    [House Hearing, 109 Congress]
    [From the U.S. Government Publishing Office]

                      DIGITAL CONTENT AND ENABLING
                       TECHNOLOGY:  SATISFYING THE
                          21ST CENTURY CONSUMER

                                  HEARING

                                BEFORE THE

                     SUBCOMMITTEE ON COMMERCE, TRADE,
                         AND CONSUMER PROTECTION

                                  OF THE

                         COMMITTEE ON ENERGY AND
                                 COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                        MARCH 29 AND MAY 3, 2006

                            Serial No. 109-90

          Printed for the use of the Committee on Energy and Commerce

    Available via the World Wide Web:  http://www.access.gpo.gov/congress/house

                        U.S. GOVERNMENT PRINTING OFFICE
    29-352                      WASHINGTON : 2006
    _____________________________________________________________________________
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                       COMMITTEE ON ENERGY AND COMMERCE
                         JOE BARTON, Texas, Chairman

    RALPH M. HALL, Texas                       MARSHA BLACKBURN, Tennessee
    MICHAEL BILIRAKIS, Florida                 JOHN D. DINGELL, Michigan
      Vice Chairman                              Ranking Member
    FRED UPTON, Michigan                       HENRY A. WAXMAN, California
    CLIFF STEARNS, Florida                     EDWARD J. MARKEY, Massachusetts
    PAUL E. GILLMOR, Ohio                      RICK BOUCHER, Virginia
    NATHAN DEAL, Georgia                       EDOLPHUS TOWNS, New York
    ED WHITFIELD, Kentucky                     FRANK PALLONE, JR., New Jersey
    CHARLIE NORWOOD, Georgia                   SHERROD BROWN, Ohio
    BARBARA CUBIN, Wyoming                     BART GORDON, Tennessee
    JOHN SHIMKUS, Illinois                     BOBBY L. RUSH, Illinois
    HEATHER WILSON, New Mexico                 ANNA G. ESHOO, California
    JOHN B. SHADEGG, Arizona                   BART STUPAK, Michigan
    CHARLES W. "CHIP" PICKERING,  Mississippi  ELIOT L. ENGEL, New York
      Vice Chairman                            ALBERT R. WYNN, Maryland
    VITO FOSSELLA, New York                    GENE GREEN, Texas
    ROY BLUNT, Missouri                        TED STRICKLAND, Ohio
    STEVE BUYER, Indiana                       DIANA DEGETTE, Colorado
    GEORGE RADANOVICH, California              LOIS CAPPS, California
    CHARLES F. BASS, New Hampshire             MIKE DOYLE, Pennsylvania
    JOSEPH R. PITTS, Pennsylvania              TOM ALLEN, Maine
    MARY BONO, California                      JIM DAVIS, Florida
    GREG WALDEN, Oregon                        JAN SCHAKOWSKY, Illinois
    LEE TERRY, Nebraska                        HILDA L. SOLIS, California
    MIKE FERGUSON, New Jersey                  CHARLES A. GONZALEZ, Texas
    MIKE ROGERS, Michigan                      JAY INSLEE, Washington
    C.L. "BUTCH" OTTER, Idaho                  TAMMY BALDWIN, Wisconsin
    SUE MYRICK, North Carolina                 MIKE ROSS, Arkansas
    JOHN SULLIVAN, Oklahoma
    TIM MURPHY, Pennsylvania
    MICHAEL C. BURGESS, Texas

                        BUD ALBRIGHT, Staff Director
                       DAVID CAVICKE, General Counsel
          REID P. F. STUNTZ, Minority Staff Director and Chief Counsel

            SUBCOMMITTEE ON COMMERCE, TRADE, AND CONSUMER PROTECTION
                       CLIFF STEARNS, Florida, Chairman

    FRED UPTON, Michigan            JAN SCHAKOWSKY, Illinois
    NATHAN DEAL, Georgia              Ranking Member
    BARBARA CUBIN, Wyoming          MIKE ROSS, Arkansas
    GEORGE RADANOVICH, California   EDWARD J. MARKEY, Massachusetts
    CHARLES F. BASS, New Hampshire  EDOLPHUS TOWNS, New York
    JOSEPH R. PITTS, Pennsylvania   SHERROD BROWN, Ohio
    MARY BONO, California           BOBBY L. RUSH, Illinois
    LEE TERRY, Nebraska             GENE GREEN, Texas
    MIKE FERGUSON, New Jersey       TED STRICKLAND, Ohio
    MIKE ROGERS, Michigan           DIANA DEGETTE, Colorado
    C.L. "BUTCH" OTTER, Idaho       JIM DAVIS, Florida
    SUE MYRICK, North Carolina      CHARLES A. GONZALEZ, Texas
    TIM MURPHY, Pennsylvania        TAMMY BALDWIN, Wisconsin
    MARSHA BLACKBURN, Tennessee     JOHN D. DINGELL, Michigan
    JOE BARTON, Texas                 (EX OFFICIO)
      (EX OFFICIO)

                              CONTENTS

                                                                         Page
    Hearings held:

         March 29, 2006	                                               1
         May 3, 2006	                                              62
    Testimony of:
         Krikorian, Blake, Chief Executive Officer, Sling Media	      18
         Feehery, John, Executive Vice President, External Affairs,
              Motion Picture Association of America	                      31
         Denney, Jim, Vice President for Product Marketing, TiVo, Inc.    36
         Mitchell, Stevan, Vice President of Intellectual Property
              Policy, Entertainment Software Association	              43
         Parsons, Gary, Chairman of the Board, XM Satellite Radio	      67
         Ostroff, Michael, General Counsel and Executive Vice President,
              Business and Legal Affairs, Universal Music Group	      75
         Halyburton, Dan, Senior Vice President and General Manager,
              Group Operations, Susquehanna Radio, on behalf of the
              National Association of Broadcasters	                      80
         Regan, Robert J., President of the Board, Nashville
              Songwriters Association International	                      87
         Lawrence, Jeffery T., Director, Digital Home and Content
              Policy, Intel Corporation 	                              89
    Additional material submitted for the record:
         Parsons, Gary, Chairman of the Board, XM Satellite Radio,
              response for the record	                             116
         Ostroff, Michael, General Counsel and Executive Vice President,
              Business and Legal Affairs, Universal Music Group,
              response for the record	                             118
         Halyburton, Dan, Senior Vice President and General Manager,
              Group Operations, Susquehanna Radio, on behalf of the
              National Association of Broadcasters, response for the
              record	                                             119
         Lawrence, Jeffery T., Director, Digital Home and Content
              Policy, Intel Corporation, response for the record	     121
         Parsons, Gary, Chairman of the Board, XM Satellite Radio,
              submission for the record	                             122
         The American Society of Composers, Authors and Publishers,
              prepared statement of	                                     131

                           DIGITAL CONTENT AND ENABLING
                         TECHNOLOGY:  SATISFYING THE 21ST
                                 CENTURY CONSUMER

                             WEDNESDAY, MARCH 29, 2006

                             HOUSE OF REPRESENTATIVES,
                         COMMITTEE ON ENERGY AND COMMERCE,
                          SUBCOMMITTEE ON COMMERCE, TRADE,
                             AND CONSUMER PROTECTION,
                                                             Washington, DC.

         The subcommittee met, pursuant to notice, at 1:05 p.m., in Room
    2123 of the Rayburn House Office Building, Hon. Cliff Stearns [chairman]
    presiding.
    	Members present: Representatives Stearns, Radanovich, Bass, Terry,
    Ferguson, Otter, Barton [ex officio], Schakowsky, Towns, DeGette,
    Gonzalez, and Baldwin.
    	Staff present: David Cavicke, General Counsel; Chris Leahy, Policy
    Coordinator; Will Carty, Professional Staff Member; Billy Harvard,
    Legislative Clerk; Jonathon Cordone, Minority Counsel; David Vogel,
    Minority Research Assistant; and Chris Treanor, Minority Staff
    Assistant.
         MR. STEARNS.  Good afternoon.  In today's digital world, movies,
    music, and software travels at light speed to any user in any corner of the
    world with the technology to receive and utilize digital material, whether
    it is web-based, satellite, or an old-fashioned DVD.  The law, however,
    clearly does not move at the speed of light and historically has struggled
    to keep up with the constant evolution of technology.  Creative digital
    content and the slick, innovative enabling technology that makes it
    accessible for the consumer has begun an incredible evolution over the
    past few years.  Powered by better electronics, faster chips, and the
    widespread deployment of broadband, today's digital technology
    hardware amazes us with its ability to quickly provide consumers with
    exactly what they want, when they want it, wherever they may be.  It
    seems like almost any type of digital content--movies, music, games--is
    available via download or through some new and ingenious means of
    distribution that makes it more accessible, convenient, and portable for
    the consumer.
    	The other side of the slick and virtually seamless distribution of
    digital material is the content itself.  A $300 iPod is a $300 piece of shiny
    plastic and metal without the music and video content that makes it
    worth the investment.  In addition, these new means of distribution and
    digital technology push the creativity of those desiring compensation for
    their creative endeavors and investment.  Maintaining the incentives to
    produce creative works in a market teeming with seamless technology
    and inexpensive ways to distribute copies of digital content continues to
    be an issue for the content community and is one that is at the heart of
    the ongoing struggle between these two great American industries.
    Content is obviously the major driver for many of these slick gizmos, but
    the consumer electronics industry also believes its slick gizmos are
    opening up consumers to new forms of content, just look at Pod-casting
    and streaming.
    	I don't think a chicken or the egg analysis about what drives what
    will get us very far in this case, but is clear that the American content and
    consumer electronics industries are indeed interdependent, and therefore,
    have a stake in each other's success.  The key issue to put it in base terms
    is to ensure that everyone is getting paid and getting paid fairly.  My
    colleagues, more specifically the challenge is to ensure the legal
    framework that bounds the market, including over-the-air, web-based,
    and satellite programs, allows the consumer electronics industry the
    freedom to engineer even more innovative distribution devices and
    methods while maintaining incentives for the content industry to create
    material consumers want to watch and listen to with all their fancy
    hardware.
    	Today's hearing is the first part of a two-part series on the future
    of digital content and the consumer electronics industry and what lies in
    store for the consumer.  I think taking a look at some of the more
    innovative content and device stakeholders to better understand where
    they see their industry moving in the future will help us, as legislators,
    here in the committee.  It will give us some perspective on how we can
    help these industries remain the best in the world and a very important
    engine for the American economy and for American jobs.  Todays panel
    represents the video side to the content and consumer electronics
    industry.  Our second part of this hearing series will be focused on the
    audio and software side of this sector.  The basic question I have for all
    the witnesses is how they see the way content delivery via devices that
    can run on several platforms, like cable, Internet, and satellite, affecting
    the distribution of audio, video and software media to the ultimate judge
    with the wallet, the consumer.  In addition, I would like to hear more
    about the challenges, both in the domestic market and internationally,
    that both industries face as they work to serve and satisfy their
    consumers.
    	As all of you know, the subcommittee has held a number of hearings
    focused on the issue of fair use and digital rights management, DRM,
    technology and we continue to be engaged on these issues.  My
    colleagues, this subcommittee also remains concerned that both
    counterfeiting and piracy remain critical problems for both the consumer
    electronics and content industries, and believes that strong enforcement
    of intellectual property rights in our trade agreements is critical to
    fighting those problems.  This series of hearings will be very helpful in
    getting us a broader understanding of the business of entertaining
    consumers from the supply and distribution side so that, in the end, the
    demand component of the equation, the American consumer, will
    continue to benefit and fuel the tremendous growth and innovation in
    these two great American industries.
    	Obviously, I would like to welcome the panel today and I look
    forward to the testimony, and with that, the Ranking Member, Ms.
    Schakowsky, is welcomed.
    	[The prepared statement of Hon. Cliff Stearns follows:]

    PREPARED STATEMENT OF THE HON. CLIFF STEARNS, CHAIRMAN, SUBCOMMITTEE ON
                   COMMERCE, TRADE, AND CONSUMER PROTECTION

         Good afternoon.  In today's digital world, movies, music, and software
    travels at light speed to any user in any corner of the world with the
    technology to receive and utilize digital material, whether it is web-based,
    satellite, or an old-fashioned DVD.  The law, however, clearly does not move
    at speed of light and historically has struggled to keep up with the constant
    evolution of technology.  Creative digital content and the slick, innovative
    enabling technology that makes it accessible for the consumer has begun an
    incredible evolution over the past few years.  Powered by better electronics,
    faster chips, and the widespread deployment of broadband, today's digital
    technology hardware amazes us with its ability to quickly provide consumers
    exactly what they want, when they want it, wherever they may be.  It seems
    like almost any type digital content - movies, music, games - is available
    via download or through some new and ingenious means of distribution that
    makes it more accessible, convenient, and portable for the consumer.
         The other side of the slick and virtually seamless distribution of
    digital material is the content itself.  A three hundred dollar iPod is a
    three hundred dollar piece of shinny plastic and metal without the music and
    video content that makes it worth the investment.  In addition, these new
    means of distribution and digital technology push the creativity of those
    desiring compensation for their creative endeavors and investment.
    Maintaining the incentives to produce creative works in a market teeming
    with seamless technology and inexpensive ways to distribute copies of
    digital content continues to be an issue for the content community and is
    one that is at the heart of the ongoing struggle between these two great
    American industries.  Content is obviously the major driver for many
    these slick gizmos but the consumer electronics industry also believes its
    slick gizmos are opening up consumers to new forms of content, just look at
    "Pod-casting" and "streaming."
         I don't think a chicken or the egg analysis about what drives what will
    get us very far, but it is clear that the great American content and consumer
    electronics industries are indeed interdependent, and therefore have a stake
    in each other's success.  The key issue, to put it in base terms, is to
    ensure that everyone is getting paid - and getting paid fairly.
    	More specifically, the challenge is to ensure the legal framework that
    bounds the market - including over-the air, web-based, satellite platforms -
    allows the consumer electronics industry the freedom to engineer even more
    innovative distribution devices and methods while maintaining incentives for
    the content industries to create material consumers want to watch and listen
    to with all that fancy hardware.
         Today's hearing is the first part of a two part series on the future of
    the digital content and consumer electronics industries and what lies in
    store for the consumer.  I think taking a look at some of the more innovative
    content and device stakeholders to better understand where they see their
    industries moving in the future will help give the Committee some perspective
    on how we can help these industries remain the best in the world and a very
    important engine of the American economy.  Today's panel represents the video
    side of the content and consumer electronics industries.  Our second part of
    this hearing series will be focused on the audio and software side of this
    sector.  The basic question I have for all the witnesses is how they see the
    way content delivery - via devices that can run on several platforms (like
    cable, Internet, and satellite) - affecting the distribution of audio, video
    and software media to the ultimate judge with the wallet - the consumer.  In
    addition, I would like to hear more about the challenges, both in the
    domestic market and internationally, that both industries face as they work to
    serve and satisfy their customers.
         As you all know, the Subcommittee has held a number of hearings focused
    on the issue of "fair use" and digital rights management (DRM) technology and
    we continue to be engaged in these issues.  The Subcommittee also remains
    concerned that both counterfeiting and piracy remain critical problems for
    both the consumer electronics and content industries and believes that
    stronger enforcement of intellectual property rights in our trade agreements
    is critical to fighting those problems.  This series of hearings will be
    very helpful in giving us a broader understanding of the business of
    entertaining consumers from the supply and distribution side so that, in the
    end, the demand component of the equation - the American consumer - will
    continue to benefit and fuel the tremendous growth and innovation in these
    two great American industries.
         Again, I would like to welcome the panel before us today.  We look
    forward to your testimony
         Thank you.

    	MS. SCHAKOWSKY.  Thank you, Mr. Chairman, and let me apologize
    for being a bit late.  I was caught in a motorcade coming back from lunch
    honoring Ranking Member Dingell.  So I thank you for holding today's
    hearing on how digitized content has affected copyright and the
    consumer experience.
    	Technological innovations open the door to novel means of hearing
    your favorite singer, in my case, Aretha Franklin, or watching a movie
    on a portable device.  However, the digitization of books, music, and
    movies, in tandem with the ability to transmit that information over the
    Internet, has also necessitated the updating of laws that have either been
    rendered ineffective or become too stifling because of technological
    advances.  I look forward to today's witnesses about how the new
    platforms for distributing content in digital formats affect artists,
    consumers, researchers, libraries, and the creative industries, including
    technology developers.
    	With the passage of the DMCA in 1998, which was before I came to
    Congress, my colleagues made a significant attempt to contend with the
    new challenges that digital capabilities introduced to copyright law.  The
    DMCA was meant to stop copyright infringement on new digital
    mediums.  Unfortunately, by trying to predict where the technology
    would take us, the DMCA was drafted with broad strokes that many
    argue went too far concerning the fair use provisions of the copyright
    law.  DMCA has been abused by those who want to squelch competition
    in areas wholly unrelated to copyright.  For example, manufacturers of
    garage door openers have used the DMCA to try and prevent their
    competitors from developing alternative and cheaper models.
    Remember, these competitors are not infringing on copyrights or
    violating any patents.  They are simply trying to provide a better product
    at a better price.
    	There is no denying that copyrights need to be protected and artists
    need to be compensated for their work.  However, I am concerned when
    a law makes consumers and artists enemies, when fans and innovators
    are considered criminals, when companies can use the DMCA to prevent
    new products from coming to the market, and when libraries may have to
    limit or charge for services they traditionally have provided for free.
    	Since we began these hearings two years ago, I have been talking
    with artists' groups, consumer groups, technology developers, and I truly
    believe that we can work together to craft a remedy to the problems at
    hand.  We need to find a balance between the rights of the consumers
    and the rights of the artists and we need to do that without hurting other
    industries.
    	I am hoping that today's hearing will help us understand better how
    consumers and technological developers have been able to work with
    artists and content providers in innovating within the DMCA.  I believe
    we are in the midst of a paradigm shift on how we think about
    commerce, art distribution, and traditional consumer protections.  It is
    our responsibility as lawmakers to make sure that all voices are here in
    this debate and that the proper regulations are put in place.  I am glad we
    are here today with so many people who are affected by the DMCA and
    are interested in fair use.  I look forward to your testimony and
    demonstrations.  Thank you, Mr. Chairman.
    	[The prepared statement of Hon. Jan Schakowsky follows:]

    PREPARED STATEMENT OF THE HON. JAN SCHAKOWSKY, A REPRESENTATIVE IN CONGRESS
    FROM THE STATE OF ILLINOIS

         Thank you, Chairman Stearns, for holding today's hearing on how the
    digitized content has affected copyright and the consumer experience.
    Technological innovations opened the door to novel means of hearing your
    favorite singer, like Aretha Franklin in my case, or watching a movie on a
    portable device.  However, the digitization of books, music, and movies, in
    tandem with the ability to transmit that information over the Internet, has
    also necessitated the updating of laws that have either been rendered
    ineffective or become too stifling because of technological advances.  I look
    forward to hearing from today's witnesses about how the new platforms for
    distributing content in digital formats affect artists, consumers,
    researchers, libraries, and the creative industries, including technology
    developers.
         With the passage of the DMCA in 1998, (before I came to Congress), my
    colleagues made a significant attempt to contend with the new challenges
    that digital capabilities introduced to copyright law.  The DMCA was meant
    to stop copyright infringement on new digital mediums. Unfortunately, by
    trying to predict where the technology would take us, the DMCA was drafted
    with broad strokes that many argue went too far concerning the Fair Use
    provisions of the copyright law.  DMCA has been abused by those who want to
    squelch competition in areas wholly unrelated to copyright. For
    example, manufacturers of garage door openers have used the DMCA to try to
    prevent their competitors from developing alternative and cheaper models.
    Remember, these competitors are not infringing on copyrights or violating
    any patents; they are simply trying to provide a better product at a better
    price.
         There is no denying that copyrights need to be protected and artists need
    to be compensated for their work.  However, I am concerned when a law makes
    consumers and artists enemies, when fans and innovators are considered
    criminals, when companies can use the DMCA to prevent new products from
    coming to the market, and when libraries may have to limit or charge for
    services they traditionally have provided for free.
         Since we began these hearings two years ago, I have been talking with
    artists' groups, consumer groups, and technology developers, and I truly
    believe that we can work together to craft a remedy to the problems at hand.
    We need to find a balance between the rights of the consumers and the rights
    of the artists.  And we need to do that without hurting other industries.
         I am hoping that today's hearing will help us understand better how
    consumers and technological developers have been able to work with artists
    and content providers in innovating within the DMCA.
         I believe we are in the midst of a paradigm shift on how we think about
    commerce, art distribution, and traditional consumer protections.  It is our
    responsibility as lawmakers to make sure that all voices are heard in this
    debate and that the proper regulations are put in place.  I am glad we are
    here today with so many people who are affected by the DMCA and are interested
    in fair use.  I look forward to your testimony and demonstrations.

    	MR. STEARNS.  Mr. Ferguson?
    	MR. FERGUSON.  Thank you, Mr. Chairman.  Let me first express my
    appreciation to you and the Ranking Member for putting this hearing
    together.  This subcommittee can serve an important role in this
    particular area, shining a light on exciting new technologies and
    examining how to effectively protect digital content and ultimately
    ensure that consumers get access to new products in a quick and reliable
    and a responsible fashion.  The pace at which digital content is reaching
    our constituents is at an all time high.  With each passing day, it seems
    there is something new for consumers to enjoy on devices that are
    becoming more and more user friendly.
    	We have the ubiquitous and wildly popular iPods, its video version
    allowing consumers to download their favorite shows and watch them on
    a metro on the way home.  Our cell phones are increasingly becoming a
    favorite device for watching and listening to content, and more legal
    downloads of motion pictures, TV shows, and music are available on our
    home computers than ever before.  Why do consumers have so many
    options?  What facilitated such a rich market of content available on
    demand?  I will tell you one thing: it wasn't through piracy; it wasn't
    through Grokster; it wasn't through Kazaa; and it was certainly not
    through the circumvention of copy protection technology.  It was through
    industry and technology companies working together, entering into
    licensing agreements for legal distribution of content, creative products
    that owners not only should, but must be compensated for.
    	By protecting creative content, you encourage innovation and in turn,
    increase options for the consumer.  The theory that loosening protections
    for digital content is somehow pro-consumer is not only seriously
    flawed, it is misguided, and it is one that I roundly reject.  The
    proliferation of piracy and the ease with which digital content can be
    misappropriated has made it more difficult than ever to protect
    copyrights against massive infringement.  To ensure that these exciting
    products continue to flow to consumers, intellectual property needs to be
    protected.  There must be a balance.  The content and tech industries
    must continue to work together to achieve these goals.  It is not only in
    their best interest, more importantly, it is in the consumers, our
    constituents', best interest as well.  I look forward to hearing from our
    witnesses and I thank you, Mr. Chairman.  I yield back.
    	[The prepared statement of Hon. Mike Ferguson follows:]

    PREPARED STATEMENT OF THE HON. MIKE FERGUSON, A REPRESENTATIVE IN CONGRESS
    FROM THE STATE OF NEW JERSEY

         Let me first express my appreciation to Chairman Stearns for holding
    this hearing.  This subcommittee can serve an important role in this area,
    shining a light on exciting new technologies, examining how to effectively
    protect digital content , and ultimately, ensuring that consumers get access
    to new products in a quick, reliable - and responsible - fashion.
         The pace at which digital content is reaching our constituents is at an
    all time high.  With each passing day, it seems there's something new for
    consumers to enjoy, on devices that are becoming more and more user friendly.
         We have the ubiquitous and wildly popular Ipod, its video version
    allowing consumers to download their favorite shows and watch them on the
    metro on the way home.  Our cell phones are increasingly becoming a favored
    device for watching and listening to content.  And more legal downloads of
    motion pictures, tv shows, and music are available on our home computers than
    ever before.
         Why do consumers have so many options?  What facilitated such a rich
    market of content available on demand?  I'll tell you one thing, is wasn't
    through piracy.  It wasn't though Grokster, it wasn't through Kazaa, and it
    was certainly not through the circumvention of copy protection technology.
         It was through industry and technology companies working together,
    entering into licensing agreements for legal distribution of content,
    creative product that owners not only should, but must be compensated for.
    By protecting creative content, you encourage innovation and in turn
    increase options for the consumer.  The theory that loosening protections
    for digital content is somehow pro-consumer is not only seriously-flawed,
    it's misguided, and its one I roundly reject.
         The proliferation of piracy and the ease with which digital content can
    be misappropriated has made it more difficult than ever before to protect
    copyrights against massive infringement.  To ensure that these exciting
    products continue to flow to consumers, intellectual property needs be
    protected.  There must be a balance.
         The content and tech industries must continue to work together to achieve
    these goals.  It's not only in their best interest.  more importantly, it's
    in the consumers - our constituents' - best interest.  I look forward to
    hearing our witnesses.  Thank you Mr. Chairman.

    	MR. STEARNS.  Ms. Baldwin.
    	MS. BALDWIN.  Thank you, Mr. Chairman.  I am delighted that we
    are having this hearing today to continue the ongoing dialogue regarding
    the need to balance digital rights management technology with the
    concept of fair use.  As we know, the analog to digital transition in the
    telecommunications arena has presented great opportunities, but also
    challenges to the U.S. copyright industry.  Specifically, the capabilities
    of digital technology have in some instances facilitated copyright
    infringements, such as elicit peer-to-peer traffic in movies and music.  It
    is therefore crucial for the copyright industries to invest and develop
    secure content delivery systems through advancements in digital rights
    management technologies.  It would benefit not only consumers, but also
    rights owners.
    	I am delighted to see the participation of both TiVo and Sling Media
    in this panel.  TiVo's digital video recorder allows a consumer to time-
    shift entertainment programs through the recording of a broadcast TV
    program; while Sling Media's Slingbox place-shifts television programs
    from television sets at the home to just about any location on any device
    with a broadband Internet connection.  We are living in an exciting age
    where rapid advancements in digital technology have led to a
    proliferation of innovative entertainment products, and both TiVo and
    Sling Media perfectly illustrate that.
    	I look forward to hearing their testimony and learning more about
    their efforts to balance the delivery of content and the protection of
    intellectual property rights.  Finally, as we move ahead to a broader
    system of legal but competing digital rights management technologies
    for different products by different companies, we should pay close
    attention to how rival DRM standards could stifle innovation and
    economic growth, as well as create inconveniences for consumers.
    	While I am confident that market forces will eventually resolve
    interoperability issues caused by DRM licensing, I hope technology
    companies and content providers will work together to expeditiously
    create more uniform ways of protecting copyrighted digital content.  I
    look forward to all of your testimony.  Thank you for being here.  Thank
    you, Mr. Chairman.
    	[The prepared statement of Hon. Tammy Baldwin follows:]

    PREPARED STATEMENT OF THE HON. TAMMY BALDWIN, A REPRESENTATIVE IN CONGRESS
    FROM THE STATE OF WISCONSIN

         Thank you Mr. Chairman.  I am glad that we are having this hearing today
    to continue our ongoing dialogue regarding the need to balance digital rights
    management (DRM) technology with the concept of fair use.  As we know the
    analog-to-digital transition in the telecommunications arena has presented
    great opportunities but also challenges to the U.S. copyright industry.
    Specifically, the capabilities of digital technology have in some instances
    facilitated copyright infringements, such as illicit peer-to-peer traffic
    in movies and music.  It is therefore crucial for the copyright industries
    to invest and develop secure content delivery systems through advancements in
    DRM technology that would benefit not only consumers, but also rights owners.
         I am delighted to see the participation of both TiVo and Sling Media in
    this panel.  TiVo's digital video recorder allows a consumer to "timeshift"
    entertainment programs through the recording of a broadcast TV program, which
    Sling Media's Sling Box "placeshifts" television programs from television sets
    at home to just about any location on any device with a broadband internet
    connection.  We are living in an exciting age where rapid advancements in
    digital technology has led to a proliferation of innovative entertainment
    products, and both TiVo and Sling Media perfectly illustrate that.  I look
    forward to their testimonies and learning more about their efforts at
    balancing the delivery of content and the protection of intellectual property
    rights.
         Finally, as we move ahead to a broader system of legal, but competing
    DRMs for different products by different companies, we should pay close
    attention to how rival DRM standards could stifle innovation and economic
    growth, as well as create inconveniences for consumers.  While I am confident
    market forces will eventually resolve inter-operability issues caused by DRM
    licensing, I hope technology companies and content providers will work
    together to expeditiously create more uniform ways of protecting copyrighted
    digital content.
         I look forward to the testimonies and thank you Mr. Chairman.

    	MR. STEARNS.  Mr. Gonzalez.
    	MR. GONZALEZ.  Thank you very much, Mr. Chairman, and I
    appreciate your calling this hearing and hearing from the witnesses
    today, and I apologize if I have to leave a little early.  I am going to be
    really brief.  I am one that really believes that certain legal precepts and
    principles have served this republic well for time immemorial, and I
    believe that they can be adjusted to accommodate modern technology.  I
    don't see that technology is the problem, but it really should be part of
    the solution.  When we say proprietary rights, I was part of a panel last
    week or the week before, South by Southwest in Austin, regarding
    content and regarding the writers, the artists, and the producers being
    rewarded justly and fairly for their creations and such, and yet we
    understand that technology moves forward, and it makes things easier.
    There are easier ways to infringe and such.  But I really believe that we
    can get in here and recognize all of the stakeholders' interests in this.
    But again, the guiding light for all of us should be what has allowed this
    country and its free enterprise system and its capital system to thrive, and
    it has been the regulatory system, rich in principles, in legal principles of
    proprietary rights, and somehow we do need to reconcile that.  So I look
    forward to your testimony today.  Thank you, Mr. Chairman.
    	MR. STEARNS.  Mr. Towns.
    	MR. TOWNS.  Thank you very much, Mr. Chairman, and of course
    Ranking Member Schakowsky for having this hearing today.  I am
    pleased to see the video game industry represented here today, as it
    continues to provide consumers with innovative technology and
    products.  With that said, I would like to stress that the protections in the
    DMCA have helped companies bring their products and intellectual
    property to the market, and we should do our best to preserve the stream
    of commerce.
    	America's content companies continue to entertain and amaze all of
    us, and the movie industry at large has aggressively and innovatively
    embraced the digital marketplace.  Movie and television studios are not
    holding back their content, as some would have you to believe, but rather
    are exercising due diligence and caution and not licensing a business
    model that exacerbates piracy.  Consumers want new products and recent
    movies in their hands as quickly as possible.  We must be extremely
    careful when reviewing the protections and guidelines that govern the
    distribution of content.  I feel that the entertainment industry has made
    great strides, and I cite Mr. Feehery's testimony in that regard.  He looks
    at a number of recent digital content deals cut by motion picture
    companies to distribute their work online on IPTV Services for the iPod
    and peer-to-peer services.  And through innovative uses of the airwaves,
    these efforts, I believe, are steps in the right direction.
    	I was intrigued by Denney's testimony, in which he cites century old
    examples of one or another content industry's opposing various new
    technologies.  However, it appears to me that a look at more recent
    history shows the movie industry has embraced and driven the adoption
    of the DVD player and other consumer electronic devices.  Therefore, I
    look forward to Mr. Denney's comments here today and hearing his
    rationale.
    	Finally, I would like to quickly mention that the video industry is not alone in fighting piracy and in need of protection.  We must be just as
    diligent in coming to the aid of those who operate the audio realm, as our
    music artists are also under siege from rampant piracy and improper file
    sharing.  I look forward to the second session of this two-part hearing,
    Mr. Chairman, where we will concentrate on audio protections in greater
    detail.  So on that note, I yield back and again, thank you and the
    Ranking Member for holding this hearing today.  Thank you.
    	[The prepared statement of Hon. Edolphus Towns:]

    PREPARED STATEMENT OF THE HON. EDOLPHUS TOWNS, A REPRESENTATIVE IN CONGRESS
    FROM THE STATE OF NEW YORK

         Thank you, Mr. Chairman for holding this timely hearing.  I'm again
    pleased to see the video game industry represented here today, as it
    continues to provide consumers with innovative technology and products.
    That said, I'd like to stress that the protections in the DMCA have helped
    companies bring their products and intellectual property to market, and we
    should do our best to preserve their stream of commerce.  America's
    content companies continue to entertain and amaze all of us, and the movie
    industry at large has aggressively and innovatively embraced the digital
    marketplace.  Movie and television studios are not "holding back" their
    content, as some would have you believe, but rather are exercising due
    diligence and caution in not licensing a business model that exacerbates
    piracy.
         In an age when consumers want new products and recent movies in their
    hands as quickly as possible, we must be extremely careful when reviewing the
    protections and guidelines that govern the distribution of content.  I feel
    that the entertainment industry has made great strides, and I cite Mr.
    Feehery's ("FEARIE") testimony in that regard.  He lists a number of recent
    digital content deals cut by motion picture companies to distribute their
    works online, on IPTV services, for the i-Pod, on peer-to-peer services,
    and through innovative uses of the air waves.   These efforts, I believe, are
    steps in the right direction.  I was intrigued by Mr. Denney's testimony, in
    which he cites century-old examples of one or another content industry
    opposing various new technologies. However, it appears to me that a look at
    more recent history shows the movie industry has embraced and driven the
    adoption of the DVD player and other consumer electronic devices.  Therefore,
    I look forward to Mr. Denney's comments here today and hearing his rationale.
         Finally, I would like to quickly mention that the video industry is not
    alone in fighting piracy and in need of protection.  We must be just as
    diligent in coming to the aid of those who operate in the audio realm, as our
    music artists are also under siege from rampant piracy and improper file
    sharing.  I look forward to the second session of this two-part hearing, when
    we will concentrate on audio protections in greater detail.
         Thank you, Mr. Chairman.   I yield back the balance of my time.

    [Additional statements submitted for the record follow:]

    PREPARED STATEMENT OF THE HON. JOE BARTON, CHAIRMAN, COMMITTEE ON ENERGY
    AND COMMERCE

         Good afternoon.  Thank you, Chairman Stearns, for holding this hearing.
    I understand that this is the first day of a two-part hearing, and I am glad
    that we are exploring the issues surrounding digital media and its
    distribution; specifically the intersection of the content and the consumer
    electronics industries.
         Some have said that the content industries have been slow to adapt to
    the "anytime, anywhere" world of entertainment.  At the same time, the
    consumer electronics industry has exploded with new devices and new platforms
    to distribute digital entertainment.  The content creators are afraid of
    widespread piracy in the digital world, and understandably so.  The digital
    world has made the transfer of large files fairly easy.  At its worst, the
    digital age offers a thieves market where the products are stolen and both
    the sellers and the buyers are crooks.  The sellers always know what they're
    doing, but the buyers rarely do.  Accordingly, the industry has worked hard
    to educate consumers about illegal conduct, and has indeed prosecuted many
    bad actors.  But in their enthusiasm for protecting their copyrights, some
    have said that consumers' long-standing and legal rights of fair use actually
    promote illegal behavior.
         Consumers have reacted strongly to new limitations on their rights
    imposed by technological constraints.  While some of this technology has
    been largely benign, some has obstructed consumers' legitimate use and
    enjoyment.  And shockingly, in one instance, software that was supposed to
    help protect copyrighted material actually ended up actually spying on the
    people who bought it.  This is absolutely unacceptable.
         Although the history of this debate may suggest otherwise, my hope is
    that these groups can work together to determine the appropriate
    technological protection for content without curtailing consumers' rights.
    It remains illegal to circumvent technological content protections, even if
    you are not ultimately infringing on a copyright.  That's not right.  People
    are liable for infringement, but should not be called criminals for
    exercising their recognized rights, for making legal use of their legally
    acquired music or movies.  I hope to hear today about the future of digital
    rights management in that context.
         The content and consumer electronics businesses are two of the great
    American success stories.  In this new world of media distribution, they not
    only can benefit each other, but depend on one another.  The device makers
    can sell more new and innovative machines as long as there is an abundance of
    easily acquired content.  And similarly, the content creators can sell more
    original movies, music, and other media as long as there are new tools with
    which to enjoy them-new tools that consumers want and expect.
         These tools and the content created for them must work together in a way
    that does limit consumers' rights.
         I want to thank Mr. Boucher for attending this hearing today.  He has
    done important work on these issues.  While he is not on the subcommittee, I
    want to welcome him and commend him for his leadership.  This is not a hearing
    on Congressman Boucher's "fair use bill", which I support.  Later, this
    subcommittee may start talking about legislation, but today's hearing is
    intended to give us a fresh look at the environment.  I hope we learn some
    things today and in the second day of hearings that will help us come up with
    a new way to address the dilemmas before us.
         Thank you, Mr. Chairman.  I am anxious to continue the Committee's
    involvement on these important issues, and I look forward to the second day
    of this hearing as well.
         I yield back the balance of my time.

    PREPARED STATEMENT OF THE HON. MARY BONO, A REPRESENTATIVE IN CONGRESS FROM
    THE STATE OF CALIFORNIA

         Mr. Chairman, thank you for holding this hearing today.
         We live in one of the most exciting times in history when it comes to the
    advancement of technology for personal use.  The challenge is how to continue
    to nurture new technology while at the same time, protecting the very content
    these devices deliver to us.
         We have learned what can happen when industry is slow to adapt to the new
    environment.  At first, the music industry didn't know what to make of these
    new technologies and how best to use them to deliver their content. This was
    their burden, not the government's.  But after struggling, this industry has
    found a way to embrace these advances in technology.  Apple's iTunes and other
    online music stores deliver high quality music to consumers while protecting
    intellectual property rights. I have always maintained that the "enter" key
    is the entertainment sector's best asset.
         In fact, recently Universal Pictures announced that like Warner Brothers,
    it would start a pilot project in Europe to debut digitally downloaded movies.
    Universal's first "download to own" movie service will include a DVD as well
    as two digital downloads for the PC or laptop. If the U.S. ensures strong
    content protection, I am certain we will see this service in our own country
    soon.
         Now that the entertainment industry has met its burden to adapt and
    embrace new technologies, Congress must be careful to not only undermine the
    rights of copyright holders, but also those who depend on the industry - from
    grips to caterers to sound technicians and thousands of others.  We need to
    protect the content if we are to hope for advancement in technology or
    otherwise, technology will not have anything to deliver.
         Mr. Chairman, I am a great proponent of technology. I own several iPods,
    a DVR and most recently a Slingbox, to mention only a few devices.  But as an
    advocate for copyright holders, I believe the U.S. must take the lead in
    protecting intellectual property rights if we are to realize the full
    potential of the marriage between entertainment and technology.
         Again, thank you Mr. Chairman for holding this hearing.  I look forward
    to hearing from the witnesses today.

    PREPARED STATEMENT OF THE HON. C.L. "BUTCH" OTTER, A REPRESENTATIVE IN
    CONGRESS FROM THE STATE OF IDAHO

         Thank you for holding this hearing today, Mr. Chairman.  We spend a lot
    of time debating fair use, and most people in this room know how strongly I
    feel about this issue and the larger issue of protecting property rights.
    However, if we are ever going to get this right we must continually go back to
    the industry and take a look at what they are doing.  Today's hearing offers
    us the chance to do that.
         I have had the opportunity to take a look at some of the stuff that the
    consumer electronics industry has created over the past few years, and I am
    continually astounded by what they come up with and how they allow us to
    enjoy the creative genius of musicians, movie makers, and others.  And the
    more I see of these products, the more convinced I am that the industry, on
    both sides of the issue, is far more capable of responding to the growing
    concern with fair use and copyright protection than is the government.
         Both the past and the present make it clear to me that government
    involvement in this issue only impedes innovation for both sides of this
    issue.  For example, about twenty years ago we had a similar debate when a
    new technology called the VCR hit the market.  At first the implications of
    this new technology seemed devastating for the industry.  But then a
    marvelous thing happened:  rather than allow government regulations to harm
    both industry and consumer, the industry responded to consumers' desire to
    see films at home and became innovative, thus building an economic empire in
    the video rental and retail industry as a result.  Everybody won.
         While there are certainly differences in today's debate over fair use, I
    believe one principle is the same:  Consumer demand, not governmental
    regulation should lead industry response.
         It seems to me that the entertainment industry again has an opportunity
    to work with the software and device manufacturers to develop and sell
    products that meet consumer demand.  Protecting intellectual property
    investments is the key element in achieving cooperation.  Without these
    protections, all of these industries will ultimately suffer.
         Today's hearing is an important part of ensuring that we promote good
    policies that do not stifle investment and innovation.  I look forward to
    hearing from the witnesses and again thank the Chairman for the opportunity
    to step back and hear from the industry on this issue.

