[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



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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 [email protected].
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 Nestlï¿½ 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 Cafï¿½" 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.
 