[Senate Hearing 112-843]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 112-843
 
                    THE EMERGENCE OF ONLINE VIDEO: 

                           IS IT THE FUTURE?
=======================================================================



                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,

                      SCIENCE, AND TRANSPORTATION

                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 24, 2012

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation





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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

            JOHN D. ROCKEFELLER IV, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii             KAY BAILEY HUTCHISON, Texas, 
JOHN F. KERRY, Massachusetts             Ranking
BARBARA BOXER, California            OLYMPIA J. SNOWE, Maine
BILL NELSON, Florida                 JIM DeMINT, South Carolina
MARIA CANTWELL, Washington           JOHN THUNE, South Dakota
FRANK R. LAUTENBERG, New Jersey      ROGER F. WICKER, Mississippi
MARK PRYOR, Arkansas                 JOHNNY ISAKSON, Georgia
CLAIRE McCASKILL, Missouri           ROY BLUNT, Missouri
AMY KLOBUCHAR, Minnesota             JOHN BOOZMAN, Arkansas
TOM UDALL, New Mexico                PATRICK J. TOOMEY, Pennsylvania
MARK WARNER, Virginia                MARCO RUBIO, Florida
MARK BEGICH, Alaska                  KELLY AYOTTE, New Hampshire
                                     DEAN HELLER, Nevada
                    Ellen L. Doneski, Staff Director
                   James Reid, Deputy Staff Director
                     John Williams, General Counsel
             Richard M. Russell, Republican Staff Director
            David Quinalty, Republican Deputy Staff Director
   Rebecca Seidel, Republican General Counsel and Chief Investigator


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 24, 2012...................................     1
Statement of Senator Rockefeller.................................     1
Statement of Senator DeMint......................................     2
Statement of Senator Cantwell....................................    32
Statement of Senator Thune.......................................    34
Statement of Senator Warner......................................    36
Statement of Senator Klobuchar...................................    37
Statement of Senator Heller......................................    39
    Prepared statement...........................................    40
Statement of Senator Kerry.......................................    42
Statement of Senator Pryor.......................................    45
Statement of Senator Nelson......................................    47

                               Witnesses

Barry Diller, Chairman and Senior Executive, IAC.................     3
    Prepared statement...........................................     5
Susan D. Whiting, Vice Chair, Nielsen............................     8
    Prepared statement...........................................     9
Paul Misener, Vice President for Global Public Policy, Amazon.com    19
    Prepared statement...........................................    21
Blair Westlake, Corporate Vice President, Media and Entertainment 
  Group, Microsoft Corporation...................................    23
    Prepared statement...........................................    25

                                Appendix

Letter to Hon. John D. Rockefeller IV from Jack Perry, Founder 
  and CEO, Syncbak...............................................    55
Response to written questions submitted by Hon. Kay Bailey 
  Hutchison to:..................................................
    Barry Diller.................................................    57
    Susan D. Whiting.............................................    59
Response to written questions submitted to Paul Misener by:
    Hon. Olympia J. Snowe........................................    59
    Hon. Jim DeMint..............................................    61
Response to written questions submitted by Hon. Olympia J. Snowe 
  to Blair Westlake..............................................    61


                    THE EMERGENCE OF ONLINE VIDEO: 
                           IS IT THE FUTURE?

                              ----------                              


                        TUESDAY, APRIL 24, 2012

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:07 a.m. in 
room SR-253, Russell Senate Office Building, Hon. John D. 
Rockefeller IV, Chairman of the Committee, presiding.

       OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 
                U.S. SENATOR FROM WEST VIRGINIA

    The Chairman. Good morning, everybody. We have a very 
distinguished panel this morning, not that we don't always, but 
this is particularly so, and we welcome you, all of us.
    There will be, hopefully, thousands of Senators coming to 
surround this dais to ask you the most penetrating questions 
about the impenetrable future.
    But, anyway, this hearing is about the emergence of online 
video and the power of broadband to change the way in which we 
watch. And who knows what that's going to be 5 or 10 years from 
now?
    This is the start of an exciting and a timely conversation. 
It's the first hearing that has been held on this subject which 
is not sort of attacking each other, but looking out into the 
future and trying to figure out what's coming at us, can we 
handle it.
    Now, why are we doing this? Because television is just an 
overpowering force in our life. Television, meaning what a lot 
of people still watch. At its best, it can do more than 
entertain, it can educate.
    But not all television programming is enlightening, nor is 
it all fit for children's viewing. It's a global age, and I'm 
concerned the video content that we produce does not represent 
the best face that America has to the nation.
    So my first question is how will this disruptive 
technology, and when I say that, that's not a negative 
connotation, that's just the fact that things are changing so 
fast in such mammothly important ways that it is disruptive, in 
hopefully a positive sense, but definitively disruptive, is how 
will the disruptive technology that online viewing will provide 
lead to better content and to more consumer choice?
    But more than content is at issue here, because year in and 
year out consumers face rate increases for pay television that 
are rising faster than the rate of inflation. We're paying for 
so many channels, though we usually only watch a few.
    I, for example, have 500 channels, and if I watch, in the 
course of a month, more than 10, I would be amazed. So why am I 
paying for 490? I have no idea. Does it give me a warm, fuzzy 
feeling? Not particularly. But, on the other hand, it's all 
there if I want to go get it. So who's to know about human 
nature?
    So I want to know if the emergence of online video will do 
more than improve content and expand choice. I want to know if 
it's going to bring a halt or a slowdown, at least, to 
escalating bills.
    One other point I want to make. I've said forcefully in the 
past that too much television programming is crude and a poor 
reflection of our society. Although this hearing is not focused 
on that topic, and I want to make it clear, I just also want to 
make it clear that this is something which I really care about 
very deeply, as all of my suffering colleagues on this 
committee know. And I'm going to keep at it until it gets 
better or until I get to be my great-grandfather's age, 
whichever comes first.
    So, right now, the question is how do we harness this 
change for power, for consumers, so we can get a higher quality 
program at lower rates?
    But really more important, what's going to happen? What's 
going to happen? The stats of people who are cutting off 
landline for telephones can also be--I think I read that in the 
last month that Nielsen had said that all broadcast news was 
down in the last month. Now, I guess, if it's down over the 
course of a year it would be down over the past month, but it 
sort of grabbed me putting it that succinctly.
    To our witnesses, I look forward to your thoughts on this 
subject and I thank you for joining us today. And I want this 
to be a lively and forward-looking hearing.
    So Senator DeMint is the Ranking Member of the Subcommittee 
on this subject. Senator Kerry is not here for the moment. And, 
Senator DeMint, we look forward to your comments.

