FTC report described our industry's
overall self-regulatory program as ``the most comprehensive of the
three industry systems studied by the Commission'' and that it
recognized that ``it is widely used by industry members and has been
revised repeatedly to address new challenges, developments, and
concerns regarding the practices of our members.'' The FTC also pointed
out that quite the opposite of standing by idly, we have been
aggressive in seeking compliance with our standards. As it put it, ``to
its credit, the IDSA has taken several steps to encourage industry
members to comply with'' the industry's various ratings and advertising
requirement. Also perhaps lost in the hubbub over the report is the
recognition by the FTC that the independent rating system used by the
video game industry ``appears to be helpful to those parents who
actually use it'' and that a majority of these parents say it does an
excellent or good job in advising them on the levels of violence in our
products.
In this regard, Peter D Hart Research Associates completed a new
survey this past July seeking to gauge whether consumers themselves
believe that ESRB ratings are accurate. The research involved mall-
intercept interviews with 410 adults nationwide, including 246 parents
who were shown videotapes of game clips and asked to rate them based on
the ESRB standards. The survey found that ``in 84% of all instances,
games are rated equal to or less strictly than the official ESRB
rating.'' Hart found that the ESRB is ``twice as likely to be more
conservative than the public'' in rating decisions. With respect to the
content descriptors, the survey found ``participants are generally in
agreement with the ESRB on violence descriptors, and in instances in
which there is disagreement, they are usually less strict than the
ratings board.'' In short, the ESRB ratings are reliable and effective.
It is clear, though, that the FTC uncovered individual marketing
plans that indicate that some of our members, in violation of long
standing industry guidelines, planned to, and may have, marketed games
rated for Mature users to young people. Let me make it clear to this
Committee that the IDSA does not condone or excuse the marketing of
Mature rated products to persons under 17 and, indeed, we condemn it.
As I noted, six years ago and long before the recent outcry over media
violence, we ourselves voluntarily created an advertising code of
conduct, which contained an anti-targeting provision.
But it also must be pointed out that we have some legitimate
business disagreements with the FTC's analysis of industry practices
and the impression the report conveys of our industry's markets and
marketing. Thus, let me take a moment to address several facts ignored
by the FTC.
According to statistics collected by the ESRB's new Advertising
Review Council, since February 1, 2000, the 16 leading game enthusiast
magazines, noted by the FTC as the primary vehicle for industry
marketing, ran a total of 1,830 ads for games. Of these, only 188, or
about 10 percent, were for Mature rated product. The most M rated ads
in a single issue was 7, and typically, each issue contains only 3 or 4
ads for mature rated product. This relative paucity of ads for M rated
product reflects the fact, as I pointed out earlier, that M rated games
are actually a small portion of the overall game market both in total
releases and retail sales. The question of whether those ads should or
should not appear in these publications is a fair point of discussion,
but let's all understand that any suggestion that companies are
flooding consumers with ads for Mature rated product is simply not
accurate.
One of our major quarrels with the FTC report is the apparent
assumption that magazines with what it calls ``a majority under-17
readership'' are not appropriate outlets for advertising of Mature
rated games, and that websites or TV shows that are ``popular'' with
kids are similarly inappropriate outlets for advertising Mature
product. We agree that placing an ad for a Mature rated product in a
publication which is clearly and squarely aimed at young readers, such
as Nickelodeon or SI for Kids, is a violation of our standards. But we
reject the FTC's operating assumption that ads in publications that
happen to have some noteworthy percentage of young readers, but a
substantial and perhaps even dominant share of older readers and users,
is inappropriate.
In the same vein, FTC's use of a ``popularity'' test to rule out
other advertising outlets is restrictive and commercially impractical.
``Popularity'' is not much of a bright line standard. Using this
guidepost, virtually every game website and sites like mtv.com would be
off limits to advertisers of Mature products even though a majority of
viewers may be in the target demographic. This is unreasonably
restrictive.
CONCLUSION
We are committed to continuing our efforts to educate consumers
about ESRB ratings and to work with retailers to enforce those ratings.