    PREPARED STATEMENT OF THE HON. JOSEPH R. PITTS, A REPRESENTATIVE IN CONGRESS
    FROM THE STATE OF PENNSYLVANIA

         Mr. Chairman, I would like to thank you for convening this hearing today
    on this timely issue.
         As we all know, for the last several years, we have witnessed significant
    growth in the Internet.  In fact, the Internet connects more than 407 million
    host computers in 214 countries.
         Through the World Wide Web, one can view pictures, listen to music, or
    see movies.  Users communicate and exchange information freely without
    burdensome regulations and fees.
         Aside from the Internet, innovations in other enabling technology
    continue at a rapid pace, as does consumer demand for this technology and for
    the content that can be played and stored on devices.  iPod and TiVo are
    perfect examples of enabling technology that have taken the consumer world by
    storm, and have allowed consumers to enjoy unprecedented access to their
    favorite music, movies, and TV shows.
         iPod and TiVo decision-makers have struck the proper balance in
    respecting copyrights, discouraging piracy, and providing consumers with a
    variety of choices at affordable prices.
         It is my hope that this hearing is a step toward ensuring that content
    and consumer electronics businesses will continue to work together to provide
    a legitimate marketplace that will encourage innovation and advances in
    technology, respect copyrights, foster creativity among artists, and provide
    increased choices and greater convenience for consumers.
         Thank you, Mr. Chairman, and I yield back my time.

    	MR. STEARNS.  I thank my colleague.  We welcome the panel, Mr.
    Blake Krikorian, Chief Executive Officer of Sling Media in San Mateo,
    California; Mr. John Feehery, Executive VP, External Affairs, Motion
    Picture Association of America; Mr. Jim Denney, Vice President for
    Product Marketing, TiVo; and Mr. Stevan Mitchell, Vice President of IP
    Policy, Entertainment Software Association.  We welcome your opening
    statements.  Mr. Krikorian, you are first.  And just put the mike closer to
    you and turn it on.  It has an on/off switch.
    	MR. KRIKORIAN.  Yes, I am a techie, so--
    	MR. STEARNS.  Okay.  All right.
    	MR. KRIKORIAN.  --this is a little too complicated for me, but I got it,
    I got it.

    STATEMENTS OF MR. BLAKE KRIKORIAN, CHIEF EXECUTIVE OFFICER, SLING MEDIA;
    JOHN FEEHERY, EXECUTIVE VICE PRESIDENT, EXTERNAL AFFAIRS, MOTION PICTURE
    ASSOCIATION OF AMERICA; JIM DENNEY, VICE PRESIDENT FOR PRODUCT MARKETING,
    TIVO, INC.; AND STEVAN MITCHELL, VICE PRESIDENT OF IP POLICY, ENTERTAINMENT
    SOFTWARE ASSOCIATION

         MR. KRIKORIAN.  Thank you.  Thanks for the opportunity,
    subcommittee.  This is really an exciting thing for me.  In fact, it is really
    interesting, but I have been in the digital convergence world for, oh,
    about 15 years, for lack of a better term.  We don't know what we call
    ourselves.  And about two years ago, I was spending some time with one
    of the co-founders of Excite, Joe Krause, who has been pretty passionate
    about some of these issues.  He saw some of the products that we had
    been incubating in our previous company and he was urging us to get our
    rear ends out here to D.C. to start to show you all some of the things that
    we are working on to try to bring some of this in real context instead of
    us always sitting around in these rooms talking about it from a theoretical
    perspective.  Because it is very, very difficult to understand how certain
    legislation could affect products that don't yet exist.  And so it is funny,
    two and a half years later, I am sitting here today.
    	So what I wanted to do is a couple things here.  I am going to
    actually throw up a live demonstration to give you an idea of the product.
    But let me first start by saying, one thing that is very exciting for us in
    the United States is I believe that we are on the verge of a renaissance for
    consumer electronics companies that were based and founded in the
    United States to actually thrive again.  With the exception of a company
    like Palmer or a company like a TiVo, it is really about once a decade we
    see consumer electronics companies come to life in the United States and
    we stand here today as a company who has been around now for about
    two years.  Hopefully, we still have a long runway ahead of it.  When we
    started this company, Sling Media, we viewed ourselves as a new kind of
    consumer products company, and most investors looked at us as really
    insane, thinking that we can't possibly sell a product that is a hardware
    product at retail.  That is for the mega corporations and for the Chinese
    and the Japanese.  And yet, what we believed was that these new types of
    products are a very tight blending of hardware and software and services
    and user interface and content, and that is where the U.S. is strong.  And
    so we are able to apply quite a bit of our software expertise and know
    how, which, again, the U.S. still leads in actually creating these new
    products that are really software.  It is not in a box of cardboard, but
    software that is in a box of silicon.  So I am pretty excited about that and
    hopefully there will be more and more startups like us that come about.
    	So one of the things I want to introduce to you is this notion of
    placeshifting as we go into the demo.  If we can switch over to the PC.  I
    know it is highly unusual for people to throw up a PowerPoint on here,
    but I will keep it very, very brief.  One of the things, just to set the
    context, is I talked from a consumer, because this is how the product and
    the company actually was born, but most of you already know this, but
    from a calibration perspective, I will just spend a minute on it.  People
    love their television, but more and more, as we know, they want it on
    their terms.  And the product that the DVR and TiVo popularized, really
    delivered on, this notion that the VCR had promised early on, which is
    the ability to time-shift, the ability to watch my TV when I want it.  But
    now, us as consumers, we are finding ourselves more and more spending
    time in front of displays other than the living room television.  We are
    spending time in front of our laptops, our desktops at work, our mobile
    phones, and so forth, and in fact, if you look to the television industry,
    this has actually started to hurt them, in terms of ratings that have
    continually plummeted.  But as consumers, we are spending more time in
    front of these other displays and more time outside of that living room.
    	And so what we believe is this notion of placeshifting is the next
    major evolution in television viewing.  And what does it do?  It greatly
    increases the number of displays, that I can watch my familiar television,
    which is the key word here, but also greatly increases the number of
    places that I can watch my familiar television as well.  And in some ways
    you can actually say that overnight we have doubled or tripled the
    number of television sets on the planet by turning every single display
    into a living room television.  So quite simply, the Slingbox, which is
    this small box that you can buy now at Best Buy, CompUSA, over 3,000
    stores nationwide, is $200, $249 retail.  Basically take your television
    signal, put this in your home, take your basic cable, take your TiVo, take
    your satellite box, really over 5,000 different devices, plug your TV
    signal in, connect it to your home network, and then wherever you
    happen to be, you can watch and control your living room TV just like
    you were sitting on the couch.
    	Now the way this came about was actually out of sheer consumer
    frustration.  My brother and I had a firm before we started Sling, and we
    were born in the Bay area.  We are big San Francisco Giants fans,
    unfortunately, and the Boston Red Sox.  Now they have one so they can't
    gripe as much as us now.  We are moving up the totem pole.  But it was
    the summer of 2002 when the Giants were heading to the playoffs and
    my brother and I, as entrepreneurs, found ourselves working like dogs,
    sitting in the office, late at night, and also traveling quite a bit, and we
    just wanted to watch our home team.  And we looked around and we
    couldn't find a way to do it, even though there was an offering on the
    Internet that promised to deliver me all my games.  You know, albeit, it
    was another monthly fee.  I was willing to pay that extra monthly fee.
    But then I went to watch my Giants, and I am sitting in San Mateo,
    literally two miles from my house, and the Giants didn't come on.
    	I thought to myself, well, what is going on here?  And I went down
    and I read the legal fine print at the very bottom of the screen and it says,
    oh, I am sorry, you get all the games except for your local team, which
    they black out.  And I am scratching my head and kind of wondering,
    well, wait a second.  What is going on here?  I have been traveling and
    there was some of that happening back home and I wanted to understand
    what was going on, and I was thinking to myself, you know what?  If I
    could only watch my television back in my house, I have all these
    channels, all this programming that I love and know.  I have a broadband
    connection in and out of my home.  I am spending more time in front of
    all these other displays.  Why can't I just basically create these big
    binoculars so I can look into my house and watch my TV and control it?
    And that is really how the Slingbox was born.  So really, it is about your
    living room TV wherever you want.
    	Now one thing that probably hasn't happened in one of these
    subcommittees, at least I would imagine, is I am showing you a few
    goofy videos of just how I use it as a consumer.
    [Video.]
    	MR. KRIKORIAN.  One of the ways that I end up using the Slingbox, I
    am sitting here at home.  I never thought I would use it in the living
    room.  But I am sitting here babysitting my daughter who is watching
    this Barbie Rapunzel thing for 50 times, and I start singing the songs at
    work, and I am about to go crazy.  So that is her hogging the whole
    couch and everything.  And so I was able to watch my football game at
    the same time while she was watching her DVD.
    [Video.]
    	MR. KRIKORIAN.  You know, another goofy one, of course, is I am
    sitting in my house, in the hot tub doing a little bit of work, and I have
    my dog looking at me and wondering what the heck is going on and I am
    watching in the corner.  While I am going, I am watching a little bit of
    sports.  Then, of course for most of you have traveled, the boundaries for
    this are limitless anywhere I have a broadband connection.
    [Video.]
    	MR. KRIKORIAN.  And then the last one, and this is a horrendous
    one, but some of the dads might understand.  I had to go to a Beauty and
    the Beast play and well, fortunately, we had just worked on our mobile
    client.
    [Video.]
    	MR. KRIKORIAN.  So I was able to watch the football game while I
    am sitting in the play.  I did it only for a little bit.  So the one problem
    was my daughter was elbowing me because daddy's face was--
    	MS. SCHAKOWSKY.  I draw the line.  Come on.
    	MR. KRIKORIAN.  I know.  I am sorry.  This is not about good
    parenting today.  So one of the things that I wanted to just give you is a
    very quick demo of how this works.  I have a laptop that was provided to
    me from some members of the staff here and I just loaded on a little
    client, the little SlingPlayer, and what I did is then I added, and I will
    actually even show you here in a second.  Each Slingbox has a unique
    identifier, and it is this gosh awful ID that you can never memorize, and
    a password.  And what I do is I enter my ID and my password and then
    anywhere I am in the world, I can connect and watch my living room
    TV.  So, here I am just going to go ahead and say watch, and what is
    going to happen, without even knowing my IP address or anything else, I
    am going to connect back into my home in San Mateo.
    [Video.]
    	MR. KRIKORIAN.  So this is my television right now live at home, so
    I can go ahead and do anything that I could normally.  And if you notice,
    here is a Comcast remote.  Before, you saw on the video I had a TiVo
    remote.  What our goal is, is to take this and turn this into your familiar
    experience, right down to the remote control.  So if I want to go to
    Channel 5 as an example, I have some favorites I can add,  I can go
    ahead and I can change the channel to five, watch a little Price is Right.  I
    can go to CNN.  Whatever it is that I can do from my living room couch,
    I could be in China right now.  What we see quite a bit is people not just
    using it at home, but people using it at work as well, where here, people
    have CNN or CSPAN or CNBC going on in the day and they dock it
    over on the side so they can be working on their documents.
    	So one of the things that I wanted to highlight here, and I can show
    you after, if we have time, is I can actually watch it on my phone now, as
    well.  But to summarize, the one thing I wanted to point is that this is not
    a mass piracy machine.  We have actually taken voluntary steps to ensure
    that this is not P to P, but this is actually me to me.  And so right now, if
    my wife, for example, tried to connect to my Slingbox back home, she
    would not be able to do so because I am watching it.  It only allows one
    stream at a time, as an example.  So I would like to conclude that, but
    again, thank you very much.  I just want to watch my living room TV
    wherever I happen to be.  Thank you.
    	[The prepared statement of Mr. Krikorian follows:]

    PREPARED STATEMENT OF BLAKE KRIKORIAN, CHIEF EXECUTIVE OFFICER, SLING MEDIA

         Chairman Stearns, Ranking Member Schakowsky, and other members of the
    Subcommittee, thank you for the opportunity to appear today.  My name is Blake
    Krikorian, and I am co-founder and CEO of Sling Media, a privately held
    company based in San Mateo, CA.
         I am here to speak to you both as a consumer and as an entrepreneur. My
    brother Jason and I started prototyping our first product, the "Slingbox", in
    the summer of 2002. We poured much of our life's savings into this idea, and
    fortunately, in October 2004 we were able to raise our first round of venture
    financing.
         Since then, our company closed a subsequent round of financing in
    January 2006. Our investors include a number of America's top companies and
    capital firms, such as Allen & Company, Doll Capital Management, EchoStar
    Communications, Goldman Sachs, Hearst Corporation, Liberty Media, Mobius
    Venture Capital, and Texas Instruments.
         The initial launch of the Slingbox was in July 2005. It was available
    on day one nationwide at Best Buy and CompUSA. This nationwide launch was an
    unprecedented feat for a new product coming from a new U.S.-based consumer
    electronics company.
         The Slingbox is currently available at over 3,000 stores throughout the
    US. It retails at $249 and does not require any additional monthly fees or
    subscriptions.  Needless to say, after years of development, we are thrilled
    to bring our product to the American public.
         Sling was inspired by our love of the San Francisco Giants.  Back in
    2002, Giants were poised to make the playoffs for the first time in years.
    My brother Jason and I are diehard fans, and the Giants playoff run had us
    simultaneously thrilled and very frustrated.   As young entrepreneurs we
    spent our lives in the office, on airplanes, and in hotel rooms - in short,
    everywhere but in front of our living room TVs watching our favorite team.
         In desperation, we tried various commercial products, but quickly
    realized that there was no way we could do want we wanted - simply watch our
    own TV while in another location. Our frustration led us to develop the
    Slingbox.
         While the VCR and digital video recorder, such as a TiVo, allows a
    consumer to "timeshift" - record a TV program for viewing at a more
    convenient time - the Slingbox adds a new dimension to TV viewing, which we
    call "placeshifting".
         Quite simply, the Slingbox placeshifts your living room TV, thereby
    empowering you to watch your TV from virtually any location and on any
    device. For a real life scenario, I am actually sitting in my kitchen as I
    type this testimony on my wireless laptop and at the same time, watching my
    living room TV in a small window on my laptop display. In this case, the
    Slingbox in my living room is placeshifting my local news from my cable box
    to my laptop in the kitchen.
         We have found that consumers use the Slingbox to placeshift their living
    room TV to other rooms in their home, to their desktop computer at the office,
    and even to their laptop computers and mobile phones while on the road or
    anywhere in the world they have broadband Internet connection.
         Personally, I have been as far away as a hotel room in China and
    watching my favorite TV shows back home. I have even been on a WiFi-equipped
    commercial airliner at 40,000 feet above the Atlantic and able to placeshift
    the baseball playoffs from my living room to my seat in 37C!
         Most of the time, however; I find myself using my Slingbox on my desktop
    PC at the office, typically tuned into the local or national news throughout
    the day.
         To respect the rights of content holders, we have taken voluntary steps
    to ensure the Slingbox is a personal-use system. The Slingbox will only
    placeshift to one device at a time, meaning that multiple parties cannot
    consume the content simultaneously. Moreover, each Slingbox has a 32-bit
    unique ID, password protection, and encrypted messaging between the Slingbox
    and the client device.
         The Slingbox does not make a copy, or allow indiscriminate
    redistribution over the internet.  It simply takes the TV programming that
    you have already bought and paid for, and "slings" it somewhere else.  Rather
    than "P to P", the Slingbox enables "me to me".
         Beyond the applications that I have described, I am delighted that
    Americans are developing new and unanticipated ways to use the Slingbox's
    placeshifting technology.
         For example, Disney is using Slingboxes in their movie post-production
    process by enabling workers to remotely view daily filming from virtually
    anywhere. A Dairy Queen franchisee has installed Slingboxes in several of his
    restaurants for remote security and surveillance purposes. Comcast has
    deployed dozens (if not hundreds) of Slingboxes around the country to monitor
    remote ad servers.
         Even our local firefighters are exploring ways to use the Slingbox to
    placeshift the local news helicopter video feed from the fire station to a
    mobile phone at the scene of the fire, thereby providing the firefighting
    crew with an overhead view.
         And of course, our technology allows members of Congress to set up their
    Slingbox in their district office, and watch their local news live from their
    computer in the Rayburn Building.
         We are pleased that the Slingbox has been eagerly embraced by consumers.
    In addition to empowering tens of thousands of Americans to enjoy their local
    TV programming beyond the confines of the living room, the Slingbox has been
    recognized by many leading popular publications. TIME Magazine named the
    Slingbox one of the Best Inventions of 2005. Popular Mechanics acknowledged
    the Slingbox as one of its Breakthrough products for 2005. Fortune Magazine
    named Sling Media one of the 25 Breakout Companies of 2005. In addition,
    Business Week named the Slingbox one of the Best Products of 2005.
         Thank you for allowing me to introduce the Slingbox and the notion of
    placeshifting. I look forward to giving the Committee a personal
    demonstration of Slingbox technology.

                                    APPENDIX
                             Recent Press Coverage

    Video:

    CSPAN interview (aired March 25, 2006) (RealPlayer required):
    rtsp://video.c-span.org/project/de/com032506_krikorian.rm

    Print:

    Select articles attached below.
    Please see www.slingmedia.com/news for a more complete set of coverage.

    Slingbox Video Streaming Not Perfect, but Remarkable
    Washington Post
    By Rob Pegoraro ? Thursday, March 23, 2006; D05

         I watched television while I walked to the Metro on Tuesday morning --
    and during my trip through the subway, then at my desk at the office. My TV
    set was a Treo 700w "smart phone," my antenna was the phone's wireless data
    connection, and the broadcast came from a small silver rectangle parked next
    to the TV in my living room.
         This experience had a lot in common with the first days of video on the Internet,
    complete with irritating dropouts. But getting a full spread of satellite-TV channels on the
    screen of a phone was a sufficiently remarkable feat that I could overlook those flaws.
         The technology behind this feat came from Sling Media Inc., a San Mateo,
    Calif., start-up. Its $250 Slingbox debuted last year, allowing users to
    stream any video source -- over-the-air TV, cable, satellite, DVD, whatever
    -- to a broadband-connected computer running Sling's software.
         The Slingbox did that reasonably well and generated an impressive level
    of hype in the process, but it also required some finicky configuration and
    hit one nagging relevancy issue: How often are you within reach of broadband
    Internet but not TV?
         Since then, Sling has fine-tuned its setup software, and today it's
    introducing the ability to stream video to a Windows Mobile handheld organizer
    with a broadband Internet connection -- either WiFi or the wireless carriers'
    data services.
         This new feature both extends the reach and utility of Sling's
    product and helpfully expands the ongoing debate over television's future.
    Installing a Slingbox took far less work than last year. I didn't have to
    turn off my computer's firewall (Sling's software requires Windows 2000 or
    XP, with a Mac OS X version due by midyear) or restart the candy-bar-shaped
    Slingbox over and over. The only real hassle was the wiring: audio and video
    cables to a satellite-TV receiver, an "IR emitter" to send commands to that
    box's remote-control sensor, and an Ethernet cable to link the Slingbox to a
    wireless router.
         (A WiFi receiver and digital-television tuner built into Slingbox could
    immensely simplify things.)
         After identifying the satellite receiver in the Sling program and
    adjusting a security setting on my wireless network with the help of clear
    directions on Sling's Web site, the setup concluded with my installing
    SlingPlayer Mobile -- a beta release that will cost $30 for people who buy a
    Slingbox after April 26 -- on the Treo.
         And so I found myself watching a spring-training baseball game on the
    Metro. Later on, I watched a handful of other live programs, plus a couple of
    recorded shows stored on the satellite box's hard drive.
         Sling's mobile software can function even on such slow data links as the
    50 to 70 kilobits per second of Verizon's NationalAccess, at the cost of awful
    image quality (players in that baseball game looked like the faceless
    characters of an early-1990s video game) and frequent dropouts.
         But with the 200 to 300 kbps of Verizon's BroadbandAccess, Sling-relayed
    TV looked a lot more like TV, aside from hard-to-read text in news tickers.
         Like its desktop counterpart, Sling's mobile software lets you control
    the video by selecting buttons in an onscreen remote control; the lag between
    selecting a command and seeing its effects seemed longer on the Treo, however.
         With all of its trying moments -- say, when the Verizon broadband would
    mysteriously shrivel away to 30 or 40 kbps -- Sling video also looks pretty
    good compared with other options for on-the-go TV watching.
         Unlike Apple's iTunes downloads or the mobile-video services of wireless
    carriers, Sling doesn't require you to pay for each show or cough up a
    subscription fee. Unlike video recordings transferred from a Media Center PC,
    it doesn't require running complicated software before syncing large files
    over to your handheld.
         On the other hand, networks, broadcasters and cable or satellite
    operators don't make anything extra off the Slingbox either. Some people in
    those businesses seem uneasy about the way the Slingbox gives customers so
    much more control over their TV viewing.
         Like that's a bad thing.

    Living with technology, or trying to? E-mail Rob Pegoraro atrob@twp.com.
    c 2006 The Washington Post Company

    TV Here, There, Everywhere
    New York Times
    By David Pogue,  March 23, 2006

         IN the olden days, Americans gathered in front of the television sets in
    their living rooms to watch designated shows at designated times. You had a
    choice of three channels, and if you missed the broadcast, you'd feel like an
    idiot at the water cooler the next day. Quaint, huh?
         Then came the VCR, which spared you the requirement of being there on
    time. Then cable TV, which blew open your channel choices. Then TiVo, which
    eliminated the necessity of even knowing when or where a show was to be
    broadcast. What's next - eliminating the TV altogether?
         Well, sure. Last year, a strange-looking gadget called the Slingbox
    ($250) began offering that possibility. It's designed to let you, a traveler
    on the road, watch what's on TV back at your house, or what's been recorded
    by a video recorder like a TiVo. The requirements are high-speed Internet
    connections at both ends, a home network and a Windows computer - usually a
    laptop - to watch on. (A Mac version is due by midyear.)
         Today is another milestone in society's great march toward anytime,
    anywhere TV. Starting today, Slingbox owners can install new player software
    on Windows Mobile palmtops and cellphones, thereby eliminating even the
    laptop requirement.
         On cellphones with high-speed Internet connections, the requirement of
    a wireless Internet hot spot goes away, too. Now you can watch your home TV
    anywhere you can make phone calls - a statement that's never appeared in
    print before today (at least not accurately).
         Now, if you don't travel much, and even if you do, your reaction to this
    statement may well be, "So?"
         Sure enough, the Slingbox has always been intended to fill certain
    niches. It's for people with a fancy satellite receiver downstairs in the
    living room, but who want to watch upstairs in bed before retiring. It's for
    the hotel-room prisoner who wants to watch a movie on a TiVo at home, having
    realized that it's cheaper to pay $10 for a night of high-speed Internet than
    $13.95 for an in-room movie. It's for the traveler who wants to keep up with
    his hometown news while away.
         And if you have friends who can't see the big game because of a local
    broadcast blackout - really, really good friends - you could even let them
    download the free Slingbox player software and watch your local broadcast,
    though the Slingbox folks don't endorse this last use.
         Now that all of this is available for cellphone viewing - with no
    monthly fee - well, the mind boggles.
         THE Slingbox itself is truly eccentric-looking. Picture three squares
    of chocolate broken off a Nestl� bar, cast in silver and blown up to 10.6 by
    10.6 by 4 inches. ("It's supposed to be an ingot," a spokesman corrected me.)
         For most people, setting it up is a 15-minute prospect, according to the
    company. An Ethernet cable connects the Slingbox to the router on your home
    network. (Wireless networks aren't fast enough to handle the Slingbox's
    video reliably. If there's no Ethernet jack handy, Sling will sell you a
    $100 Powerline adapter, which you plug into an electrical socket; it makes
    the electrical wiring of your house part of your network.)
         Another cable connects a spare video recorder or TV output to the
    Slingbox itself. It has inputs for RCA and S-video cables; you can switch
    between sources from the road. A third cable is designed to control the
    channel-changing and other functions of your recorder or cable box; it
    terminates with two so-called infrared blasters, which are meant to be taped
    in front of the infrared "eyes" of your TV equipment.
         But suppose you're not most people. Suppose you're a newspaper reviewer
    with bad karma and a router that Slingbox doesn't recognize. In that case,
    setting up a Slingbox can be a more time-consuming ordeal. Anyone still
    puzzling over the phrase "the router on your home network" might be in
    trouble, too.
         Once the setup is done, though, and once you've installed the necessary
    software, your PC's speakers burst to life - and there, on your computer
    screen, is whatever's on TV right now. By clicking a photographic on-screen
    representation of your actual remote control, you can change channels, see
    what's available to play on your TiVo, pause or rewind, or even tell the TiVo
    to record something. All of this works equally well at home (across the
    network) and on the road (across the Internet), although your components at
    home take a couple of seconds to respond.
         (Unless you've bought a cable splitter, changing what's on the TV screen
    from the road also changes it at home, which could alarm anyone who happens to
    be watching TV in person at the time.)
         The sound is excellent - and at home, viewed across your home network, so
    is the standard-definition video. Viewed away from home, the video is only
    O.K. There are blotchy patches here and there, not to mention periodic
    temporary freeze-ups; all of it depends on the Internet connection speeds at
    both ends. The video resembles a VCR recording, which is still perfectly fine
    for talk shows, reality shows, game shows and movies where sweeping visuals
    and special effects aren't the main attractions.
         Once that's all running, you can embark on the next adventure: tuning
    into your Slingbox from a palmtop or cellphone. This task involves downloading
    and running another installer from slingmedia.com - free to Slingbox owners
    until April 26, and a one-time $30 payment thereafter.
         At that point, you can use tiny tappable on-screen controls to tune in to
    your home TV and video recorder, and control all their functions, just as you
    can with a laptop. The Slingbox can direct its video to only one gizmo at a
    time, however; you can't watch on your cellphone while someone else is using a
    laptop.
         Once again, all you need is high-speed Internet access. For PocketPC
    palmtops (like the HP iPAQ and Dell Axim), that usually means finding a Wi-Fi
    hot spot in a hotel, airport or coffee shop. Life is even easier if you have a
    cellphone with a $60-a-month high-speed cellular data plan like Verizon's
    EV-DO network (Palm Treo 700w, Samsung i730, and so on); in that case, you
    can tune in from anywhere in the 100 major cities with coverage. You can kill
    time watching your own TV while in cabs, friends' houses and the line at the
    Department of Motor Vehicles.
         The mobile Slingbox player also works over Bluetooth or U.S.B.
    connections to the Internet, meaning that you could watch on your palmtop over
    an Internet signal provided by a nearby laptop. But that's sort of pointless
    - if you have a laptop, why not watch your TV on it and enjoy the much bigger
    screen?
         On the small screen, the video once again has perfectly adequate VHS
    quality. If the Internet connection is very slow - for example, if your
    cellphone is outside those 100 cities covered by EV-DO - you can opt for
    "slide-show mode" (one frame of video a second, accompanied by full audio).
         On the pocket player, Sling Media has yet to fashion photographic
    remote-control replicas for all 5,000 different TV components offered by the
    laptop version. Still, the most important buttons are all available as generic
    rectangles; they appear when you tap the right "soft key" on your palmtop or
    phone. Keyboard shortcuts are available for most functions, too: to control a
    TiVo from the Treo's thumb keyboard, for example, you can press R for record,
    P for play, F for fast-forward.
         The Slingbox isn't the only video-to-go option, of course. TiVoToGo, the
    iPod TV store and Archos pocket players all let you carry TV shows and movies
    on your travels - but only if you record material and transfer it before the
    trip. Orb (orb.com) is free and also works with some cellphones, but gets its
    video from a PC with a TV tuner card, not from your actual TV and video
    recorder. And, of course, your cellphone company will be happy to sell you
    short TV shows - a canned selection of their choosing, not yours - if you're
    willing to pay a monthly fee and watch exclusively on your phone (not your
    laptop).
         The Slingbox and its simple, satisfying new cellphone/palmtop player
    join those portable personal-video options. It seems clear that along with
    traditional TV schedules and traditional TV channels, the next victim of
    high-tech progress may be the traditional TV couch.

    Take Your Cable Channels With You on the Road
    New York Times
    By KEN BELSON, December 21, 2005

         In 2002, Blake Krikorian and his brother Jason were beside themselves.
    Their beloved San Francisco Giants were in a pennant race, yet Blake and
    Jason, two Silicon Valley engineers, were traveling so much that they missed
    many of the games on television.
         Desperate, they signed up for a service that offered live audio and
    video of the games over the Internet, only to find that subscribers from San
    Francisco could not watch Giants games because of blackout restrictions.
         The idea for Slingbox was born. The Krikorians decided to find a way to
    let cable and satellite television customers watch what was on their home
    televisions while they were on the road. After several years developing the
    product, their company, Sling Media, released its first boxes in July.
         "I was paying $80 a month to Comcast, and I have a broadband pipe in
    my house and all these other displays," Blake Krikorian said. "So why can't
    I just watch the TV coming into our house?"
         Just as TiVo and other digital video recorders ushered in the concept
    of "time shifting" a few years ago, the Slingbox promises to make "place
    shifting" a reality for households. By letting consumers connect with their
    cable or satellite hookups when they travel, Slingbox has the potential to
    splinter further the way television is watched.
         For instance, even people living far from their hometowns could get a
    Slingbox, allowing them to watch their local television in another city or
    even country. Sling Media does not endorse this use of its device for fear of
    antagonizing cable and satellite companies, which may see it as illicit
    sharing.
         As with music, where many younger consumers are forgoing CD's in favor
    of downloadable songs, television viewers - with the help of devices like
    Slingbox - are expected to download more and more of their programming when
    and where they want it.
         "The trend over the past 30 years is towards fragmentation," said John
    Mansell, a cable industry analyst at Kagan Research. "It makes life a little
    more complicated" for cable and satellite operators and programmers.
         For consumers, however, Slingbox could not be simpler. The size of a
    shoe, it sells for $250 and unlike TiVo does not require a monthly
    subscription. The box can be hooked to a cable set-top box or a digital
    video recorder, and must be linked to a broadband line so the video can be
    "streamed" to a laptop or other device. Faster connection speeds provide
    better video quality.
         Users install software on laptops that communicates with the Slingbox
    over a high-speed Internet connection at a hotel or other remote location.
    (Again, faster connection speeds make for better viewing.) Users can watch
    what is playing live on the cable or satellite service at home, or anything
    stored on a digital video recorder. A virtual remote control that appears on
    the laptop allows users to change channels or play, pause or
    rewind a recorded program.
         For all its convenience, few people are all that interested in watching
    programming intended for full-screen televisions on laptops, especially if
    connection speeds are slow and the picture is jerky. But Mr. Krikorian, who
    has worked as an engineer in Silicon Valley for 15 years, says he has
    developed a solution called stream-optimization technology.
         Through a sophisticated software program, it automatically adjusts the
    video stream to match the quality of the broadband connection. Mr. Krikorian
    named the technology "Lebowski" after his favorite movie, "The Big Lebowski."
         "Our product allows the video to abide by the network conditions at any
    time," Mr. Krikorian said, paraphrasing the line "the dude abides," delivered
    by the film's star, Jeff Bridges.
         The technology is one reason Slingbox already has a cult following
    among travelers like David Garrison who crave a touch of home while on the
    road.
         Mr. Garrison, the chief executive of iBahn, a company that sells
    technology to hotels, travels to Asia once every three months and is in
    Europe every six weeks. He loves to ski at home in Salt Lake City and can
    make plans to hit the slopes by watching the local news to check the weather
    conditions in Utah. He also watches University of Utah sports teams and
    programs from the Golf Channel that he records on his TiVo.
         Mr. Garrison says he watches just as much television in hotels as he
    did before. But now he is more likely to watch what interests him rather
    than flip through the channels on the hotel television in search of something
    appealing.
         "Before I had the Slingbox, I would turn on the TV and do the guy thing
    and spend two seconds on each channel before turning it off," said Mr.
    Garrison, who uses a laptop with a 12-inch screen, connected to headphones.
    "Now, I feel like the time is better spent than just zoning out in front of
    the TV."
         Mr. Garrison said the picture quality on his laptop was adequate and
    the sound quality superb. Laptops that have an S-video output jack can
    connect to a television for better viewing.
         Slingbox is already stocked in almost 4,000 stores, including Best Buy,
    CompUSA and Circuit City. Mr. Krikorian said unit sales were nearing "six
    figures." The company has lined up financing from Doll Capital Management,
    Mobius Venture Capital, Hearst and Lenovo, the Chinese computer manufacturer.
         There are drawbacks, though. In addition to having to watch programs on
    a small computer screen, Slingbox users may also interfere with their
    family's viewing back home; in some cases when channels are changed remotely,
    the television at home moves with it, and vice versa.
         For now, video streamed from a Slingbox cannot be viewed on an Apple
    Macintosh computer, though Mr. Krikorian says his company will announce a
    solution to that problem in January.
         And as with TiVo, which has lost market share because cable and
    satellite set-top box makers have developed their own DVR's, imitators are
    catching on. Sony, for instance, sells LocationFree, a $350 device that
    connects to a home entertainment system and beams television signals to a PC
    or hand-held device anywhere in the world. Others are sure to follow.
         Down the road, programmers, particularly sports teams, may object to
    Slingbox's ability to sidestep their blackout restrictions. Cable and
    satellite operators could also oppose attempts by their subscribers to use
    Slingbox to give others free access to their programming.
         But Mr. Krikorian sees opportunity in these potential conflicts. He is
    talking to cable companies that could lease Slingboxes to their subscribers,
    he said, giving them fewer reasons to switch to a rival provider and more
    reasons to buy a faster broadband connection. Down the road, Web content,
    including advertisements, could be linked to shows beamed from the Slingbox.
         For now, though, Mr. Krikorian is optimistic that the Slingbox will do
    for travelers what TiVo did for couch potatoes.
         "You should always be concerned about competition," he said. "But I
    think we're in a good spot because no one has the technology we have. We've
    got a head start."

    Gadget of the Year - 2005
    Jupiter Research
    Michael Gartenberg , December 28, 2005

         This one was another really hard category. Lots of interesting things
    that came to market this year. I was looking for something new, different and
    ground breaking for this category. There's still lots of choices but it came
    down to one for me. The Slingbox from the folks at Slingmedia.
         What's Good - The Slingbox is amazing. From the unique design and the
    wonderful setup experience, the Slingbox does one thing and does it really
    well. (For fun, try accessing your music and pictures too using the TiVo home
    media option.) Like all groundbreaking devices, it doesn't fit into some neat
    category, it creates a whole new one (and a new buzzword, place-shifting).
    For the weary road warrior killing time in an airport or sitting in a hotel
    room in a place far away, the Slingbox brings some of the comforts of home to
    your laptop and soon to other devices. If you travel a lot (or just like
    the idea of accessing your content from anywhere in the world) and you have
    a good broadband connection, you need to get one of these things. At $249,
    it's one of the best bargains in consumer electronics.
         What's Missing - Setup is excellent but if you're working in a slightly
    funky network setup, you're going to stumble. Sling's challenge is going to be
    to keep updated with all the new stuff coming to market while increasing
    support for legacy stuff. It will also be nice to see support for more
    platforms beyond Windows. Smartphone, PocketPC, Mac OS and the like are all
    in the works and hopefully we'll see them soon.

    Slingbox lets your TV travel with you
    Clever design lets you watch, control your home TV from a PC screen
    MSNBC
    By Gary Krakow, Updated: 1:11 p.m. ET Dec. 21, 2005

         You know a device is ground-breaking when it doesn't fit into any
    particular category.
         Slingbox might be called a personal video broadcast box. Or a cable
    TV-over-computer box. Or a junction box that lets you access your cable,
    satellite, DVD, or VCR from anywhere on the planet.
         This very clever device works by letting you "broadcast" an audio/video
    signal - via your high-speed Internet connection - and watch the result on a
    PC or laptop. You can watch that feed on any computer running the Slingbox
    software, anywhere in the world.
         Slingbox is pretty sophisticated and needs your PC and home computer
    network to be sophisticated as well. Aside from that high-speed Net
    connection, minimum requirements include a PC running Windows XP or 2000 SP4
    and an Ethernet connection to your router. You can get the full list on the
    company's Web site.
         At approximately 10.5 by 4 by 1.5 inches, the Slingbox is nice and
    compact. You can place it anywhere; in my case it rested perfectly on top of
    the cable TV control box.
         First, you need to connect your Slingbox to your video source, which
    can be a cable TV box, a satellite service, a DVR such as TiVo, a DVD player
    or even a VCR. Slingbox has antenna (good), composite video (better) or
    S-video (best) inputs for the incoming signal.
         Next, you hook Slingbox to your computer network via its Ethernet port.
    That can be tricky if, as in my case, your high-speed networking hub is
    nowhere near your living room TV setup. It would have meant more than 100
    feet of Ethernet cable running through the living room. You try explaining
    that to the spouse.
         Slingbox has thought of that, fortunately, and there is an easier way.
    You can purchase a separate Netgear 802.11 wireless game adapter and
    configure it to your home network's wireless settings while it is attached
    to your computer. Then you unplug it from the PC and  plug it into the
    Slingbox.
         The last step is to install the Slingbox control software onto your
    computer and follow the step-by-step, on-screen instructions. During that
    process, the software assigns a 32-digit, alpha-numeric identification tag
    to your Slingbox.  That ID allows any PC running the Slingbox software to
    search for - and find - that box via any Internet connection.
         What that means is once you install and configure the software you can
    control and watch your Slingbox anywhere you can access a high-speed Internet
    connection. That's very cool. The system also allows you to use and choose
    from multiple Slingboxes installed in your home.
         I particularly like the on-screen remote controller. As part of the
    set-up process, you tell the Slingbox software which cable or satellite
    service you're using. When you're finished, the Slingbox remote control
    window on your computer screen acts like the actual TV remote control -
    right down to button placement.
         I have to admit that I was skeptical about Slingbox's worth until I
    actually started using the system. Now it's difficult to stop. I find myself
    keeping a Slingbox screen open on my computer desktop all the time -
    sometimes with the sound muted - and then taking advantage of the latest news
    bulletins, weather, traffic reports and the occasional football game or two.
    (You thought you weren't getting any work done as it was.)
         One interesting note, regular TV channels produce a larger computer
    image than their high-definition equivalents. That's because Slingbox lets
    you watch a 4:3 image on your computer, but the 16:9 HD images just look
    cut-off.
         The bottom line is that Slingbox works exactly as described and is
    addictive. It allows you to watch and listen to TV wherever you are. Video
    quality is very good whether you watch inside or outside your home.  I
    haven't yet tried it overseas but I plan to in the very near future.
         Slingbox is available online and retails for $249.99.  They're
    currently offering $50 online discounts as well. It's a good deal.
         Looking toward the future, it would be great if the Slingbox gurus
    could extend this remote control TV service to mobile phones. I know I
    would be near the front of the line for the software when they accomplish
    that.

    c 2006 MSNBC Interactive
    c 2006 MSNBC.com
    URL: http://www.msnbc.msn.com/id/10546353/

    Remote Control
    Never miss a game again while traveling. The new Slingbox sends your home's TV
    channels to a laptop

    October 3, 2005

         If you're a traveling sports fan who hates to miss your home team's
    games, technology has just thrown you a lifeline. The Slingbox, from Sling
    Media Inc., a tech firm in San Mateo, Calif., plugs you into your own living
    room, enabling you to use your laptop to watch every television channel that
    you get on your home TV. Fred from Philadelphia can sit in a Tokyo hotel room
    and watch the Phillies on his computer screen, and Harry Kalas's calls will
    lose nothing in translation.
         Blake and Jason Krikorian, who along with Bhupen Shah cofounded Sling
    Media, say they were inspired to invent the Slingbox in 2002 when they were
    traveling often for work and had a hard time following the San Francisco
    Giants, who were in a pennant race. They thought, What if it were possible to
    tap into your home TV signal through the Internet? Three years later they've
    made it happen. On a trip to Singapore in May, Blake was able to watch the
    UCLA women's water polo team -- coached by his brother Adam -- win an NCAA
    title because the game was broadcast on CSTV, part of his cable package
    back in California. "I was lying in bed watching it in my hotel room just
    like I was back home," he says.
         The Slingbox, which costs $250 (no subscription fees), is a brick-sized
    piece of hardware that connects to your home cable or satellite box and works
    with software that you load onto your PC laptop. (A Mac version is in the
    works.) True, you need to have both feet firmly planted in the 21st century
    to use this device -- your home must have broadband and a router, and when
    accessing your programming, you must also have a broadband connection at your
    remote location. Installation takes between 15 minutes and an hour. While
    the tech-savvy should be able to do it, you can pay someone at CompUSA
    or BestBuy (currently the only brick-and-mortar retail outlets for Slingbox,
    though more are expected) an extra $100 or so to handle the installation.
         Once you get Slingbox installed, it's easy to operate. You change
    channels by clicking on a remote-control interface on your computer screen.
    Your home TV need not be on. The video quality is not as clear as a TV's, but
    it's not bad. I watched a Mets-Phillies game on a public wireless connection
    in New York City's Bryant Park, and I could make out Tom Glavine's pitches
    O.K. But when the Phillies' David Bell stroked a ball into rightfield and the
    broadcast switched to a wide-angle shot, I could no longer follow the ball
    and had to read the body language of rightfielder Victor Diaz to see that it
    was dropping in for a hit. Text on the screen was clear; I could read the
    ESPN news crawl just fine.
         Improving the picture quality is a big part of the company's mission.
    Since the commercial release of Slingbox on June 30 it has issued three free
    software patches to make the picture better. But such quibbles aside, it's a
    wonder that you can flip through the channels on your home TV from anywhere
    in the wired world. And you can watch any programming, not just sports. You
    can even access your TiVo and watch those stored episodes of The Sopranos.
    Your TV can be as portable as a laptop.
         One potential complication: You are not just watching TV, you are
    watching your TV, so if you're tuning in while on the road and someone at
    home wants to watch a different program, you may be in for a long-distance
    tug-of-war over the remote.