                 STATEMENT OF HON. JIM DeMINT, 
                U.S. SENATOR FROM SOUTH CAROLINA

    Senator DeMint. Thank you, Mr. Chairman, and I do thank all 
the witnesses for being here, and thanks for holding the 
hearing.
    The communications sector continues to be one of the most 
dynamic and innovative in our economy. And I hope this is just 
the first of many hearings this year that allow an opportunity 
to learn about and discuss the marketplace and update the 
Committee's record.
    Mr. Chairman, the obstacles between consumers and the video 
content they seek continues to disappear. In the video market, 
tremendous advancements in technology and massive capital 
investments in distribution networks now empower consumers to 
craft their own viewing experiences more than ever.
    At the root of this increasing consumer power and choice is 
a complex and overlapping mix of content creators, 
distributors, and electronics manufacturers racing to serve the 
marketplace better. A few such companies from this mix are with 
us today.
    With innovation and empowered individuals, however, comes 
disruption to established models and incumbent powers. 
Unfortunately, many of our current video laws and policies were 
sought and achieved decades ago by established interests 
seeking government-granted protection from market forces. They 
were written for a time and a market that no longer exists, and 
they need to be repealed.
    Our video laws simply do not reflect the current realities 
of the marketplace, and I'm afraid they actually foreclose 
innovative service offerings and consumer benefits. Our laws 
should not promote or protect one technology over another or 
one competitor over another.
    Last year, I introduced the Next Generation Television 
Marketplace Act to comprehensively withdraw government meddling 
from the video industry. There are two primary interventions 
the government has made over the years in the video market, 
which my bill repeals: the compulsory copyright license and 
retransmission consent.
    These laws impose mandates on individual consumers and 
businesses, they violate the property rights of content 
creators, and they treat similar services differently. While I 
know these legacy issues are not the focus of today's hearing, 
Mr. Chairman, I look forward to discussing them at a future 
hearing here in this committee.
    In his prepared remarks, Mr. Diller states that consumer 
demand is a powerful force and those who give consumers what 
they want will be rewarded in the marketplace. I couldn't agree 
more, which is why I believe we should be creating deregulatory 
parity in the video market, so investment and innovation, not 
lawyers and lobbyists, is rewarded in a free economy to the 
ultimate benefit of all consumers.
    Finally, Mr. Chairman, I want to express my sincere 
interest in working together with you to seek ways to improve 
our laws and regulations to better serve competition, 
innovation, the national economy, and, most importantly, the 
American consumer.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much, and thank you for those 
comments, which obviously I share about working together. We 
have not sat together before, but we will sit together in the 
future.
    Our witnesses are sublime. Barry Diller, who I've known for 
many years, my wife says hi, is Chairman of IAC, former 
Chairman of Paramount Pictures, Fox Broadcasting, and USA 
Broadcasting. And you're an investor in Aereo.
    You're very knowledgeable about the history of video, and 
you have spoken previously about how the disruptive change 
presented by online video may change the nature of pay 
television. So we welcome your testimony, sir.

              STATEMENT OF BARRY DILLER, CHAIRMAN 
                   AND SENIOR EXECUTIVE, IAC

    Mr. Diller. Thank you. I'm glad to appear before you today.
    I have a long, some say too long, career in entertainment 
and media. I've been chairman of three major studios, broadcast 
stations, broadcast network, cable channels and now Internet 
companies with more than 50 brands. So I've been both a 
practitioner and a student in the evolution of media over the 
last 45 years.
    With ubiquitous broadband Internet access, an unlimited 
pipe of options will increasingly be available for all 
audiences. And together with the advances in consumer devices 
like the iPad, it'll allow consumers to access the content they 
want directly from producers without middlemen, without toll 
takers, wherever and however they want.
    This is the great future of consumer choice and 
competition, and, I think, the realization of generations of 
public policy aspirations, that is, if we protect and encourage 
the miracle of the Internet, which allows anyone to press a 
send button and publish to the world without having to go 
through the closed systems that have so dominated media since 
its very beginning.