We have put in place procedures to address legitimate criticisms of
occasional companies in our industry improperly marketing Mature rated
products to children. We will continue to do our part. But we note in
closing that in the final analysis, government and industry can only do
so much. While the FTC noted that 83 percent of parents are involved in
buying video games for their kids, and while research also shows that
73 percent of those familiar with the ESRB ratings find them helpful,
the fact remains that the FTC found that 45 percent of parents who do
know about the ratings don't use them. Congress has yet to come up with
a way to mandate sound parenting. That means we all have an extremely
important obligation to continue to take all reasonable steps to raise
awareness among parents of the existing tools available to them and to
get them to use them.
__________
Prepared Statement of Cass R. Sunstein, Karl N. Llewellyn Distinguished
Service Professor of Jurisprudence, University of Chicago Law School
I am pleased to appear before the subcommittee to testify on the
constitutional issues raised by the proposed Children's Protection Act.
For constitutional purposes, the key provisions of the bill are
sections 404 and 405. Section 404 would exempt from the antitrust laws
agreements by ``persons in the entertainment industry for the purpose
of developing and disseminating voluntary guidelines designed--(1) to
alleviate the negative impact of telecast material, video games,
Internet content, and music lyrics containing violence, sexual conduct,
criminal behavior, or other subjects that are not appropriate for
children; or (2) to promote telecast material that is educational,
informational, or otherwise beneficial to the development of
children.'' Section 405 would create a similar exemption for
discussions designed to create ``ratings and labeling systems to
identify and limit dissemination of sexual, violent, or other indecent
material to children.''
I believe that sections 404 and 405 are constitutional, and that if
enacted, they would and should be upheld by the United States Supreme
Court. In these remarks, I will restrict myself to the first amendment
issues raised by the bill. I will deal only briefly with the question
whether the bill is desirable as a matter of policy. (Because I served
on the President's Advisory Committee on the Public Service Obligations
of Digital Television Broadcasters, I would be happy to respond to
questions about policy issues as well.) I will also venture some brisk
remarks on related constitutional questions that have been raised as a
result of recent discussions of the entertainment industry. The basic
conclusion here is that direct regulation is more doubtful than
labeling requirements, which are in turn more doubtful than exemptions
from the antitrust law. But it is important to see that the law is not
yet defined in this area, and narrow measures designed to protect
children might well be acceptable, at least if they involve violence,
even if they take the form of direct labeling requirements and direct
regulation.
Briefly, the reasons for my principal conclusion is as follows.
Sections 404 and 405 do not regulate or prohibit speech. Their only
effect is to authorize voluntary action within the entertainment
industry. In this particular respect, they increase rather than
decrease the freedom of the relevant companies, by reducing the
pressures of the marketplace with respect to educational programming,
violence, sexually explicit materials and related issues. The most
powerful attack on the bill would be that the selective exemption it
creates is based on the content of speech, and that content-based
regulation is subject to careful judicial scrutiny, which the bill
could not survive. This attack is, however, unpersuasive in light of
the fact that sections 404 and 405 (a) do not require or prohibit
speech at all, and (b) do not discriminate on the basis of point of
view, but are instead a legitimate effort to combine genuine harms. To
the extent that the bill is directed at the television industry,
Congress has particular room to maneuver. The safest conclusion is that
a facial attack on the bill would fail.
My testimony is divided into three parts. The first deals briefly
with general considerations bearing on legislative efforts to improve
the performance of the entertainment industry, and with the connection
of those considerations to the proposed legislation. The second part
outlines the principal constitutional objections to the bill, and
argues that they are unpersuasive. The third ventures some more general
remarks about the constitutional issues in this domain. The basic
conclusions here are that (a) exemptions from the antitrust law are
least controversial from the constitutional standpoint, (b) direct
regulation is most troublesome from that point of view, though there
are uncharted constitutional waters here, and (c) labeling requirements
are somewhere between antitrust exemptions and direct regulation, with
the best guess being that such requirements, giving flexibility to the
private sector and narrowly drawn to protect children, are
constitutionally acceptable.
I
It will be useful to begin the discussions with some general points
relating the proposal here to constitutional doctrine in this area.