            MR. STEARNS.  Thank you.  Mr. Feehery.
            MR. FEEHERY.  Thank you, Mr. Chairman.  I am the guy that is
    following him.  I am John Feehery and I represent the Motion Picture
    Association of America.  Our members companies are made up of the
    seven major studios, Fox, Disney, Paramount, Warner Brothers,
    NBC/Universal, Sony Pictures, and MGM.  As you can see, these are
    very interesting times in the movie business.  Since the Supreme Court
    declared unambiguously, in the Grokster v. MGM decision, that Internet
    business models based on the principle of theft were not legitimate and
    should cease operations, we have seen an incredible burst of creative and
    legal business activity.
    	The market for visual distribution of motion pictures is still very
    young, yet we have already seen the following very important
    developments: feature films are now available for download from all the
    major studios through online services that include Movielink and
    CinemaNow.  Disney is offering legal downloads of some of its most
    popular television shows, including Lost and Desperate Housewives for
    the video iPod.  NBC/Universal and Viacom followed suit.  You can see
    Dora the Explorer, Spongebob Squarepants, and the Daily Show on your
    video iPod.
    	Apple hit the one million download mark within three weeks, and
    today there have been more than 12 million video downloads through
    iTunes and more than 50 TV shows are available.  Fox, NBC/Universal,
    Disney, and Viacom have all entered into agreements with Verizon to
    distribute TV and video content through its new FiOS network.  Disney
    and Verizon struck a deal to provide episodes of Lost, created
    specifically for the V-Cast network.  Warner Brothers is partnering with
    AOL to launch the first broadband television network, In2TV.  This
    network offers the largest collection of free on-demand TV shows on the
    web, including Welcome Back Cotter, Chico and the Man, Kung Fu,
    Lois and Clark, and Maverick, my personal favorite.  NBC/Universal has
    announced the licensed peer-to-peer distribution of some of their films
    and TV shows through Wurldmedia.  It also announced an agreement
    with Aeon Digital to make similar content available on demand over the
    Internet.
    	Disney has spun out MovieBeam, a video-on-demand movie service,
    with the help of Cisco, Intel, and others.  This service offers the first
    wireless distribution and on-demand access to high definition films in the
    U.S.  And Sony released the Universal Media Disc format for its Play
    Station Portable.  This specialized format has led to over 350 titles being
    licensed by our movie studios.  This explosion in activity, legal activity,
    has happened for a very simple reason: what is bad for the black market
    is very good for the legitimate marketplace.  And, Mr. Chairman, what is
    good for the legitimate marketplace is very good for the consumer.  It is
    also good for policymakers such as yourselves.  It means more tax
    revenues for Federal, State, and local government.  It creates jobs.  For
    example, the U.S. motion picture industry employs nearly 750,000
    people nationwide.  These jobs are not just in California.  Increasingly,
    major motion picture productions are created all across the United States,
    including Florida, Mr. Chairman, Texas, Louisiana, New York, and, Ms.
    Ranking Member Schakowsky, my home State of Illinois.  And a
    legitimate marketplace encourages even faster digital developments in
    the long run.  That in turn means more choices and more convenience to
    consumers.
    	The Grokster decision has provided us with commonsense rules of
    the road that inspire the legitimate marketplace to move forward.  The
    Congress should continue down that road by ensuring that content is
    adequately protected as we move ever further into the digital age.  Both
    broadcast flag and analog hole legislation will help spur the transition to
    digital television and a robust digital marketplace, rich with more choices
    for consumers.  But by weakening copyrights and promoting freeloading,
    we will hurt the legitimate marketplace.  Piracy devices that circumvent
    content protection should not be protected in law.  The so-called analog
    hole shouldn't be allowed to persist and slow down the transition to a
    vibrant digital marketplace for audiovisual content.  And a mistaken
    understanding of the fair use doctrine that will lead to greater piracy
    shouldn't be codified in law.
    	All too often, the content industries and the consumer electronics
    industries have been pitted against one another in legislative battles.  But
    choosing between technology and content, and the content it carries, is
    like choosing between Florida and the sunshine.  It doesn't make any
    sense and it is a false choice.  The content and technology industries are
    working together, as I show with the different examples, to provide
    consumers the best and the most entertaining value.
    	Mr. Chairman, it is impossible to predict with any accuracy what is
    going to happen in the future.  You can see all of these new
    developments that we knew nothing about three or four years ago.  That
    is the nature of a vibrant marketplace.  But it is possible to predict that if
    commonsense rules of the road that respect copyrights are established, if
    freeloading is discouraged, and if the marketplace is allowed to work to
    provide consumers the most choices at the best prices, at the end of the
    day, the consumer will win and that is how it should be.  Thank you.
    	[The prepared statement of Mr. Feehery follows:]

    PREPARED STATEMENT OF JOHN FEEHERY, EXECUTIVE VICE PRESIDENT, EXTERNAL
    AFFAIRS, MOTION PICTURE ASSOCIATION OF AMERICA

         Mr. Chairman,
         Thank you for this opportunity to testify before your Committee today.
         My name is John Feehery, and I am Executive Vice President for External
    Affairs for the Motion Picture Association of America.
         Our member companies are made up of the seven major studios: Fox, Disney,
    Paramount, Warner Bros., NBC/Universal, Sony Pictures and MGM.
         These are interesting times in the movie business.
         Box office receipts were down about eight percent last year.
         No one knows exactly what caused this decline.  Perhaps it was the movies
    themselves.  Perhaps it was piracy.  Perhaps it was the prevalence of home
    theaters.
         But while the box office may be disappointing, the movie business itself
    is adapting in many exciting and unpredictable ways.
         Since the Supreme Court declared unambiguously in the Grokster v. MGM
    decision that internet business models based on the principle of theft were
    not legitimate and should cease operations, we have seen an incredible burst
    of creative business activity.
         The market for digital distribution of motion pictures is still very
    young, yet already we have seen:
          Feature films now available for download from all of the major
    studios through online services that include Movielink and CinemaNow.
          The video iPod together with the announcement from Disney that
    it was offering legal downloads of some of its most popular television shows,
    including Lost and Desperate Housewives.
          NBC-Universal and Viacom followed closely thereafter.  You can
    now see episodes of popular shows like Dora the Explorer, Spongebob
    Sqaurepants and The Daily Show on your video Ipod.
          Apple hit the 1 million download mark within three weeks, and
    today there have been more than 12 million video downloads through iTunes and
    more than 50 TV shows are available.
          Fox, NBC-Universal Disney and Viacom are all entering
    agreements with Verizon to distribute TV and video content through its new
    FiOS network.
          Reports that Disney has struck a deal with Verizon to provide
    so called episodes of the popular television series "Lost" created
    specifically for distribution to telephones through Verizon's V-Cast network.
          Jon Stewart lovers can also get The Daily Show on their
    Verizon V-Cast phones.
          Warner Bros. partnered with AOL to launch earlier this month
    the first broadband television network-In2TV-that offers the largest
    collection of free on-demand TV shows on the Web, including such Warner Bros.
    classics as "Welcome Back, Kotter"; "Chico and the Man"; "Kung Fu"; "Lois
    and Clark"; and "Maverick."
          NBC Universal announcing the licensed peer-to-peer
    distribution of some of their films and TV shows through the Wurldmedia
    network, as well as an agreement with Aeon Digital to make similar content
    available on-demand over the Internet.
          The announcement of MovieBeam, a video-on-demand movie
    service spun out of Walt Disney Co. with the help of Cisco, Intel and
    others, which offers the first wireless distribution and on-demand access
    to high-definition films in the U.S.
          Sony's release of the Universal Media Disc format for its
    Play Station Portable, with movie releases being supported in this
    specialized format by many of the major studios which together have
    licensed over 350 titles.
          Announcements by each of the major studios in support of
    next-generation, high-definition DVD formats.
          MTVNetworks, a division of Viacom, has already launched 4
    Internet broadband channels-Comedy Central's The Motherload, Nickelodeon's
    TurboNick, MTV's Overdrive, and VH1's V-Spot, all of which offer
    consumers a rich array of on-demand, interactive content.
         This explosion in activity has happened for a very simple reason: what
    is bad for the black market is very good for legitimate market place.
         And what is good for the legitimate marketplace is good for policy
    makers such as you.
         A legitimate market place means more tax revenues for federal, state
    and local government.
         A legitimate marketplace creates jobs and is good for America's
    economy.  For example, the US Motion Picture Industry employs nearly
    750,000 people nation-wide.
         The average motion picture employs 350-500 people (listed in the film's
    credits) and with larger special effects driven films that number can be in
    the thousands.
         In short, the motion picture industry means jobs for middle class
    Americans who make, on average, $47,000 per year.
         These jobs are not just in California either. Increasingly, major
    motion picture productions are created all across the United States,
    including in Florida, Texas, Louisiana, New York, and my home state of
    Illinois.
         When Hollywood goes on location, it not only benefits the people
    working on the movie, but the entire community as well.
         A major motion picture on location contributes up to $200,000 per day
    to the local economy, with people filling gas tanks, using the local dry
    cleaners, caterers, stores, hotels, etc.
         Finally, by encouraging the legitimate marketplace, our entertainment
    products drive demand for improved technologies and broadband services.
         In turn, that means more choices and more convenience for consumers.
         As we move into the digital future, the Congress faces a simple choice.
         It can take steps to help foster a more robust, more creative and more
    exciting marketplace for consumers, content providers and tech manufacturers.
         It can enact and enforce laws that respect copyrights, inspire
    cooperation between tech and content, and crack down on freeloaders and
    pirates.
         The Grokster decision was a good start, by providing us common sense
    rules of the road that inspired the legitimate market place to move forward.
         The Congress should continue down that road by ensuring content is
    adequately protected as we move ever further into the digital age.
         Both broadcast flag and analog hole legislation will help spur the
    transition to digital television and a robust digital marketplace, rich with
    more choices for consumers.
         But by ignoring copyrights and promoting freeloading, we will hurt the
    legitimate marketplace.
         You shouldn't protect in law piracy devices that circumvent content
    protection.
         You shouldn't permit the so-called analog hole to persist and slow down
    the transition to a vibrant digital marketplace for audiovisual content where
    DRM technologies can function properly.
         You shouldn't codify in law a mistaken understanding of the fair use
    doctrine that will lead to greater piracy.
         Fair use does not mean that our content is fair game for anyone who
    wants to take it and consume it without paying.
         All too often, the content industries and the consumer electronics
    industries have been pitted against one another in different legislative
    battles.
         But trying to choose between technology and the content it carries is
    like trying to choose between Florida and Sunshine.
         It is a false choice.  The content and technology industries must work
    together to provide customers the best and most entertaining value.
         Mr. Chairman, it is impossible to predict with any accuracy what the
    future holds.
         That is the nature of a vibrant market place.
         But it is possible to predict that if common sense rules of the road
    that respect copyrights are established, if freeloading is stopped, and the
    market place is allowed to work to provide consumers the most choices at the
    best prices, at the end of the day, the customer will win.
         And that is how it should be.
         Thank you, Mr. Chairman.

    	MR. STEARNS.  I thank the gentleman.  Mr. Denney.  I just need you
    to put the mike on.
    	MR. DENNEY.  There we go.
    	MR. STEARNS.  Yes.
    MR. DENNEY.  Thank you, Mr. Chairman and Ranking Member
    Schakowsky and all the members of the subcommittee.  Thanks for
    having me here today.  Before I get going, I just want to say, Blake, I feel
    bad for you as a Giants fan, but you should try being a Cubs fan some
    day.  That will be even better.
    	TiVo was founded in 1997.  We have been working since then to
    bring innovative and compelling new consumer experiences, television
    experiences to consumers.  Currently, we have a little above four million
    subscribers.  New innovations often challenge existing business interests.
    Live performers resisted the player piano.  The recording music industry
    resisted radio.  The broadcast industry didn't like the idea of cable
    television.  It was feared that the VCR was going to destroy the movie
    and television industries when it first debuted.  Innovation, while
    sometimes threatening, is ultimately good for the consumer, the
    innovator, and the content industry.  To address what the point is here,
    we are not critiquing current efforts that the industry has, just raising the
    fact that sometimes technology can be threatening.
    	Current law provides a solid base for innovation.  It has provided a
    balance between the copyright holders' rights and innovation that can
    delight consumers and give birth to new markets.  The key to this success
    is providing flexibility in allowing the market and the court system to
    determine the reasonable balance between copyright holders' rights and
    the consumer's right to enjoy legally acquired content on their own
    terms.  The dynamic balancing act has allowed the cycle of innovation to
    continue.
    	A longstanding interpretation of the Copyright Act makes it clear
    that the act was intended to punish bad behavior rather than stifle
    innovation itself.  Innovators like TiVo must be free to concentrate on
    developing compelling new ways to enjoy legitimately acquired media.
    Innovation can create business opportunity and benefit the consumer at
    the same time.  The TiVo DVR has given users unprecedented flexibility
    in finding and watching television.  TiVo provides the ability to pause
    live TV, record each episode of your favorite TV show, find shows that
    are of interest to you.  Online scheduling capability ensures that you
    won't miss your favorite show, even if you forget to record it after you
    left the house.  Our new KidZone feature allows parents to create what
    they deem to be a safe environment for their children based on their own
    personal values and interests.
    	None of these innovations would have been possible without the fair
    use provision of the Copyright Act.  Consumers must be allowed to make
    personal copies of shows that they want to watch in order to watch them
    when they want to watch them.  Much of the innovation of fair use has
    enabled increased consumption of media by consumers and new
    opportunities for content providers.  At the time TiVo debuted in the
    market, many in the television industry predicted the demise of ad-
    supported television.  The actual result has been that TiVo subscribers
    often watch more television than they did before.  Broader audiences are
    able to watch shows that they otherwise would not have watched.
    Educational and informational programming for children is not always
    available when it is convenient for parents or the children.  TiVo is
    always working on innovative tools for advertising on the DVR
    environment as well, and working on tools that are attractive to both the
    consumer and the ad and content industry at the same time.
    	Finally, TiVo is a strong supporter of protecting content against
    piracy.  We condemn piracy and take strong measures to protect content
    stored on the TiVo DVR.  There is no room for piracy in striking the
    reasonable balance between innovation and the content owners' interest
    and consumers' needs.  However, we don't believe the right approach is
    to legislate the need for particular technology, but instead believe the
    marketplace and industry should be left to determine the right approach.
    Indeed, TiVo has recently been criticized by some members of the open
    source community for implementing certain content and system
    protection schemes.  We believe that the fact that our direction causes
    tension on both sides of the issue probably indicates that we are on the
    right path to balance.
    	The balance provided in our Copyright Act by the fair use doctrine
    has served our Nation well.  It is fostering an environment that has
    propelled the United States into the current leadership position in
    technology and innovation.  It has served consumers by enabling them to
    lawfully acquire content in new and compelling ways.  And it has
    benefited the content providers by providing unforeseen markets and
    demand for new content.  We urge this committee and Congress to
    preserve fair use and ensure that it is not undermined or weakened.  I
    would be happy to answer questions that you may have, and I have an
    opportunity for a short demonstration of TiVo capabilities.
    	MR. STEARNS.  Sure.  Go ahead.  Hold on just one second.  You
    can't hear?  We need you to use the mike so that it is being recorded.
    	MR. DENNEY.  Is that okay?
    	MR. STEARNS.  Yes.
    	MR. DENNEY.  Okay, I will try to make that work.  So one of the key
    capabilities of TiVo is controlling live television, so we don't have a live
    television signal, but it basically works this way.
    [Video.]
    	MR. DENNEY.  I am watching television.  If the doorbell rings, I can
    now hit pause.  The television signal that is coming in my house is now
    paused.  It is constantly being buffered--every half-hour of live
    television.  So I can basically be interrupted from the television and be
    able to walk away.  I can also record television, so as I record television,
    it creates what we call a now-playing list.  So a now-playing list is a list
    of recordings that exist on my TiVo DVR.  So this is a list of all the
    shows that I have recorded.  These are things that I have deemed that I
    am interested in.  We can also help people find interesting content or
    content that are of interest to them.  So in this case, I know that I want to
    watch 24, but I don't remember exactly when it is on or I know that there
    are different reruns that might be on.  I can use tools like search by title,
    which allows me to enter a program show, and it will list all the airings
    of the show coming up.  In this case, you see 24 is on quite a bit on
    satellite.  I can set to record this episode.  I can get a season pass.  If I get
    a season pass to this, I can record every episode of 24 that comes on.  I
    can say only record new episodes.  Don't record reruns.  So I can hone in
    on what I want to watch.
    	Another thing I can do is set up what is called a wish list.  So if I
    have a particular interest that I want to find content about, in this case, I
    might be interested in cooking or I might be interested in chocolate in
    particular.  I can set a wish list and then this will go off and find shows
    that fulfill that particular interest.  So in this case, this is cooking and
    chocolate and I can look at the shows that are coming up and I can shop
    through the shows coming up to find the things that might be of interest
    to me.
    	The last thing I wanted to show, recently we announced that we have
    an initiative called KidZone, and what KidZone allows you to do is take
    the shows that you have recorded and allow the parent to determine what
    is appropriate for their children.  So we leverage both V-Chip-like
    ratings, allow the parent to set up their own criteria, identify shows that
    they want their children to be able to watch, and what it does is take that
    now-playing list and then filter it down to only the shows that are child-
    appropriate.  So now your children are within this environment and they
    have full control over what they watch, but it is what you, the parent,
    have determined.  Without the ability to record, I wouldn't be able to
    create this environment and set this up for my kids.  We are also working
    with third parties like Common Sense Media, like other third parties for
    recommendations to leverage search tools that allow parents to find
    appropriate television, including taking the EI data, the educational and
    informational data, that comes in the broadcast signal and a lot of people
    do hone in on educational and informational programming.  Thank you.
    	[The prepared statement of Mr. Denney follows:]

    PREPARED STATEMENT OF JIM DENNEY, VICE PRESIDENT FOR PRODUCT MARKETING,
    VIVO, INC.

         Chairman Stearns, Ranking Member Schakowsky, and other members of the
    Subcommittee, my name is Jim Denney. I am Vice President for Product
    Development at TiVo. I want to thank the Subcommittee for inviting me to
    testify on the vitally important issue of fair use and its impact on
    innovators, consumers, and content providers. As an innovator, TiVo depends
    equally on the ability to continue innovating to create products consumer
    want and the continued creation of compelling content to be consumed on
    TiVor devices. Accordingly, I applaud your willingness to examine the vital
    role of fair use that has contributed to our nation's leadership in both
    innovation and content creation.
         Founded in 1997, and located in Alviso, California, TiVo pioneered a
    brand new category of products with the development of the first
    commercially available digital video recorder (DVR). Sold through leading
    consumer electronic retailers, TiVo has developed a brand which resonates
    boldly with consumers as providing a superior television experience. With a
    continued investment in its patented technologies, TiVo is revolutionizing
    the way consumers watch and access home entertainment. Rapidly becoming
    the focal point of the digital living room, TiVo's DVR is at the center of
    experiencing new forms of content on the TV, such as broadband delivered
    video, music, and photos.

    Summary
         As an innovator TiVo depends upon strong intellectual property rights.
    Yet we also depend on the fair use doctrine to bring benefits to consumers
    and content creators. Fair use insures that innovators, content creators, and
    consumers reap significant benefits from a copyright system that promotes
    innovation, that guarantees consumers are able to enjoy content they
    legitimately acquire, and that provides incentives to content creators.
    Indeed, fair use has enabled the United States to maintain unparalleled
    leadership in both innovative technology and content creation.

    The Challenge of Innovation
         New inventions have always challenged existing business interests. At
    the turn of the last century the copyright industry was challenged by the
    player piano. Later the radio was seen as the devil's instrument, giving away
    music for free. Television was to be the death of movies. When that proved
    false, it was the VCR that would destroy both movies and television.
    Fortunately for innovators, consumers, and copyright owners, the content
    industry was saved from itself. Each time the content industry failed to
    eviscerate those technologies in court or before Congress. After failing to
    throttle the new technologies, the content industry successfully co-opted
    each new technology and turned such "threats" into significant profits.
         Fair use has maintained the balance between the copyright holder's
    exclusive rights and the promotion of progress by innovators. The fair use
    doctrine ensures the balance our founding fathers put in the Constitution
    when it gave Congress the power "to promote the progress of science and the
    useful arts by securing for limited times to authors and inventors the
    exclusive right to their respective writings and discoveries.." The secret of
    our nation's success is that Congress wisely codified judge-made fair use law
    in a special way. Rather than laying down rigid black and white rules,
    Congress continued fair use as a flexible test allowing judges to carefully
    examine the facts of each case to determine whether the use of the
    copyrighted material was appropriate. In Section 107 of the
    Copyright Act, Congress laid out four non-exclusive factors that allow courts
    to determine a reasonable balance between the content owner's exclusive rights
    and the consumer's right to enjoy the content, which in turn permits further
    innovation. It is fair use's dynamic balancing act that has continued the
    cycle of innovation.

    Fair Use Benefits Innovators
         Both the fair use language and the Supreme Court's interpretation of
    the Copyright Act make it clear that the law was intended to punish bad
    behavior rather than inventions that can be used for good or ill. It is the
    hallmark of our law and the secret of our world technical and content
    creation leadership that our nation looks to punish those that misuse
    inventions rather than throttle innovation itself. In the famous Sony Betamax
    case, the content industry sought to have the producers of the VCR held
    liable for making a device that could copy video content. Fortunately, after
    examining user conduct under the fair use provision, the Supreme Court held
    that the VCR had legitimate uses, such as time shifting scheduled TV
    programs; the Court found Sony not guilty of secondary copyright
    infringement. After the decision, the content industry leveraged the VCR's
    popularity and, from zero at the time of the Court's decision, developed a
    $23 billion home video market.
         Thus, innovators like TiVo are free to concentrate on developing new and
    innovative devices such as TiVo's DVR. Innovators need merely ask themselves,
    will this device enable consumers to better enjoy their legitimately acquired
    content under the fair use doctrine. Indeed, often the innovator doesn't even
    know all of the possible uses of the innovation. Thomas Edison, for example,
    did not invent the record for music. He believed his wax recording cylinder
    would be used to eliminate business letters - everyone would dictate and mail
    wax cylinders. It was a small company that licensed Edison's invention -
    RCA - that thought people might wanted to listen to recorded music in their
    home. What if the sheet music publishers and live performers had been able to
    stop RCA in court? We wouldn't have the over $13 billion recorded music
    industry today.
         The flexible fair use doctrine, honed over two hundred years of court
    decisions and Congressional action, benefits innovators and is a significant
    weapon in the battle for world leadership in technology.

    Fair Use Benefits Consumers
         Each new innovation in consumer technology has enabled consumers to
    better enjoy and consume more content. The player piano allowed listening
    (and singing along) to music in one's own home without learning to play the
    piano. The radio brought all sorts of information and entertainment into the
    home that most consumers would never have experienced. TV added moving
    pictures. The VCR allowed consumers to watch shows they would have missed
    because they were not home. TiVo's DVR has given consumers unprecedented
    flexibility and has revolutionized how people watch TV.
         TiVo gives consumers simple but powerful features such as pause so you
    won't miss a single part of the program because the phone rings or the
    delivery person is at the front door, as well as advanced but easy to use
    features as: SeasonPassr which remembers to record your favorite series so
    you won't miss an episode; WishListr that can record all the movies by a
    favorite director or actor or favorite team's games, so that you won't
    miss the program because you weren't home; Online Scheduling which allows
    you to "phone home" and remotely program your TiVo DVR if you are stuck at
    work and will miss a special program you wanted to watch. These and many
    other features have brought unprecedented value to consumers. They can
    enjoy their TV programs when they want and not miss a single program
    because they had to work late or were tied up in traffic. Moreover, TiVo
    benefits consumers by allowing them to store and easily access their
    personal photographs, home videos, and their music collection.
         One of the most exciting consumer benefits is TiVo's recently
    announced KidZone. In concert with leading family organizations, such as
    Parents' Choice Foundation, Common Sense Media, and Parents Television
    Council, we have developed a safe place for parents to make decisions about
    what their kids can watch based on their personal interests and values. In
    1990 Congress required TV broadcasters to air at least three hours of
    children's educational and informational programming each week. Yet most of
    such programming is broadcast early in the mornings or weekends; not the
    ideal time for viewing. TiVo KidZone will help solve this problem. In
    addition to its other child friendly features, KidZone will make sure
    parents can automatically program their TiVo's KidZone with a menu of
    children's Educational and Informational programming, or select their
    favorites from it. I am extremely proud of the new KidZone service. I could
    not have summed it up better than Congressman Fred Upton, Chairman of the
    Subcommittee on Telecommunications and the Internet:
         "As a father of two teenagers, I understand that parents are the first
    line of defense - I commend TiVo for providing parents such a valuable and
    easy to use resource to determine what programming is best for their kids.
    This major breakthrough of technology through public and private cooperation
    directly addresses the goals that Congress and the FCC had in mind when they
    created the children's Educational and Informational programming category."
         Yet none of these consumer, family, and child friendly features would
    have been made available had it not been for the fair use provision of the
    Copyright Act. Clearly, consumers must be allowed to make "copies" of the
    programming in order to watch it when they want to watch. Parents must make
    copies of the educational and informational TV programs to create a kid-safe
    viewing experience for their children. It is the fair use
    doctrine's wise balancing of rights that foster these consumer benefits.

    Fair Use Benefits Content Creators
         As discussed above, much of the innovation that relies on fair use has
    sparked new and increased legitimate consumption of content. This is not
    surprising as one portion of the fair use balancing test is to insure that
    the use will not cause excessive economic harm to the copyright owner. It was
    obvious to the Supreme Court that allowing a person to watch a TV show at
    that person's convenience would not harm the market for that content. Much
    like Edison's wax cylinder, few could have predicted a $23 billion dollar
    home video market enable by the Betamax decision. That is the elegance of the
    fair use test. It is flexible enough to allow innovators to create new
    devices that allow users to use legitimately acquired content in new ways.
    The end result has almost invariably been increased legitimate consumption
    and, in the case of the VCR, creation of a new profitable market for the
    content creator.
         The same is true of TiVo. TiVo's innovative technology has resulted in
    consumers watching more television. Yet at the time TiVo debuted in the
    market, many in the television industry predicted the demise of free
    over-the-air TV. Indeed one DVR manufacturer was sued into bankruptcy. But
    once again it turns out that the innovation has not only been a boon to
    consumers but to the content industry as well. Studies have found that TiVo
    users actually watch more television than before. Again, a new innovation
    has increased the demand for content.
         But equally as important, innovative devices such as TiVo are able to
    take advantage of recent innovations in broadband, wireless, and cellular
    technology to continue expanding the market for video content. TiVo recently
    announced a partnership with Verizon Wireless that lets TiVo subscribers
    schedule recordings on their TiVo device directly from their Verizon
    Wireless handset. Moreover, forward looking content distributors such as
    ABC and NBC are offering consumers the option of paying to download
    commercial free episodes of their TV programming over the Internet as an
    alternative to viewing the programming with advertisements without charge.
    Thus, once again, the innovation fostered by the fair use doctrine has expanded to market for content and not harmed it.
         Finally, TiVo is a strong supporter of copyright protection of content.
    We condemn piracy and take strong technical measures to protect content
    stored on TiVo DVRs. Indeed, when TiVo's TiVoGuard protection system was
    scrutinized by the Federal Communications Commission, the Motion Picture
    Association of America said:
         "It appears to contain a strong level of security, including well
    vetted algorithms and a well designed multi-layer security architecture. It
    is upgradeable, so that it can be repaired in the event of a compromise, and
    it includes the capability for device revocation and system renewability."
         TiVo believes that the reasonable balance between innovation, content,
    and consumers does not mean anyone should engage in piracy. Rather,
    commercial piracy can, has, and will continue to be fought while at the
    same time preserving fair use for consumers and innovators. Such a balance
    will continue to create incentives for content providers by expanding
    markets.

    Conclusion
         The balance provided in our copyright by the fair use doctrine has
    served this nation well. It has fostered innovation that has propelled the
    United States to its current leadership in technology and innovation. It has
    well served consumers by enabling them to use lawfully acquired copyrighted
    content in new and compelling ways. Finally, it has benefited content
    providers by opening new, often unimagined markets resulting in the
    demand for more content. We urge this Committee and Congress to preserve
    fair use and ensure that it is not weakened or undermined.

    	MR. STEARNS.  Thank you.  Mr. Mitchell?
    MR. MITCHELL.  Thank you, Mr. Chairman, Ms. Ranking Member
    Schakowsky and members of the subcommittee.  I thank you for the
    invitation to appear here today and to give you a glimpse of the
    entertainment software industry's new technology.  The Entertainment
    Software Association serves the business and public affairs needs of
    companies that publish video and computer games for dedicated game
    consoles, for personal computers, and the Internet.  Our members
    collectively account for more than 90 percent of the $7 billion worth of
    entertainment software that was sold in the United States in 2005.
    	MR. STEARNS.  Mr. Mitchell, is this part of your presentation?
    	MR. MITCHELL.  Yes, it will be in just a moment.  I will introduce--
    	MR. STEARNS.  Oh, sure.  No, that is fine, that is fine, that is fine.
    	MR. MITCHELL.  If I may take just a moment to set the stage for our
    presentation?
    	MR. STEARNS.  Sure.
    	MR. MITCHELL.  In the 34 years since the Magnavox Odyssey first
    emerged on the market, considered the first home console, our industry
    has grown tremendously.  Estimates place the global video game
    industry at about $27 billion worth of sales of hardware and software
    each year, and perhaps even more remarkably, that figure is expected to
    double to $55 billion by 2009.  Much of this growth is propelled by
    enthusiasm for an entirely new generation of video game consoles, the
    first example of which is already with us and has been for several
    months, and that is the Microsoft XBox 360, which we will be
    demonstrating for you today.  The other new generation consoles which
    will be out later this year are Sony's Playstation3 and the Nintendo
    Revolution.
    	More of the industry's growth, too, will come from the increasing
    popularity of online games and mobile games, particularly in Asia.  As I
    mentioned, the first of the new generation of consoles has arrived and I
    would like to ask ESA's anti-piracy investigator, Tim Tire, to take you
    through the play of an extremely popular racing game called Project
    Gotham Racing.  It is a game that is now in its third generation.  Tim is
    controlling the black car that you see there and the other cars that you see
    on the road are actually being controlled by the Project Gotham software
    program.  However, if we were to take this console live online through
    the XBox Live service, then it would give other players the opportunity
    to join in the game, actually up to seven other players, and they would
    control the cars that Tim is racing against.  Tim, would you like to give
    us a little volume on that, as well?
    	MR. STEARNS.  How fast are the cars going?  Does it have any
    speed?
    	MR. MITCHELL.  There is a mile per hour indicator.  He is at about
    115 now, before breaking, and back down to a more reasonable 80.  I
    should add, too, that the XBox Live service also allows for the download
    of additional cars and additional tracks in addition to multiple player
    game play.  Thanks, Tim.  You can turn that down for just a moment.
    There are also other out-of-game features to the XBox Live online
    service that includes a live messaging service.  An XBox Live subscriber
    can actually invite friends to join in multi-player games, send voice or
    text messages, and initiate one-to-one voice chat with other players all
    without interrupting game play.  You would be able to jump right back
    into your game from the point that you left.
    	There is also a feature called a friends list where subscribers can
    identify which of their friends are currently online and actually view the
    game that their friends are playing at any given time.  There is also a
    feature called XBox Live Marketplace where subscribers can download
    additional game features.  In this case it would involve additional tracks,
    additional cars.  It may also be full versions of arcade-style games, game
    demos, and more.
    	Many are taking advantage of this XBox Live marketplace feature,
    by the way.  Microsoft announced just last week that the ten millionth
    download had been made through the XBox marketplace.  Importantly,
    too, XBox and XBox Live and in fact, all of the new generation of
    consoles will offer enhanced parental controls.  XBox Live offers an
    entire suite of password protected parental controls which are called
    family settings that permit parents to tailor the types of entertainment
    experiences that children are exposed to online as well as in offline game
    play.
    	While Tim is on a roll here, I would encourage him to keep going,
    but I would also like to talk about some of the other technology that has
    been circulating among the panel this afternoon and that has to do with
    handheld game technology.  Nintendo essentially created the handheld
    game device with its tremendously popular line of Gameboy products
    that emerged in 1989 with the original Gameboy and has been succeeded
    since by multiple generations.  Estimates place the number of Gameboy
    units sold at over 120 million.  Nintendo's newest handheld device, it is
    the silver device that is circulating among you up there, is called the DS,
    for dual screen.  When you get a chance to work with the dual screen,
    you may want to take note that the bottom of the two screens is actually
    touch sensitive and it is one of the controllers that you can use in game
    play.
    	Sony has also entered the handheld marketplace in March of last year
    with a revolutionary device called the Playstation Portable or PSP.  I
    believe there are a number of PSPs circulating among you, as well.
    Those are the black devices.  The PSP is capable of displaying still
    images, movies, and audio files stored either on removable disks or on
    memory sticks.  One of the PSPs we are circulating is playing a game
    and the other one is actually playing a full-length feature film, Spiderman
    2.  And so in addition to being a game playing device, it is a movie
    playback device, as well.
    	The PSP is possible because of an entirely new generation of storage
    media called the Universal Media Disc, or UMD.  It is a very small
    encased optical media disk that actually stores 1.8 gigabytes of data and
    makes it possible for it to contain not only a full game, but also a full-
    length motion picture.  Even though the PSP was released last March, it
    only took until the end of the calendar year, first for Sony Studios, but by
    the end of the year, all of the major motion picture studios, to recognize
    that this was a technology that was very much in demand by consumers
    and began making movie content available in this UMD or PSP format.
    These handheld devices also use blue tooth and other wireless
    technologies to enable multi-player game play.
    	 I don't want to put too much of a damper on the party, but I would
    like to make just a couple of policy points, if I may.  The first one being
    that all of these technologies that you have seen demonstrated are
    predicated on the ability to control and regulate access to the game play
    experience, whether it is access to software on disks or other storage
    media or access to servers that contain software or connection
    capabilities.  The technologies that you have seen here and the access
    control technologies make it possible for consumers to get exposed to
    more products than they would otherwise if access control technologies
    were not available.  It makes it possible, for example, for someone to
    download a full version of a game and actually try it for a limited period
    of time or even share it with friends and family or over the Net before
    making the decision whether to purchase that particular game.
    	These technologies provide consumers with enhanced flexibility.  It
    is at the heart of the parental controls that I spoke of just a few minutes
    ago, that allow a parent to regulate their children's access to game
    content.  It allows our industry to open markets that we never imagined
    we would be in before.  Access control technologies are at the heart of
    some of the industry technology that is being used in China right now by
    Nintendo and some of our other companies, as well.
    	Our industry knows how to use this technology and implement it in
    ways that consumers appreciate.  Our products have always been digital
    and so we have always had to combat digital piracy, but we struck upon
    ways of doing it in a manner that does not interfere with consumers'
    enjoyment of legitimately acquired product.  You have helped us to a
    great extent with that by giving us the anti-circumvention provisions and
    other protections that we need to defend our products.
    	And my final message is that we believe these laws are working
    extremely well.  They were well conceived, initially; they continue to
    serve their purpose even when applied to today's technologies.  There are
    effective checks and balances with respect to the anti-circumvention
    provisions.  As a matter of fact, just this afternoon, there is a hearing
    going on at the Library of Congress on the Section 1201 rulemaking
    proceeding, which is one of the vital safety valves that keeps a check on
    whether non-infringing uses are being inhibited by these technologies.
    	We don't believe that any further changes to these laws are
    warranted.  I thank you very much for the opportunity to demonstrate our
    technology and look forward to answering your questions.
    	[The prepared statement of Stevan Mitchell follows:]

    PREPARED STATEMENT OF STEVAN MITCHELL, VICE PRESIDENT, INTELLECTUAL PROPERTY
    POLICY, ENTERTAINMENT  SOFTWARE ASSOCIATION

         Mr. Chairman and Members of the Subcommittee:
         My name is Stevan Mitchell, and I am Vice President for Intellectual
    Property Policy with the Entertainment Software Association.  We are the
    U.S. association dedicated to serving the business and public affairs needs
    of companies that publish video and computer games for video game consoles,
    personal computers, and the Internet.  ESA members collectively account for
    more than 90 percent of the $7 billion in entertainment software sold in the
    U.S. in 2005, and billions more in export sales of U.S.-made
    entertainment software.
         We are entering another dramatic phase in the growth of this young and
    vibrant industry.  Every day we learn more about the promise of a new
    generation of game consoles that bring previously unimagined levels of
    computing power and graphics processing capability to consumers' homes.
         In the 34 years since the release of the Magnavox Odyssey, computer
    and video game sales have grown to over $27 billion worldwide, and are
    projected to double again, to nearly $55 billion, by 2009.  Much of this
    growth will be propelled by enthusiasm for the new generation of video game
    consoles, including Microsoft's XBox 360, Sony's Playstation3, and the
    Nintendo Revolution.
         Still more growth will come from the dramatic expansion of demand for
    online and mobile game play -- particularly in Asia.  The OECD took
    particular note of these growth opportunities in its studies, last year, of
    the Online Computer and Video Game Industry and on Mobile Content.
         Our industry's products were born digital and have always been digital
    - meaning that the industry has always had to stay ahead of digital piracy.
    But we have done so with care and have learned a great deal in the process.
    Entertainment software publishers learned long ago, through experimentation
    with various copy-protection technologies in the 1980s and early 1990s, that
    consumers would vote by closing their wallets for technologies that were
    inconvenient or that interfered with their enjoyment of legitimately acquired
    products.
         Accordingly, entertainment software publishers have learned to employ
    technological protection measures, including digital rights management (DRM)
    and various forms of disc-based authentication, in ways that not only protect
    publishers' investments in their intellectual property, but that enhance
    consumer exposure and promote consumer choice.