    Contrast that future with the past world of less than a 
handful of broadcast television stations. This evolved in the 
1970s and 1980s with the advent of cable television and 
satellite video distribution, but its development was encircled 
by rules and regulations designed primarily to preserve the 
incumbent broadcasters. Hardly surprising that given any 
technological development that threatens the hegemony of the 
existing players is going to be opposed by them.
    Then along came video recorders when Sony introduced the 
Betamax video cassette recorder. This was opposed in a suit by 
Universal and Disney, at the time, two of the largest producers 
of programming. They contended that no one should have the 
right to make a copy of their material. Courts disagreed and 
the VCR industry boomed.
    It made way for private, on-demand consumer consumption 
through the sale or rental of prerecorded video cassette tapes. 
Cable and satellite then offered all manner of services enabled 
by the technology of the video recorder.
    Now, along comes the great revolution of the Internet, 
affecting every pocket of commerce, except, oddly, the way most 
people receive the most popular video programming.
    But even with the restrictive TV everywhere concept that 
demand a cable or satellite subscription, broadband Internet 
has enabled a few online video-on-demand services to begin a 
transition to the online environment.
    This great Internet revolution is ready now to provide a 
new platform for competition that will, in turn, lead to video 
packages and a la carte offerings driven by consumer choice and 
device innovation, rather than dictated by the financial 
interests of a handful of programmers and distribution 
companies. How can that not be in the public interest?
    There are no barriers to entry on the Internet. Creators 
have the opportunity to make and distribute whatever is their 
fancy. If intermediaries have less control over the TV 
ecosystem, creators would be able to reach viewers more 
directly and will not have to sign over so many rights to 
distributors. Viewers would benefit from being able to watch 
vastly more programming in the way they want to watch it and 
from having an alternative to subsidizing the current unwieldy 
marketplace.
    New technology can allow a more modern approach to 
receiving local broadcast programming. Right now, roughly 15 
percent of Americans rely solely on over-the-air television 
because it's difficult to install home antennas or because of 
problems with reception. This ought to be of concern to 
Congress which appropriated $650 million to ensure that 
households could actually receive the signals when digital 
replaced analog broadcasting.
    Aereo, a company in which I have invested, has invented 
technologies that allow consumers to get a clear, perfect 
picture over the Internet and watch live local broadcast 
television on any connected device, an iPad, an iPhone or an 
Internet-ready television set.
    It provides its members with their own antenna capable of 
receiving high-definition local broadcasts. Properly 
understood, Aereo allows a consumer to outsource or locate 
remotely an antenna and DVR and to use that equipment to access 
the over-the-air content to which they are all entitled. It's 
DVR and the cloud technology as a breakthrough as the consumer 
needs no extra wires or set top boxes or fangled remote 
controls that no one understands.
    By making over-the-air digital broadcast signals actually 
useful to consumers, Aereo is bringing forth the very reality 
that Congress sought, that Congress invested close to $1 
billion in, and at no additional cost to taxpayers.
    Aereo is but one example of how the Internet can inject 
competition into the video marketplace. Online video is just 
beginning. It'll take all kinds of new products--a lot of 
failures that will move these systems from a closed to an open 
environment. It will take vigilance to make certain that net 
neutrality continues to be safeguarded, that no roadblocks or 
toll bridges can be inserted between the producer and the 
consumer.
    My hope is that Congress keeps the most watchful eye as 
these marketplaces develop. I know at some point soon the 
Communications Act of 1996 will have to be rewritten to take 
into account the Internet which didn't exist when the Act 
became law.
    Incumbents have natural incentives to limit competitive 
threats. Congress should be vigilant that the rule of the game 
favor entry, innovation and competition. In the end, there's no 
stopping technical innovation, but I would hope that a wise and 
engaged Congress will make certain that we have the levelest 
playing field, most encouraging environment for new media over 
the next crucial years of its development.
    Thank you for listening. And I'll be happy to answer any 
questions I can.
    [The prepared statement of Mr. Diller follows:]