1. The proposed bill would not directly regulate speech; it is
entirely noncoercive. See Denver Area Educational Telecommunications
Consortium v. FCC, 116 S. Ct. 2374 (1996), emphasizing this point in
upholding a content-based, permissive law. In an important sense, the
bill enhances the freedom of speech of members of the entertainment
industry, by removing a governmental constraint (the antitrust laws)
that prohibits people from acting as they wish, and from speaking among
each other about their action. If the bill does in fact have the
intended effects, by (for example) increasing educational programming
and reducing the amount of violence seen by children, it will be
largely because the bill eliminates the competitive pressures that
force members of the industry to produce violent and other
inappropriate materials even though (and this is the key point) they
would in a sense prefer not to produce such products. The creation of
an antitrust exemption would merely free companies from competitive
pressures in this context. (1) The old ``code'' of the National
Association of Broadcasters was designed precisely to promote the
public service role of television broadcasters, and to do so by
diminishing some of the harmful effects of the marketplace.
In this respect, the proposal belongs in the same category as other
antitrust exemptions, most notably the labor exemption, which is
designed to ensure that workers do not have to compete with each other
to their collective harm. Because of its entirely noncoercive
character, the bill does not raise questions akin to those in Bantam
Books v. Sullivan, 372 U.S. 58 (1963), in which the Court invalidated a
state commission embarking on a range of censorial activities.
2. The Court has offered some indication that regulation designed
to produce more and better information, for children and in general, is
not unconstitutional for that reason, andindeed that this goal is
consistent with the first amendment. See Turner Broadcasting System v.
FCC, 117 S. Ct. 1174 (1997). In upholding the ``must-carry'' rules,
which require cable operators to carry local broadcast stations, the
Court emphasized the value of promoting the widespread dissemination of
information. In his concurring opinion, Justice Breyer was especially
emphatic on the point, stressing the roots of the first amendment in
democratic self-government. See id. at 1204. Insofar as the bill is
designed to promote more in the way of educational programming for
children, it rests on an especially secure constitutional foundations.
See Denver Area Educational Telecommunications Consortium, supra.
3. As a matter of history, the Supreme Court has traditionally
applied more lenient standards to government regulation of broadcasting
than to regulation of other media, even when such regulation is based
on content. See Red Lion Broadcasting Co. v. FCC, 395 U.S. 367 (1969);
FCC v. League of Women Voters, 144 SCt. 3106 (1948); FCC v. Pacifica
Foundation, 438 U.S. 726 (1978). It is unclear, however, whether and to
what extent the Court's understanding has been based on the now-
obsolete ``scarcity'' rationale, and whether the legal standards will
change as a result of the changing nature and increased diversity of
the broadcasting industry. See Turner Broadcasting System, supra;
Turner Broadcasting System v. FCC, 512 U.S. 622 (1994). There is some
evidence that the standards for broadcasting are converging toward the
standards for everything else. See Turner Broadcasting Sys. v. FCC, 512
U.S. 622, 634 (1994). This may well be the coming view. But it is
notable in this regard that in Pacifica, supra, a plurality of the
Court emphasized not scarcity, but the pervasive and intrusive
character of broadcasting, and its possibly adverse and not always
avoidable impact on children and other unwilling viewers. If the Court
is prepared to accept this view, broadcasting will, along one
dimension, continue to be subject to special standards no matter how
numerous the relevant stations.
Of course the bill extends beyond broadcasters, to areas where the
ordinary first amendment standards are likely to apply. Here the
constitutional analysis will be somewhat more complicated.
4. It is currently unclear to what extent, and upon what findings,
government may directly regulate violence or sexually explicit speech.
Such regulations raise questions of (a) vagueness, (b) overbreadth, and
(c) content discrimination. See Reno v. ACLU, 117 S. Ct. (1977),
striking down the Communications Decency Act on vagueness grounds.
Any governmental controls--if they amount to controls--would have
to be closely tailored to harms that government has a right to prevent.
An open-ended prohibition of ``violence'' would certainly be
unconstitutional. Compare Reno v. ACLU, supra (striking down the
prohibition of ``indecent'' speech in the Communications Decency Act).
On the other hand, a narrowly-drawn restriction might be upheld on a
sufficient record, whether or not the Court continues to treat
broadcasting differently from other media. See Pacifica, supra.
5. It is generally agreed that the antitrust laws are not
constitutionally compelled. Whether the government must ensure
competition, by banning monopolistic practices, in the particular
context of media products is an unsettled question. The Supreme Court
has never indicated that the government is under an affirmative
obligation to ensure a ``free market'' in speech by banning collusive
practices.
On the other hand, it is quite possible that a governmental
decision to permit collusion and monopoly in some parts of the
entertainment industry would raise serious constitutional questions.