    1)	Enhancing consumer choice
    	These technologies make it possible, for example, for consumers to
    obtain full versions of games on a "try-before-you buy" basis - which would
    simply not be possible without the ability to achieve varying levels of
    access to these products.  These technologies even allow sharing of trial
    versions with family, friends, and over the 'Net.

    2)	Expanding consumer features, including parental controls
    	These technologies also increase flexibility for consumers.  While
    parental controls have been a feature of some consoles since 2001, in the
    next generation, all video game consoles will feature parental controls that
    allow parents to control children's access to game and movie content based
    on established industry ratings.  The technology that allows parents to
    permit access to some games but not others is also a variant of the DRM
    technology built into every console and game.

    3)	Opening markets previously believed unavailable
    	Elsewhere in the world, technological protection measures make it
    possible for consumers to enjoy access to games in markets that were not
    previously regarded as viable due to astronomical piracy rates for
    traditional, "disc-bound" copies.  In China, for example, DRM technologies
    are being used by Nintendo to deliver games to owners of its iQue consoles,
    at very competitive price points, in ways that are highly resilient to
    piracy.
    	Also in China, and other high-piracy markets, technological
    features of online games allow publishers to authenticate users and hardware,
    and to control access to the game experience through the sale of pre-paid
    access cards.  So publishers, long plagued by piracy rates exceeding 90
    percent, are actually beginning to see a return on investments made in
    online games and are responding accordingly - including by investing in
    further game development.

    4)	Implementing technology in ways that consumers appreciate
    	There is compelling proof of the appreciation of these technologies
    in the industry's growth - measured not only by the number of games sold
    but by the proliferation of new and successful game platforms.
    	Consider the healthy market we are seeing for sales of handheld
    games.  Last year Nintendo announced having surpassed 10 million units in
    sales of its Dual Screen (DS) handheld device.  And Sony's PlayStation
    Portable (PSP) has successfully launched an entirely new media format for
    games and movies that can now be found on Universal Media Disc (UMD).
    Although the PSP was released last March, it took only until the end
    of the calendar year for all of the major movie studios to begin making
    content available on the new format.
    	At a time when some would argue that consumers are being oppressed
    by DRM technology, our industry provides consumers with an unprecedented
    level of flexibility to determine where, when and how they wish to enjoy a
    full range of digital products - with new delivery mechanisms coming on
    line every day.
    	Our industry continues to drive broadband uptake and adoption of a
    wide range of technology-based consumer products.  Our industry and our
    member companies pledge to keep making compelling entertainment experiences
    available, on an ever-increasing number of platforms.
    	And to do so, they continue to rely on certain baseline legal
    protections, like the anti-circumvention provisions of the DMCA.  We do not
    believe changes to this legislation are warranted.  Adequate "safeguards," to
    the extent they are needed, already can be found within the four corners of
    that legislation.
    	The Copyright Office's Section 1201 Rulemaking obligates the
    Copyright Office to remain vigilant to instances in which non-infringing uses
    of certain classes of works are likely to be adversely affected.  This
    process, we believe, has served as an effective "safety valve" and has been
    administered in a way that has not adversely affected the growth and success
    of the entertainment software industry.
    	Entertainment software publishers invest millions of dollars so
    that consumers are assured of seamless and reliable access to the digital
    products they have lawfully acquired, and that technological protection
    measures do not interfere with consumers' entertainment experiences.
    	The measures that publishers take to furnish access to their
    products are constantly scrutinized, by the consuming public, and through
    healthy competition with one another, over factors including convenience,
    reliability, and ease of use.  To this, U.S. consumers
    have responded favorably, with their purchases of more than two hundred
    million PC and video games each year since 1999 - and those numbers continue
    to grow.
    	We appreciate the tools that Congress has created, that allow this
    industry to protect its technologies and products, while at the same time
    delivering on the expectations of hundreds of millions of satisfied
    customers.  I thank the Subcommittee for its invitation
    to appear here today, and welcome the opportunity to respond to your
    questions.

    	MR. STEARNS.  Thank you and I have given each of you a little extra
    time so you can show your demonstration.  I will start with the questions
    first.  Mr. Krikorian, when I saw your demonstration, I thought to myself
    if some Americans maybe have a second home, why would they need
    cable in their second home?  If they had the ability to get broadband,
    then they could have cable at their second home through their computer
    or possibly tied into their existing TV, and then they wouldn't have to
    pay the $50-$60 a month for cable.  Is that true?
    	MR. KRIKORIAN.  Well, I mean, first off, you probably know a lot
    more people that have second homes than me, but--
    	MR. STEARNS.  Well, let me put it this way.  Could a person do that,
    if they had a second home?
    	MR. KRIKORIAN.  If a person had a second home and they had
    broadband access that they were paying for in their home and they
    wanted to connect back to their primary residence, they absolutely could
    do that.  I think, realistically, if someone has enough money to own a
    second home, they are probably going to want high-definition, they are
    going to want to have a nice, big 80-inch screen.
    	MR. STEARNS.  But some day high-definition is going to come
    through broadband.  Once you get broadband at three million kilobytes
    per second as opposed to DSL, then you will be able to have broadband
    through your computer, you are a third generation wireless, which
    means--
    	MR. KRIKORIAN.  Sure.
    	MR. STEARNS.  So the question I have is don't you think there is one
    of privacy, or don't you think the cable companies are going to get upset
    about that?
    	MR. KRIKORIAN.  Well, I think for the cable company this is a great
    thing if you look at it across the board.  You look at it, number one, from
    a local broadcaster perspective.  This is one of the technologies that I
    think lets them, the local broadcasters, stay relevant in this day and age
    when they are getting bombarded actually by the studios, and the
    broadcasters actually circumventing them.  I think for the cable
    company, let us say I have Comcast in my primary residence and I am
    fortunate enough to have a secondary residence; I think a product like
    this actually is going to help drive their services.  It is going to probably
    get me, let us say there is this three million bits per second service.  Here
    is actually a compelling application why you actually might want to pay
    for it incrementally and get access to it.  So I view it as a very additive
    thing, as well.
    	MR. STEARNS.  Mr. Feehery, we know what the iPod has done for
    music, and Mr. Jobs is going to come out with an iPod for digital movies,
    and someday you are only limited by the possibility of the storage.  So
    that you have here this Sony Playstation2 in front of me, and it has a disk
    in it that I have here and I can watch a movie.  So what is wrong with me
    making a copy of this and putting this in my computer at my office and
    then having a copy that I give to my son or a copy that I have in my
    home.  What is wrong with making a copy of that?
    	MR. FEEHERY.  Well, I think that as you go through this process, you
    want to make sure that the same thing can be said about making a copy
    of anything.
    	MR. STEARNS.  Well, let me just ask you a question.  Do you agree
    with the idea of allowing the consumer, if he has his Playstation that he
    carries around and he goes to a business; he puts it in his pocket; if he
    wants to make a copy of this and leave it with his child or with his wife
    or in his home, do you agree that he should be able to make that one
    copy?  Yes or no.
    	MR. FEEHERY.  It is complicated.  I think that we need to be part of
    that value-chain discussion so that we can offer consumers that choice.
    	MR. STEARNS.  Well, your predecessor, who came here and testified,
    said he didn't want one copy made.  I just want to know if the Motion
    Picture Association is still taking the position that the consumer cannot
    make one copy?
    	MR. FEEHERY.  Well, it is more complicated in the sense that we
    want to make sure--
    	MR. STEARNS.  Well, he was pretty clear.  He put it up and said we
    don't want one copy made.  Is that still your position?
    	MR. FEEHERY.  We want the marketplace to work, so we are giving
    the opportunity through this to provide people with copies if they choose
    to pay for it or not.  I mean, that is what we are working for.
    	MR. STEARNS.  Are you saying you can't make one copy unless you
    pay for it?  That is your position?
    	MR. FEEHERY.  Well, we want to let the marketplace work on that,
    so--
    	MR. STEARNS.  Well, but if you want to make ten copies of this.
    They want to make more than one copy.  We have had people testify that
    CDs, they make more than one copy.  Sometimes they make just one
    copy, but I guess the question is, I am just trying to see.  You have got to
    convince us that not making one copy is your position and that you are
    sticking by it or are you going to say if the marketplace works out that
    you can make one copy by putting a flag on it, you will accept that?
    	MR. FEEHERY.  This is what the marketplace does.
    	MR. STEARNS.  Okay.
    	MR. FEEHERY.  We hope to give consumers those kinds of choices
    and we are working towards that, but I don't think that we can say we
    want to give our stuff away for free.
    	MR. STEARNS.  Mr. Mitchell, Sony's Playstation, which I just
    showed you, do you have any concern about erosion of consumer rights
    in this area, movies and music as well as games.  Are you concerned at
    all about something like this in the software side?
    	MR. MITCHELL.  Not at all, Mr. Chairman.  It is an enabling device.
    	MR. STEARNS.  Okay.
    	MR. MITCHELL.  It enables consumers to take with them their music,
    their photographs, and other media.  It creates more opportunities to
    enjoy those products.
    	MR. STEARNS.  Mr. Denney, in your opinion, has the evolution of the
    Fair Use Doctrine struck the right balance between content protection
    and a consumer's right to enjoy content?
    	MR. MITCHELL.  We think that so far, it has.  There has been a good
    balance.
    	MR. STEARNS.  Okay.  You know, you saw Mr. Feehery, the TiVo
    demonstrations.  They can download TV shows and put it in the TiVos,
    and we are hopefully some day they will be able to do it just like they do
    for the iPod.  Do you see anything wrong with what is occurring that
    way?
    	MR. FEEHERY.  Well, this guy, he is a Giants fan and he is a
    customer.  I am a White Sox fan, but I am not a copyright lawyer.  I
    would say that we understand the importance of consumer convenience
    with the respect of portability as well as remote access.  The key is
    facilitating consumer convenience while ensuring that it does not become
    a shield for infringement or piracy.  MPA is interested in working with
    providers of remote access and time shifting technologies to help ensure
    that safeguards such as identity mechanisms and cryptographic controls
    are in place to strike that appropriate balance.
    	MR. STEARNS.  Okay, my time is expired.  Ms. Schakowsky.
    	MS. SCHAKOWSKY.  Thank you, Mr. Chairman.  Mr. Krikorian, you
    make a big assumption that I actually know how to use my remote
    anywhere and so I guess my question is would you show me how to use--
    no.  And Mr. Denney, when I am at my grandchildren's home, I love the
    TiVo, but again, I am trying to figure out how to get to where I want, so
    that is kind of where I am.  What I wanted to ask, though, Mr. Feehery
    and Mr. Mitchell, of the things that Mr. Krikorian showed and Mr.
    Denney showed, is there problems for you in those, and if there are, I just
    want you to tell us where you see the problem and go ahead.
    	MR. FEEHERY.  Well, like I said before, I am not a copyright lawyer,
    so I don't want to get into the technical difficulties.  We think that there
    are great possibilities to offer consumers, lots of choices.  We want to
    work with anyone that has provided these kinds of remote access devices
    to make sure that we have the proper safeguards in place and we want to
    work with them to make sure that it doesn't lead to greater piracy and
    that is our biggest concern, piracy is a huge problem for industry.  We
    already see what has happened to the music industry.
    	MS. SCHAKOWSKY.  And so I am asking, since we have seen some
    pretty exciting technologies from a consumers standpoint, are you
    looking at those and seeing problems for your industry, and I just wanted
    you to say if there are.
    	MR. FEEHERY.  Well, we want to make sure that the proper
    safeguards are in place and that is our, as we work with these industries,
    make sure that the proper safeguards are in place so that piracy does not
    happen.  So that is what we are working with them on.
    	MS. SCHAKOWSKY.  Well, let me ask Mr. Mitchell.  I will come back
    to you, Mr. Krikorian.
    	MR. MITCHELL.  Yes.  Well, I am a lawyer.  I come from the
    enforcement side and furthermore, the criminal enforcement side, and we
    tend to take a fairly black and white view of these things.  So from a
    perspective of making infringing reproductions, I was quite relieved to
    hear Mr. Krikorian's technology, for example, would only allow access
    by one user at a time, which took away some of the initial concerns that I
    had flagged in my own mind.  Beyond that, we would be happy to
    provide a more detailed analysis.  I am not sure if I could do that for you
    on the fly today.
    	MS. SCHAKOWSKY.  Okay.  Mr. Krikorian.
    	MR. KRIKORIAN.  Just one thing I wanted to point out is I agree with
    everybody on this panel in trying to find a middle ground between
    content and technology, but in all the examples that these gentlemen
    brought up, it is not to their fault, at all.  Those are deals that are done
    with mega-corporation to mega-corporation, Apple and the studios.  And
    one thing that is very important, I hope that you all continue to think
    about the two guys or gals in a garage who are working on some
    innovative technologies and are reliant on some level of fair use so they
    can actually innovate without going and asking for permission in
    advance, because I could never get these types of meetings with folks in
    the studios and the broadcasters, as hard as we actually tried.
    	MS. SCHAKOWSKY.  Well, maybe this will help.
    	MR. KRIKORIAN.  Now we can, which is great and this is helpful, so
    it brings everyone to the table, but it is a difficult thing when you are
    small company and that is where a lot of the true innovation comes from,
    is that garage.
    	MS. SCHAKOWSKY.  Well, let me ask you, I am just curious.  How
    successful has Slingbox and Sling Media been?
    	MR. KRIKORIAN.  Well, when we launched the product and actually,
    it is quite interesting.  We started the company in June of 2004.  By July
    of 2005, 12 months later, we had actually deployed the product in over
    1,000 stores nationwide in Best Buy and CompUSA, which was very
    interesting because you never could build a company like this ten years
    ago.  We are actually using a Sony factory that was sold to a private
    party in Singapore, and it is really interesting how you can virtualize and
    build an organization.  Since then we have expanded into over 3,000
    stores, and while we don't publicly disclose the specific numbers, we are
    now into the six figures of products sold, which is a pretty big deal for a
    small company.  We are fortunate enough to raise our Series B round in
    January, so I have a job for at least another 12 months, I think.
    	 But one thing that was really interesting, when we first started, it
    was very difficult to raise money and we were sort of living under this
    shadow of potential litigation all the time and investors were quite, quite
    nervous about it.  Fortunately enough, we had a few folks that gave us a
    shot and we tried to act very responsibly with some of this one-to-one
    and so forth that we have been able to get to this point, but it is tough
    living under that shadow when you are first starting out.
    	MS. SCHAKOWSKY.  Well, of course, the devil is in the detail, so I
    appreciate, though, the attitude of everybody at this table that we want to
    work out a way that we can satisfy consumer demand and not stifle
    innovation and still protect the products and the creative products that
    you create, so thank you.
    	MR. TERRY.  [Presiding]  Mr. Ferguson.
    	MR. FERGUSON.  Thank you, Mr. Chairman.  I just want to revisit
    one thing.  I do have a couple of questions, but I am sorry Chairman
    Stearns has left, but I just believe that was a false choice that Mr.
    Feehery was being asked to make.  It seems to me that when we are
    talking about making a copy for your use of a video game or something,
    when we are talking about the technology and we are talking about
    legislating, we are not talking, I, anyway am not very interested in
    somebody who makes a copy of their video game for their wife, for their
    child or something.  How do you distinguish between the person who is
    going to make one copy of their video game for their child or their
    spouse or something, and the guy who is going to make 100 copies and
    start selling them on the street corner?
    	 The problem is technology allows both, and if we start going down
    the road of well, it is buy one, get one free, what would happen if you
    bought a car and you said well, because I paid for this car, I am actually
    entitled to a second car.  If that is what happened in the automobile
    industry, you would see two things happen real fast.  Number one, the
    price of cars would shoot up and the amount of innovation and R & D
    that goes into finding new cars would go down really, really fast.  We
    talk a lot about prescription drugs these days.  What happens if you got a
    prescription from your doctor and you went to the pharmacy and you
    bought your drugs and you say well, actually, I know that I am buying a
    month's supply, but I should really be able to have two months' supply
    or a year's supply.
    	It is preposterous to suggest that that wouldn't have an impact.  We
    can have an argument of whether it is right or wrong, but it is
    preposterous to suggest that that would not have an impact on the price
    of those goods and on the amount of innovation and future R & D that
    goes into the development of those goods, so I don't know how one can
    possibly contend that loosening copyright protections will lead to an
    increase in products and an increase in products getting to consumers.
    So I think that needs to be said and I think Mr. Feehery was being put in
    a difficult position to have to answer a yes or no question to a question
    which frankly doesn't have a yes or a no.  It is a very complicated
    question.  I don't know if you want to comment any further.
    	MR. FEEHERY.  Mr. Ferguson, I thank you for that comment.  I
    would say that the fact of the matter is the consumers want to make a
    copy and there is a marketplace for that and we have the critical
    protections in place so it doesn't go crazy and we are giving everyone
    you know thousands of copies if we give them one.  If we have the
    critical protections in place and if the marketplace is allowed to work, we
    will do that, but the fact of the matter is the marketplace has to work and
    we have to have the critical protection technology in place so that it
    doesn't get out of hand and lead to mass piracy that will kill our industry.
    	MR. FERGUSON.  I appreciate that and I am short on time, so I just
    want to get to my questions and that is kind of where I am going.  Just a
    couple of questions for Mr. Denney.  In the past few years, especially
    since the Grokster decision, we have seen an explosion in the amount of
    content that is being made available to consumers legitimately.  We have
    these agreements after agreements after agreements that are being
    worked out.  The market seems to be working, yet folks who are working
    on legal and legitimate content distribution, doesn't better content
    protection lead to more content being distributed to the marketplace
    legitimately?
    	MR. DENNEY.  As we said, content production is an important aspect
    of what we design into the product.  We are conscious of it, we make
    deliberate steps to deter piracy so yes, we do think it is an important
    thing.  Should that be legislated or how should that be implemented, I
    think, it is up to the marketplace to figure out.
    	MR. FERGUSON.  We all seem to be talking about the marketplace
    and people seem to have different definitions of that.  In your testimony,
    you cited several examples of your new partnerships, as well as new
    technologies in the marketplace.  Doesn't this mean the marketplace is
    working?  I mean, you have got agreements that you are working out
    with folks?
    	MR. DENNEY.  We believe that the marketplace is working.  If we
    have a concern, it is access to content, so you can work this out.  So it is
    access to cable signals, it is being able to have access to some of the
    content so you can do innovative things.
    	MR. FERGUSON.  But are you advocating, what are your thoughts on
    some of the legislation that has been introduced and that is being bandied
    about amongst some of the committee here?
    	MR. DENNEY.  Which, I guess, which one in particular or do you
    want me to generally comment?
    	MR. FERGUSON.  Sure.
    	MR. DENNEY.  Okay.
    	MR. FERGUSON.  H.R. 1201.
    	MR. DENNEY.  So we appreciate things that solidify--
    	MR. FERGUSON.  I like what I hear, what I think I hear you saying,
    but where the rubber hits the road, how do you feel about H.R 1201?
    	MR. DENNEY.  Well, again, I am not an attorney.  I can speak to
    some general--
    	MR. FERGUSON.  We are in the same boat on that one.
    	MR. DENNEY.  We believe that, generally, we support things that
    support access to content and fair use.  We have some concerns about
    some specific issues, but in general we are appreciative of things that
    preserve fair use the way it is today.
    	MR. FERGUSON.  I would only suggest, and my time is up.  I would
    think we agree.  We all seem to rhetorically agree that the marketplace
    should be able to handle these things, but the difference is that the sands
    are shifting very quickly because of technology.  Technology is a
    wonderful thing, but technology is enabling incredible new opportunities
    for piracy that, frankly, weren't available just a few years ago and that is
    where, frankly, I have a concern, a number of us have a concern, and if
    the balance is shifting toward enabling and really encouraging piracy, I
    sure don't want to see that pendulum swing any farther in that direction.
    I want to bring it back more towards the center.
    	MR. DENNEY.  We agree, piracy has got to be controlled.  We do not
    advocate piracy.  We work against it.  We think that the content
    providers in the market have tools, such as Grokster is an example,
    where the court decided it was making the distinction between people
    who encourage piracy and technology that could be used for other
    purposes.
    	MR. FERGUSON.  Technology is fast, courts are slow.
    	MR. DENNEY.  I agree.
    	MR. FERGUSON.  It would be nice if we had some understood rules
    of the road that everybody had to live by from the beginning rather than
    having to adjudicate and go through a court battle every time we had a
    disagreement.
    	MR. DENNEY.  Agreed, but they do create guidelines; when we make
    product decisions, we adhere to what we believe those guidelines to be
    and we take particular steps.  And one other comment about, you had a
    question about other legislation that is pending.  One comment that I did
    want to make is about analog.  In general, the legislation that is pending
    is not something we advocate, and we believe it doesn't work for the
    consumer.  There are concerns about access to signal, there are concerns
    about its impact on the ability to innovate around content.  And that said,
    we are completely open to working out what the correct solution is, so
    the forum to do that, I think, is within the industry.
    	MR. TERRY.  Ms. Baldwin.
    	MS. BALDWIN.  Thank you, Mr. Chairman.  As we look to the future
    of digital rights management technology, one thing that has struck me is
    that there are so many different DRM standards that exist in the current
    market.  For example, a TV show downloaded from iTunes is not going
    to work with Real Video streaming software.  Recently, Sun
    Microsystems, Incorporated announced a project called the Open Media
    Commons Initiative, which is aimed at creating an open source, royalty-
    free, digital rights management standard.  I am going to ask this to any of
    the panelists who wish to comment.  I would like to hear your comments
    generally on such a DRM model and also, do you think that such an idea
    could still fully protect the rights of content owners, and why don't we
    start with you, Mr. Krikorian?
    	MR. KRIKORIAN.  Yes.  First off, I think you are hitting the nail on
    the head.  This is one of the most critical things and items and personally,
    I don't think it is being addressed.  You see what Apple has now done
    and they have created a DRM that is very proprietary and ties the content
    and the consumer to Apple-only products.  That is definitely not a free
    market effort and with their strong stranglehold on the industry.  Let us
    say I wanted to make a distribution product in the home to be able to
    stream my content around legally and securely, so forth.
    	I can't get access, as a company, into that DRM, so I believe the
    notion of an open DRM that is truly interoperable across many, many
    devices makes a heck of a lot of sense.  I mean, at the end of the day the
    devil is in the details and the execution in making sure it is truly robust,
    but we are going to see a lot of consumer backlash, I believe, in the next
    couple of years, of people who have bought stuff from iTunes and they
    don't quite understand all the limitations that come with that content.
    And again, it is not the studio's issue at all, it is Apple's, keeping
    everyone focused just on their products alone, and that will definitely
    stifle innovation, there is no question in my mind.
    	MR. FEEHERY.  Boy, I am really glad you said it wasn't the studio's
    thing.
    	MR. KRIKORIAN.  It is not.
    	MR. FEEHERY.  Just talking to some of our folks, I think that this is
    something that with the risk of not getting into too much detail, I would
    say that this is something that we would like the marketplace to work out
    right now and I think that is where we are.  I wasn't talking about that
    particular thing in this hearing, but I think that where we are is let the
    marketplace work itself out.
    	MR. KRIKORIAN.  Just one other thing.  I wish the studios and the
    broadcasters actually, in terms of the marketplace deciding, I wish that
    they would actually push that and require that whenever they do a deal.
    They say look, this has to be open DRM standard because I think
    unknowingly what is happening, is that they are creating another cable
    monopoly but they don't quite understand that.  So I would urge
    marketplace perspective, that the broadcasters and the studios actually go
    and require that when they do deals.
    	MR. FEEHERY.  The most important thing for us is protecting our
    content so it doesn't lead to mass piracy, but other than that I think for
    these particular things, let the marketplace work itself out.
    	MR. DENNEY.  In general, we are supportive of the concept of Sun's
    proposals, the exact right solution.  I think interoperability is a big issue
    that as time goes along, consumers are going to be burdened with
    navigating and we are generally supportive of protecting content, so we
    think that is the right thing.  We agree that some proprietary protection
    schemes out there are basically impossible to work with, so you will
    never be able, as an innovator, you will never be able to break into that
    realm, so that is a concern that we have.
    	 We are actually, in our next generation, the Series 3 box that we
    announced in January, we are going to support Windows Media DRM as
    part of that box, and we are doing it because it is something that we
    actually have the ability to license and is used in the marketplace
    generally widely, but it does mean that we license that from Microsoft,
    so we will be tied to Microsoft's terms and conditions for that.  Not
    saying they are overly onerous, but I think the idea of interoperability is
    something that consumers are going to have to grapple with as time goes
    along.
    	MS. BALDWIN.  Mr. Mitchell, did you wish to comment on that?
    	MR. MITCHELL.  No.
    	MS. BALDWIN.  All right, I yield back.
    	MR. TERRY.  Thank you.  Mr. Mitchell, did you provide these for the
    committee's observations?
    	MR. MITCHELL.  We did.
    	MR. TERRY.  Well, on behalf of the committee, we will have to mark
    these as exhibits and keep them.  I don't know if you understood that at
    the beginning.  Not really.  But there are several of us on here that have
    already purchased those types of equipment.  But I guess the ultimate
    question, and Chairman Stearns has hit on it, but I want to ask it more
    succinctly and plainly to everyone up here, from your unique
    perspectives in the marketplace, both with TiVo and Sling, various
    niches and then Mr. Feehery representing, kind of, the big dog producers
    here, you said that right now the marketplace is kind of taking care of it,
    but we keep hearing that perhaps we need to tweak laws here and there
    by various parties with various interests.
    	 I am just curious to hear from you whether or not you think that
    Congress should act in some certain way, and you fill in the blank.  What
    would you tell us that we need to do to make sure that we protect both
    content and consumers' rights?  And I guess what I will say, to frame it a
    little bit more is doesn't it seem like Congress helped create the PSP or
    the new XBox 360s or the new PS3 that will come out eventually, twice
    delayed now, but we won't get into that because that is just saving me
    whatever they are going to sell it at in the market.  So it doesn't seem to
    me that Congress needs to interfere with anything right now, but at least
    with content protection, we are constantly being told that we need to.
    What do you think, Mr. Krikorian?
    	MR. KRIKORIAN.  I think, and I wish I could give you a very specific
    item, but I think in general, you need to help preserve or keep a
    marketplace, if you will, or an environment where innovators can work
    under the fair use provisions to truly innovate without going and getting
    advanced approval.  So let us take something specifically--and I am not
    an attorney, but when I look at the DMCA as it has been described to me,
    let us say I could make a product right now where I could make one copy
    of a DVD and I could specifically make sure that that could be audited,
    and I would allow only the person who bought the DVD to make one
    copy and put it on, let us say, another display device like a cell phone.  It
    doesn't even matter whether that is fair use or not.  Basically, I have now
    violated the law.  I have violated, I have circumvented encryption to
    actually make that work and so that is what is particularly troubling to
    me, is just having hard and fast rules sometimes, I think, prohibit that
    innovation because you can't possibly make a hard and fast rule because
    no one could possibly think what is coming down in the future.
    	MR. TERRY.  Mr. Feehery, I am interested in your answer,
    particularly.
    	MR. FEEHERY.  Well, I would say that, in our view, greater content
    protection leads to greater innovations in the marketplace because it
    gives us a chance to get our content to more eyes in more different ways
    and look at what happened to DMCA and the direct development of the
    DVD and how many people now enjoy DVDs because of what happened
    to DMCA.  I think that two things that we would really like, because
    Congress mandated that digital television, that we have broadcast flag
    and analog hold was the two things that we have asked for and that
    means with greater content protection there will be more consumer
    choice and more products that people can view our content on, which is
    ultimately our goal.
    	MR. TERRY.  Mr. Denney, you had partly answered that question in
    your discussion with Mr. Ferguson.
    	MR. DENNEY.  Yes.  So just to follow up, we think generally things
    are working the way they are today.  We are not asking for
    modifications.  We would be a little concerned about mandating a
    particular technology in the marketplace, so mandating a certain DRM or
    some other technology, which I think creates the environment where you
    have to go ask permission or you are basically, you are forced to
    innovate down a certain path, so we would have concern about that, but
    in general, we think things are working the way they are today.
    	MR. TERRY.  Mr. Mitchell.
    	MR. MITCHELL.  Thank you.  First, if I can have just a moment to
    respond to Mr. Krikorian.  He said that a hard and fast rule against
    circumvention was likely unworkable and I think Congress had
    anticipated that within the four corners of the DMCA by creating the
    Section 1201 rulemaking, and I would suggest that the appropriate forum
    for his issue is that proceeding, which is a recurring proceeding; it comes
    up every three years and it gives the opportunity to basically issue
    exemptions to this or to any particular prohibitions.  Hearings are going
    on now.  Brewster Kahle, when he was seeking an exemption for his
    Internet archive enterprise, went to the copyright office and in fact, was
    issued an exemption, which he continues to make use of today.  So I
    think the mechanisms are there to permit that flexibility without opening
    up the book on the law, itself.
    	MR. TERRY.  Thank you.  Should I go to--
    	CHAIRMAN BARTON.  Has Mr. Gonzalez been recognized?
    	MR. TERRY.  You would be next, but you are the Chairman of the
    full committee.
    	CHAIRMAN BARTON.  No, no, no.  We alternate.
    	MR. TERRY.  Mr. Gonzalez is recognized.
    	CHAIRMAN BARTON.  After his snide remarks at full committee this
    morning, he still deserves the right of recognition before I do.
    	MR. GONZALEZ.  Thank you for saying that, Mr. Chairman.  I did
    appreciate that.  But that has been my quote from the day that I got that
    operation, so it wasn't anything.  I know that my colleague, Mr. Terry,
    said that Congress didn't have anything to do with the invention of the
    PSP.  I want you all to know that Al Gore had one of these 20 years ago.
    You have to have a sense of humor.  He didn't know how to use it, but
    he had it.  Anyway, why not get in trouble with both sides of the aisle?
    	Mr. Krikorian, I think you indicated that if you are in New York, you
    have got your laptop, y one user at a time can log in back home, right?  It
    is not going to be like everyone in the dorm is going to be logging into
    that one student's, right?
    	MR. KRIKORIAN.  Correct.
    	MR. GONZALEZ.  Because that was a concern and is a curious one.
    And I think that it was Mr. Ferguson who was talking, and we are talking
    about piracy devices and so on, and copyright and patents and all of that,
    yet there are other things that occur as a result of technology and the
    advances and the products that you are already discussing.  And there
    was a story regarding Sling, and I am going to go ahead and read a
    couple of the quotes, and I am not even sure where we end up with this
    particular issue and I am not saying that it is going to be this committee
    or Judiciary or wherever it is, but this is the quote from the Wall Street
    Journal.  "The TV industry has long been alarmed about the problem of
    digital piracy on the rise now, that more viewers watch shows via the
    Web, iPods, and cell phones.  The concerns about the industry's
    geographic structure are a newer and more complex issue.  Geographic
    lines that have held certain parts of the TV business together are being
    eradicated into big concern."
    	Then the other quote, this is an analysis: "The whole business model
    in the broadcast industry is based on geographic exclusivity.  The
    potential use of the Slingbox fractures that."  How do you see the
    consequences of devices of the type that you have out there in the market
    impacting the way we do business now and broadcasters and such?
    	MR. KRIKORIAN.  Right.  I am really glad you brought that up.  The
    funny thing was the day after the writer wrote that I had the opportunity
    to meet with her and walk her through, and the funny thing was, she
    flipped all the way around and realized that what we are doing is
    probably the best thing since sliced bread for the local broadcasters.  So
    let us pretend for a second that you are a local broadcaster, okay, let us
    say you are KORN TV in San Francisco and I live in San Francisco.
    What the Slingbox does is it gives you, that broadcaster, the ability, a
    longer leash, if you will, to reach me on more displays and more places
    than you ever could.  So let us go in sort of concentric circles.  In the
    home, you have continued to lose me as a customer because I am
    spending more time on the Internet.  What the Slingbox does is let you
    get your content to me on these displays where you have lost me.  Now I
    am sitting in the office place in my cubicle.  I am still in the same
    geographic area.  And so what now is happening is that you are able to
    reach me, another ten hours a day that you never could reach me before.
    Now, let us go ahead and say that I am also a Nielsen household, okay?
    	MR. GONZALEZ.  Okay.
    	MR. KRIKORIAN.  And one of the arguments that I hear right at the
    very beginning, someone says well, that is good that you are able to
    reach me, but you are not getting credit.  That is not true, at all.  If I am a
    Nielsen household, what ends up happening, let us say I had a set meter,
    as an example.  The Slingbox fits in very synergistically with that whole
    system, so now I am watching it on my display at the workplace.  That
    meter is running even more.  You are getting more and more and more
    credit.  So now let us say, for example, that now I am in Washington,
    D.C. in a hotel room, like I was today, watching my KORN back home.
    One of the arguments could be well, this is a bad thing because the local
    D.C. affiliate is not being able to be seen in the hotel room.  Well, first
    off, that local affiliate is not getting any credit from me watching it in the
    hotel room, anyway; that is one of the flaws in the whole Nielsen system;
    whereas, I am watching my local KORN back home, they are getting
    credit.  And then if you really looked at it from an advertising
    perspective, anyways, I am watching a Toyota ad back in San Mateo.
    What is more effective, for me to watch that Toyota ad when I am sitting
    here in D.C. because I might buy the Toyota on the weekend, or is it
    better for me to watch a Washington, D.C. ad?  So I think what is
    happening is we get down to this and what people end up realizing is this
    is actually a good thing, but historically it is bad because you are
    questioning the geographic boundaries and just historically, emotionally,
    it is a bad thing.  But if you will look at it economically, I do think it is
    very additive thing.
    	MR. GONZALEZ.  Well, it must be in its infancy stage as far as the
    debate itself and I appreciate your views on it and your explanation,
    because I found it somewhat confusing because I thought it could be an
    advantage, but like I said, it remains to be seen and we will hear from the
    other side on this.  But my time is up and I thank you.
    	MR. TERRY.  Chairman Barton.
    	CHAIRMAN BARTON.  Thank you.  I appreciate the hearing being
    held today.  I know Chairman Stearns is not here in the room at the time,
    but I do appreciate that.  My first question, I am trying to understand
    what the Slingbox really does, since I have never seen one.  Do you have
    to have your TV on, the home TV, the base TV?
    	MR. KRIKORIAN.  No, you don't.  In fact, you don't even necessarily
    have to have a TV plugged in to it.  So you take the Slingbox, put it in
    your home, plug your TV signal into it, your satellite, your cable, your
    over the air, whatever, connect it to your home network and then
    wherever you happen to be you can watch your TV.  In fact, if you can
    switch over to the display right now, I have to--
    	CHAIRMAN BARTON.  That is okay.  I just--
    	MR. KRIKORIAN.  Well, just--
    	CHAIRMAN BARTON.  So what you do is transfer the home signal?
    	MR. KRIKORIAN.  Correct.
    	CHAIRMAN BARTON.  Okay.
    	MR. KRIKORIAN.  Right, we ship the home signal.
    	CHAIRMAN BARTON.  Okay.
    	MR. KRIKORIAN.  I am watching my TV right now, if you look up on
    the screens.  This is my TV.  I promise I haven't been watching it the
    whole time.
    	CHAIRMAN BARTON.  Oh, that is okay.
    	MR. KRIKORIAN.  And I can go ahead and change the channel and do
    whatever I want.  I just said watch CNN and I am tuning to CNN.  This
    is my TV signal live at my house in San Mateo right now on a laptop you
    provided me.
    	CHAIRMAN BARTON.  Now, we have had several hearings on this
    general concept of fair use versus copyright protection over the last
    several Congresses and it is no secret that I am a co-sponsor of Mr.
    Boucher's Fair Use Bill, which we still have hopes to move this year.  I
    don't know who to ask this question to, probably Mr. Slingbox down
    there, since you developed this technology.  Is it possible to have a
    technological solution to fair use so that we can protect the legitimate
    copyrights of the content providers that the Motion Picture Association
    represents, but yet let average consumers make a copy or two of
    particular video or a music CD that they wish to?  Is there a
    technological solution that can allow what Mr. Boucher and I call fair
    use, but not give a commercial application to somebody that wanted to
    pirate dozens or hundreds or thousands of tens of thousands of the same
    CD or video?
    	MR. KRIKORIAN.  I think if you set forth certain rules, for example,
    to say that the consumer has the right to make one copy of a DVD or
    what have you, I believe that you can come up with a technological
    solution to address that.  To look at blanket technological solution that
    can address all possibilities that we don't even know if it is going to
    come down the pike, I think that is a pretty difficult thing.  But
    unfortunately, I don't know as much as I probably need to.  Ask me in
    another couple of months.  I seem to be spending a lot of my time
    worrying about this.
    	CHAIRMAN BARTON.  Mr. Denney, how would you answer that
    question?
    	MR. DENNEY.  I would say that the beauty of technology is anything
    is possible.  Would it be to consumer satisfaction and is it viable in the
    marketplace, is something I think we would have to look at a little more
    closely to give you a solid answer.  We can go on the record if you want.
    But I think, certainly, there is a possibility of having such an
    environment.
    	CHAIRMAN BARTON.  And, Mr. Feehery, you raised your hand.
    	MR. FEEHERY.  I would say that--
    	CHAIRMAN BARTON.  Are you going to surprise me and semi-agree
    with me?
    	MR. FEEHERY.  Well, I would say that because of DRM and the
    marketplace, it is already happening.  In England, UA and Universal
    made a deal.  They get three copies for just the price of one DVD.  So the
    marketplace and the--
    	CHAIRMAN BARTON.  So your solution is to just give them three
    copies from the beginning.
    	MR. FEEHERY.  Well, to give them the ability to make three copies.  I
    think that the marketplace is working and I think, as Mr. Denney says, if
    given the chance to work, we can make this work for consumers who
    want it.
    	CHAIRMAN BARTON.  So you are saying that one of your companies
    has signed an agreement that has in the original video the ability that it
    can be copied twice.  Is that what you are saying?
    	MR. FEEHERY.  What it says is that they get three copies for the price
    of just over one.  I am not sure of the technicalities of it, if you do it
    yourself or if they give you three copies.  Mr. Chairman, what I would
    like to do is--
    	CHAIRMAN BARTON.  Well, that is a big difference.
    	MR. FEEHERY.  I know.  I understand.  I understand that.
    	CHAIRMAN BARTON.  I mean, if you sell a CD or a video that you
    can copy twice and it works, that is a technical solution as opposed to
    giving them a coupon.  If you want a couple more copies, turn the
    coupon in and we will give you two more copies.
    	MR. FEEHERY.  My understanding of what has happened is you get
    one copy on the DVD, one copy on your computer and one copy on a
    portable for just over the price of a DVD.  And what I would like to have
    happen is that our company, at some point in time, could come and talk
    to you about all the things that are happening technologically in the
    marketplace and where they plan on going, because I think that there is
    ways to make this work without a government mandate.
    	CHAIRMAN BARTON.  All right.  Mr. Mitchell you are the only
    hardware guy here, and I haven't given you a chance.
    	MR. MITCHELL.  Thank you, Mr. Chairman.  I actually represent the
    software side, but we did bring along our hardware to be able to
    demonstrate our software.  We believe that there are some real problems
    with running together at high speed.  What was originally understood to
    be two entirely separate bodies of law, copyright law on one hand and
    the law against circumvention of technological protection measures on
    another.  We think that some unintended consequences could come from
    depending on one at the same time, or looking for violations of both and
    only enforcing violations of both.  The reason is because we know,
    probably better than anybody in the video game business, that there are
    real economic incentives out there for bad actors who would otherwise
    be producing infringing reproductions of our software to produce
    circumvention devices that will enable pirated games to be played on
    video game consoles.  There are some very advanced technologies that
    are built into video game consoles, that are built into video game
    software, such that if you were to download a pirated version of a piece
    of video game software and put it in the console there, that X-Box 360,
    the X-Box 360 would recognize it as an infringing copy.  It would fail to
    play it.  And so being the arms race that it is, some enterprising
    entrepreneurs have created devices, not for the 360, but for other video
    game consoles that actually allow for the play of pirated games.  They
    are called mod-chips.  They are circumvention devices.  These are
    devices that are clearly prohibited by the DMCA.  They sell for about
    $40 or $50, and why not?  Because once you have voided your warranty,
    once you have soldered this chip into your console, the whole world of
    pirated games become available to you.  And so there are real economic
    incentives to produce a circumvention device, even though I may never
    have an underlying copyright infringement.
    	CHAIRMAN BARTON.  If I may reclaim my lapsed time, we are not
    trying to circumvent anything, this committee.  We are trying to get a
    law that is workable that protects your copyright and your software, but
    also allows the consumers of America to make one or two copies for
    personal use and do it legally, and that is more like my original question,
    is there a technological solution?  You know, right now we don't have a
    political solution, but if we at least started with the premise that we could
    have a technological solution, we might get a political solution, that is
    all, and no one on either side of this issue wants people to buy the device
    that you just mentioned and use it so that they can run pirated games or
    videos or whatever.  I don't think there is any support on either side of
    the aisle or in any committee in Congress for that.  That is not what this
    hearing is about.  We are totally with you on trying to prevent that.  Mr.
    Chairman, I am going to yield back my time, but thank you and thanks to
    the panelists for being here today.
    	MR. TERRY.  Mr. Chairman, you were last Member, so if you would
    like a second round of questioning, you are entitled.  With that, I will
    thank all of you for spending your afternoon with us.  It has been very
    interesting as well as educational, and we now stand adjourned.
    	[Whereupon, at 2:46 p.m., the subcommittee was adjourned.]