 Prepared Statement of Barry Diller, Chairman and Senior Executive, IAC
    Mr. Chairman, and Members of the Committee, I welcome the 
invitation and opportunity to appear before you today to discuss the 
``The Emergence of Online Video: Is It The Future?'' IAC is a leading 
Internet company with more than 50 brands, including Ask.com, 
Match.com, Citysearch, Electus, and Vimeo. I also serve as the Chairman 
and Senior Executive of Expedia, Inc., the world's leading online 
travel company. Prior to my work at IAC and Expedia, I've enjoyed a 
long career in broadcast and cable television, and in the motion 
picture industry.
    Let me start with perhaps an obvious point, which is: The future of 
video is here. The confluence of ubiquitous broadband Internet access 
with incredible advances in consumer devices like the iPad increasingly 
allows consumers to access the content they want, when they want it, 
and how they want it. These innovations exponentially increase consumer 
choice and competition and are consistent with public-policy 
aspirations for a dynamic, consumer-driven marketplace for video 
programming, as well as preserving the essential consumer right to 
broadcast television access.
1. The evolution of video distribution
    Contrast today's opportunities with the world of old media. Not so 
long ago, video content was distributed through a handful of broadcast 
television stations. In this world, viewers passively consumed a fixed, 
pre-scheduled menu of content provided by three or four national 
commercial television networks and one channel of public broadcast 
programming. And all of this consumption took place on a single 
device--the humble television.
    This world began to evolve in the seventies and eighties. With the 
advent of cable television and satellite video distribution, consumers 
were given viewing options beyond those offered by over-the-air 
broadcasters. Today, there are an estimated 600 national cable 
programming networks, plus another 100 regional networks.
    Alongside the growth of the cable platform, a key technological 
development took place in 1975 when Sony introduced the Betamax 
videocassette recorder. Betamax--and soon after VHS--gave consumers the 
ability to ``time-shift'' video programming. This time shifting ability 
gave consumers the freedom to record a video program in advance and 
watch it later, expanding consumer choice by untethering them from 
schedules determined by broadcasters.
    The VCR also made possible private, ``on-demand'' consumer 
consumption of feature films through the sale or rental of prerecorded 
videocassette tapes.\1\ Interestingly, the motion picture studios 
sought to block the VCR. The case was ultimately decided in favor of 
Sony by the Supreme Court in Sony Corporation v. Universal Studios \2\ 
(also known as the ``Betamax'' case). Despite the studios' fears, the 
new market that VCRs made available proved to be one of the most 
lucrative for those very same studios. Innovation can yield 
extraordinary benefits that are not always readily and immediately 
apparent. Later, cable companies began offering Video-On-Demand 
(``VOD'') services that enable viewers to watch broadcast or cable 
network programming or movies on demand at the consumer's convenience 
for a limited time. Again, technology progressed and enhanced consumer 
choice, which benefitted every participant in the video-programming 
ecosystem.
---------------------------------------------------------------------------
    \1\ In December 1988, Blockbuster became the top video retailer in 
the U.S., with $200 million in revenue. It had more than 500 stores by 
the end of that year and replaced Erol's as the top purveyor of 
prerecorded videocassettes. EMAfyi newsletter, http://www.entmerch.org/
press-room/industry-history.html.
    \2\ 464 U.S. 417 (1984).
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2. The rise of online video and the exponential growth in available 
        content
    Recently, the widespread availability of broadband Internet has, in 
a short time, transformed video content access and delivery. For 
example, it has enabled video-on-demand services to migrate to the 
online environment. Online video distributors are available to any 
consumer with a broadband Internet connection and provide consumers 
with even more choices for high-quality (and low-quality) video 
programming. This marketplace has burst on to the scene and is expected 
to grow significantly. The number of viewers who watch full-length 
television shows online grew from 41.1 million in 2008 to 72.2 million 
in 2011.\3\
---------------------------------------------------------------------------
    \3\ Id., citing Reaching Online Video Viewers with Long-Form 
Content, eMarketer.com (July 26, 2010), http://www3.emarketer.com/
Article.aspx?R=1007830.
---------------------------------------------------------------------------
    When the distribution of full-length video programming is added to 
user-generated video content and other non-full length video, the 
number of Americans that watch video online is staggering. In April 
2011, U.S. Internet users engaged in over 5.1 billion viewing sessions 
and 172 million users watched online video content. Cisco forecasts 
that video traffic is poised to grow to over 60 percent of Internet 
traffic by 2015, with an annual growth rate of 48 percent for consumer 
Internet video consumption between 2010 and 2015.
    Today, consumers access video programming through a variety of 
platforms, including over-the-air broadcasting, traditional Title VI 
``cable service'' (e.g., Comcast's XFINITY), Internet protocol 
television (``IPTV'') (e.g., Verizon's FiOS and AT&T's U-verse), video 
``broadcasting'' over the public Internet (e.g., MLB.tv), Internet-
delivered video-on-demand (``VOD'') (e.g., Netflix, iTunes, 
Amazon.com), and user-generated video providers (e.g., YouTube, Vimeo).