Under current law, the matter is not free from doubt. In Red Lion
Broadcasting Co. v. FCC, 395 U.S. 367 (1969), the Supreme Court upheld
the fairness doctrine in part on the ground that ``It is the right of
the viewers and listeners, not the right of broadcasters, which is
paramount . . . . There is no sanctuary in the First Amendment for
unlimited private censorship, operating in a medium not open to all.''
This language suggests that congressional license for collusive
behavior might interfere with the rights of viewers and listeners. But
in CBS v. DNC, 412 U.S. 94 (1973), the Court said that the first
amendment did not require broadcast licensees to sell advertising time
to groups or individuals wishing to express their views on issues of
public importance. Three justices suggested that there was no ``state
action'' subject to first amendment challenge.
In my view, a general grant of permission, by the Congress, for
broadcasters to engage in collusive behavior would probably be
unconstitutional--at least if the consequence of the grant was sharply
to reduce diversity over the airwaves. But this conclusion is not
compelled by existing law, and in any case it would depend on a
judgment that, in practice, legislative authorization for concerted
action had serious consequences in limiting diversity for the viewing
public. A statute that allowed collusive and monopolistic activity
would of course count as state action.
6. Content-based regulations or laws involving speech are subject
to substantial first amendment scrutiny. See, e.g., Denver Area
Educational Telecommunications Consortium, supra; FCC v. Pacifica
Foundation, 438 U.S. 726 (1978). This means that a selective exemption
from the antitrust laws could run afoul of constitutional restraints.
Thus, for example, a law that exempted from the antitrust laws
voluntary efforts by broadcasters ``to alleviate the negative impact
of'' criticism of the President would be state action, and it would in
all likelihood be unconstitutional on its face.
7. The discussion thus far suggests that a simple conclusion: It is
inadequate, although tempting, to say that because the proposal allows
for voluntary guidelines, and is not mandatory, and because the
antitrust laws are not constitutionally compelled, the bill raises no
serious constitutional question. A voluntary exemption might be
unconstitutional either because it eliminates diversity in
broadcasting, because its selectivity amounts to impermissible
discrimination on the basis of content, or because it amounts to a kind
of threat. It is to these issues that I now turn.
II
I now deal with the principal objections to the proposed bill.
A. The diversity objection. The first constitutional objection to
the proposed legislation is that the government may not reduce
diversity in the mass media by authorizing collusive behavior. See Red
Lion, supra, which indicates that the rights of listeners and viewers
are the central first amendment concern in this context.
The first problem with this objection, referred to above, is that
the bill might well increase diversity, and operate against marketplace
pressures that produce not only poor quality, and harms to children,
but also a kind of uniformity. If Congress believes that this is true,
it might add a finding to this general effect, saying, for example,
that marketplace pressures are sometimes stifling creativity and
diversity, and that in this unusual context, collusive behavior is
likely to create more quality and in some ways more diversity.
The second and more fundamental problem with this objection is that
even if governmental authorization of collusive behavior here might
sometimes be constitutionally objectionable, it is probably not
plausible to say that the mere possibility of collusion and of
factually reduced ``diversity'' create a successful constitutional
challenge to the bill on its face. Much remains to be seen as the bill
is implemented. If, for example, broadcasters--acting voluntarily and
in concert--entered into ``voluntary agreements'' to alleviate ``the
negative impact'' of television violence, any reduction in diversity
may well be too minor, too difficult to attribute to government, and
too connected to legitimate public and private goals to permit a
successful constitutional challenge. Such agreements would not, in
short, violate the first amendment rights of listeners and viewers. It
is conceivable that the bill could be implemented in such a way as to
decrease diversity in a constitutionally troublesome way, but this
possibility would not mean that the bill is unconstitutional on its
face.
Consider an analogy. Suppose that during wartime, members of the
media decided, on their own, not to publish certain materials deemed by
them to be dangerous to national security; or that during a period of
racial strife, members of the media voluntarily agreed not to publish
or broadcast inflammatory material. Behavior of this general sort has
of course occurred throughout our history. Whether or not such behavior
is commendable, one could not plausibly argue that such behavior
violates the first amendment.