                          DIGITAL CONTENT AND ENABLING
                        TECHNOLOGY:  SATISFYING THE 21ST
                                 CENTURY CONSUMER

                              WEDNESDAY, MAY 3, 2006

                            HOUSE OF REPRESENTATIVES,
                        COMMITTEE ON ENERGY AND COMMERCE,
                         SUBCOMMITTEE ON COMMERCE, TRADE,
                              AND CONSUMER PROTECTION,
                                                             Washington, DC.

            The subcommittee met, pursuant to notice, at 2:00 p.m., in Room
    2322 of the Rayburn House Office Building, Hon. Cliff Stearns
    [chairman] presiding.
    	Members present: Representatives Stearns, Bono, Terry, Murphy,
    Blackburn, and Schakowsky.
    	Staff present: Will Carty, Professional Staff Member; Chris Leahy,
    Policy Coordinator; David Cavicke, General Counsel; Consuela
    Washington, Minority Counsel; Alec Gerlach, Minority Staff Assistant;
    and Billy Harvard, Legislative Clerk.
    MR. STEARNS.  The subcommittee will come to order and I think we
    will go ahead and start.  The Ranking Member is on her way and we
    have other Members that have things we have to sandwich in together, so
    good afternoon.  Today we continue our look at the future of digital
    content, new media distribution channels, and what all of this means for
    the consumer.  That is what we are here today to talk about.  In part two
    of our hearing, we will focus our attention to the audio and software side
    of the issue.  I realize it has been over a month since our first hearing on
    digital content and a lot has happened just over the past few months.
    	Apple celebrated its billionth download, a number of content and
    device companies announced a new string of deals, and the market has
    continued to excite us with new gadgets and innovative content almost
    weekly it seems.  I am excited to get back into this issue and hear from
    the distinguished group of experts from the digital device and content
    communities that are here before us today.  Interestingly enough, Apple,
    a company with a great story to tell in this area chose not to join us this
    afternoon.  Obviously, I am disappointed, as a legislator and a long time
    Mac user.  I think I am one of the few.  There are only three or four of us
    in the Senate and House, out of 535 Members here in Congress that use
    Mac today, so I am very disappointed.
    	This is not an investigation.  I think they thought it was an
    investigation; it is not.  And when I talked to their counsel, they said that
    they just did not want to participate for any reason and so they were
    pretty adamant about that, and I tried to tell them that it is just an
    opportunity for them to talk about the digital revolution that is quickly
    changing our marketplace, and to talk about devices.  There is nothing
    proprietary that we are divulging here, but I could not convince them.
    	I would like to sincerely thank those folks, that have come, for their
    openness and assistance in helping us better understand the implications
    of new digital content and the distribution technology for the American
    consumers that exist today.  You are doing all of us and the public a great
    service by joining us this afternoon.  I think Ms. Schakowsky should be
    here momentarily, but I think, at this point, I will let the gentlelady from
    Tennessee give her opening statement, Mrs. Blackburn.
    	[The prepared statement of Hon. Cliff Stearns follows:]

    PREPARED STATEMENT OF THE HON. CLIFF STEARNS, CHAIRMAN, SUBCOMMITTEE ON
    COMMERCE, TRADE, AND CONSUMER PROTECTION

         Good afternoon.
         Today we continue our look at the future of digital content, new media
    distribution channels, and what all of this means for the consumer.  Part
    two of our hearing series will focus our attention to the audio and software
    side of the issue.  I realize it's been over a month since our first hearing
    on digital content and a lot has happened over the past few months -- Apple
    celebrated its billionth download, a number of content and device
    companies announced a new string of deals, and the market has continued to
    excite us with new gadgets and innovative content, almost weekly it seems.
    I'm excited to get back into this issue and hear from the distinguished
    group of experts from the digital device and content communities before us
    today.  Interestingly, Apple, a company with a great story to tell in this
    area, chose not to join us today.  I must say I'm disappointed as a
    legislator and a long-time Mac user.  Please understand this is not an
    investigation it is rather an opportunity for members to learn about a
    digital revolution that is quickly changing the nature of the device and
    content market.  I therefore again would like to sincerely thank you all for
    your openness and assistance in helping us better understand the implications
    of new digital content and distribution technology for American consumers.  You are doing us and the public a great service by joining us this afternoon.
         With that, I would like to turn to my friend and colleague, the ranking
    member, Ms. Schakowsky for a few words.  I also would like to encourage
    members to allow us to go straight to our panel unless a member did not offer
    a short statement at part one of our hearing series would like to do so now.
    I also would like to remind members that all statements can be included in
    the record and that statement time is always added to question time if you
    chose not to use it when called.
         Thank you and welcome.

    	MRS. BLACKBURN.  Thank you, Mr. Chairman.  I do want to thank
    you for holding this hearing and for your attention to the issue of digital
    content and technology that helps enable that content.  I want to thank
    the entire panel for being here with us today, for submitting those
    testimonies to us, but I especially want to thank Bob Regan, who is the
    president of the National Association of Songwriters International.  As
    co-chairman of the Congressional Songwriters Caucus, I believe that it is
    important that our songwriters have a voice here on Capitol Hill and
    having Bob be here today for our hearing is significant, and I appreciate
    his efforts.
    	A little bit about him.  He is an accomplished songwriter and you
    may recognize some of his credits, which include Keith Urban's hit,
    "You're Everything," and for an old man like the Chairman, he might
    remember Billy Ray Cyrus' song "Busy Man."  Tricia Yearwood--he
    wasn't listening.  He didn't catch that.  Tricia Yearwood's "Thinking
    About You," and Reba McIntire's "Til Love Comes Again."  Thank you
    for coming today, Bob.  I am thrilled that you are here and appreciate
    your time.
    	There are several issues that are important that we should be
    considering today and as we go through looking at the digital content
    issue.  Congress gave the satellite services a compulsory license to
    perform music so that subscribers could listen to it.  Sometimes in this
    discussion we forget where we began.  At last week's Senate hearing, the
    witnesses were asked whether new devices used by these services go
    beyond the law because it enables your subscribers to cherry pick songs
    and build a library of music, making what some believe the law calls a
    distribution of the work.
    	Victoria Shaw, a songwriter from Nashville, spoke for a great many
    of my constituents and a great many artists all over this country when she
    noted that this new device used by the satellite industry is not merely
    designed to play music, but to distribute that music, as well.  It seems
    more similar to an old iTunes download or a record sale and she rightly
    seeks fair compensation for the distribution.  I think her quote at the
    hearing summed it up very well for these artists who are behind the scene
    and don't enjoy the popularity of most performers, but are integral to the
    creative process.  And her quote, "I don't tour.  I make 9.2 cents a song,
    that is a song.  That is how I feed my children.  I am the parent that
    works out of the house."
    	Mr. Chairman, my State is home to some of the most creative
    songwriters and artists in the world.  They are entitled to be paid fairly
    when their music is used according to the law, and from what I have
    learned, this new device is terrific, but many believe it is not just a
    performance device.  I know the companies involved in the process are
    negotiating to address this issue and I know my constituents who would
    like to see closure on this issue.  I look forward to the testimony of the
    witnesses; I look forward to the opportunity to ask some questions of the
    witnesses; and I hope that we can agree to explore both protecting
    content while providing new platforms for artists to distribute and market
    their product and send a message to the world that we are serious about
    protecting creative content.  I yield back.
    	MR. STEARNS.  I thank the gentlelady and I think we will move right
    to the panel since we have no more opening statements.  We have Mr.
    Gary Parsons, Chairman of the Board of XM Satellite Radio; Mr.
    Michael Ostroff, General Counsel and Executive Vice President,
    Business and Legal Affairs, Universal Music Group; Mr. Dan
    Halyburton, Senior Vice President and General Manager, Group
    Operations, Susquehanna Radio, on behalf of the National Association of
    Broadcasters; Mr. Robert Regan, President of the Board, Nashville
    Songwriters Association International; and Mr. Jeffrey Lawrence,
    Director, Digital Home and Content Policy, Intel Corporation.  Thank all
    of you for being here and Mr. Parsons, we will start with you.

    STATEMENTS OF GARY PARSONS, CHAIRMAN OF THE BOARD, XM SATELLITE RADIO;
    MICHAEL OSTROFF, GENERAL COUNSEL AND EXECUTIVE VICE PRESIDENT,
    BUSINESS AND LEGAL AFFAIRS, UNIVERSAL MUSIC GROUP; DAN HALYBURTON,
    SENIOR VICE PRESIDENT AND GENERAL MANAGER, GROUP OPERATIONS, SUSQUEHANNA
    RADIO, ON BEHALF OF THE NATIONAL ASSOCIATION OF BROADCASTERS; ROBERT REGAN,
    PRESIDENT OF THE BOARD, NASHVILLE SONGWRITERS ASSOCIATION INTERNATIONAL; AND
    JEFFREY LAWRENCE, DIRECTOR, DIGITAL HOME AND CONTENT POLICY, INTEL
    CORPORATION

    MR. PARSONS.  Thank you very much, Mr. Chairman.
    	MR. STEARNS.  Just pull the mic up a little closer to you and I think
    they are on.
    	MR. PARSONS.  Is that better?
    	MR. STEARNS.  Yes, okay.
    	MR. PARSONS.  Thank you very much, Mr. Chairman and members
    of the subcommittee, and thank you for inviting XM to speak on behalf
    of the satellite radio industry, our customers, and actually, more broadly,
    to defend consumers' rights to enjoy radio content for their own personal
    use.  We believe it is possible to promote consumer rights and at the
    same time to protect the interests of content owners because we are a
    company that has been built by both.  We hope to grow the music
    industry by enhancing the discovery of music by our 6.5 million
    subscribers, and that is actually 13 to 15 million listeners across the
    country.
    	We are excited about our potential at XM, but we are still an industry
    in its infancy.  We will only succeed by keeping our existing listeners
    happy and by attracting new subscribers going forward.  Today, XM
    Radio subscribers pay approximately $120 per year to listen to over 170
    channels of entertainment, sports, news, talk, and other programs,
    including 69 channels of commercial-free programming.  Until recently,
    most of our subscribers heard their favorite programs only at home or in
    their cars; they wanted more.  They wanted the ability to enjoy the
    service wherever or whenever they had a chance to listen.
    	So we have launched these new radio devices that give the
    subscribers the portability that they sought, the opportunity to store up to
    50 hours of programming from XM and the opportunity to purchase
    additional music tracks, even entire albums with ease from the new legal
    Napster on line music service.  Offering a convenient way to buy music
    that is heard on XM is important to us.  Our research shows that XM
    subscribers buy more music and over time buy a broader range of music
    and attend more concerts than most music consumers.  We built our
    entire business in compliance with the laws that the music industry
    supported.
    	Today, the music industry gets paid twice for the music that our
    subscribers enjoy.  First, through the royalties that we pay under Section
    114 of the Copyright Act of 1998 and then a second time, through the
    royalties paid under the Audio Home Recording Act, which go to the
    songwriters, among others.  Under current law, we already pay more than
    any other company in copyright sound recording performance royalties,
    annually generating tens of millions of dollars in revenue for the music
    industry.  In fact, we are about to enter a new round of negotiations to
    determine the new performance royalty rates for the next five years.  But
    even under the current rates, satellite radio royalties to labels and artists
    would be in the hundreds of millions of dollars over the next five-year
    period.
    	Additionally, we will pay songwriters and music publishers hundreds
    of millions of dollars, as well, with our ASCAP, BMI, and CSAC
    licenses.  And as the newest radios are just starting to roll out, if they are
    successful, this would generate tens of millions in additional royalties
    through the Audio Home Recording Act.  Our new devices let consumers
    do the same thing that many of us have all done for the last 50 years with
    the convenience of digital technology.  If a song comes on the radio you
    simply hit a save button right in the middle of the unit, just like recording
    off of FM radio.  You can hear that song again later, if you want to.
    	You can set the radio by hour and channel to record at a given time,
    just like TiVo allows you to time shift your favorite TV shows, so for
    example, if you or your staff were busy at ten o'clock this morning when
    the debut of Bob Dylan's new show on XM came on, you can set the
    radio by time and channel to record it and listen later at your
    convenience, or if you could have saved a late night West Coast baseball
    game last night to enjoy this morning.  This traditional fair use activity is
    well known to all of you.  In the analog era, we used to do it with reel-to-
    reel tape recorders, cassette tapes, VHS tapes.  Now, in the digital age,
    satellite listeners and TiVo owners use new technology to do it more
    conveniently.
    	But making it easier does not necessarily make it illegal.  Let us be
    clear about what the devices do not do.  A song saved on the radio is
    locked to the device.  It can't be moved, it can't be copied to another
    device.  It can't be burned to a CD.  It can't be e-mailed to a friend.  It
    can't be put out on the Internet; all of the things that you do if you
    actually own a property.  You can hear it only as long as you are an XM
    subscriber and only on this individual personal radio.  You can't get what
    you want immediately when you want it.  An XM subscriber can only
    save a song on this device when and if an XM disc jockey has decided to
    play it.
    	In the past, Congress has rejected similar complaints to the ones that
    are being voiced today, the same complaints that seem to be raised every
    time a new technology emerges.  But striking the right balance between
    the rights of users and rights of content owners, Congress gave
    entrepreneurs the freedom to innovate, which gave consumers, in turn,
    the right to purchase VCRs, TiVos, CD burners, even MP3 players.  We
    hope that you will continue this consistent record of innovation by
    allowing satellite radio subscribers the opportunity to enjoy the services
    for which they have paid, wherever they are and whenever they can
    listen.  Thank you very much.
    	[The prepared statement of Gary Parsons follows:]

    PREPARED STATEMENT OF GARY PARSONS, CHAIRMAN OF THE BOARD, XM SATELLITE
    RADIO

    	Mr. Chairman and Members of the Subcommittee, I am pleased to
    appear on behalf of our 800 employees, who have made XM Satellite Radio
    America's most popular satellite radio company. Thank you for inviting XM to
    speak on behalf of the satellite radio industry and our customers, and more
    broadly in support of consumers' right to enjoy radio content for their own
    personal use. Like the Members of this Subcommittee who long have promoted
    fair use, we believe it is possible to both support consumers' personal
    rights to time-shift and record from broadcasts, and protect the interests
    of content owners.
            As we look to the future, we hope to help grow the music industry
    by enhancing the discovery of music by our six and a half million subscribers
    and an estimated thirteen to fifteen million XM listeners across the country.
    We're very excited about our potential at XM, but we still are an industry in
    its infancy. We will only succeed by keeping our existing subscribers and
    attracting lots of new ones. And we can only do that through constant
    innovation to improve listeners' experience.
            Today, XM subscribers can expect to pay approximately $120 per year
    to listen to over 170 channels of entertainment, sports, news, talk, and
    other programs, including 69 channels of commercial-free music programming.
    Until recently, most of our subscribers heard their favorite programs only
    at home or in their cars and trucks. To add to their enjoyment, we first
    developed a hand-held device that could receive XM live and store
    up to five hours of programming. In response to growing consumer demand,
    we are bringing new portable personal products to market that, for the first
    time, will give our subscribers the ability to receive live XM satellite
    radio, "time-shift" XM programming for later listening, and listen to their
    own MP3 music collection, all in a single, convenient handheld device.
    These new generation portable radios will allow subscribers to store up to
    50 hours of XM programming, to enjoy their music on the go, and to purchase
    additional music tracks--even entire albums--with ease from the new Napster
    online music service.
            Our research shows that XM subscribers buy more music, and over time
    buy a broader range of music and attend more concerts, than other music
    consumers.  Despite this fact, the recording industry wants to stop these
    new products from coming to market, that is, unless we let them take control
    of designing the features we build into the devices. As a result, we have
    been threatened with litigation and now face the prospect of device-crippling
    legislation in this and other Congressional Committees.

    About XM
            XM is one of the great American high-tech success stories of this
    decade. Using spectrum purchased at auction for nearly $90 million, we
    launched our subscription service late in 2001. Since then, we have invested
    nearly $3 billion in building a state-of-the-art network for the delivery of
    radio programming. Despite the challenges of launching a business in an
    economic recession and at the height of the dot.com bust, XM has grown into
    an enormously popular consumer business. And we hope for it to be a
    cash-positive business soon as well.
            We built our entire business in compliance with the law,
    particularly the Audio Home Recording Act and the Digital Millennium
    Copyright Act of 1998.  As a result, the record industry gets paid twice
    for the music our subscribers enjoy; once through the royalties we pay under
    Section 114 of the Copyright Act of 1998, and a second time when our device
    manufacturers pay royalties under the Audio Home Recording Act.
            We continue to make huge investments not only in technology, but
    also in gifted individuals. We employ rocket scientists, electrical and
    broadcast engineers, consumer electronics wizards, athletes, a public radio
    legend, traffic reporters, marketing experts, and some of the world's
    foremost music experts. Unfortunately, we also have been forced
    to employ more and more lawyers.

    Relationship to the Music Industry
            Since the launch of our service, XM and the music industry have
    enjoyed a symbiotic relationship. Without compelling content, our
    multi-billion dollar, state-of-the-art delivery system would not have
    attracted more than six and a half million subscribers. Nor would the
    music and recording industries, and songwriters and performers have
    received tens of millions of dollars in royalties from us.  Having made
    that investment, we are now delivering a wide diversity of music to
    millions of enthusiastic, paying music fans. We have demonstrated that you
    can build a business that promotes the interests of both consumers and the
    music industry.
            As an industry, satellite radio is the single largest contributor
    of sound recording performance royalties to artists and record labels. In
    fact, XM and Sirius pay more in such performance royalties than all other
    digital broadcasters and webcasters combined. Likewise, XM and Sirius pay
    huge royalties to composers and publishers. We respect, appreciate, and
    compensate creators of music. In short, through the investment of
    enormous amounts of risk capital, we have created a new source of royalty
    payments for rights holders.
            In addition to these new royalty payments, we continue to provide
    the music industry with a powerful promotional platform.  Airplay has long
    been an essential promotional tool for music. In fact, Congress exempted
    traditional radio from paying sound recording performance royalties precisely
    because it recognized its promotional value.  XM provides the same if not
    greater promotional value to artists and labels, and yet we do not enjoy
    this same exemption.  Even for HD digital radio, terrestrial broadcasters
    are exempt from the sound recording performance royalty obligations that
    XM pays.  In fact, as you know, recent payola allegations suggest that
    record labels (that collect money from satellite radio) actually pay
    traditional radio stations to play their music.  Despite this disparate
    treatment, we are not here today to ask you to change current law, but
    instead to help you understand the competitive environment in which we
    operate.
            Over the past two decades, playlists at traditional radio stations
    have been shrinking, forcing the public to endure an endless repetition of
    the same handful of songs. The variety of formats has declined as well. By
    contrast, XM offers our subscribers 69 channels of commercial-free music. We
    have over two million titles in our collection, and play approximately
    160,000 different tracks each month.
            We have something for everyone: 24-hours per day of bluegrass,
    blues, classical, country, hip hop, jazz, opera, pop, and rock and roll.
    We have channels devoted to emerging artists.  We have a channel for artists
    that as yet are unsigned to any major record label. Our "Deep Tracks" channel
    has helped to reinvigorate the careers of many rock stars of the 1960s and
    '70s, and we have provided the opportunity for bands to perform live in the
    "XM Caf�" at our recording studios.  XM presents a series called "Artist
    Confidential" and music shows hosted by stars as diverse as Bob Dylan, Quincy
    Jones, Tom Petty, Wynton Marsalis, and Snoop Dogg to help our listeners
    understand more about music from the artists' perspective.  Our channel 73,
    "Frank's Place," features the greatest singers of American Popular Song,
    from its namesake Frank Sinatra to greats such as Ella Fitzgerald, Sarah
    Vaughan, Tony Bennett, and Rosemary Clooney.
            At the touch of a button, XM listeners see the name of the performing
    artist and the name of the song they are hearing.  Unlike broadcast radio
    stations, which rarely announce what they play, XM is a powerful tool for
    educating consumers hungry to discover and buy more music.  In so doing, we
    provide promotional value and royalty compensation never offered to the record
    industry by traditional radio. And yet the music industry continually attacks
    us for bringing great new products to market.

    New Devices
            From the outset, we have been committed to offering consumers the
    best and most innovative products, while respecting copyright.  Our
    subscribers want more than just the ability to hear great music at home or
    on the highway.  Last year, we introduced a line of products called XM2GO.
    These portable products allow consumers to listen to XM live
    or to record up to five hours of programming, and thus to enjoy XM even when
    they cannot receive a satellite signal, such as at the gym or on an airplane
    flight.
            We are building on the success and the functionality of the XM2GO
    devices with the Pioneer Inno and the Samsung Helix.  Like the XM2GO, these
    new personal portable devices enable consumers to listen to live XM or to
    record content they receive over satellite radio. A subscriber can program
    these devices, like "time-shifting" on a VCR or TiVo, to record a program that
    they cannot listen to live.  Just as you can time-shift the television
    broadcast of a baseball game for later viewing on your VCR or TiVo, you can
    use these new XM portable devices to time-shift the radio broadcast of the
    game from XM.  The devices also will offer the type of functionality
    consumers have come to expect from their everyday personal portable music
    devices. The XM Helix and Inno players give consumers the ability to organize
    the content they have recorded so they can listen to that content in any order
    they choose. In addition, the new devices include the ability for consumers to
    store songs from their personal music collection, as they can do with any
    MP3 player, and to mix those songs with new music they hear on satellite
    radio.  And if they enjoy a song they have heard or recorded, they can
    "bookmark" a song to buy it later on CD, or, they can connect to their
    computer and purchase the song lawfully online from he new Napster and have
    it downloaded directly to the device.
            As a responsible business, we specifically designed our products to
    comply with the Audio Home Recording Act (AHRA). When it adopted the AHRA in
    1992, Congress created the legal framework for companies like XM to
    manufacture and distribute devices that can record digital music. As you will
    recall, that legislation allows consumers to digitally record music from CDs
    and broadcast transmissions for personal use, but prevents making digital
    copies from copies. In addition, under the AHRA manufacturers pay royalties
    on the sale of devices. The millions in revenues paid by manufacturers are
    shared with everyone in the music industry, under a formula enacted by
    Congress with the support of all music industry stakeholders. In return,
    manufacturers, distributors, retailers, and consumers are immune from lawsuits
    based on copyright infringement.  This represented a balanced compromise that
    won unqualified support from the recording industry, the music industry, and
    the consumer electronics industry.
            Congress intended the AHRA as a comprehensive and forward-looking
    compromise solution for the recording industry's concerns, for all new digital
    recording devices.  And so did the recording industry.   Then-RIAA president
    Jay Berman testified before Congress that the AHRA "will eliminate the legal
    uncertainty about home audio taping that has clouded the marketplace," and
    "will allow consumer electronics manufacturers to introduce new audio
    technology into the market without fear of infringement lawsuits... ."  In
    supporting the passage of the AHRA, Mr. Berman assured Congress that they
    would not have to revisit the home recording controversy for every new
    generation of digital recorder, proclaiming that the AHRA "is a generic
    solution that applies across the board to all forms of digital audio recording
    technology.  Congress will not be in the position after enactment of this bill
    of having to enact subsequent bills to provide protection for new forms of
    digital audio recording technologies."
            Similarly, on behalf of the songwriting and music publishing
    community, then-president of the National Music Publishers Association,
    Edward P. Murphy, testified before Congress in support of the AHRA, "[Our]
    enthusiastic support for the Audio Home Recording Act . stems from its
    comprehensive approach to audio home taping issues.  The proposed legislation
    incorporates the critical royalty component, and it extends to all digital
    audio recording technologies, not just to DAT."
            In reliance on the AHRA, XM has invested in the design and
    manufacture of our new generation personal portable radio products.  In
    compliance with the AHRA, these new generation devices do not allow any of
    the recorded content to be moved off the device in digital form.  Content
    saved to the device from XM stays on the device, and cannot be copied or
    moved.  The only output on these devices goes to your headphones, in analog
    form. The new Helix and Inno products promote personal listening enjoyment,
    not Internet piracy.
            Despite our payment of millions of dollars in performance royalties
    and millions more in AHRA royalties, and the limitations we designed into
    the devices so that XM content will not be uploaded to the Internet, XM still
    faces opposition from the music industry. We have heard it said that allowing
    consumers to record satellite radio turns our radio service into an unlawful
    download business.  We disagree.  We have heard it said that we are now giving
    consumers for the first time the ability "to slice and dice" music as they
    see fit. We disagree. And we have been told our devices will cannibalize the
    sale of recorded music, rather than promote sales as XM has done since its
    inception. We emphatically disagree.
            As an initial matter, we strongly reject the music industry's efforts
    to roll back the long-established ability of consumers to record off the
    radio for personal use. We are particularly disappointed that the head of
    the RIAA has sought to vilify our law-abiding customers in testimony before
    the House Judiciary Committee, when he accused home tapers using new
    technology of "boldly engag[ing] in piracy with little fear of prosecution."
    XM listeners are avid music fans and some of the music industry's best
    customers, not pirates.  And XM, and the consumer electronics manufacturers
    which build our new products in compliance with the AHRA, are not pirates
    either.
            Recording content off satellite radio is not the same as downloading
    music and has nothing to do with piracy:
            ?	When a consumer wishes to download a song from the new
    Napster or iTunes, he can acquire that specific song on-demand within seconds
    of entering the name of the song. By contrast, XM subscribers have no ability
    to choose what XM plays or, therefore, what songs they can record.  XM
    decides what is played.
            ?	When a consumer buys a download from an Internet service,
    she can typically copy the song onto multiple devices and even burn it on to
    CDs.  If a subscriber records a song from XM, the song is output only to her
    headphones.  It cannot be burned directly to a CD, moved to any other device,
    or uploaded to the Internet.
            ?	When a consumer purchases a download, he gets the full song
    from beginning to end. When a subscriber records a song off of XM, the
    recording is no substitute for the original. Just like recordings made using
    a tape recorder from FM radio, songs recorded off XM include DJ talk,
    overlapping parts of the preceding and following songs, and they may even
    have a few seconds cut off.
            ?	A download service, unlike XM, knows exactly what the
    consumer is downloading and can charge for every download.  XM, like any
    radio service, has no way to know how many subscribers are listening at any
    given time, no less whether or what any subscriber may be recording.  That is
    precisely why Congress created a royalty payment pool under the AHRA of funds
    to be shared among the music industry, based on general digital recording for
    personal use.
            In short, we are providing our subscribers greater value from their
    XM subscription: the ability to take XM with them everywhere, on the go in
    their busy lives.
            These new personal portable XM devices are merely today's equivalent
    of recording off the radio, with the flexibility consumers have come to
    expect from new digital technology.  We are giving our subscribers the tools
    to enjoy music they have lawfully acquired, with the  capability to listen
    to that music in any order they want, to skip over songs they don't like, and
    to put together lists of songs for listening when jogging, commuting, or
    shopping - including when shopping for CDs. When a consumer records
    television programming on a TiVo, he or she can search for a particular
    episode and disaggregate it from the other recorded content. Like TiVo, we
    give consumers the tools to maximize their personal, non-commercial listening
    experience. But unlike TiVo, we cannot offer a program guide to tell our
    subscribers what songs are coming or when to record - because the law
    prohibits us from doing so.
            As in the days of reel-to-reel tape and later with analog cassettes,
    consumers can record from XM programming and decide when and in what order
    to listen to it. No doubt a few of you remember the experience of recording
    a song off the radio, using a razor blade to cut the tape, and with the help
    of Scotchr tape re-arranging the songs to make a party list of favorites. Our
    devices, like many other lawful products on the market today, simply update
    the tools for personal recording of radio into the 21st century.  Had
    Congress heeded the objections of the content industry to each new
    technological innovation, consumers never would have had the right to enjoy
    the analog cassette recorder, the VCR, the CD Recorder, the MP3 player, the
    TiVo, the Slingbox - or, now, XM's new generation portable satellite radios.
    Our new devices offer our subscribers the convenience of digital recording
    technology that they get from every other new digital media device they own.
    But just because a device makes personal recording convenient does not, and
    should not, make it illegal.

    Conclusion
            Today, XM offers more than six and a half million subscribers and
    thirteen to fifteen million listeners the ability to enjoy music wherever
    they go. We are doing so lawfully, pursuant to the statutory framework
    Congress established in 1992 and 1998. We are doing so in a way that delivers
    tens of millions of dollars in new royalty payments to the music industry and
    millions more in additional royalty payments under the AHRA. And we are doing
    so in a way that facilitates the purchase of music and thus gives the music
    industry another way to compete against illegal P2P networks.
            In short, we are doing it right. We are following the laws that
    Congress designed to apply to XM and to our new generation portable personal
    products.  Like the companies behind every new technology from the transistor
    radio to the iPod, XM Satellite Radio is giving consumers new lawful ways to
    take their music wherever they go. We provide compensation to songwriters and
    music publishers both through performance rights and the AHRA.   And, in
    addition to the AHRA payments on our devices, satellite radio pays more
    performance rights royalties to sound recording copyright owners and
    performing artists than any other industry.
            Thank you for your consideration of our views and thank you again
    for standing up for the rights of innovators to bring new products to market
    and consumers to exercise their fair use rights.

    	MR. STEARNS.  Thank you.  Mr. Ostroff.
    MR. OSTROFF.  Chairman Stearns and members of the committee,
    thank you for inviting me here today.  My name is Michael Ostroff and I
    am General Counsel of the Universal Music Group.  I am going to use
    my time to highlight the ways in which Universal has welcomed the
    opportunities that digital technologies provide artists, record companies,
    and music fans around the globe.  The music industry has gone through a
    very difficult period.  On-line piracy has caused substantial losses over
    the last six years.
    	Thankfully, we are starting to climb out of the hole, in part because
    of the support that we have received from the Administration and the
    Congress.  This committee helped educate the public about the dangers
    posed by peer-to-peer technology.  Your hearings informed parents,
    teachers, and the news media on the ways that pornography inhabited
    PDPs and the ways that services inserted viruses, spyware and other
    dangerous software on a user's PC.
    	A key reason for our recovery is digital technology, which enables
    consumers to enjoy music in new ways.  Today, I am going to show you
    several devices and services that we have authorized to perform,
    distribute, or reproduce Universal's vast repertoire; oldies and today's
    hits, from Mozart to Motown to Mariah Carey.  I want to emphasize that
    the services that I am going to describe got off the ground through free
    market negotiations: a willing buyer; an entrepreneur with an idea; and a
    willing seller, music companies that own the rights guaranteed by the
    Copyright Act struck a deal.
    	Let us start with the ringtones that people use to personalize their
    phone.  We will use Matt's phone.  When I call him, he knows it is me
    because his phone plays a song by Universal artist Cheryl Crow that
    mentions Santa Monica.  That is where my office is located.  Now let me
    show you what you hear when you call Matt.  This is called a ringback,
    another way for a consumer to personalize his or her phone.  When you
    call Matt, you hear "Xs and Os" by the Universal artist Trisha Yearwood.
    When Matt gets a call from Morna, he receives a music video as his
    ringtone.  You will have a hard time seeing it from the dais, but the
    image is remarkably good.  While the call is coming in, he can watch 30
    seconds of a music video.  The mobile phone industry seized the value of
    music personalization and is using music to promote their networks.  As
    seen here, Verizon and others also offer their subscribers downloads of
    full-length songs through the cellular network.
    	[Slide.]
    	The slide shows Moby TV, a service that streams music video to
    your mobile phone.  With a stream, the music video is not stored on the
    phone; the consumer subscribes to a channel and watches and listens to
    videos on the fly.
    	[Slide.]
    	Now let us move from mobile phones to personal computers and
    portable music players.  This is iTunes and this is the iPod.  We sell our
    recordings to iTunes which sells music downloads by the single song or
    as an album.
    	[Slide.]
    	The next slide displays music subscriptions.  For a monthly fee, a
    consumer can download over one million different tracks, again, old
    songs and new releases that you can store for as long as you subscribe to
    the service.  Music from Rhapsody can be transferred to over a hundred
    different portable devices like those that I brought with me here.
    	[Slide.]
    	The next slide is of a particular kind of subscription service that
    focuses on the college market.  Piracy on university networks is a huge
    problem for us, so we have heavily discounted our prices in order to
    encourage colleges and their students to go legit.
    	[Slide.]
    	Next is an example of an on-demand music video service.  Music
    fans can now go to sites like Yahoo and view the music videos of their
    choice.  We also have worked out a deal with a company that offers
    music videos on demand through cable television.
    	[Slide.]
    	Here is another service we authorize Yahoo to offer: an interactive,
    personalized Internet radio service.  With Launchcast, you tell the service
    what your favorite songs and artists are and a customized station based
    on those preferences is created for you.
    	[Slide.]
    	Another noteworthy development is the rollout of legitimate
    authorized licensed peer-to-peer services.  This product would not have
    been feasible but for the Supreme Court's unanimous decision in support
    of artists and creators in last year's Grokster case.
    	Mr. Chairman, I was glad that you asked me to highlight the devices
    in a legitimate digital marketplace and I could have shown many more.
    These examples make it clear that we are ready, willing, and able to
    license viable business models.  We can be as flexible as necessary to
    build a partnership with any business that wants to play by the rules.
    Indeed, we are working closely right now with our long-time partners,
    the radio broadcasters, to come up with a way to support the expeditious
    rollout of HD radio.  We are working on a consensus on digital radio
    copy protection.
    	We hope and expect that in the future we will be licensing the sale of
    downloads and other services with your local broadcaster as our business
    partner.  I remain hopeful that we can also work out a marketplace
    accommodation with XM, a company we have worked well with over its
    critical first years.  We did not object when Congress gave the satellite
    services a compulsory license to perform our music so that their
    subscribers could listen to it.  We helped them get started by agreeing to
    below market payments from them.  Now XM wants to contort the
    government imposed performance license into a service that allows their
    subscribers to make permanent downloads of our individual songs.
    	The new device permits consumers to record satellite programming;
    see a list of songs recorded; select the specific tracks they want to hold
    on to, as well as those they wish to delete; and a library to select the
    tracks for future use.  It is a great device.  In fact, it is much like an
    iPod, but unlike an iPod, you don't have to pay for the music you keep.
    Sirius Radio sells a similar device, which I have here.  It is not as robust
    as the new XM products, but similar.  We brought our concerns to Sirius and
    entered into a satisfactory agreement with respect to their S50 and look
    forward to productive business discussions regarding the distribution of
    future products.
    	Again, we are ready to license our rights on behalf of the artists and
    creators we work with and hope to do so not only with XM, but with a
    great many other services that approach us in the years ahead.  Mr.
    Chairman, thank you.  I look forward to your questions.
    	[The prepared statement of Michael Ostroff follows:]

    PREPARED STATEMENT OF MICHAEL OSTROFF, GENERAL COUNSEL AND EXECUTIVE VICE
    PRESIDENT, BUSINESS AND LEGAL AFFAIRS, UNIVERSAL MUSIC GROUP

         Chairman Stearns, Ranking Member Schakowsky, and Members of the
    Subcommittee, thank you very much for requesting our views on the issue of
    digital audio content and meeting consumer demand in the marketplace.  My
    name is Michael Ostroff and I am General Counsel and Executive Vice
    President, Business and Legal Affairs, for the Universal Music Group.  Music
    has been at the forefront of the electronic marketplace and we at Universal
    have worked hard over the past several years to provide consumers with the
    most choices and the best digital music experience possible.
         We are driven in the marketplace by consumers, and consumers are
    demanding quality, convenience and choice.  Today, consumers have more
    choices in how they obtain their music than ever before:  online downloads
    such as iTunes; subscription services such as Napster and Rhapsody, including
    portability features such as Napster to Go, and special discounted rates for
    subscription services at colleges; ringtones; ringbacks; mobile downloads;
    mobile videos; online videos on demand; kiosks in retail stores; legitimate
    peer-to-peer services; interactive web radio; and instant post-concert
    recorded CDs are just some of the new formats in which we are making music available.  These are in addition to new physical formats such as DVD-Audio,
    Super Audio CD, and DualDiscs.
         Considering that all of the products and services listed above have
    appeared in just the past few years - almost a blink of the eye in the long
    history of music distribution - you can only imagine what is yet to come in
    the near future. Universal is excited about licensing and selling our music
    in these and other new digital formats to bring more music to more fans from
    both our vast catalog as well as new artists.  And we are flexible in the way
    we craft digital agreements, so that consumers can use the music they
    purchase conveniently and in ways that meet their reasonable needs, while at
    the same time protecting the content against illegal redistribution and other
    forms of piracy.
         We believe that marketplace negotiations have worked best, allowing us
    to set appropriate rates and ensure reasonable content protection.  Such
    negotiations have worked far better than compulsory licenses, such as those
    granted to satellite, cable, and Internet listening services.  Our legal
    obligation to make our music available due to this compulsory license leads
    to situations like one we are facing right now - in which XM satellite radio
    is offering its customers the ability to download music and create a digital
    music library on its portable devices, in much the same way that iTunes offers
    permanent downloads.  Of course, the big difference is that in the case of
    iTunes, Apple compensates artists, creators and copyright owners through a
    distribution fee.
         Let's be clear.  Congress gave the satellite services a compulsory
    license to perform our music, so that their subscribers could listen to it.
    Our company and others in the industry helped the satellite services get
    started by agreeing to below market payments for our property.  We worked
    with them to help them develop interesting channels featuring interaction
    with our artists.  Now XM wants to stretch and reinterpret the
    government imposed license into a service that enables their subscribers to
    make permanent copies of our music.
         Universal Music does not object to XM offering its subscribers a
    distribution service in addition to a broadcast service, so long as XM
    agrees to pay us for the distributions.  Rather than working to reach a fair
    accommodation through marketplace negotiations, however, XM claims that the
    compulsory performance license it enjoys enables it to distribute our content
    as though it's just another aspect of performing our music, and that
    its payment for performances covers what are in fact distributions.  XM also
    claims that, instead of paying an appropriate distribution fee, its
    manufacturing partners are merely required to pay royalties under the Audio
    Home Recording Act, a payment system that was intended only to cover serial
    recording on Digital Audio Tapes and was never intended to replace the
    licenses required for distributions of music.
         Allowing XM to make distributions while paying only performance fees is
    unfair to the legitimate music distribution services like iTunes, Napster,
    Rhapsody and Yahoo!, that are just starting to gain traction in the face of
    competition from illegitimate, unauthorized services that have been giving
    away our music for free.  And it is unfair to the music companies and artists
    who deserve compensation for the blood, sweat, tears and capital they invest
    in creating new and innovative sounds.  The growth of digital distribution in
    its many forms - via cellphones, internet, cable and now via broadcast
    signals -- depends upon a legitimate marketplace.  A legitimate marketplace,
    in turn, depends upon the ability to protect content effectively.
         The emerging digital formats are made possible because content
    protection is able to set levels of "ownership" of a copy of our music at
    different price points.  For streaming music, consumers pay at one price
    point; for permanent downloads, consumers expect to pay at a higher price
    point.  Just like a consumer has a different expectation of price when
    renting a musical instrument versus buying it.  Without the ability to define
    the parameters of use, without the ability to protect the content,
    distributors could only offer consumers music on a one-price-fits-all basis;
    and, in order to cover all platforms and services, that price would
    necessarily be higher.  That, of course, is not good for consumers.  In
    short, content protection presents more opportunities for content creators
    and providers, which ultimately leads to more opportunities - and choice - for
    consumers.
         In last year's unanimous Grokster decision, the United States Supreme
    Court gave the legitimate digital marketplace a boost.  By holding liable
    those services that facilitate piracy, the Court opened the door for the
    legitimate digital marketplace to succeed and emphasized the importance of
    protecting copyrighted works.  Weakening copyright and allowing for the
    circumvention of content protection is antithetical to the Court's holding;
    and, by decreasing the market opportunities for both media creators and
    distributors, the circumventing or "hacking" of content protection
    ultimately harms consumers.
         Unfortunately, a bill has been introduced and referred to this
    Subcommittee, H.R. 1201, that would undermine the legitimate marketplace by
    granting a "hacking" right to consumers.  It would allow the removal of copy
    protection contained on a digital product, as long as it is done for "fair
    use" purposes.  This legislation distorts the meaning of fair
    use and would lead to the exact escalation of piracy the Grokster case sought
    to prevent.  Fair use has never meant "free access."  If you want to copy a
    portion of a chapter of a book to quote in a book report, you cannot steal
    the book in order to do so.  Yet, that is exactly what H.R. 1201 would allow.
    It is the equivalent of allowing a consumer to buy a "black box" to get HBO
    for free, as long as the consumer is only using it to watch programming for
    "fair use purposes."  And, of course, once the content protection is removed,
    that protection is compromised for all purposes.  Given that licensing
    practices in the marketplace already allow for personal uses that meet
    consumer expectations, this bill is unnecessary and dangerous.
         H.R. 1201 would undo much of what this Committee and the Congress
    accomplished in 1998 when it passed the "Digital Millennium Copyright Act."
    Since passage of the DMCA, the digital marketplace for content has exploded.
    Weakening it would stymie future growth.
         In fact, the Congress rejected in 1998 the language proposed in section
    5 of H.R. 1201.  Instead, under the leadership of the Commerce Committee,
    Congress created a procedure to ensure that adequate public access to
    copyrighted materials is maintained: the Librarian of Congress, working with
    the Commerce Department, investigates, every three years, whether public
    access to copyrighted materials is being harmed or threatened. In both 2000
    and 2003, the Librarian considered broad exceptions similar to H.R. 1201,
    and rejected them, because proponents could not demonstrate harm.
    Another proceeding is in process this year.  There is no evidence the
    Congress made a mistake in 1998.  Just the opposite: the Congress got it
    right, and there is no basis for undoing that decision now.
         H.R. 1201 would also undermine efforts to fight piracy and promote
    respect for copyrights worldwide.  Because U.S. copyrighted works dominate
    world markets, the U.S. Congress and Administrations - Republican and Democrat
    - have all worked hard to upgrade copyright law and enforcement
    internationally.  Because America has such a huge stake in intellectual
    property protection, we set the standard that we hope the world will follow.
    In recent years, this effort has paid special attention to protecting
    encryption and similar technologies against hacking.   H.R. 1201 would pull
    the rug out from under these efforts, and expose U.S. works to greater risks
    of piracy in markets around the globe.
         We ask that this Subcommittee reject H.R. 1201, and allow the
    marketplace to continue to meet consumer expectations.  The many different
    options consumers have today in which to get their music is a function of
    that legitimate free marketplace.  This proves that one thing is certain -
    if music distribution is left to the free market, we will find a way to
    license these and many more uses of our music with functionality
    consumers can only imagine today.  Universal has embraced and made deals for
    numerous different distribution models, and we look forward to welcoming many
    more in the future.  We are extremely eager for consumers to have increasing
    numbers of options for where they get their music and how they experience it.
    The better the experience for consumers, the better it is for us as well.
         There are instances, however, where we do not have rights, in which the
    free marketplace is not allowed to work, necessitating changes in the law to
    maintain a legitimate marketplace.  This is perhaps most evident with
    over-the-air radio.  The next generation of new HD Radio devices would allow
    listeners to record, sort, and permanently store individual songs in a
    digital jukebox, replicating a sale made from a digital download service such
    as iTunes.  But we have no performance right for over-the-air radio, which
    means that we have no leverage when seeking to negotiate appropriate
    use of our music.
         Fortunately, we are already in productive discussions with the
    broadcast industry to ensure that the functionality of these new HD Radio
    devices does not substitute for sales in the marketplace.  In part because
    of our longstanding relationship with broadcasters, and additionally at the
    urging of Senators Stevens and Inouye during a January hearing on Broadcast
    and Audio Flag before the Senate Committee on Commerce, Science and
    Transportation, representatives of the music and broadcast industries agreed
    to meet to work out the issues.  Since then, there have been several
    meetings, including a very productive one in New York between senior
    executives of both industries, resulting in the formation of two
    negotiating groups, an Audio Flag Task Force and a Technical Implementation
    Working group.  We remain optimistic about these talks, are committed
    to a swift rollout of HD radio, and continue to believe that the best
    solution is one that comes from free marketplace negotiations.
         But it is important to remember that there remains a marketplace
    failure due to our lack of an over-the-air performance right - our
    bargaining power is limited by the fact that we cannot simply say, "no,
    you may not use our music."  Therefore, while we are encouraged that the
    broadcasters will continue to negotiate in good faith, we appreciate
    the introduction of legislation such as H.R. 4861, The Audio Broadcast Flag
    Licensing Act.  This bill, introduced by Representatives Ferguson, Towns,
    Bono, Gordon and Blackburn, addresses this marketplace failure by granting
    the FCC jurisdiction to promulgate rules regarding content protection for
    digital over-the-air radio.  The bill requires digital radio services that
    use the government spectrum to implement certain content protection
    technology.  H.R. 4861 strikes the right balance between creating new
    radio services that bring more choices to consumers, and protecting the
    property rights of creators.  The bill also prevents unfair competition
    between radio services and download services, by appropriately providing for
    private market negotiations of an "audio broadcast flag" that will
    differentiate between radio broadcasts and download services,
    and require a market license only for download services.
         The bill assures that no one device or technology manufacturer has an
    advantage over another and will maximize the range of broadcast receiving
    devices made available to the public.  Further, it makes clear that the
    adoption and implementation of an audio broadcast flag will in no way delay
    the final operational rules for digital radio and assures that legacy devices
    are not affected.  By using broadcast flag technology, devices already
    on the market prior to the enactment of legislation will not be made
    obsolete, but will remain fully functional.
         At the same time, we agree with the leadership of the Senate Commerce
    Committee that it is preferable to find a marketplace solution, and
    appreciate that they have asked the parties to work toward such a solution
    and report to the Committee periodically.  As Senator Stevens said, "the
    creative content side and the distribution side of the music industry should
    seek mutual ground that supports business models for both."
         And we greatly appreciate NAB President David Rehr's acknowledgement of
    his industry's "strong interest in collaborating to find a workable solution
    to content protection issues associated with terrestrial digital radio
    broadcasting," and his agreeing in a joint report to the Committee that the
    scope of the negotiations on flag implementation would include usage rules
    preventing the disaggregation or "cherry-picking" of songs from surrounding
    content transmitted over HD radio, and assurance of an expeditious rollout of
    HD radio nationwide.  Following the positive initial meetings between our
    industries, we think we are on the right track.
         The future of the digital marketplace is a great one for consumers in
    the 21st century.  Wouldn't it be great if you could push a button and buy a
    song when you hear it on the radio that is automatically charged to your
    credit card?  Or to push a button on your iPod that automatically purchases
    an individual track?  Or to play any song on demand on your portable player
    any time you want for a monthly fee?  All of this is possible in the free
    market in a manner that maintains the incentive to create and invest in
    music.  Robust content protection, and preventing against the hacking of
    that protection, will assure that possibility for consumers, and provide a
    return on investment for creators, broadcasters, device manufacturers, and
    all other parties that bring new and exciting entertainment to market.
         Thank you for focusing on this important issue.

    	MR. STEARNS.  Thank you and you could have added there are no
    commercials, right?  These are not our products.  We have a vote, but I
    think we have some more time, so Mr. Halyburton, go ahead.
    MR. HALYBURTON.  Thank you, Chairman Stearns and members of
    the committee.  My name is Dan Halyburton, I am Senior Vice President
    and General Manager for Susquehanna Radio.  I am here today on behalf
    of the National Association of Broadcasters where I serve as the chair for
    the NAB Audio Flag Task Force.  The NAB is a trade association that
    advocates on behalf of more than 8,300 free local radio and television
    stations, as well as broadcast networks, before Congress, the FCC, and
    the courts.  Local broadcasters are engaged in an exciting transition to
    digital.  Currently 777 AM and FM stations are on the air in digital, and
    many more will roll out in the near future.
    	Digital radio not only offers crystal clear audio, it also permits the
    broadcasting of multiple free over-the-air program channels.  Radio
    stations will be able to bring additional local service to the public with
    their current spectrum, while at the same time providing expanded
    opportunities to promote more varied artists, music, and local
    information services.  Digital radio also offers greater format diversity
    for listeners.  In 1993, radio offered about 32 formats while expanding to
    over 70 formats in the year 2004.  HD radio offers listeners an even
    greater expansion of programming, choice, diversity, and variety.
    	2006 and 2007 promise to be pivotal years for this revolution in
    radio.  Auto makers are signing up for factory-installed radios, retail
    outlets are featuring many new digital radio products and we are doing
    our part to spur the transition.  Major radio groups are engaged in a
    massive marketing campaign to make sure consumers are aware of
    digital radio and educated on its benefits.  The future of digital radio also
    involves a discussion of content protection.  Local broadcasters are
    content producers ourselves and oppose piracy in all forms.  To that end,
    the NAB is working with the recording industry to develop options for
    content protection so long as those options don't slow down radio's
    digital transition.
    	These discussions have been very constructive and the NAB strongly
    believes that the broadcast industry and the recording industry and other
    stakeholders can work toward a consensus on digital radio copy
    protection systems.  While our discussions will explore many options,
    one approach we both agree is not viable involves encryption at the
    source.  No proposal should be allowed to derail the HD radio rollout by
    making obsolete thousands of receivers already on the market, as well as
    millions more in the manufacturing pipeline.
    	As our discussions with the recording industry continue, we urge the
    Congress and the regulators to allow these private negotiations a chance
    to work.  At this time, we should refrain from adopting an unnecessary
    legislative mandate or pushing a premature adoption of a quick fix for
    copy protection and digital radio.  Mr. Chairman, as I mentioned, HD
    radio will also enable broadcasters to better serve our local communities
    and remain competitive in the evolving digital media marketplace.  All of
    these new digital services will amplify radio's traditional strength; free,
    over-the-air service to the community.
    	As a public license holder, local broadcasters cover issues of concern
    to local communities, adhere to regulations on over-the-air content, play
    a vital role with emergency services including Amber Alert, and initiate
    and partner in public service campaigns.  Some of the discussion today
    from other witnesses may involve calls for parity with over-the-air radio,
    including calls for a new performance right tax on broadcasters.  Local
    broadcasters have a deep, extensive relationship with the recording
    industry in promoting new music and artists, a relationship that has been
    upheld by Congress on many occasions.  This partnership works and
    should not be changed.
    	I would also draw the committee's attention to satellite radio's
    desire to ultimately provide local advertising and local content.  As a
    national service, satellite radio is not required to serve local
    communities and is not subject to content regulations and many other
    public service obligations.  Local broadcasters appreciate the 125
    cosponsors of H.R. 998, including Congressman Chip Pickering and
    Congressman Gene Green.  H.R. 998 clarifies satellite radio's role as a
    national only service and preserves the local role of the broadcaster.
    	Mr. Chairman, the successful deployment of digital radio holds much
    promise and will significantly improve services for our listeners and your
    constituents.  Thank you.
    	[The prepared statement of Dan Halyburton follows:]

    PREPARED STATEMENT OF DAN HALYBURTON, SENIOR VICE PRESIDENT AND GENERAL
    MANAGER, GROUP OPERATIONS, SUSQUEHANNA RADIO CORPORATION, ON BEHALF OF THE
    NATIONAL ASSOCIATION OF BROADCASTERS

            Good afternoon, Chairman Stearns and Members of the Subcommittee.  My
    name is Dan Halyburton.  I am the Senior Vice President and General Manager
    for Group Operations for Susquehanna Radio Corp., which owns 33 broadcast
    radio stations.  I am also Chairman of NAB's Audio Flag Task Force.  I am
    testifying today on behalf of the National Association of Broadcasters (NAB).
    NAB is a trade association that advocates on behalf of more than 8,300 free,
    local radio and television stations and also broadcast networks before
    Congress, the Federal Communications Commission and the Courts.
    	My message today is a simple one.  The radio broadcasting industry
    is currently embracing digital technology.  Given the importance of this
    digital transition to both consumers and local broadcasters, any technical
    system developed to provide copy protection for digital content must not
    impede the digital radio roll-out.  Although broadcasters oppose piracy in
    all shapes and forms, NAB remains concerned that legislatively imposing
    requirements for digital copy protection at this time could stall the
    digital radio transition.  Moreover, certain audio copy protection methods
    that have been proposed, such as encryption, are problematic for additional
    reasons.  NAB accordingly urges Congress to allow the broadcast industry, the
    recording industry and other vital stakeholders to continue working toward a
    consensus on digital radio copy protection.

    Any System to Protect Digital Content Must Not Impede the Digital Radio
    Roll-Out
    	Today, I can report that local radio broadcasters are engaged in an
    exciting transition to digital audio broadcasting (DAB).  The industry sees
    digital high definition radio as our future-it will enable us to better serve
    our local communities and to remain competitive in today's ever-changing
    digital media marketplace.  But we face many challenges as we work toward a
    successful and timely transition to digital radio.  Those challenges would be
    exacerbated - and the roll-out delayed - by a "quick fix" technical
    system to provide copy protection for digital radio.  For this reason, NAB
    and the Recording Industry Association of America (RIAA) are now discussing
    the development of a consensus on digital radio copy protection.  We urge you
    to allow this industry process to continue without the adoption of premature
    legislative mandates that could well have disastrous consequences for our
    industry.
    	The radio industry in America has begun its massive roll-out of
    digital broadcast transmissions and all-new digital radio receivers.
    Currently, 767 digital AM and FM stations are on the air.  Broadcasters have
    individually committed to upgrade more than 2,000 stations to high definition
    (HD) radio technology this year.  Why are radio broadcasters embracing HD
    radio?  In short, because it will allow local broadcasters to better serve
    their listeners and to remain competitive in today's digital media
    marketplace.  HD radio not only offers crystal-clear audio; it also permits
    the broadcasting of multiple free, over-the-air program streams to bring
    additional content (including much more local content) to the public within
    stations' current spectrum.  It further enables other services, including
    wireless data enabling text information, such as song titles and artists or
    weather and traffic alerts.  Even more innovative features are under
    development, such as program menus giving listeners instant access to a
    favorite drive time show, news and information, and special music
    programming.  New features of the future could also include real-time
    traffic reports broadcast by local stations and visually displayed on a
    vehicle's navigation system.  In sum, digital radio will allow broadcasters
    to remain a vital and vibrant part of the media landscape of the future.
    	But beyond thousands of radio stations converting to digital, the HD
    radio revolution also involves the consumer electronics industry and, most
    importantly, consumers.  New digital radio receivers have been launched in
    the marketplace across a range of product categories.  Major radio groups are
    engaged in a massive marketing campaign to promote digital radio to consumers.
    And auto makers and after-market manufacturers are beginning to produce
    digital radio products for car sound systems.  2006 and 2007 promise to be
    pivotal years for the roll-out of digital radio, with auto makers signing up
    for factory-installed radios, retail outlets prominently featuring many
    new digital radio products, and hundreds more broadcasters commencing digital
    transmissions.  Given this investment by broadcasters and equipment
    manufacturers and the benefits that consumers will receive from a successful
    deployment of digital radio, it is of paramount importance that any copy
    protection mechanism not impede the digital radio roll-out.
            NAB remains concerned that developing and implementing a technical
    system to provide copy protection for digital radio not have a negative
    impact on the digital radio transition.  Reaching a final consensus on the
    digital television (DTV) broadcast flag mechanism, for example, entailed many
    years of intense negotiations by scores of participants from a wide array of
    industry sectors.  The purpose, concept and methodology of the DTV flag were
    then the subject of voluminous comments and reply comments from affected
    industry and consumers groups, companies and organizations.  The FCC
    scrutinized these comments, heard in-person presentations from many
    interested parties and concluded that the purpose of preventing widespread
    indiscriminate re-distribution of digital video content over the Internet
    was worthy and that the methodology was sound and workable.
            NAB has expressed its willingness to participate in developing and
    forging a consensus on a digital radio copy protection system so long as it
    would not interrupt the digital roll-out or create uncertainty that would
    lead to a slow down of adoption rates by manufacturers, consumers or even
    broadcasters.  To that end, NAB and RIAA are engaged in on-going discussions
    regarding copy protection.  We jointly held an executive level meeting in New
    York City that served as a starting point for our discussions.  We have
    established two working groups that will continue to move forward with
    meetings, which we expect will ultimately involve and include other vital
    stakeholders in a successful resolution of the issues.
            Given these on-going discussions, NAB does not believe that
    legislation mandating any particular system of digital radio copy protection
    is necessary at this time.  Terrestrial digital radio is a far different
    platform from satellite and on-line music services and delivery.  The reality
    or scope of any threat to the recording industry from a scenario in
    which consumers make good quality recordings from digital broadcasts on their
    local radio stations is still an evolving concern.  Those desiring to obtain
    and listen to pure, uninterrupted performances of sound recordings, in lieu
    of the radio, already have an abundant number of means to do so.  Satellite
    and cable digital subscription services, hundreds of thousands of unencrypted
    compact discs, peer to peer file sharing, and hours of uninterrupted music
    that can be stored on recordable CDs and hard drives, are but a few such
    means.  These are far different concerns than that of consumers seeking out
    random digital audio broadcast signals that may contain DJ patter over the
    recordings in order to create files to make copies of or distribute sound
    recordings.  Nonetheless, NAB strongly believes that the broadcast industry,
    the recording industry, and other vital stakeholders can work toward a
    consensus on digital radio copy protection system, as warranted by
    marketplace conditions and technological developments.

    The Public's Right to Make Private Copies of Sound Recordings for Personal Use
    Must Be Taken Into Account
            In addition, in any discussion about affording copy protection to
    digital audio recordings or transmissions, all parties must take into account
    Congress' long-standing policy of protecting and preserving the public's right
    to make home recordings of sound recordings for personal use.  The House
    Report accompanying the Sound Recording Act of 1971 stated:

            HOME RECORDING
            In approving the creation of a limited copyright in sound recordings
            it is the intention of the Committee that this limited copyright not
            grant any broader rights than are accorded to other copyright
            proprietors under the existing title 17.  Specifically, it is not
            the intention of the Committee to restrain the home recording,
            from broadcasts or from tapes or records, of recorded performances,
            where the home recording is for private use and with no purpose of
            reproducing or otherwise capitalizing commercially on it.  This
            practice is common and unrestrained today, and the record producers
            and performers would be in no different position from that of the
            owners of copyright in recorded musical compositions over the past
            20 years.

    Since that Act, Congress has expanded the sound recording right only
    sparingly, in careful response to specific and well-documented threats, all
    the while reiterating the importance of preserving the public's right to make
    home copies for personal use.  In the Audio Home Recording Act of 1992
    ("AHRA"), Congress definitively addressed the issue of home recording of
    sound  recordings and musical works.  This Act was intended to be
    comprehensive, forward-looking legislation designed to end, once and for
    all, the "longstanding controversy" surrounding the home recording of
    prerecorded music.   Indeed, then-President of RIAA, Jay Berman, described
    the bill that became the AHRA as  "a generic solution that applies across
    the board to all forms of digital audio recording technology."
            The Senate Report that accompanied the AHRA opened its discussion of
    the bill with the assertion that "[t]he purpose of S.1623 is to ensure the
    right of consumers to make analog or digital audio recordings of copyrighted
    music for their private noncommercial use."    To this end, the provision of
    the AHRA providing the exemption for home copying, section 1008, was
    considered "one of the cornerstones of the bill" because it "removes the legal
    cloud over home copying of prerecorded music in the most proconsumer way
    possible:  It gives consumers a complete exemption for noncommercial
    home copying of both digital and analog music, even though the royalty
    obligations under the bill apply only to digitally formatted music."   The
    Ninth Circuit confirmed this conclusion in Recording Industry Association of
    America v. Diamond Multimedia Systems, Inc., 180 F.3d 1072 (9th Cir. 1999).

    Certain Proposals for Audio Copy Protection Are Problematic
    	One proposal for resolving copy protection concerns is to mandate
    that all radio broadcasters encrypt their digital content at the source.  NAB
    strongly opposes this approach.  Such a mandate would be antithetical to the
    concept of free, over-the-air broadcasting.  No U.S. free, over-the-air
    broadcast service, analog or digital, has ever been required to encrypt its
    transmissions.
    	Any encryption requirement would also likely risk stalling the
    digital radio transition by requiring a change in the technical digital radio
    broadcasting standard of such magnitude that a year's delay and likely more
    would be inevitable.  Resulting uncertainty in the marketplace and potential
    loss of confidence and interest in digital audio broadcasting by
    manufacturers now ready to roll out DAB receivers would harm
    broadcasters and threaten the public's receipt of digital radio. To date,
    there has been no investigation of what kind of encryption would be utilized,
    what copy control and re-distribution measures would be added (and acceptable
    to various stakeholders), and what features receivers can and cannot employ
    in terms of storage and replay.
            Required encryption of DAB transmissions, even at this early stage,
    would likely result in obsolescence of millions of units of DAB components
    currently in the production pipeline, including receivers, integrated
    circuits and installed component parts in automobiles.  This would clearly
    decrease manufacturers' and auto makers' enthusiasm for developing and
    deploying DAB products.
            Encryption and copyright protection considerations with regard to
    digital radio differ in important ways from the DTV broadcast flag.  The
    DTV broadcast flag does not involve copy restrictions, but rather is
    designed to prevent only indiscriminate re-distribution of broadcast
    programming over the Internet.  The DTV broadcast flag does not disable
    the existing base of "legacy" receivers, which will simply not "read" the
    flag and its instructions on re-distribution.  As noted above, the
    encryption of DAB signals would obsolete receivers now in the field, as
    well as receivers and component parts currently in the production pipeline.
    And, as previously explained, with the DTV flag, there was a consensus
    solution developed by a broad cross-section of industry participants.

    Congress Should Reject Efforts to Impose a Sound Recording Performance
    Right in Digital Broadcasts
            NAB urges the Subcommittee to recognize that a new performance right
    tax on broadcasters is unnecessary and has no relationship to concerns about
    the copying and redistribution of digital content.
    	Throughout the history of the debate over sound recording copyrights,
    Congress has consistently recognized that recording companies reap very
    significant promotional benefits from the exposure given their recordings by
    radio stations and that placing burdensome restrictions on performances could
    alter that relationship, to the detriment of both industries.  For that
    reason, in the 1920s and for five decades following, Congress
    regularly considered proposals to grant copyright rights in sound recordings,
    but repeatedly rejected such proposals.
            When Congress did first afford limited copyright protection to sound
    recordings in 1971, it prohibited only unauthorized reproduction and
    distribution of records, but did not create a sound recording performance
    right.  During the comprehensive revision of the Copyright Act in 1976,
    Congress again considered, and rejected, granting a sound recording
    performance right.  Congress continued to refuse to provide any sound
    recording performance right for another twenty years.  During that time, the
    recording industry thrived, due in large measure to the promotional value of
    radio performances of their records.
    	It was not until the Digital Performance Rights in Sound Recordings
    Act of 1995 (the "DPRA") that even a limited performance right in sound recordings was granted.  In granting this limited right, Congress stated it
    "should do nothing to change or jeopardize the mutually beneficial economic
    relationship between the recording and traditional broadcasting industries."
    As explained in the Senate Report accompanying the DPRA, "The underlying
    rationale for creation of this limited right is grounded in the way the
    market for prerecorded music has developed, and the potential impact on that
    market posed by subscriptions and interactive services - but not by
    broadcasting and related transmissions."
    	Consistent with Congress' intent, the DPRA expressly exempted from
    sound recording performance right liability non-subscription, non-interactive
    transmissions, including "non-subscription broadcast transmission[s]" -
    transmission[s] made by FCC licensed radio broadcasters.   Congress made
    clear that the purpose of this broadcast exemption was to preserve the
    historical, mutually beneficial relationship between recording companies
    and radio stations:

            The Committee, in reviewing the record before it and the goals of
            this legislation, recognizes that the sale of many sound recordings
            and careers of many performers have benefited considerably from
            airplay and other promotional activities provided by both
            noncommercial and advertiser-supported, free over-the-air
            broadcasting.  The Committee also recognizes that the radio
            industry has grown and prospered with the availability and use of
            prerecorded music.  This legislation should do nothing to change or
            jeopardize the mutually beneficial economic relationship between
            the recording and traditional broadcasting industries.

    	The Senate Report similarly confirmed that "[i]t is the Committee's
    intent to provide copyright holders of sound recordings with the ability to
    control the distribution of their product by digital transmissions, without
    hampering the arrival of new technologies, and without imposing new and
    unreasonable burdens on radio and television broadcasters, which often
    promote, and appear to pose no threat to, the distribution of sound
    recordings."   In sum, the transition of traditional local radio stations
    from analog to digital presents no basis to alter fundamentally the
    long-standing mutually beneficial relationship between the recording and
    broadcasting industries by imposing a new performance right in digital
    broadcasts, when one does not exist in analog.
            NAB further stresses that this discussion is not intended to
    minimize legitimate concerns the recording industry may have about the need
    for copy protection.  Rather, it is intended to assist the Subcommittee in
    understanding why a performance right for sound recordings is irrelevant to
    those concerns.

    Conclusion
    	The deployment of digital radio is essential for terrestrial
    broadcasters to better serve their listeners and to remain competitive in
    today's digital media marketplace.  Because of the importance of a timely and
    successful roll-out of digital radio, any system to protect digital content
    must not impede the transition.  NAB and RIAA are engaged in discussions to
    develop a consensus on digital radio copy protection.  Congress should
    allow this industry process to continue without the adoption of premature
    legislative mandates.
    	Thank you for this opportunity to share our views.

    	MR. STEARNS.  I thank you.  We have about three or four minutes
    left, so we are going to take a short break and we have three votes, so if
    you will be patient with us, we have got one; it is almost over, and then
    we have got two more in five minutes, so we should be back in about 15
    minutes or less.
    	[Recess.]
    	MR. STEARNS.  The subcommittee will reconvene and Mr. Regan,
    thank you, and all of you, for your patience here and I welcome your
    opening statement.
    MR. REGAN.  Mr. Chairman, members of the subcommittee, thanks
    for allowing me to speak today on behalf of songwriters.  My name is
    Bob Regan.  I am the current President of the National Songwriters
    Association International, the largest not-for-profit trade association for
    songwriters in America.  I have heard it said that writers really have only
    one story to tell, their own.  With that in mind, I would like to give some
    insight into the profession of songwriting, what we call America's
    smallest small business and what content creation actually entails.
    	Forty years ago I sat in my bedroom with the Beatles songbook, my
    first guitar, and my first broken heart.  As I fumbled with the chords to
    "Norwegian Wood," I experienced the healing restorative powers of
    music, though I doubt I would have put it that way at the time.  In
    college, when I played "Louie Louie" at frat parties, I saw firsthand the
    exuberance and release that a song can bring about.  Think 20 Sig Eps
    doing the Gator on the floor.  I witnessed songs like Bob Dylan's
    "Blowing in the Wind" or Merle Haggard's "Walking on the Fighting
    Side of Me" become far more than content or entertainment.  They were
    anthems and battle cries that cut as deep as the rifts in society at that
    time.
    	Upon graduating from college, I postponed applying to law school
    for a year to try the music business full time.  Eight years later, I landed a
    recording contract with a major label in Los Angeles.  To that point, the
    songs I had written were of value only to my friends, family, and myself.
    They were performed at weddings; they commemorated the birth of my
    children and the passing of my parents.  Was my recording debut a
    success?  Unfortunately, I was one of the large majority of recording
    artists who never make a dollar or make a second record.
    	At age 35, I gave myself three years to write a hit or pack it in.  I
    moved my family across country to Nashville, Tennessee.  There I was
    one of the lucky ones.  I signed a contract as a staff writer for $100 a
    week, fully recoupable from future royalties, by the way.  I had a few
    songs recorded and then right at the three-year mark, Reba McIntire
    recorded and released a song which I had co-written.  I finally had the hit
    and the validation that I had been working and praying for.  Was I now
    wealthy?  Well, I received about $35,000 for my share of the royalties,
    paid over two years.  Going forward, I was able to become a business
    partner and co-owner of my copyrights.
    	Over the past two decades, I have had many songs recorded and had
    several hits on country radio.  I have been blessed beyond all my
    expectations and have the greatest occupation anyone could ask for.  Am
    I now wealthy?  Well, consider this: if I am lucky enough to co-write a
    song on a million selling CD, my writer's share is about $23,000.
    Congress, by the way, determines that rate.
    	The title of this hearing speaks to "Satisfying the 21st Century
    Consumer."  We songwriters and the artists who record our songs are
    more than willing, as we have always been, to provide content for new
    technologies.  We welcome the opportunity.  We are, however, opposed
    to business models that attempt to devalue our music, to redefine how we
    are compensated, or to turn a radio signal into an on demand record
    store.  We only ask that we are able to make a living; not a killing, a
    living.
    	Songs and songwriters are the tip of the inverted pyramid upon
    which the entire multi-billion dollar music industry is balanced, and
    others can speak far better than I to the specifics of pending legislation.
    As I said, I never did make it to law school.  I am, however, familiar with
    Article I Section 8 of the Constitution which guarantees me the exclusive
    right to my creations.  In addition, common sense tells me that we need
    to have parity for all digital delivery platforms if any are to succeed and
    if we are to all reap the benefits of the digital age.
    	As I said, I have only my own story to tell, but it seems my songs
    have told the stories of many others, as well.  Who knows?  Maybe
    somewhere right now there is a kid in his bedroom with a guitar and a
    broken heart trying to learn one of my songs.  If that should lead him to
    embark upon a career in music today, he will have many wonderful
    outlets that I never had.  Let us value his creations fairly and give him the
    chance to tell the stories of the next generation.  Thanks.

    	[The prepared statement of Robert Regan follows:]

    PREPARED STATEMENT OF ROBERT REGAN, PRESIDENT OF THE BOARD, NASHVILLE
    SONGWRITERS ASSOCIATION INTERNATIONAL

    	Mr. Chairman, and Members of the Committee, thank you for allowing
    me to speak today on behalf of songwriters. My name is Bob Regan. I am the
    current President of the Nashville Songwriters Association International, the
    largest not-for-profit trade association for songwriters in America.
    	I've heard it said that most writers really have only one story to
    tell.their own. With that in mind, I'd like to give some insight into the
    business and profession of song writing and into what content creation
    actually entails.
    	Forty years ago I sat in my bedroom with a Beatles songbook, my first
    guitar and my first broken heart. As I struggled to play the chords to
    "Norwegian Wood," I experienced the healing, restorative powers of music,
    though I doubt I'd have put it that way at the time. In college, when I
    played "Louie Louie" at frat parties, I saw first hand the exuberance and
    release that a song could bring about. Think 20 Sig Eps doing the Gator. I
    witnessed songs like Bob Dylan's "Blowing in the Wind" or Merle Haggard's
    "Walking on the Fighting Side of Me" become far more than entertainment. They
    were anthems and battle cries that cut as deep as the rifts in society at
    that time.
    	Upon graduating, I decided to postpone applying to Law School for a
    year to try song writing and the music business full time. One year turned
    into five which became ten before I landed a recording contract with a major
    record label in Los Angeles. To that point, the songs I had written were of
    value only to friends, family and myself. They were performed at weddings;
    they commemorated the birth of my children and the passing of my parents.
    	Was my recording debut a success? No, I was one of the large
    majority of recording artists who never make a dollar or make a second
    record.
    	At age 35, I gave myself three years to write a hit or pack it in.
    I moved my family across country to the songwriting capitol of the world,
    Nashville, TN.
    	There, I was one of the lucky ones. I signed a contract as a staff
    writer for $100 per week, to be repaid from future royalties. I had a few
    songs recorded and then, right at the three-year mark, Reba McIntire recorded
    and released a song which I had co-written. I finally had the hit and the
    validation that I had been working and praying for. Was I now wealthy? Well,
    I received around $35,000 for my share of the royalties. Going forward, I
    became a co-publisher and co-owner of my copyrights.
    	Over the past two decades I have had many songs recorded and several
    of those have been hits on country radio. I have been blessed beyond all my
    expectations and have the greatest occupation anyone could ask for. Am I now
    wealthy? Hardly. If I'm lucky enough to co-write a song on a rare million
    selling CD, my writer's share is $22,750. Congress, by the way, determines
    that rate.
    	The title of this hearing speaks to "Satisfying the 21st Century
    Consumer."  We songwriters are more than willing, as we have always been, to
    provide content for new technologies. We welcome the opportunity. We are,
    however, opposed to business models that attempt to devalue our music,
    re-define how we are compensated or turn a radio signal into an on demand
    record store.
    	Others here can speak better than I to the specifics of pending
    legislation. As I said, I never did make it to Law School. I am, however,
    familiar with Article I Section 8 of the Constitution which gaurantees me
    the exclusive right to my creations. In addition common sense tells me that
    we need to have parity for all digital delivery platforms if any are to
    succeed and if we are all to reap the benefits of the digital age.
    	In closing, I may have only my own story to tell but it seems it
    has been the story of others as well. Who knows, maybe somewhere right now
    there's a kid in his bedroom with a guitar and a broken heart trying to play
    one of my songs. If that should lead him to embark on a career in music
    today, he will have many wonderful new outlets for his work. Let's value
    his creations fairly and give him the chance to tell the stories of the
    next generation.
    	Thank you for this opportunity.

    	MR. STEARNS.  Thank you, Mr. Regan.  I think that is a rather
    touching story for all of us.  Mr. Lawrence.
    MR. LAWRENCE.  Thank you, Mr. Chairman.  Wow, that is really
    hard to follow.  My name is Jeff Lawrence.  I am the Director of Content
    Policy at Intel Corporation and I think that, you know, the perspective
    that I want to bring here today is a sort of step back.  There are a lot of
    hot issues out there that people are focusing on, sort of micro-issues, if
    you will, but I want to step back a little bit and take a look at progress
    that has been made over the last decade and where we might end up in
    the next decade.
    	Intel has this vision of a digital home.  It is a vision that I
    share.  It is a world where consumers can enjoy the content of their choice
    that they have lawfully acquired; any device, any place, any time the way
    that they want to.  To realize that vision, content protection is actually
    a necessary part of it.  And Intel has spent the better part of a decade
    working to build a reasonably protected digital infrastructure in the home
    and elsewhere to support these new emerging digital business models.
    	And what we do is we get together with a lot of companies across the
    industry, with content creators, IT companies, and CE companies, and
    we get together to try and strike deals with respect to content protection
    to enable new business models, to look out for the rights of consumers,
    to make sure that it all works in the ecosystem because one thing that we
    have learned for sure is that if there is some part of the ecosystem that
    doesn't work for them, then it doesn't work for the whole ecosystem.
    And we are actually fairly confident, and we have a high degree of
    optimism, when you look back, when you look forward a decade that we
    are, in fact, going to realize that digital home.
    	And there are a couple of principles that we think are important
    whenever we talk about content protection.  One is respecting intellectual
    property rights and respecting consumer issues and consumer rights.
    Two, the reality that some form of a reasonably protected environment is
    necessary to support that digital infrastructure and you know, one of the
    things that is most important to me is the idea of a protected environment
    is one that should actually enable all kinds of new and cool consumer
    uses.  It isn't one that necessarily has to lock it all down and prevent
    consumers from doing things, rather it should actually open the locks and
    allow people to do interesting and new things with the content that they
    have acquired.
    	Lastly and very importantly is the notion that markets and not
    mandates are the things that actually deliver these solutions, and I agree
    with many of the comments of my colleagues here.  And we have
    focused a lot of our efforts out of the marketplace, you know, be it at the
    DVD, CCA, which is in response for DVD video, content protection, or
    the next generation optical media.  There is a group out there that is
    called AACS that does the content protection for that, enabling new
    consumer experiences, learning from the mistakes of the DVD in the
    sense of the limitations.
    	Debate goes into the next generations.  To home networking
    technologies to making sure that devices can interoperate, we are there.
    We are confident, so I guess my message is yes, there are some issues,
    but I don't think the sky is falling and looking from a larger, longer term
    perspective with a reasonable balanced approach to the issues, letting the
    market go out there and drive them, we are confident that the digital
    home will be realized.  And with that, I am going to stop and I don't
    know if I was the closer or the opener, but I appreciate it, Mr. Chairman,
    and thank you very much.
    	[The prepared statement of Jeffrey T. Lawrence follows:]

    PREPARED STATEMENT OF JEFFREY T. LAWRENCE, DIRECTOR, DIGITAL HOME AND
    CONTENT POLICY, INTEL CORPORATION

            Good Morning Mr. Chairman.  I am Jeff Lawrence, Director of Content
    Policy and Architecture for Intel Corporation.  Intel, the world leader in
    silicon innovation, develops technologies, products and initiatives to
    continually advance how people work and live.  Intel is based in Santa Clara,
    California and currently employs approximately 100,000 people around the
    world, of which about 60% are located in the United States.
            As Director of Content Policy and Architecture, I am responsible for
    all of Intel's many content protection engagements, from public policy and
    legal matters like the Broadcast Flag, to Cable Plug and Play, and a host of
    market based initiatives where companies from the IT, CE and content
    industries come together to find private, market based solutions to advance
    new consumer experiences in digital media.   Some of the initiatives that you
    may be familiar with include Advanced Access Content System (AACS), for next
    generation high definition optical media like Blue Ray Disk and High
    Definition DVD, Digital Transmission Content Protection (DTCP) used to move
    compressed digital content in a protected home network, and High-bandwidth
    Digital Content Protection (HDCP) used to protect outputs to new digital
    displays.  I appreciate the opportunity to provide some perspectives on the
    consumer digital media experience that I anticipate in the next ten to
    fifteen years.
            I share a vision that Intel calls "Digital Home", where consumers
    are able to consume the content of their choice any time, any place and in
    any device.   It is a vision based on interoperability among a wide range
    of intelligent devices, such as PCs, game consoles, home gateways, cell
    phones, other peripherals, traditional and innovative CE devices, and a host
    of new innovative devices that are sure to emerge as the engine of
    innovation churns on.  The Digital Home will be a place where consumer
    choice, flexibility and portability enables consumers ease of use and a
    multiplicity of compelling new media experiences.  Mr. Chairman, it is my
    belief that we will in fact realize the Digital Home vision in the next
    decade, and that the market place will resolve the issues that some may
    perceive as obstacles or threats to that progress.  The key is to bring a
    balanced approach to the digital media ecosystem.  I firmly believe that
    such a balanced approach should include the following fundamental principles:
            ? Respect for Intellectual Property, Rights holders and Consumer
    interests
            ? Reasonably Protected Digital Environment is Necessary
    Infrastructure For the Digital Future
            ? A Reasonably Protected Digital Environment Should Provide Consumers
    Flexibility, Portability and Choice
            ? Markets, Not Mandates, Stimulate Innovation and Deliver Consumer
    Value.
            I have been actively engaged in the digital media transition for the
    past eight years, and Intel has engaged for the better part of a decade. The
    path of technical innovation with respect to digital media is rapid, and
    although there are many challenges relating to rights management and content
    protection, we have seen tremendous progress toward a realization of the
    digital home goals.   With such a wide range of often competing interests,
    it is sometimes easy to lose sight of the tremendous progress that has been
    made, that is being made now, and that will continue to be made into the next
    decade.  It is my opinion that in a decade from now, the digital home vision
    will be realized, and that what are often characterized today as mountainous
    roadblocks to realization of that effort, will then be forgotten in large
    measure or simply viewed as small bumps along the digital highway.   Here
    are just a few of the reasons why I am optimistic that "new media" will
    continue to evolve in ways that support an enhanced consumer experience while
    fully protecting the rights of content creators and owners.
            DVD Video.  In 1996 the motion picture, consumer electronics and
    information technology industries got together to develop a compelling new
    consumer experience known as the DVD.  Many said that consumers would reject
    content protected disks and content protection generally, but they were wrong.
    The DVD has proved to be the most successful consumer entertainment media of
    all time.  As consumer expectations with respect to DVDs are changing,
    permitted DVD usage models are also evolving (even if slowly).  For example,
    today, you can stream DVD content in your IP based home network using
    technologies like DTCP over IP and Windows Media DRM, something completely
    unthinkable just a few short years ago, and the industries are exploring ways
    to enable new uses, such as managed copies and DVD download to disk.   While
    the road may be bumpy with impatience, I'm confident that these new
    experiences will be delivered in time.
            High Definition Video.  The CE, IT and content communities have
    gotten together again to work on next generation high definition optical
    media, including Blue Ray Disk and High Definition DVD.  From the outset,
    these industries have recognized that consumer flexibility and portability
    are key factors to meeting the expectations of today's and tomorrow's
    consumers, and from the outset have developed those specifications and
    content protection schemes such as AACS with those capabilities in mind.
            Digital Music on Demand.  In a few short years we have seen a
    revolution in the way consumers buy and consume music.  "Napster", which was
    once associated with unauthorized peer to peer file sharing, is today a
    thriving, legitimate, online music business, and nothing needs to be said
    about Apple's iTunes and the iPod, which have been immensely successful in
    the marketplace.
            Interoperability.  There are a growing number of efforts in the
    market place to address interoperability issues, including for example the
    Digital Living Network Alliance which currently cites DTCP over IP as the
    first interoperable digital link for protected content.  From beginnings
    like this, I am confident that the market will deliver a range of
    interoperability solutions, including those that are device based and
    those that are network based.  It might take a little time to sort through
    all of the business model issues associated with interoperability, but I am
    confident that consumers will ultimately get what they want, and that the
    market will pass by this bump on the road and never look back.
            Consumer Notice.  One of the most important factors in establishing
    an effective and functioning digital market place is consumer choice based
    on knowledge of the rights and limitations associated with a particular
    digital offering.
            Mr. Chairman, these are just a few of the examples why I am
    optimistic about the future for consumers in the new digital age.  We have
    come a long way already, and although there is still a long way to go, some
    of the world's best and brightest are fully engaged to address the problems
    and issues along the way.  Keeping a balanced perspective on where we have
    come from, where we are going, and the needs and expectations of consumers
    and other interested parties, will surely make the Digital Home vision a
    reality.