All this suggests that the most that one can say for this objection
to the bill is that if the voluntary agreements that resulted were very
broad in their intrusiveness on diversity, and also in the number of
outlets that they covered, the bill might conceivably be
unconstitutional as applied. But I do not believe that this objection
could provide a plausible basis for saying that the bill is
unconstitutional on its face.
B. Coercive in practice and implied threat. A second possible
objection is that the bill is less permissive and innocuous than it
seems, because it is undergirded by an implied threat on government's
part: to regulate if voluntary measures are not taken. In these
circumstances, any voluntary measures do not really qualify as such;
they are a product of the coercive force of government.
The strongest precedent in this regard is Bantam Books, supra,
where the Court struck down a New Jersey law creating a Commission
whose purpose was ``to encourage morality in youth'' by educating the
public about certain publications ``tending to the corruption of''
young people. The Commission did not engage in coercion, but it did
notify distributors, on official stationery, that it found certain
books objectionable for sale or display to youths under 18 years of
age. The Court said that the Rhode Island practice was
unconstitutional, notwithstanding Rhode Island's argument that no
coercion was involved--merely information and exhortation. On the
Court's view, the Commission ``deliberately set about to achieve the
suppression of publications deemed `objectionable' and succeeded in its
aim.'' Id. at 67. The Court thought it important to look beyond the
mere forms, and here it found ``informal censorship.'' Id.
It would be possible to urge that the bill is also a form of
informal censorship, especially in light of its background. But the
bill is a far cry from the system struck down in Bantam Books. No
Commission is given authority to pressure distributors to remove
particular items that it dislikes. Indeed, the FCC has no role to play
here. A full factual record showed that the Rhode Island system had
coercive effects. There is only speculation, and no such record here.
Under the Simon bill that served as predecessor to the bill, there is
no evidence of government pressure, and little or no evidence of
serious adverse effects on the broadcasting market. At this stage, the
facts in Bantam Books presented a far stronger case for invalidation
than this bill.
C. Content regulation. The third and probably most substantial
objection to the bill is that it amounts to impermissible content
regulation. The basic argument here would be that government cannot
enact selective exemptions from the antitrust laws in order to
encourage speech that it prefers, or discourage speech that it
dislikes. For example, it would be impermissible to manipulate the
antitrust exemption to allow cooperative behavior to ensure against
criticism of governmental policy, of Republicans, or of the Supreme
Court.
In my view, this objection is unpersuasive. The most general point
to make in response is that the Supreme Court has never held that
content regulation is subject to a per se ban, and frequently held the
opposite. The ``question whether speech is, or is not, protected by the
First Amendment often depends on the content of the speech.'' Young v.
American Mini-Theatres, supra. See also Denver Area Educational
Telecommunications Consortium, supra. The Court's decisions reveal that
content regulation is likely to be upheld when (a) it does not
suppress, and is not intended to suppress, a particular point of view,
and (b) it is a legitimate effort to prevent serious social harms. See
id.; Pacifica, supra.
These considerations, together with recent Supreme Court decisions
and several other factors distinctive to the bill, strongly suggest
that the bill is constitutional, certainly insofar as it attempts to
promote educational programming, and almost certainly insofar as it
attempts to reduce violence. Indeed, the constitutional arguments for
the bill are, on balance, significantly stronger than arguments in
favor of content-based regulation thatthe Supreme Court has accepted in
other contexts. It is important to add, however, my conclusion depends
on an assumption (on which I take no position here) that the evidence
about the harmful effects of violence in the entertainment industry is
in fact substantial. My analysis comes in four basic steps.
1. Strictly speaking, the bill is not content ``regulation'' at
all. It bans no speech; it requires no speech. This fact is not
decisive in its favor. But it makes the case for its constitutionality
significantly stronger. The Court would be likely to accept at least
plausible claims of legitimate justifications if those justifications
are made in favor of authorization of voluntary agreements. The Court
would require a greater showing of harm to support direct regulation.
The strongest precedent in this regard--and it is a strong one
indeed--is Denver Area Educational Telecommunications Consortium,
supra. In that case, the Court upheld a provisions by which Congress
granted cable operators ``permission'' to exclude indecent programming
from the airwaves. Justice Thomas offered a simple analysis: because
the relevant First Amendment rights are those of the operators, of
course Congress could do this; Congress was merely giving operators
permission that they would have had without governmental restriction.
This argument appears to support the bill, for this bill too enables
broadcasters to do something that they would be permitted to do without
the restrictions of the antitrust laws. But the key opinion came from
Justice Breyer. Instead of adopting any simple rule, Justice Breyer's
opinion emphasized several factors. First, the regulation was based on
content but not on viewpoint. Second, it was designed to protect
children, a distinctly important interest. Third, it was in some ways
reminiscent of the regulation upheld in Pacifica. Fourth, it was
permissive rather than mandatory.
All of these factors are present here. Justice Breyer's opinion
also emphasized the fact that without a regulatory system, programmers
with indecent programming would have no guaranteed access to the
operators' systems, a factor not present here. On the other hand, there
is a parallel in the fact that without an antitrust law companies would
be free to produce voluntary guidelines for children.
We should distinguish here between the two different components of
the bill. Promoting educational and informational programming for
children is unquestionably legitimate. If the goal was to be maximally
cautious, this section might be clarified by deleting ``otherwise
beneficial''; permission for broadcasters to get together to ensure
more and better educational programming is certainly constitutional,
and the ``otherwise beneficial'' language raises some of the concerns
of vagueness and overbreadth found decisive in the coercive context in
Reno v. ACLU, supra. Promoting guidelines that would control violence,
sexual content, criminal behavior, and other material with a negative
impact does raise some concerns about vagueness, overbreadth, and
perhaps viewpoint discrimination. It would be safest, from the legal
point of view, to limit this provision to violence, as indeed Senator
Simon's predecessor provision did. I return to this point below. But I
should say that the provision is very probably constitutional in its
current form.
2. To the extent that the bill applies to the broadcasting
industry, the government has traditionally had greater flexibility, and
insofar it is attempting to protect children from material with a kind
of ``immediacy,'' the traditional view may well continue to hold.
3. The bill discriminates on the basis of content, but it is not
best understood a form of viewpoint discrimination. Like the statute
upheld in American Mini-Theatres, it draws a line ``on the basis of
content without violating the government's paramount obligation of
neutrality in its regulation of protected expression.'' Its line ``is
unaffected by whatever social, political, or philosophical message a
(broadcast) may be intended to communicate.'' Certainly this is true
for most of the bill. Insofar it is directed against violent material,
it stands on secure ground. The reference to ``criminal behavior'' may
raise a few questions of viewpoint discrimination, but even that
provision is probably safe.
This conclusion draws considerable support from Denver Area, supra,
where the Court similarly upheld a content-based but viewpoint-neutral
grant of permission to those who provide programming. It draws some
support as well from the Court's decision in City of Renton v. Playtime
Theatres, 475 U.S. 41 (1986). There the Court upheld a zoning ordinance
restricting sexually explicit materials on the ground that ordinance
was directed at `'secondary effects'' on the community rather than at a
point of view. Indeed, the Court concluded that a measure directed at
such secondary effects was ``content neutral.''
Secondary effects are of course the reason for the authorization in
the bill. Indeed, the argument for the bill seems in most respects
significantly stronger than that for the direct regulation upheld in
Renton. (I might add that whether the Renton regulation was ``content-
neutral'' because of ``secondary effects'' is highly questionable;
secondary effects are frequently invoked in favor of content-based
laws.)
I have only looked briefly at the evidence on which the bill is
based, and take no position on it here. But if that evidence is
substantial, the bill is based on a legitimate effort to control
serious social harms. At least this is true insofar as the bill is
focussed on educational programming and on television violence. See
Hamilton, Channeling Violence (1999); Minow and LeMay, Abandoned in the
Wasteland (1995). Protection of the public from violence is of course a
principal responsibility of government. Protection of children from
unwilling exposure--a principal purpose of the bill--is also a
legitimate and perhaps especially strong interest. See Denver Area,
supra; Pacifica, supra. (Frequently, the violence on television is
sexual in nature--a particularly troublesome problem for viewers who
are children and indeed for adults as well.) The argument for the
constitutionality of the bill is exceedingly powerful if the evidence
in its support is convincing; if it is weak or thin, the argument
against the bill is considerably stronger. But in light of the peculiar
characteristics of the bill--its noncoercive quality and its viewpoint-
neutrality--even a plausible showing of harm would probably provide a
sufficient evidentiary basis to survive first amendment scrutiny. In
particular, invalidation of the bill on its face--in advance of
concrete experience with any ``voluntary guidelines''--is exceptionally
unlikely.