    	MR. STEARNS.  Well, you are the closer and so I have an opportunity
    to start out the questioning.  And I guess, perhaps, I will ask Mr. Regan
    this question and then I will ask Mr. Ostroff this question.  I will start
    with you, Mr. Ostroff.  Article I Section 8 of the Constitution states,
    "The Congress shall have power to promote the progress of science and
    useful arts by securing, for a limited time, to authors and inventors the
    exclusive right to their respective writings and discovery."  And this is
    where the argument goes, this limited time.  What does that mean to
    you?  Do you agree that the exclusive rights should be only for a limited
    time, I guess that is the question I have and then for you, too, Mr. Regan.
    Since you are an artist, you probably feel this more keenly, and then I
    will go into a little bit on the fair use aspect of it, so go ahead.
    	MR. OSTROFF.  Well, far be it from me to disagree with the
    Constitution, so I don't have a problem with Article I Section 8 and the
    Supreme Court recently ruled on that issue, so no, I don't have an issue
    with that provision.
    	MR. REGAN.  As far as for me, I would be delighted for my children
    and my grandchildren to be able to reap the benefits of my labor, much
    like anyone who creates anything else.  I would point out that when Life
    Plus 70 was passed, the songwriters, at the same time the restaurant bill
    was passed which removed our royalties from any retail commercial
    establishment under 3500 square feet, I believe, so we did get that
    extension, but we did pay dearly and just real briefly speaking of--
    	MR. STEARNS.  When you say you paid dearly, what do you mean by
    that?
    	MR. REGAN.  Up until that point we had received ASCAP and DMI
    received licensing revenues from all retail businesses that used our music
    under 3,500 square feet, which is, I would venture to guess, the vast
    majority of retail establishments, so that is not really germane to the
    question, but we got Life Plus 70, but the songwriters paid a price.
    	MR. STEARNS.  Um-hum.
    	MR. REGAN.  Speaking of time, just real briefly, just this morning we
    are talking about content versus technology.  It doesn't seem as though
    technology is the problem.  I pulled up from this week in 1956 the top
    ten songs, number one, "Don't Be Cruel," number two, "Hound Dog,"
    "Singing the Blues," "Heartbreak Hotel," "Love Me Tender."  1966:
    "I'm a Believer," The Ballad of the Green Beret," "Winchester
    Cathedral," "Soul and Inspiration," "Monday, Monday," et cetera, et
    cetera.  1976: "Tonight's the Night," Rod Stewart; "Silly Love Songs,"
    "Play That Funky Music."  There was astounding content long before
    there was astounding technology, so we can have all the tech in the
    world.  Without great content, it is dead in the water.  That is what is
    going to satisfy consumers.
    	MR. STEARNS.  And I think most of us in this room have heard the
    songs you mentioned and have felt the same euphoric, almost obviously
    spiritual feeling that you can't even get, probably, any other way except
    music.  So Mr. Parsons, you have been accused of hiding behind the law
    here and in defending his products against criticism, I thought I would
    give you an opportunity to respond.  You heard some of the criticism
    here and so you might want to take a chance to do that.
    	MR. PARSONS.  Thank you very much, Mr. Chairman.
    	MR. STEARNS.  I think you have to put your speaker on.
    	MR. PARSONS.  Thank you very much.  Yes, we very carefully
    followed the law and I guess I was accused of hiding behind the Audio
    Home Recording Act, which we are in full compliance of.  The important
    element of it the Congress has set, in a number of different laws, is a
    seamless web of protection for the music industry, appropriately, and for
    the songwriters, appropriately, where they receive different payments for
    different uses of their property in various ways.  We have tried to not
    only design our devices, but design our business to comply with all of
    those and actually, I think I am the only person here at the table that pays
    under all of those.  I mean, this is not early Napster or illegal file sharing
    or an illegal downloading situation.
    	 We pay under each and every one of the mechanisms that have been
    put in place.  And frankly, when Congress took up the Audio Home
    Recording Act it was in an effort to deal with how do you fairly
    compensate for that underlying property and balance that with a
    consumers' right that they have always had to make an impulse
    recording of that for their own use and the focus, obviously, at that point
    in time was very clearly on ensuring that it really was for their fair use;
    only to record something off the radio, not to put it on the Internet, not to
    distribute it, burn multiple copies.  And so the payments that we make
    are in full compliance with all of the laws.
    	 We pay all of the performance elements, a percentage of our
    revenue comes in and goes to the music industry and the songwriters for
    the right to perform it.  We pay through the manufacturing partners and
    the Audio Home Recording Act for the right for our consumers to record
    it.
    	MR. STEARNS.  Right.
    	MR. PARSONS.  And then to the extent that this is used actually as an
    MP3 player, which it does serve that--
    	MR. STEARNS.  Mr. Parsons, could I take that, after I record a song
    could I play that through my hi-fi?
    	MR. PARSONS.  You could hook it up to any speaker system.
    	MR. STEARNS.  I could play it in my car or I could play it in my--
    	MR. PARSONS.  Yes.
    	MR. STEARNS.  Okay.
    	MR. PARSONS.  Or you can play it through the ear buds.
    	MR. STEARNS.  Right.
    	MR. PARSONS.   But the only way to get the music out is through this
    audio jack.
    	MR. STEARNS.  Right.  But when I play it through my hi-fi system, I
    can record it with a cassette.  Can I record it with a cassette once it is
    going through my hi-fi set?
    	MR. PARSONS.  Chairman, I think that virtually any device that can
    be heard can then be re-recorded and then abused inappropriately.
    	MR. STEARNS.  You could burn it on a CD.
    	MR. PARSONS.  We have just taken to ensure that there are no ways
    that any digital copies can be made, it cannot be abused in that way and
    that was the substance of the Act.
    	MR. STEARNS.  We might do a second round here, but Mr.
    Halyburton, I just want to ask this question.  You mentioned that the
    NAB and the RIAA are in discussions about digital broadcast copy
    protection.
    	MR. HALYBURTON.  Yes.
    	MR. STEARNS.  Can you give us an indication of what is on the
    table?  Are you looking at technical solutions?  Is there still preservation
    of a consumer's right to make fair use of a digital copy of a digital
    broadcast?  That is the key aspect.
    	MR. HALYBURTON.  Yes, there is and the discussions have been
    going very well.  They probably break down into two areas: usage rules,
    which, I think, are probably the more complicated part of it because that
    kind of drives the technology, and what kind of tech will come to play.
    But I think on the radio side, we are starting to understand the issues of
    the recording industry and understand their needs and concerns.  They
    are learning about our business because there are some issues that I don't
    think they knew, necessarily, about how we ran radio, so I think we are
    finding some common ground and I think we are making good progress.
    	MR. STEARNS.  Can you reveal what the technical solutions are?
    	MR. HALYBURTON.  We are not there yet.
    	MR. STEARNS.  You are not there.
    	 MR. HALYBURTON.  We have had four meetings; we have had one
    good technical meeting just a couple of weeks ago, but we are making
    good progress.
    	MR. STEARNS.  Okay.
    	MR. HALYBURTON.  It took a long time to do the television flag.  I
    am hoping that we can make progress and get further along and more
    quickly than they did.
    	MR. STEARNS.  My time is expired.  I welcome the Ranking
    Member, Ms. Schakowsky.
    	MS. SCHAKOWSKY.  I want to apologize first to you, Mr. Chairman,
    and then to our witnesses for my inability to hear all of your statements
    and also, I am not going to be able to stay any longer.  I wanted to just
    tell you kind of where I am coming from, as you probably know.  This is
    really the second half of hearings that began in March and I hope that
    this dialogue will continue and I appreciate your input.  Not all of us are
    as technically advanced as others and so it is really helpful for you to
    inform our opinions.
    	 And it is just a fact that in the age of the Internet that digital rights
    management is among the most contested issues in the legal world.
    Copyright principles and technological capabilities are constantly
    changing, are challenging each other and it is not always easy to strike
    the appropriate balance between protecting copyright holders and
    consumer rights.  In a way, the battle against piracy has pitted content
    providers against consumers, who are not the true enemies, but
    unfortunately, each time there is a new gadget for consumers to use to
    hear their favorite music or classic movie, or enjoy a book, piracy
    advances as new opportunities to steal and in the end, it is both the
    consumers and the artists who end up paying the cost.
    	Since we began these hearings, I have been talking with artist
    groups, content providers, consumer groups, and technology developers
    and I believe, I hope not naively, that we can work together to fight
    pirates and not each other, so I appreciate this hearing today to see how
    technology has developed under the DMCA and what challenges have
    arisen in the process.  And as I said, I hope that we can constructively
    move forward.  So I thank you, Mr. Chairman, and all of you.
    	MR. STEARNS.  I thank you.  Ms. Bono.
    	MS. BONO.  Thank you, Mr. Chairman, and I thank all of you
    panelists for your time today.  First of all, I guess, for Mr. Parsons; the
    past two months I have bought two new cars, one for my 18-year-old son
    and one for myself.  Important to those vehicles, I didn't even open the
    hood to see what kind of engine they had, but I know they both have
    Bluetooth and satellite radio.  And those are important selling points for
    that car.  But if Nissan, in my son's case, said I am going to sell this
    Nissan with satellite capability but you don't have to pay for the satellite
    capability, is that fair business practice?
    	MR. PARSONS.  I think you can certainly purchase the radio with it in
    order to subscribe to the service.
    	MS. BONO.  But I found magically the code to the satellite and now I
    am not going to pay you for your service, but the selling point for that
    vehicle was that satellite radio, which is now stealing your signal, would
    you be in here screaming like a banshee if that were happening?
    	MR. PARSONS.  Congresswoman, absolutely so.  Stealing and piracy
    and not paying for this are, you know, something I think everyone on this
    committee and certainly, everyone on this panel are completely against.
    	MS. BONO.  Well, I wouldn't say stealing is, but the problem we are
    wrestling here with your technology, and first of all, I love your product,
    but it is not stealing, but you are not referring it to distribution and I think
    the Chairman was referring to can I walk this around to multiple hi-fis,
    my car, my PC, how many platforms can I integrate this with?  This is
    mobile now and you know, it is interesting.  It is set to record my
    favorites and as I scroll through my play list, I am told, like the Rolling
    Stones and The Who and Led Zeppelin and blah, blah, blah, and I got the
    song called "Do, Do, Do, Do" and I had to wrack my brain and never
    heard of it, so you scroll through the Rolling Stones, gee, I like that song,
    too, great.  Give it to me.  Never heard of it, but now I actually just got a
    brand new song for free, distributed to me.  So the difference to me, you
    are saying this is a performance and I am saying it is just distribution,
    correct?
    	MR. PARSONS.  I think that is the essence of it, yes.
    	MS. BONO.  The essence of it.  Well, I own this and again, this is
    when you said analog versus digital way back when, we loved that
    argument.  But the truth is, and you said this is an MP3 file or the
    equivalent thereof, so it is not, I mean, it is a copy of a copy.  This is like
    a copy of a master, which is not the same as saying gee, I have taken my
    little stereo and recording it analog onto tape.  Isn't it entirely different
    than that?
    	MR. PARSONS.  Congresswoman, actually it is not, for the following
    reason.  I mean, clearly, we pay for each one of those issues.  There may
    be debates upon whether the rate for each one of those functions is
    correct; whether our performance royalty should be more, which
    obviously, the recording industry feels it should be, and we will go
    through a negotiation and we will have an arbitration on that and
    determine it.
    	MS. BONO.  And thank you, I--yes.
    	MR. PARSONS.  And whether the amount that is paid by the
    manufacturer for that right to record is correct, Congressionally
    established and we pay under that for that right to record.  But the
    essence that you talk about, the ability to take it from one place to
    another, you may have taken your audio cassette from one place to
    another and dropped it in your cassette player in multiple different
    locations, but that didn't change the fact that you recorded it once.  What
    was the difference between analog and digital?  The real difference
    between analog and digital and the fearful aspects of digital, everyone in
    this committee dealt with and effectively had to be addressed in the
    Audio Home Recording Act, was digital can make multiple copies and
    distribute them in perfect form.  The first copy is really not much
    different.
    	MS. BONO.  That is my point.
    	MR. PARSONS.  And in essence--
    	MS. BONO.  Let me reclaim my time here.
    	MR. PARSONS.  Sure.
    	MS. BONO.  My time is limited.  That is my point to you; I am glad
    you are reiterating it maybe a little bit more articulately.  It is a copy
    of a master, so the quality of that is entirely different.  So I think we are
    talking about the same thing and I want to, you know, it is all semantics
    here and is it, you paid major league baseball and Oprah Winfrey tens of
    millions of dollars to promote your product, but you don't want to pay
    the songwriter the distribution right, correct?  And so isn't it that you are
    building your business model based upon the back of the ordinary
    songwriter and in my case, you know, it is personal for me and I hate to
    do that, because you never know when you end up in the press being
    terribly quoted, but my son, as I said, starts college in September and
    thank God for Sonny's royalties because I could not afford college if
    Sonny's royalties weren't paying for that in September.  So it is personal
    for me and I do take it very, very seriously.  But you know, I think if we
    need to define the difference between distribution and we need, in
    Congress, to say what you are doing is distributing the product, then we
    will work on that.  I mean, is your model different from Sirius?
    	MR. PARSONS.  No, Congresswoman, it is very similar and in fact,
    the difference that has been defined between distribution and
    performance is the reason that we are paying separate rates for each and
    we are the largest single payer.  I mean, we clearly believe--
    	MS. BONO.  But I am sorry.  So you are paying a distribution to the
    songwriter?
    	MR. PARSONS.  If it is done on a download basis, there is a
    distribution--
    	MS. BONO.  Come on, come on, come on, come on.  So you are
    saying this is not a download, I am saying it is.  That is the difference
    here.  We are back to the same game.
    	MR. PARSONS.  Correct.  And I am saying that the laws that were
    established that defined what a download was versus what a distribution-
    -no, Congresswoman, the only thing that can get off of this device is the
    artist and song title.
    	MS. BONO.  How is that?
    	MR. PARSONS.  We have restricted it such that nothing else can come
    out.
    	MS. BONO.  With what?  With what?
    	MR. PARSONS.  The encryption within--
    	MS. BONO.  The DRM.  Okay, so Congress right now is debating
    that it could be legal to circumvent that DRM, right?
    	MR. PARSONS.  Correct, in a different bill, yes.
    	MS. BONO.  Yes, in a different bill, which gets to the same point.  So
    now we are hooking this, I don't know where that is going to go, but
    potentially, if you can circumvent the DRM technology in this, suddenly
    this is on the Internet.  Your song that you gave me, I am now uploading
    to whatever file sharing network I choose to.
    	MR. PARSONS.  Correct.  And in that case, everyone at this table will
    be on the same side to try to prevent that from occurring because right
    now, when only the artist and song title comes out, it is so that can
    facilitate a legal download with Napster, our partner, so in fact that
    distribution is paid.  The things that cannot be done out of this, it can
    only make one copy.  It only makes this personal copy.  It cannot move
    beyond this device.  It cannot be burned to CDs, it cannot be distributed
    over the Internet.  All of the classic things that would be done, if in fact it
    was a distribution and we had paid underneath those amounts, so we pay
    the performance; we are the largest single payer of performance rights.
    	MS. BONO.  Of performance.  We got that point.
    	MR. PARSONS.  And--
    	MS. BONO.  And thank you, by the way.  Thank you very, very
    much.
    	MR. PARSONS.  And we would like other people paying this, too, if
    we are going to debate that particular piece of it.  And then we also pay,
    once again, for the right to record under the amounts established by
    Congress, and then we facilitate the payment for a distribution by only
    allowing off of this device the artist and song title and then linking it up
    with Napster so that, in fact, you can get a legal download and pay the
    third way.
    	MS. BONO.  I know I have overstayed my time.  I thank you, Mr.
    Chairman, but Mr. Lawrence, you said the sky is not falling.  The sky is
    bluer than ever for all of us in this room if one industry or one particular
    component of it doesn't make it on the back of another and that is my
    only point, but the sky is bluer than ever and I am encouraged by all
    these technologies and the content providers, everybody, but I don't like
    to see one, in your case, you profit on the backs of the songwriters.  So
    with that, I will yield back, Mr. Chairman.
    	MR. STEARNS.  I thank the gentlelady.  Mr. Murphy.
    	MR. MURPHY.  I am going to ask some more questions, so you can
    listen to me.  Mr. Lawrence, you are sort of an expert here, Director of
    Digital Home and Content Policy of Intel Corporation, so we want to get
    to you here.  I have got three questions for you.  The first question is,
    please explain how some of the current DRM technologies used in the
    music business limit consumer use, particularly in music purchased on
    line from such services as Apple's iTunes?
    	MR. LAWRENCE.  Sir, I am not an expert in iTunes other than the fact
    that I subscribe to it.
    	MR. MURPHY.  Okay.
    	MR. LAWRENCE.  But fundamentally, it is a deploying of a digital
    rights management technology and there is really a wide range of them.
    Microsoft builds one, Real Networks builds one.  There are a number of
    them out there and they are fundamentally based on encryption at the
    source where the point of distribution, the content is encrypted and then
    it is delivered to a device and when the device receives it, in order to
    actually decrypt the content and use it, it has to have a key and to get that
    key, to build the device, come a variety of rules that decide, that dictate
    how robust against hacking it has to be and also dictate the usage rules,
    you know, what is the device allowed to do.
    	 And you know, the thing that is interesting about iTunes is actually
    it is a very flexible consumer usage model and they had to.  Had to,
    maybe that is not the right word, but they adopted a model that
    consumers would find usable in their everyday lives.  And so you can
    move it around to a couple of PCs and you can even make a backup copy
    because they met those consumer expectations.  But they are all
    fundamentally based on the notion of distribution at the source where it
    is protected, meaning it is encrypted.  And once it is encrypted, you
    know, there is a variety of just sort of tools that you can use to manage
    the content and decide where it goes, and that is why we try to build an
    environment where that content can move around in a protected manner
    and consumers can still enjoy it.
    	MR. MURPHY.  In the discussion, the gentlelady from California was
    talking about the difference between distribution and downloading and
    you heard their conversation, what is your opinion?  I am putting you on
    the spot a little bit on distribution and downloading.  Would you say
    what he is doing is downloading or distributing?
    	MR. LAWRENCE.  Well, you are putting me on the spot.  I knew I
    was the odd man out.
    	MR. MURPHY.  This is just an open discussion.
    	MR. LAWRENCE.  Yes.
    	MR. MURPHY.  I mean, you can give your reply here in a way that
    can be from a technical standpoint.
    	MR. LAWRENCE.  I will tell you what--
    	MR. MURPHY.  I think it is an important point she made.
    	MS. BONO.  Just clarify real fast between distribution and
    performance.
    	MR. LAWRENCE.  So without giving you a specific legal opinion.
    	MR. MURPHY.  Yes.
    	MR. LAWRENCE.  You know, I think that we do have the case where
    we have a statutory regime that was developed in an analog world and
    for analog business models, and now we have the digital world and
    digital business models and they don't oftentimes mesh together very
    well.  And you know, as we talk about how do we address and fix some
    of these problems, I think that is a real challenge, but there seems to be,
    or there is often a tendency to want to point to the makers of devices, IT
    devices or CD devices, and ask them, through a government mandate or
    something to try and fix a problem that isn't really fixable there.  It needs
    to be fixed at a more fundamental place where the business relationship
    between the rights holders and the broadcasters, that needs to be ironed
    out more clearly.  So without giving you the legal answer, I don't think it
    is a technical problem so much as it is a business problem and an old
    regime.
    	MR. MURPHY.  I accept that.  Yes?
    	MR. OSTROFF.  Can I make a comment on the DRM point?
    	MR. MURPHY.  Sure.
    	MR. OSTROFF.  I think DRMs have gotten a bad rap, an unfair rap
    because if you look at these devices here, if you look at the DVD, none
    of those would be possible without DRMs.  It is probably one of the
    areas, few areas at this hearing where Mr. Parsons and I will disagree.
    Without DRMs, his XM satellite service can be hacked.
    	MR. MURPHY.  Do you two disagree or agree?
    	MR. PARSONS.  No, we agree.
    	MR. OSTROFF.  You know, when it comes to our intellectual
    property, our copyrights, which we only have for a limited time, unlike
    other property, we have to be able to market them and we want to be able
    to make our content, our music, what Mr. Regan produces, what our
    artists produce, available to as many people as possible in as many ways.
    And it is just that we want to get compensated for them and DRMs is
    what makes that available.  That is what allows iTunes; that is what
    allows the subscription services.  And I just want that point to be clear
    here today.
    	MR. MURPHY.  Good.  Mr. Lawrence, again, what are the limits and
    the capabilities of DRM technologies?  What limits do you believe may
    be imposed on consumers by these technologies?  And this is sort of a
    tradeoff from what he is talking about.
    	MR. LAWRENCE.  Yes, that is actually a really open-ended question,
    as well, because you know, as a technology developer, there is almost an
    unlimited range of things that you can do.  But when you build a digital
    rights management technology, you have to take into a number of
    important considerations, such as the cost of implementation and what is
    the actual goal that we are trying to solve and so I think that from a
    technical perspective, you can do a lot of stuff, but it may not be practical
    to deploy a highly complicated, overly sophisticated sort of military-
    grade style security system.  The real goal is to keep honest people sort
    of honest.  We say that a lot, I know, but also to support a reasonable
    infrastructure that will support the digital business model.
    	 And so when you go to build the technology itself, you actually
    take--it is one place where you actually balance a whole host of interests,
    you know what the goal is.  How do we reasonably keep it secure; how
    do we enable consumers, you have all these policy things that go in, and
    what is the cost of building and implementing.  Because one thing that is
    interesting is consumers really don't pay extra for content protection and
    it needs to be something that is seamless and friendly to them because if
    they reject it, if it doesn't work for them, then they find alternatives.  So
    you can do a lot of stuff, but in practice what works is a different matter.
    	MR. PARSONS.  Mr. Chairman, I will also note on that, that the
    physical DRM, the inability to get something off, is very important.
    Really, it is the object to make that which is legal very easy, very
    convenient and that which is illegal, make it very complex and very
    difficult to break, and that is the best shot that a developer, if you are
    looking at creating a new device, what you are trying to do is to allow the
    fair use elements to be done easily, seamlessly, but ensure that the illegal
    activities or things that make serial copies are very difficult to
    accomplish.
    	MR. STEARNS.  You used, Mr. Lawrence, in your statement you said
    that "reasonably protected digital environment" is essential for the future
    of this business.  I guess the question is, can you define more
    quantitatively what that means?
    	MR. LAWRENCE.  In terms of what is reasonable?
    	MR. STEARNS.  Yes.
    	MR. LAWRENCE.  Yes, I think that goes back to that interesting
    balancing of interest tests that we talked about.  You know, it is
    ultimately a cost-benefit analysis and content protection because we
    could build, for example, military grade security that would be
    astronomical in the cost perspective to implement, and that wouldn't
    advance any of these business models.  The other piece is that law
    enforcement is really an important part of dealing with piracy.  The
    things we have learned in the DRM world is that the determined hacker,
    the determined pirate, he will defeat whatever you build and so this is
    balancing, there is an important role for law enforcement in content
    protection.
    	It is the only thing that is effective against pirates and then is sort of
    a reasonable degree of protection which is effective to encourage
    consumers to behave in a reasonable way.  And so you have to balance
    those things when you build your technology and deploy it.  And you
    know, to the rights holders community over the years, they have really
    come to appreciate the fact that, and look at the cost factor.  DVDs are
    really inexpensive now, you know, and if they were still $600 apiece,
    then there is not as big a market and so there really are a lot of cost
    benefits that go in.
    	MR. STEARNS.  You know, we had a hearing on the Boucher bill that
    was referred to here earlier, and Jack Valenti, when he was still the
    president of the Motion Picture Association, was adamant that he did not
    want one copy made of a DVD, period.  And then right next to him was a
    man who was making lots of copies of CDs and recordings and he
    probably, judging from his testimony, shouldn't have been doing as
    much as he did, because he was making a whole library and providing
    for his friends, and so as he kept talking, we started to realize he
    probably was going much too far.  But when you heard Jack Valenti be
    so strict that we could not make, a family could not make one copy of a
    DVD, this goes to the understanding of what is reasonably a protected
    digital environment.  Under that scenario, what is your opinion, now it is
    just your opinion; do you think a family should be able to make a copy of
    a DVD, one copy for their own personal use?
    	MR. LAWRENCE.  So that is a great loaded question.
    	MR. STEARNS.  It is a loaded question.
    	MR. LAWRENCE.  Yes.  No, that is really good one.  So what I think,
    and what they are working at at the DVDCCA, they are considering a
    variety of ways to enable recording of DVDs because whether it is
    appropriate as a legal matter or not, almost doesn't matter.  The reality is
    consumers want to do it and if they can do it in a way that rights holders
    are still compensated, it really ought to be enabled and all of the content
    protection efforts that we have been involved in, you know, we have
    tried to stay away from the argument of what is legally fair use or not fair
    use.  Because in practice, when we build this protected environment and
    they pump this high value entertainment content in it, ultimately all of
    our customers are those consumers, and if they can do a variety of cool
    things that go way beyond what the law would describe as fair use, then
    that is going to be the most successful and compelling business model,
    we believe.
    	MR. STEARNS.  Okay.  I am going to close by unanimous consent I
    am going to put into the record Mike Ferguson's statement.  Mr.
    Ferguson has the Audio Broadcast Flag Licensing Act of 2006, it is H.R.
    4861.  He has done a wonderful job on this bill.  He regrets he could not
    be here, but I want to give high praise to his H.R. 4861 and to put his
    opening statement into the record and with that, Mrs. Blackburn.
    	[The statement follows:]

    PREPARED STATEMENT OF THE HON. MIKE FERGUSON, A REPRESENTATIVE IN CONGRESS
    FROM THE STATE OF  NEW JERSEY

            Mr. Chairman, thank you for holding this hearing.  This subcommittee
    can serve an important role in this area, shining a light on exciting new
    technologies, examining how to effectively protect digital content, and
    ultimately, ensuring that consumers get access to new products in a quick,
    reliable - and responsible - fashion.
            Today's hearing will focus on digital audio devices, content
    protection on those devices, and the effect on the American consumer.  This
    is an area of keen interest to me, as I have introduced legislation that is
    designed to facilitate deployment of digital radio services, ensure consumer
    choice and protect the property rights of content creators.
            The Audio Broadcast Flag Licensing Act of 2006 is designed to ensure
    that intellectual property rights are respected and that those who create
    content are duly compensated, with the end goal being more consumer choice
    on the marketplace.  Most importantly, my bill makes sure that the
    marketplace, not Congress, is where these negotiations happen.  It is not
    the role of Congress to pick winners and losers but to ensure that all
    parties are competing on a level playing field.
            The legislation first requires digital radio services using
    government spectrum to acquire the same licenses from music creators that
    download and subscription digital music services currently must obtain to
    provide the same services.  Some have claimed that these new services fall
    under the Audio Home Recording Act (AHRA).  The AHRA was passed in 1992 at a
    time when even the Internet was mostly unknown to legislators and consumers.
            The fact remains that Congress could not have foreseen that some
    would choose to turn their performance license into a distribution licenses,
    without paying for the privilege.  I find it hard to believe that Congress,
    while deliberating the AHRA, would agree that creators should be compensated
    $2 million a year under the AHRA when they are currently making almost $2
    million a day from legal download services.
            Additionally, services such as Rhapsody and Yahoo! have both radio
    services and distribution services currently in the marketplace.  They
    negotiated their licenses in the marketplace and did not claim that they
    would fall under the AHRA.  Why is it that others, wanting to provide that
    same service, have decided to claim they are covered under AHRA?
      	The bill also provides for private market negotiations of an "audio
    broadcast flag" that will ensure that digital radio broadcasts are not
    indiscriminately disseminated over the internet.
            While the bill is clear in its intent to protect content, it also
    ensures that American consumers remain unaffected.  Legacy devices already
    in the stream of commerce would remain unaffected, and the bill specifically
    states that the HD Radio rollout remain unimpeded.
            Of course, the preference is to see these issues resolved between
    the respective parties in the private sector.  And I hope they can be
    resolved - in quick fashion.  But the fact remains that digital audio
    products are on the market today that allow authorized downloading and carry
    a risk of illegal uploading to the World Wide Web.
            This is an issue that undoubtedly deserves Congress' attention, but
    may also need Congress' direction.  The Audio Broadcast Flag Licensing Act
    is not only for the good of content creators, more importantly its for the
    good of the consumer - our constituents. To ensure that these exciting
    products continue to flow to consumers, intellectual property needs be
    protected.  There must be a balance.