I must close, however, with a qualification, signalled by part of
the discussion above. Some of the bill covers materials on which (so
far as I am aware) there is little factual record. With respect to
television violence, the record is sufficiently clear, or so Congress
could constitutionally find. Things are more complicated with respect
to sexual content, criminal behavior, and other materials. With its
current breadth, the current language is more vulnerable to the
argument that Congress is not combating actual or demonstrated harms,
but instead seeking to create an exemption so as to reduce that form of
programming of whose content it disapproves. But I do not believe that
the bill is and would be found unconstitutional.
III
Thus far I have suggested that the bill is constitutional, because
it amounts to a noncoercive exemption from the antitrust laws, an
exemption that is based on content, but not on point of view. Of
various possible responses to inappropriate material for children, this
bill takes the least intrusive of approaches. But there are two obvious
alternatives that have received considerable discussion in the recent
past, and it will be worthwhile to venture some brief remarks about
those alternatives.
If Congress is concerned about material that is violent or
otherwise inappropriate for children, it might consider, as a last
resort, express regulation. Such regulation could take the form of
time, place, and manner restrictions (forbidding certain material
during hours when children will be watching television) or more across-
the-board bans (forbidding children from attending movies with certain
ratings). Of the various possibilities, this is the most troublesome
from the constitutional standpoint. There is a risk of unacceptable
vagueness, see ACLU v. Reno, supra. There is a risk of overbreadth.
There is also a risk of unacceptable content regulation. See Denver
Area, supra. Of course a time, place, and manner restriction would be
more likely to be acceptable than a flat ban. See ACT v. FCC, 59 F.3d
1249 (DC Cir 1995) (upholding restrictions on times when ``indecent''
materials may be broadcast on television).
These are general propositions on which there is a broad consensus.
But notably, Congress has not generally regulated violent materials,
and the law is far more developed with respect to sexually explicit
materials. It is possible that courts will allow Congress to build on
the law of obscenity to have some control over violent material.
Current law allows Congress to ban ``obscene'' materials and to
regulate ``indecent'' materials. It is possible that Congress could
create similar categories for violent material. The problems of
definition are formidable here, of course.
Labeling requirements, building on the ``v-chip'' legislation and
recently proposed by Senator McCain, should be understood as falling
somewhere between exemptions from the antitrust law and direct
regulation. (See S. 1228, the proposed Media Violence Labeling Act of
1999.) In fact there is surprisingly little law on the extent of
Congress' power to require labels. In the context of commercial
advertising, it seems well-settled that labeling requirements are
permissible, as in the context of cigarette warnings. But things are
less clear with respect to labeling requirements. Clearly it would be
impermissible for Congress to require ``politically controversial'' or
``out of the mainstream views'' to be labeled as such. In cases of that
kind, labeling would be a form of viewpoint regulation. The question
here is whether labeling requirements can be justified as legitimate
content regulation. That question will in turn depend on whether the
requirements are narrowly tailed to harms that government has a right
to prevent. In the context of disclosure mandates for dangerous or
potentially dangerous products, such as cigarettes or certain
children's toys, the legal test is clearly met. With respect to violent
material, there is a good chance that the test is met as well. See
Note, Don't Touch That V-Chip, 8 Geo. L. J. 823 (1999); Cass R.
Sunstein, One Case At A Time (1999). The safest course, however, would
build on the approach used in the ``v-chip'' legislation, in which
government does not mandate a labeling system on its own, but instead
authorizes private efforts in this direction.
CONCLUSION
In all likelihood, the bill would not be subject to a successful
first amendment challenge, certainly insofar as it is designed to
promote educational programming and to reduce exposure to violent
programming. Exemptions from the antitrust law are constitutionally
permissible if they do not discriminate on the basis of viewpoint, are
unlikely to decrease diversity in a constitutionally troublesome way,
and have as their purpose and effect the reduction of harms that
Congress has a right to prevent.
NOTES
1. See generally Robert Frank and Philip Cook, The Winner-Take-All
Society 207-09, 228 (1995), for an illuminating discussion, from the
economic point of view, of how marketplace pressures can produce an
outcome that people generally do not like, and how regulatory
provisions can increase freedom by removing those pressures.
2. See Frank and Cook, supra note 1, for some theoretical and
empirical support.