    	MRS. BLACKBURN.  Thank you, Mr. Chairman.  I appreciate that and
    I appreciate you all bearing with us as we have another hearing going on
    downstairs and we have had votes in the middle of this, but we do
    appreciate the work that you do and that you are here to talk with us.  I
    will have to tell you it is so interesting to me to listen to the
    conversations taking place, having so many creators in my district.  And
    I love to tell people about my district, you know, because we have
    creators, songwriters, producers, original thought thinkers and it is a
    great community and a great place to be creative, and I think it is so
    important that we realize what that creativity brings to this country as an
    economic development issue, as a trade issue, entertainment being such
    an enormous, enormous part of the exports that we have.
    	And some of you that are sitting there right now rolling your eyes
    and acting so bored with my little dialogue, I would just like to say we
    are here to protect what you create, too.  And one of the ways that we do
    that is to be certain that people understand that we should respect
    copyright law in this country, so thank you all for coming and sitting
    down with us because working this out is something that we want to do.
    You know, Mr. Lawrence, listening to you talk, I hope that you are
    paying attention and I am sure that you are and I am sure that the good
    folks that work with you are paying attention to Section 107 of the
    Copyright Act because that defines the difference in something that is
    there for personal use and something that is there for commercialization.
    	And also, it is where we get into talking a little bit about what
    is fair use and what is free use, or as one of my songwriter friends says,
    fairly useful way to steal my music.  And that is where we have to draw this
    line.  We have to send a message to all the creators in this country and to
    our trading partners that we are going to respect what we create in this
    country.  That we recognize it is private property, and that we hold it to
    be something uniquely wonderful and uniquely American.
    	Now, I do have a question I want to ask you.  The Chairman just
    mentioned the broadcast flag bill that Mr. Ferguson has worked on and I
    do wish that he was able to be with us today.  Ms. Bono and I have both
    co-sponsored that piece of legislation and we were talking a little as we
    were going down to vote about the compensation methods and the
    business models and how things are structured.  And so Mr. Parsons and
    Mr. Halyburton, let me come to you with my question on this.  It seems,
    as we look at the broadcast flag issue and having that audio flag in there,
    and you have talked a little bit about the HD and the satellite radio work,
    that we want to be sure it doesn't translate into a download service.
    	You want to be sure that you protect your business model that you
    have invested hundreds of millions of dollars to put into place and we
    respect that because we like for companies to be successful.  But it seems
    to me that the audio flag would be a way for you to help protect that
    content and still, at the same time, ensure the profitability of your
    business.  Do you want to comment on that?
    	MR. PARSONS.  I think, actually, Mr. Halyburton began that
    conversation with some prior descriptions of it.  They are in the midst of
    a negotiation and discussion about exactly how that is to be implemented
    and those negotiations and discussions are going on to look at how the
    technology can do it.  Essentially, one element that I think we all agree
    on, whether it is an audio flag purpose, whether audio flag is the way that
    you achieve it versus other ways that you achieve it, there has to be some
    way to ensure that digital content that comes over a delivery mechanism
    cannot, then, subsequently be abused for more than personal use.
    	I mean, we are big defenders of fair use or personal use and we
    believe we are correctly doing it, but we are also just as passionately
    defenders that it not go beyond that.  That hurts us, that hurts the
    recording artists, that hurts everyone to have it beyond that point.  So
    from our standpoint, we essentially put a physical restriction on it.  You
    just simply cannot get off of the device to ever distribute it, so we don't
    see a need in that system, since we have a closed protected system.
    	MRS. BLACKBURN.  So you would consider it to be redundant?
    	MR. PARSONS.  We would consider it to be redundant to our system.
    It may not be to the HD radio system, because theirs is going to be a
    more open system where they may not be able to restrict it without it, but
    I will turn that to Mr. Halyburton.
    	MR. HALYBURTON.  Yes, I think--
    	MRS. BLACKBURN.  I think we are almost out of time and I have got
    one other quick question.
    	MR. HALYBURTON.  Okay.
    	MRS. BLACKBURN.  Go ahead.
    	MR. HALYBURTON.  Okay.  Yes, I think that ours is a kind of unique
    issue that the broadcasters are working on.  We have had very good
    meetings with the recording industry.  We are understanding their issues
    and they are understanding our operations and I think the meetings have
    gone very well in the direction of finding a way to protect that content.
    	MRS. BLACKBURN.  Okay, anybody else want to issue anything
    there?  I have got one other question.  Mr. Parsons, you, in the beginning,
    mentioned that you were paying hundreds of millions of dollars to
    creators and performers and that you were paying twice and you spoke in
    the aggregate.  Would you like to, at this point, break that down so you
    are talking about what you are paying the performer, what you are
    paying the songwriter per play?  Would you like to do that?
    	MR. PARSONS.  Congresswoman, it actually doesn't end up being per
    play, it ends up being as a portion of all of our revenue.
    	MRS. BLACKBURN.  Okay.
    	MR. PARSONS.  So whatever amount of revenue that we make--
    	MRS. BLACKBURN.  For the record, would you like to explain that so
    that it is clear in the record?
    	MR. PARSONS.  Yes.  Okay, clear in the record, the agreements that
    we have in place right now, we have operated under five years of the
    agreement.  We are currently renegotiating those rates for the coming
    five years on a performance basis.  Those amounts come to tens of
    millions of dollars now and with the growth of our industry under the
    current existing rates, will be hundreds of millions of dollars over the
    coming five years.  It roughly equates to 6 to 7 percent off the top of all
    of our revenue and then by the statutory requirements, that is broken
    down by a percent that goes directly to the recording artist and
    distributed; a percent that goes to the publishers; a percent that goes to
    the composers; each of those get a designated portion under the
    compulsory license.
    	The second area of payment that we referred to is a different
    distribution.
    	MRS. BLACKBURN.  Okay, now hold on just a second there.  You
    said they are going to get 6 to 7 percent of your total revenues and then
    that is going to be split between your performers and your songwriters
    and your publishers.
    	MR. PARSONS.  Correct.  We have different agreements with BMI,
    ASCAP, CSAC for those purposes.  We have different agreements.  We
    actually have a breakdown of what percentage each group gets out of
    that.
    	MRS. BLACKBURN.  That is great.  For clarification for the record, as
    we go ahead looking at the issue, just reading the testimony, I had a
    feeling that you might want to clarify that for the record as we move
    forward.  Mr. Ostroff?
    	MR. OSTROFF.  Yes, if I could make a point on that.  What Mr.
    Parsons is referring to as the second payment is payments that are made
    under the AHRA by the device manufacturers.  The music industry,
    recordings and music publishers, songwriters combined this year, we
    expect to make $2 million from all of the AHRA payments.  In contrast
    to that, for downloads today, we are going to sell two million copies of
    digital downloads.  Every day we are selling two million copies.  On an
    annual basis, the comparison is two million versus close to a billion, so
    what the XM device, which is a distribution device, is paying less than
    peanuts for that ability.
    	MR. PARSONS.  May I note on that?  However, that is because there
    are very few devices that have been manufactured and if this is half as
    popular as an iPod, it is tens of millions per year.
    	MRS. BLACKBURN.  Mr. Parsons, I am now three minutes and 52
    seconds over.
    	MR. PARSONS.  Yes, ma'am.
    	MRS. BLACKBURN.  And I need to yield back to the Chairman and
    then he may want to continue with the line of questioning, but thank you
    all so very much.  We want to find a resolution to this issue and we
    appreciate your work today.  Mr. Chairman, thank you for your
    generosity with the time.
    	MR. STEARNS.  Oh, sure.  Okay, Mr. Murphy, I am sorry I didn't get
    you earlier.  Go ahead.
    	MR. MURPHY.  You know, I have written a few songs in my time, I
    play guitar and I would be glad to audition for any of you.  My concern
    is, let me make sure I understand this.  So let us say my song is a hit, I
    am backed up by Marsha Blackburn and her Tennessee Gitpickers or
    something like that.  We have this great song.  I wrote it, she has a back-
    up band, she sings harmony.  If I sell, we will be modest, a million CDs,
    how much money do I get from that?
    	MR. REGAN.  As I mentioned, if you--
    	MR. MURPHY.  Give me a number.  Make me excited here.
    	MR. REGAN.  Well, you won't get excited, I am sorry to report.  But
    the mechanical rate at this point is, I believe, 9.1, 9.2 cents.  As I said
    earlier, if you co-write the song, which almost all Nashville songs are co-
    written, and we have a publisher, you will reap approximately $23,000
    for that million selling CD.
    	MR. MURPHY.  And what if this gets played on XM Satellite Radio,
    how much do I get?
    	MR. PARSONS.  I wouldn't be able to tell you what the formula is for
    that.
    	MR. MURPHY.  If a million people download it.
    	MR. PARSONS.  Well, they don't download it, but it is how often is it
    played.
    	MR. MURPHY.  Wait a minute.
    	MR. PARSONS.  How we pay under this is--
    	MR. MURPHY.  But they can record it; they can keep it, right?
    	MR. PARSONS.  Correct.
    	MR. MURPHY.  Okay, so they kept the song now, so it is on their
    personal file.  They got it from XM.  How much money--
    	MR. PARSONS.  It would depend on how frequently they were
    played.
    	MR. MURPHY.  Every time they play it on their own personal--I am
    not talking about every time you play it.
    	MR. PARSONS.  No.
    	MR. MURPHY.  If you play it once and a million people say I like
    that, I have got to get this song and they keep it now, how much money
    do I get?
    	MR. PARSONS.  It is a different percent that gets paid--
    	MR. MURPHY.  Give me a ballpark figure.  If you don't know, you
    shouldn't be in this business.  Give me an idea.  How much money do I
    get?  Don't avoid the question.  Give me an idea.  I want to know.  This
    is not making me happy and--
    	MR. PARSONS.  It will purely depend on how often you were played.
    	MR. MURPHY.  Or her, either.
    	MR. PARSONS.  It is just like this.
    	MR. MURPHY.  Do I get a million dollars, do I get 23 cents, $20,000?
    What do I get?
    	MR. PARSONS.  It depends on how often you were played.
    	MR. MURPHY.  Geez, Mr. Chairman, this is not good.  We are not
    getting cooperation from the witness.  Come on.  If a million people
    decide to download it, would that make any difference in how much I
    get?  Yes or no.
    	MR. PARSONS.  If a million bought it on Napster through our
    flagging of it, it would be one fee.
    	MR. MURPHY.  Okay.  How much?
    	MR. PARSONS.  If a million plays were done on our service on an
    ongoing basis, it would be a different fee.
    	MR. MURPHY.  Give me an idea.
    	MR. PARSONS.  Well, it depends on how popular and how many you
    make.
    	MR. MURPHY.  I just told you.  A million people heard it, they said I
    want to keep that song.
    	MR. PARSONS.  Okay, we will have to break it down.  Over the next
    five years we are paying hundreds of millions--
    	MR. MURPHY.  We will just assume--Mr. Chairman, I would love it
    if you could ask him to write a response to this question because of my
    time.
    	MR. STEARNS.  Will the gentleman yield just for a second?  As I
    understand it though, if people, a million people download that onto your
    radio, you don't pay anything, isn't that true?  If a million people are
    recording it over the air?  If they have your radio and they say by golly,
    the announcer says we are coming up with "Don't Be Cruel," and a
    million people download that into their radio, you don't pay anything and
    those people can listen to that.  You said in your opening statement they
    can listen to "Don't Be Cruel" again and again and again.
    	MR. PARSONS.  Mr. Chairman, that is--no.  We cannot, by the way.
    There are restrictions.  We cannot say that this is what is coming up.
    	MS. BONO.  Actually, if I might, you don't have to say it.  I just
    told my gizmo for the next 30 days find anything by Elvis Presley and
    download it for me while I am asleep, so nobody needs to announce it.
    	MR. STEARNS.  No, I am just saying, I mean, if you have got, if you
    have worked out that you don't pay anything, just tell them.  I mean, it is
    no big deal in the sense that he is trying to make a point and I am trying
    to help you answer the question, which I think is you don't pay anything.
    	MR. MURPHY.  Is the answer zero?
    	MR. PARSONS.  The answer for each recording of this would be zero.
    	MR. MURPHY.  Thank you very much.  Boy, it took me a long time.
    I hope you will give me a little bit more time here.  Okay, and here is my
    concern.  I talk to a lot of high school and college classes, students, and I
    use, as an example of, does Congress have a role in their life because a
    lot of them think there is really nothing I am interested in here.  You talk
    about highways and roads and deficits, things like that.  But I ask them, I
    bring up questions about the Constitution and the issues involved in the
    Constitution from the onset about copyright law and patent laws.  And I
    ask them do they think it should be illegal for them to take music and
    download it without giving any compensation to the songwriter, the
    performer, the recording company, the gaffer, the janitor, all those people
    involved.
    	And they say things to me like well, I don't really want to buy CDs
    because nine out of ten songs, insert appropriate teenage slang here,
    aren't very good or the musicians already make so much money; it
    doesn't matter or it is available, so it must be okay; or I don't have the
    money to get it all, so I just load it on or also, if I put it on my iPod
    and I break my iPod, I have lost everything, so I make multiple copies and my
    friends all share them.  What should I tell teenagers and college students
    today about the Constitution and ethics?  I hear these things so often.
    What should I tell them?  Gentlemen.
    	MR. OSTROFF.  Well, I think that you are asking the right questions.
    	MR. MURPHY.  Because that is your audience.
    	MR. OSTROFF.  But not getting the right answers.  I think that there
    has been a shift in recent years because of the things that we and others
    have done.  For one simple example, I buy a CD, there is only one good
    song.  I can go to iTunes and buy that one good song for 99 cents and the
    different ways that we have now made music available, I think satisfy
    consumers', kids' needs and you know, it is still very, very difficult to
    compete with free.
    	MR. MURPHY.  So let us talk about the ethics of this.
    	MR. OSTROFF.  The ethics, I think, are pretty clear.  Theft is theft
    and people put their hard work, their blood, their sweat, their tears--Mr.
    Regan can speak of that, you know, much more than me; I am just a
    mere businessman--to create these wonderful songs and wonderful
    recordings.  And to just take it without paying the people who did the
    work is just wrong.
    	MR. PARSONS.  And Congressman, I agree 100 percent with that.
    We have fought that and that is why we do pay.  We are the largest
    single payer of all these performance--
    	MR. MURPHY.  We have already established you pay them zero, so
    let us move on.  Anybody else?
    	MR. REGAN.  Well, I would just say if all we have to make is a moral
    argument, it is extremely difficult.  My own son, I have caught him with
    burned CDs.  He doesn't do it in my house, but his very Nikes are
    dependent upon the proceeds of intellectual property and I try not to beat
    him, but sometimes I can't stop myself.  If all we have is the moral
    argument, it is extremely difficult.  That is why we have to have
    Congress help us out to protect this stuff and--
    	MR. MURPHY.  Mr. Lawrence, you were going to comment?
    	MR. LAWRENCE.  Yes, I can't let this pass.  We completely agree
    that, you know, in a digital age and a digital society where the assets are
    different than they have been in the past, the ethics and honest behavior
    is a critical part of a successful digital marketplace, it just is.  And it
    has to become a fundamental piece of our society and it is incumbent on us,
    as parents who have children and parents who, you know, just no
    children and even amongst ourselves, the education piece is just
    paramount and never has ethical behavior been more important and it is a
    fundamental American value and we really, really do need to stress and
    drive that home.
    	MR. MURPHY.  Thank you.  I know I am over time.  One other thing
    I would just like to ask for, for the sake of parents of young children.  I
    no longer have a young child, but one of the things that is valuable for
    parents is, you know, for those DVDs they have already played 6,000
    times, many times parents would prefer if I can keep the master copy
    hidden away and give my kids a copy so when it gets covered with
    peanut butter and jelly and milk and everything else there, we can always
    make a new one.  Is that something the industry would find a way to
    permit?
    	MR. LAWRENCE.  Yes.  So you know, with respect to the content,
    industry has recognized that people want the ability to do managed
    copies and that they want the ability to burn backups and so when the
    next generation optical media formats, which are high def DVD and blue
    rate disc, they are going to come with those basic capabilities, you know,
    that if you want to do a backup, you can do it.  If you want to move it to
    a portable device, those things will be enabled.  When we did the DVD,
    you know, there was some doubt that even consumers would accept
    content protection at all, but they clearly do.  The consumers'
    expectations or their desire to make backups and such like that has
    changed over time and so there is actually an effort in the DVDCCA to
    try and address that, and I think that the content community, to their
    credit, have said this is what our consumers want and demand and we
    need to find a way to make a proposition that is acceptable to all parties
    to make it happen.
    	MR. MURPHY.  Given all that is taking place, I hope we will be able
    to draft legislation that keeps up with the technology because by the time
    we type this up, everything will change, so but thank you very much for
    your testimony.  Thank you, Mr. Chairman.
    	MR. STEARNS.  I thank the gentleman.  The gentlelady, Ms. Bono.
    	MS. BONO.  Thank you, Mr. Chairman.  Okay, if I take my iPod and
    I hire Mr. Lawrence because he is clearly very brilliant and I say put
    some antenna on my iPod and let us go around southern California and
    start streaming music via wi-fi or EDVO or whatever the terrestrial
    Internet is going to be, doing wirelessly, how is that different if my iPod
    could suddenly start doing that, why would I need this if I could do that
    with my iPod?
    	MR. PARSONS.  Congresswoman, there are different rates that are
    established for each one.  The wi-fi may, in fact, not be paying a
    performance, it might be paying on a download basis.  Many of these
    devices don't pay under the Audio Home Recording Act.  They don't
    pay a performance, but do pay on a download.  The device that was
    shown here, which is actually a video iPod, if you wanted to watch
    Desperate Housewives for free, you watch it over the air for free.  If you
    want to put it on your TiVo and record it to watch it later, you do that, as
    well, for free.  If you didn't remember to record it, like you would have
    on this, then you have to download it from iTunes and it costs you $2.
    Each one of those--
    	MS. BONO.  It would have been like I would have had to remember
    on this?
    	MR. PARSONS.  Pardon?
    	MS. BONO.  Just 17 songs have been downloaded on here.  I haven't
    done a thing.
    	MR. PARSONS.  Right, and if you had set up your TiVo to record
    those, you might have gotten it or you might not have.  Each one of
    those, the consumer is willing to pay and willing to experience a
    different environment--
    	MS. BONO.  Then why aren't you?  Why aren't you?  I mean, again, I
    love your product, but why aren't you?  You know, he--God, he was
    good for a psychologist.  He can put you in your place.  I hate to be on
    your couch.  But he got you to say it.  I mean, why don't you--and I have
    a feeling you will.  I think at the end of the day you are going to hear
    footsteps coming from Congress that are going to hopefully let you know
    that we think you ought to be paying, that this is a distribution model, not
    a performance model.
    	MR. PARSONS.  Well, Congresswoman, you really do hit the exact
    issue, which is it a distribution or is it a fair use recording over the air?
    Because that makes all the difference.
    	MS. BONO.  Well, we seem to think, as consumers, it is a
    distribution.
    	MR. PARSONS.  Correct.  You are saying it is a distribution and I am
    saying that in Section 114 of the Audio Home Recording Act, Congress
    very carefully said this is a distribution; this is fair use over the air, and
    established exactly what those rules were.
    	MS. BONO.  I am sorry.  What year was that written?
    	MR. PARSONS.  1992.  But at that point in time--and it was written
    for a digital environment.  As a matter of fact, it was--
    	MS. BONO.  Mr. Lawrence, do you think in 1992--you were probably
    at MIT or somewhere, Cal Tech or something.
    	MR. LAWRENCE.  I wish.
    	MS. BONO.  But did you anticipate in 1992 this is where we would
    be?  I mean, in 1992, I mean, to go to something that is completely
    antiquated.  I mean, literally, as I said, my son and I bought cars that
    are--I will let you get to it.  I am on a roll.  But I bought a car that is
    basically a cell phone and satellite radio; so did my son.  I mean, mine is
    a BMW, his is a Nissan, but that is where we are today, so I am sorry,
    please.
    	MR. LAWRENCE.  You know, when you look back at some of the
    efforts that have been made through laws to address innovations that are
    happening in technology and business models, when I go back to 1992,
    for me it shows that it is just oftentimes not effective because we don't
    see where it is going.  And so if we can level the playing field so that the
    problem can be solved in the business world where it really ought to be
    solved and let the markets address them, that is important.  It goes back
    to my point earlier about we have got one regulatory regime and a new
    world and there has been a lot of discussion about efforts to try and
    address the problem.
    	And I want to reiterate again that, you know, our industry is not
    really a part of any of those discussions and there is a lot of talk about
    technical solutions and there is a lot of talk about ways to do it.  But I
    fear that again we are going to go back and try and impose a fix on
    technology providers or innovators; it is not going to fix the problem.  In
    fact, if you go back and look at some of the devices that were regulated, I
    mean, it effectively just made them obsolete and everybody moved to
    something else.  We need to fundamentally address the problem and not
    look for a band-aid solution.
    	MS. BONO.  But it is so, I mean, clearly from the discussions about
    the illegal downloading, my son, you know, my children previously
    doing all sorts of PDP things, at the end of the day it is the songwriters,
    the intellectual property rights holder who always gets hurt.  But it is
    always, and this is the case here, that they know that they can squeeze
    out this guy, the intellectual property rights holder, because at the end of
    the day this is the hardest argument to make, that that guy who wrote the
    song, sitting in Nashville or sitting in Sunset Boulevard in Hollywood,
    has a right to what he owns.  That is the hardest argument to make and
    the easiest guy to squeeze out of the equation, wouldn't you say?
    	MR. LAWRENCE.  That may be true under the current regulatory
    statutory regime and that is why I think that is a problem.  I can't
    disagree with your point.  It is where do you try and fix it.  I just think
    that the history of sort of government mandates on technology providers,
    you know, like device makers, to try and fix a lot of these problems, I
    just don't think it has been effective and going forward, I don't think it is
    effective but, you know, sometimes if there is some sort of a mandate
    that by consensus all the people agree is appropriate, like the broadcast
    flag where there was a process that people got together.
    	We had a material hand in participating.  In fact, the guy who
    worked for me drafted a big chunk of that regulation.  There was a
    consensus, there was an agreement that a particular technical approach
    was narrowly tailored to solve a particular technical problem, a particular
    problem and also, that the rules around it were reasonable and were
    agreed to.  And in fact, that it was the right legislative approach, if you
    will, or the right regulatory approach, to solve a problem.  And that a
    regulatory approach was maybe the right way to do it.  And the thing that
    is really concerning for me is there seems to be this, a group that is going
    down that path rapidly and we are standing by watching and none of
    those other elements that went into the broadcast flag, for example, seem
    to be--I mean, there is a variety of proposals out there and some are
    closer than others, but that is a real concern, that none of that sort of
    consensus process--we have consensus with some of the affected parties,
    but the rest of us.
    	MS. BONO.  Well, our doors are always open, all of us, I know and
    we will welcome your input and guidance at any point in time.  But I just
    have one last question because again, the Chairman has indulged me with
    too much time, for any of the panelists and I don't know the answer, but
    with all of this that we are talking about and the international world, the
    global marketplace, are we giving ourselves an advantage or a
    disadvantage?  Are we strengthening or weakening our hands here?  And
    just food for thought, are we--because I know the laws are different in
    Europe and we face that battle, as well, but are we strengthening or
    weakening our hands with distribution versus--and on that note, if I have
    this for 30 days and I download every song that I like, can I just
    discontinue my service with you without a penalty?
    	MR. PARSONS.  No, Congresswoman, you cannot and as long as you
    continue paying us, then a significant portion of our revenue goes to pay
    for the--
    	MS. BONO.  Performance royalties, but--
    	MR. PARSONS.  And actually, one of the things that worked well out
    of that, by the way, for the small guy was the compulsory license
    because what actually happens on there, I mean, we constantly get
    positive things from smaller artists.  The record labels do tend to take
    care of the big artists, but under the compulsory license, because we play
    a much wider variety, what actually happens is the percent of our
    revenue that flows in to compensate songwriters or artists or the
    musicians ends up tending to go to the much smaller ones.  There are
    artists now getting checks for the very first time in their history that
    never really got them or underlying performers that got them for that
    reason.
    	MS. BONO.  But I can cancel my subscription after my device has all
    of my favorite songs on it without a penalty?
    	MR. PARSONS.  No, Congresswoman, you cannot.  You cannot
    access that.
    	MS. BONO.  I see.
    	MR. PARSONS.  The only time you can access it is if you continue to
    pay your subscription and therefore continue to pay the recording--
    	MS. BONO.  From my pay list?
    	MR. PARSONS.  Correct.
    	MR. LAWRENCE.  Could I comment just briefly from a technical
    perspective?  You know, I think that if we would start by using the
    technologies that are available to us and encrypt our content at the
    source, you know, protect it, really protect it instead of just distribute it
    out there in the clear, that it would go a long way to addressing a lot of
    these issues.
    	MS. BONO.  So you are against H.R. 1201 which makes it legal to--
    right.
    	MR. LAWRENCE.  Yes, you know, we have built a lot of technologies
    and we understand what consumers want to do, but the fundamental
    problem is you build a lock and if you tell people they can distribute
    keys, then what is the point in building a lock and that is just-- it is
    one of these, you know, there are probably some exceptions that are
    appropriate, but they have got to be really narrowly tailored and just as a
    general matter, I am afraid it is the exceptions that swallow the rule, I
    mean, just in practice, when I lock it.
    	MS. BONO.  In my international--
    	MR. OSTROFF.  It is very important to this country.  Intellectual
    property, movies, music, other creative works are one of the country's
    major exports.  If we don't set the right standards, and the rest of the
    world follows us in many respects, then our creative works won't be
    protected anywhere in the world.
    	MS. BONO.  Thank you.  Thank you very much, Mr. Chairman.
    	MR. STEARNS.  I thank you and I think we are concluded with our
    hearing today.  Mr. Regan, I am just curious.  What was the name of the
    song that after you finally hit and got paid for that succeeded?
    	MR. REGAN.  Reba McIntire's "Til Love Comes Again."
    	MR. STEARNS.  Oh, okay.
    	MR. REGAN.  I mentioned that I made a certain amount of money.
    The monies have gone up significantly.
    	MR. STEARNS.  It was $23,000 I think you said.
    	MR. REGAN.  Well, that was about 35 for a top five single back in
    1985.  It has gone up significantly.
    	MR. STEARNS.  What would it be today?
    	MR. REGAN.  Well, top five radio hit co-written, maybe performance
    is $150,000.
    	MR. STEARNS.  Okay.
    	MR. REGAN.  Good year.  By the way--I may make it all in one year.
    	MR. STEARNS.  Zero the next.
    	MR. REGAN.  Eaten alive tax-wise.
    	MR. STEARNS.  Well, let me just conclude and thank the witnesses
    for their patience while we voted.  We are going to vote again here and I
    am going to conclude.  I think there has been enough interest on this that
    we might have another hearing or at least a study and so we appreciate
    your time and effort and the committee is adjourned.
    	[Whereupon, at 4:20 p.m., the subcommittee was adjourned.]

    RESPONSE FOR THE RECORD BY GARY PARSONS, CHAIRMAN OF THE BOARD, XM
    SATELLITE RADIO

    Questions from the Honorable Joseph R. Pitts

    	1. For many years, we have made the assumption that songs played on
    traditional radio promote music sales.  How would you compare the promotion
    value of your satellite service to traditional radio?

    Response:

    	On behalf of XM Satellite Radio, I thank Congressman Pitts for posing
    a question that illustrates one of the many beneficial aspects of XM Radio for
    recording artists and recording labels.  Airplay always has been a primary
    promotional vehicle for the sale of recorded music, and XM is no exception.
    Our research shows that XM promotes sales of recorded music, and that our
    promotional impact is deeper in key respects than traditional radio's.
    	Today's typical FM radio dial presents the listener with a choice
    among a small number of music styles and formats, and a limited playlist of
    artists and songs.  Consequently, traditional radio stations do an admirable
    job of promoting sales of a few "hit" records by today's recording stars.
    	By contrast, XM features 69 channels of commercial-free music
    characterized according to genres and themes:  by decade from the 1940's to
    1990's; channels of today's hits; country and folk channels; Christian music
    channels; classic and alternative rock; jazz and American popular song;
    blues; classical; hip-hop and soul; dance channels; Latin and world music;
    and many more.  Even channels dedicated to 40's Big Band music, Bluegrass
    or Southern Gospel music, clearly play music that would receive little
    airplay without satellite radio.  Several XM channels are devoted to the
    discovery of new artists, such the "Hear Music" channel.  XM has a library
    of more than 2.2 million recordings, and we estimate that during a given
    month XM channels feature more than 160,000 different sound recordings.
    	In addition, XM Radio subscribers can hear special music programming
    developed by XM solely for our listeners.  Programs hosted by artists as
    diverse as Bob Dylan, Quincy Jones, Wynton Marsalis, Tom Petty and Ludacris,
    take listeners inside the musical minds of innovative and enduring artists
    for their unique perspective on American music.  XM presents concerts recorded
    live in other locations or at the XM performance space in our studios here in
    Washington, D.C., featuring stars of the 1960's through the present day.
    Many of XM's announcers get behind the music to talk about the artists, and
    program the music in ways that connect the songs by style or by theme.
    	As a result, XM subscribers are exposed to a far more diverse range
    of artists, genres and songs than traditional radio listeners get to hear.
    They can see on their radios the names of the artists and the songs we play,
    and so can more easily become familiar with new artists and new styles of
    music.  Our research indicates that XM subscribers enjoy XM more than
    traditional radio because they are able to enjoy and learn about music they
    cannot hear elsewhere; and, not surprisingly, that they tend to purchase more
    recorded music and concert tickets than the average consumer.
            Artists featured on XM tell us that the airplay and artist specials
    they receive on XM have benefited their careers, and we hear this from
    artists as diverse as those who had their "hit singles" decades ago as well
    as "up and coming" artists just starting their careers and looking for their
    first big break.
    	All in all, XM believes that for those consumers who listen to "hit"
    radio channels on XM instead of traditional terrestrial radio, XM, just like
    FM radio, is a great vehicle for of promoting sales of those hits.  But
    moreover, for the vast majority of recording artists who have extraordinary
    musical talent but don't top today's limited playlist charts, we believe that
    XM is a far more effective promotional medium than traditional radio is
    or ever has been.

    RESPONSE FOR THE RECORD BY MICHAEL OSTROFF, GENERAL COUNSEL AND EXECUTIVE
    VICE PRESIDENT, BUSINESS AND LEGAL AFFAIRS, UNIVERSAL MUSIC GROUP

    RESPONSE TO QUESTION OF THE HONORABLE JOSEPH R. PITTS

    QUESTION:  In his testimony, Mr. Parsons points out that consumers have been
    making "mix tapes" of their favorite songs for decades.  I was struck by Mr.
    Parsons' argument that making something simpler or more convenient doesn't
    make it illegal.  Why does the recording industry object to something
    consumers have been doing for decades?

    ANSWER:  Our objection to the new portable satellite radio/mp3 players
    offered by XM has nothing to do with customary or traditional recording off
    the radio by listeners. Specifically, we object to XM's allowing subscribers
    to record up to 50 hours of XM programming, see a list of tracks that have
    been recorded (by artist, song title or genre), cherry pick the specific
    tracks they want to keep on the device, and delete the rest - without
    payment of a license fee for that activity.

    Congress gave the satellite services a compulsory license to perform our
    music, so that their subscribers could listen to it.  Our company and others
    in the industry helped the satellite services get started by agreeing to
    below market payments for our property.  Now XM is stretching and
    reinterpreting the government-imposed license into a service that enables
    their subscribers to make permanent copies of our music.  This service goes
    beyond mere performance - in copyright law, such services are characterized
    as distributions.  When music services want to distribute recorded music,
    they must seek a marketplace agreement with the copyright owners of the
    music they plan to offer.  Just as other music services had to come to
    companies like ours to reach market agreements on their new "simple and
    convenient" distribution service, we believe it is only fair that XM
    do the same.

    During the hearing Congressman Tim Murphy asked the Chairman of the Board
    of XM how much a songwriter would make per song if 1 million XM subscribers
    used the new portable device and the new service XM is offering to record
    and store a song.  After some hemming and hawing, the XM Chairman finally
    responded: "The answer for each recording is zero."  That fact is contrary
    to the policy at the heart of the compulsory license and unfair to creators
    who rely upon royalties from music sales for their livelihood.

    RESPONSE FOR THE RECORD BY DAN HALYBURTON, SENIOR VICE PRESIDENT AND GENERAL
    MANAGER, GROUP OPERATIONS, SUSQUEHANNA RADIO, ON BEHALF OF THE NATIONAL
    ASSOCIATION OF BROADCASTERS

    QUESTIONS FROM THE HONORABLE JOSEPH R. PITTS

            1. Are you concerned that the recording industry is trying to
    persuade Congress to require broadcasters to begin paying money in order
    to broadcast music in high definition?

            Yes, broadcasters are very concerned.  For decades, the recording
    industry sought and Congress has consistently rejected providing a
    performance right for sound recordings.
            Congress specifically and definitively rejected applying
    performance rights in sound recordings played by terrestrial analog and
    digital radio stations because they posed no threat to sales of sound
    recordings and for the following additional reasons:
            ? Congress has long recognized that the recording industry reaps
    huge promotional benefits from the exposure given its recordings and
    artists by radio stations.  These include airplay of the recordings,
    on-air interviews, and concert promotion publicity.  Many stations, such
    as WGMS here in Washington provide specific opportunities to feature new
    and emerging artists.
            ? In the words of the Senate Judiciary Committee:  "Free
    over-the-air broadcasts are available without subscription . . . and provide
    a mix of entertainment and non-entertainment programming and other
    possible interest activities to local opportunities to fulfill a condition
    of the broadcasters' license."
            ? Again, in the words of the Senate Judiciary Committee, Congress
    did not want to "upset longstanding business and contractual relationships
    among record producers and performers, music composers and publishers and
    broadcasters that have served all of these industries well for decades."

            With respect to this last point, the symbiotic relationship among
    the various industries is a complex one.  Music composers and publishers
    receive enormous compensation through public performance licensing fees paid
    by broadcast radio stations to performing rights organizations such as ASCAP,
    BMI and SESAC.  In 2006, the radio industry will pay these organizations
    approximately $435 million in royalties.  Music producers and publishers
    also receive some royalty payments from producers of sound recordings that
    record their works, but those sums are small relative to the receipts by the
    record companies from the sale of recordings.
            The record producers and recording artists, on the other hand,
    receive the vast majority of their revenues from the sale of sound recordings.
    While receiving no copyright fees from broadcasters, they enjoy tremendous
    promotional values from fee over-the-air broadcasting.  In 1995, Congress
    granted record companies a very limited performance right with respect to
    interactive and subscription digital audio transmissions of sound recordings
    (over both cable systems and the Internet).  The granting of this new
    limited right was not premised on any recognition that the producers and
    performers of sound recordings were suddenly entitled to a new revenue
    stream.  Rather, the rights were granted in response to recording industry
    concerns "that certain types of subscription and interactive audio services
    might adversely affect sales of sound recordings and erode copyright owners'
    ability to control and be paid for their work."  Senate Commerce Committee,
    1995 Report.
            The recording industry and others also like to trot out the "free
    spectrum" argument in their call for a performance right.  While it may be
    true that pioneer radio broadcasters receiving allocations decades ago paid
    no fee for their spectrum, virtually every current radio broadcast operation
    has paid anywhere from tens of thousands of dollars to tens of millions of
    dollars to acquire those operations and collectively the industry has paid
    hundreds of billions of dollars in such acquisition costs.  Our industry
    also has paid billions of dollars to build and upgrade our facilities, and
    bring value to the American public over what is otherwise simply air.
    Terrestrial radio broadcasters continue doing so today as we convert to
    digital.  These acquisition costs include the cost of acquiring the
    right to use the spectrum on which these stations operate.  Second, since
    1997, new commercial radio stations must obtain their licenses by way of
    auctions just like any other spectrum user.
            In addition to the points above, it should be noted the unique
    role broadcasters' play in serving local communities - these licensing and
    public service obligations are by no means insignificant.  Licensing
    requirements include:  providing and reporting on programming giving
    significant treatment to community issues; providing "equal opportunities"
    to candidates and favorable rates to certain candidates; program sponsor
    identification; regulated contests and promotions; indecency regulations;
    maintaining public inspection files; and regulation of lotteries.  In 2003,
    the radio industry provided $6.7 billion in free air time and fundraising
    for worthy causes.  Results for 2005 will be available shortly.

    RESPONSE FOR THE RECORD BY JEFFREY T. LAWRENCE, DIRECTOR, DIGITAL HOME &
    CONTENT POLICY, INTEL CORPORATION

    Answer of Witness Jeff Lawrence to Supplemental Question for the Record of
    Mr. Pitts

    1. As a major intellectual property owner, Intel obviously cares about
    protecting its hard work from theft by pirates. At the same time, you seem
    to have very open approach to letting consumers make fair use of content,
    recognizing that there probably will be some leakage in the system. Tell us
    how you strike the balance to achieve the right equilibrium.

    A: Intel believes the balance is struck by the proper use of DRM technology
    in a manner that recognizes consumers' legitimate fair use interests in
    utilizing all or portions of a work, while protecting the legitimate
    commercial interests of content owners. Intel has worked hard to bring to
    the market discrete DRM functionalities that allow consumers to make limited
    copies of all or portions of a work for fair use purposes - whether it be
    the making of a limited number of personal copies for use in different
    platforms, or the copying of small portions for purposes of parody,
    scholarship, etc. Intel does not subscribe to any approach that would
    encourage or allow consumers to make unrestricted use of content in the
    name of "fair use", and we support the right of content owners to seek
    legal redress for products or services that are marketed with the principal
    objective of facilitating copyright infringement.

    Content owners are now beginning to embrace such fair use functionalities
    in DRM tools as a means of providing greater value to consumers.

    SUBMISSION FOR THE RECORD BY GARY PARSONS, CHAIRMAN OF THE BOARD, XM
    SATELLITE RADIO

    SUBMISSION FOR THE RECORD BY THE AMERICAN SOCIETY OF COMPOSERS, AUTHORS AND
    PUBLISHERS

            The American Society of Composers, Authors and Publishers ("ASCAP"),
    on behalf of its almost 250,000 songwriter, composer and music publisher
    members, thanks the Subcommittee for the opportunity to comment on the
    issues discussed at the May 3, 2006 hearing, "Digital Content and Enabling
    Technology:  Satisfying the 21st Century Consumer."  ASCAP commends the
    Subcommittee for its timely hearing on the crucial issues facing the
    creators, owners, users, and consumers of copyrighted works in connection
    with emerging digital technologies, and respectfully offers its perspective
    for the Subcommittee's consideration.  In summary:
            ? ASCAP and its members embrace and encourage music performances by
    new digital technologies.  ASCAP has developed and offered innovative
    licensing arrangements for satellite radio, Internet, and wireless services
    which perform copyrighted musical works created and owned by ASCAP's members.
    Thousands of those services hold ASCAP licenses.
            ? ASCAP supports enactment of H.R. 4861, the Audio Broadcast Flag
    Licensing Act of 2006.  This bill would protect creators and owners of music
    from online piracy, while preserving ASCAP's ability to track and monitor
    performances for the benefit of creators and copyright owners, including its
    songwriter, composer and music publisher members.
            ? In the digital world, the transmission of a copyrighted musical
    work does not have to be either a "performance" or a "distribution."
    Rather, under the Copyright Act, the digital transmission of a musical work
    is both a performance and a distribution, and both rights should be fairly
    compensated.

                                    About ASCAP

            ASCAP is this nation's first and largest performing rights
    organization ("PRO"), with almost a quarter-million composer, lyricist,
    and music publisher members, and a repertory of many millions of copyrighted
    musical works.  On behalf of its members, ASCAP licenses the nondramatic
    public performance rights in musical works to a wide range of users,
    including television and radio broadcasters, online services,
    background/foreground music services, hotels, nightclubs, and colleges and
    universities.  ASCAP represents not only American writers and publishers,
    but also hundreds of thousands of foreign writers and publishers through
    affiliation agreements with PROs in more than 80 countries.  Under those
    agreements, ASCAP licenses the foreign PROs' repertories in the United
    States, and the foreign PROs license the ASCAP repertory in their countries.
    Because performances of American music are a popular export product
    worldwide, ASCAP collects between 4 and 5 times as much from foreign PROs
    as it pays out to them, generating a trade surplus for the United States.
            ASCAP's repertory is as richly diverse as this country's history.
    ASCAP composers and lyricists write in nearly every musical genre
    including pop, jazz, symphonic and concert, film and television scoring,
    rock, country, new age, hip-hop, Latin, gospel, and rhythm and blues, and
    their works range from some of the most familiar standards to the latest
    hits.  As creators and owners of this vast array of musical works, ASCAP's
    writers and publishers have an important stake in ensuring that the
    copyright law adequately protects their rights, both now and in the future.

                    ASCAP Welcomes and Encourages the Spread of
                        New Digital Technologies to Consumers

    	ASCAP understands that emerging technologies often require flexible
    business models.  We have long worked with music users to offer innovative
    licensing arrangements to meet the needs of these new technologies -
    arrangements which must also secure a fair return to writers and music
    publishers for the commercial use of their intellectual property.  ASCAP
    never wants to cut off or limit the public performance of music.  We
    license any user who requests a license, and ask only that a reasonable
    license fee be paid to compensate songwriters, composers and music
    publishers for the use of their property.
            To this end, ASCAP has been at the forefront of licensing new
    technologies like satellite radio, Internet, and wireless music services:
            ? When satellite radio first entered the marketplace, ASCAP was
    there to help supply the music.  ASCAP entered licenses with XM and Sirius
    in 2002, ensuring that these services could build and expand diverse arrays
    of programming for their customers.
            ? ASCAP first began offering Internet music license agreements in
    1995.  Since that time, we have worked with many operators of Internet
    sites and services to develop the best licensing solutions for the
    ever-growing number of online music uses and business models.  ASCAP has
    continued to update its online licenses to adjust to changing times, and
    currently offers two versions of our widely-used Internet web site and
    service license agreements:  the "ASCAP Experimental License Agreement for
    Internet Sites and Services Release 5.0" for non-interactive sites and
    services, and the "ASCAP Experimental License Agreement for Interactive
    Sites and Services Release 2.0" for interactive sites and services.
            ? Since 2001, ASCAP has offered a license agreement designed
    specifically for providers of "ringtones," "ringbacks," and other
    music-related products and services offered on wireless devices.  Today,
    the "ASCAP Wireless Music" license agreement authorizes a wide variety of
    such performances.
    	But songwriters, composers and music publishers still face
    significant challenges in the digital marketplace.  We must ensure that,
    as new technologies and uses take hold, any legislative solutions will
    protect our members' rights and ensure adequate and fair compensation for
    performances of musical works in the new media.

                       ASCAP Fully Supports H.R. 4861, the
                   Audio Broadcast Flag Licensing Act of 2006

            ASCAP wholeheartedly endorses and supports the enactment of H.R.
    4861, the Audio Broadcast Flag Licensing Act of 2006 introduced by Rep.
    Ferguson and co-sponsored by Reps. Towns, Bono, Gordon, and Blackburn.  It
    is apparent that the unauthorized distribution of musical transmissions
    over the Internet and otherwise, made possible by digital technology,
    harms the economic well-being of ASCAP's members and America's entire
    musical community.  H.R. 4861 would authorize reasonable licensing
    conditions on digital audio radio broadcasts which would prevent that
    harm, while ensuring that home listeners could continue to enjoy music
    through all the means they have traditionally enjoyed.
            H.R. 4861 also contains specific provisions that would enable ASCAP
    to continue an activity that is crucial to its operations and those of
    other creators and copyright owners-the digital monitoring of broadcasts
    and transmissions.  ASCAP has long tracked music performances to ensure
    that its members are properly compensated.  In recent years, ASCAP has
    developed the leading digital fingerprinting technology that, today,
    electronically monitors the broadcasts of nearly 2,500 radio stations in
    almost 200 U.S. markets.  Using this technology, ASCAP tracks each of the
    millions of over-the-air performances that occur every day in these radio
    markets.  Digital monitoring services are vital for ASCAP to serve its
    members, and H.R. 4861 would preserve ASCAP's ability to continue
    employing such technologies for signals with an audio broadcast flag.

                         Digital Transmissions of Musical Works
                        Are Both Performances and Distributions

    	At the May 3 hearing, the discussion turned to the question of
    whether certain digital transmissions of music were "performances" or
    "distributions," and accordingly, how such uses should be compensated.
    The uses and statutory rights that are implicated in digital transmissions,
    however, are not an "either-or" proposition, as some assumed.  Digital
    transmissions of musical works implicate both the performance and the
    distribution right.  In particular, all such digital transmissions involve
    a public performance protected by copyright.
    	The Copyright Act states this much when it defines "perform" as
    "to recite, render, play, dance, or act" a work, "either directly or by
    means of any device or process . . . ."  17 U.S.C.  101.  A transmission
    is precisely such a recitation or rendering, and no one particular
    technology limits it.  The Senate and House reports accompanying the Digital
    Performance Right in Sound Recordings Act of 1995 addressed this very point
    and confirmed that digital transmissions of musical works are public
    performances:

            Under existing principles of copyright law, the transmission or other
            communication to the public of a musical work constitutes a public
            performance of that musical work.  The digital transmission of a
            sound recording that results in the reproduction by or for the
            transmission recipient of a phonorecord of the sound recording
            implicates the exclusive rights to reproduce and distribute the
            sound recording and the musical work embodied therein.  New
            technological uses of copyrighted sound recordings are arising
            which require an affirmation of existing copyright principles and
            application of those principles to the digital transmission of
            sound recordings, to encourage the creation of and protect rights
            in those sound recordings and the musical works they contain.

    S. Rep. No. 104-128 at 27 (1995); H.R. Rep. No. 104-274 at 22 (1995).

    	We should note that just because digital transmissions of musical
    works involve both performance and distribution rights, both rights need
    not be compensated equally.  Understandably, the value of each right
    depends on appropriate marketplace considerations, including which use
    predominates.  But when it comes to such digital transmissions, giving
    compensation only for the distribution and not for the performance (or
    vice versa) would deny the full value of the use to the creators and owners
    of musical works.  Any legislative enactment that affects digital
    copyrighted works and the technologies for transmitting them must
    preserve both the performance and distribution rights that are inherent in
    the transmission.

    Conclusion
    	ASCAP thanks the Subcommittee for the opportunity to share its
    perspective on behalf of its songwriter, composer and music publisher
    members.  As the Subcommittee considers the impact of new digital
    technologies on the creators, users, and consumers of digital copyrighted
    works, we trust Congress will continue to recognize that songwriters,
    composers and music publishers must receive the proper protection for all
    their rights under the Copyright Act.

      As we reported earlier this year in our Joint Reply Comments -- since the
    2003 rulemaking, over 1800 new console games, 700 handheld games, and over
    2200 PC games have been made available to the public.
      H. Rep. No. 92-487, 92d Congress, 1st Sess. at 7 (Sept. 22, 1971)
    (emphasis added).
      See S. Rep. No. 102-294, 102d Cong., 2d Sess. 30, 51 (June 9, 1992).
      Hearing Before the Senate Subcommittee on Communications, S. Hrg. 102-908,
    Serial No. J-102-43, at 111 (Oct. 29, 1991) (statement of Jason Berman,
    President of RIAA) (emphasis added).
      S. Rep. No. 102-294, at 51.
      138 Cong. Rec. H9029, H9033 (daily ed., Sept. 22, 1992) (statement of
    Rep. Hughes) (emphasis added).
      See, e.g., S. Rep. No. 93-983, at 225-26 (1974) ("The financial success
    of recording companies and artists who contract with these companies is
    directly related to the volume of record sales, which, in turn, depends in
    great measure on the promotion efforts of broadcasters.").
      S. Rep. No. 104-129, at 15 ("1995 Senate Report"); accord, id. at 13
    (Congress sought to ensure that extensions of copyright protection in favor
    of the recording industry did not "upset[] the long-standing business
    relationships among record producers and performers, music composers and
    publishers and broadcasters that have served all of these industries well
    for decades.").
      Id. at 17.
      17 U.S.C. 114(d)(1)(A).
      1995 Senate Report, at 15.
      Id.
      As authorized.