    The Internet enables new and varied platforms for viewing options 
that compete with the traditional media companies. That genuine, robust 
marketplace competition will in turn lead to different types of 
consumer offerings including different types of video packages, 
unbundled content and a la carte pricing. These changes are driven by 
innovation and consumer choice. Content distribution is in the hands of 
the many rather than the few.
    One of the biggest benefits of this trend is the proliferation and 
diversification of content. On the Internet, low barriers to entry have 
provided virtually everyone with the opportunity to create and 
distribute original video content. Google's YouTube today sees an 
average of 48 hours of video uploaded per minute. Companies like 
Netflix are investing in original programming, competing with 
traditional cable channels like HBO.
    These options not only provide more choices for consumers, they can 
provide more value. A small but growing number of cable customers are 
``cutting the cable cord'' completely in favor of Internet-distributed 
video. According to one report, 72 percent of adults who go online at 
least once a week say the Internet is a better value for the dollar 
than cable television.
3. Local programming in the online environment
    While innovation and competition can and should flourish in the 
online environment, it is important to protect and preserve the 
consumer's right to access free over-the-air broadcast television. 
Right now, roughly 15 percent of Americans rely solely on over-the-air 
television.\4\
---------------------------------------------------------------------------
    \4\ Fourth Further Notice of Proposed Rulemaking and Declaratory 
Order, Carriage of Digital Television Broadcast Signals: Amendment to 
Part 76 of the Commission's Rules, DS Docket 98-120 at 4. (rel. Feb 10, 
2012).
---------------------------------------------------------------------------
    Even with the rise of cable channels and networks, the most popular 
television programming remains that which is distributed by the major 
broadcast networks. The four largest broadcast networks attract 8 to 12 
million viewers each, whereas the most popular cable networks typically 
attract approximately 2 million viewers each.\5\
---------------------------------------------------------------------------
    \5\ Competitive Impact Statement, DOJ, January 19, 2011, citing SNL 
Kagan, Economics of Basic Cable Networks 43 (2009); The Nielson 
Company, Snapshot of Television Use in the U.S. 2 (Sept. 2010), http://
blog.nielsen.com/nielsenwire/wp-content/uploads/2010/09/Nielsen-State-
of-TV-09232010.pdf.
---------------------------------------------------------------------------
    Sometimes, in the face of the ubiquity of cable and satellite, 
consumers forget that they can access broadcast television with an 
antenna. In addition, there are sometimes technical challenges to 
receiving broadcast television signals, whether it is the difficulty of 
installing a rooftop antenna or problems with reception due to signal 
interference.
    This is a challenge for policy makers on several fronts. As 
Congress and the Supreme Court have recognized, ``the importance of 
local broadcasting outlets `can scarcely be exaggerated, for 
broadcasting is demonstrably a principal source of information and 
entertainment for a great part of the Nation's population.'. . 
.Likewise, assuring that the public has access to a multiplicity of 
information sources is a governmental purpose of the highest order, for 
it promotes values central to the First Amendment.'' \6\
---------------------------------------------------------------------------
    \6\ Turner Broad. Sys. v. FCC, 512 U.S. 622, 663 (1994).
---------------------------------------------------------------------------
    The U.S. taxpayer, moreover, has made a significant investment to 
ensure that these interests are protected in the digital age. Congress 
appropriated $650 million to ensure that households could receive local 
broadcast signals after the transition to digital television.
4. Aereo furthers important governmental purposes
    Aereo, a company in which I have invested, furthers government 
interests and does so at no cost to the Federal taxpayer by letting 
consumers watch live, local broadcast television over the Internet. The 
Aereo system lets consumers watch Internet-delivered live, local 
broadcast television on an Internet-connected device.
    Aereo, which launched just last month, provides its members with 
use of individual antennae capable of receiving high-definition local 
broadcasts. Aereo enables consumers to watch that programming on the 
Internet-connected device of their choice and at the time of their 
choice. Essentially, it allows a consumer to outsource or locate 
remotely an antenna and DVR and to use that equipment to access the 
over-the-air content to which they are entitled on an Internet-
connected device.
    Aereo reminds consumers that they have a right to access over-the-
air broadcasts using an antenna. And Aereo provides a technology 
solution that brings together the simplicity of the antenna and the 
convenience of locating equipment remotely.
5. The future of competition in the online environment
    Aereo is but one example of how the Internet is injecting some much 
needed competition into the video marketplace. While all of this 
competition is good and healthy, the online video marketplace is still 
in its very early stages of development. Netflix' online video 
streaming service--the largest in the world--is only five years old.
    Incumbents have the means and incentive to engage in economic and/
or technical discrimination against online video distributors. The FCC 
has sought to protect consumers against some of the technical means of 
discrimination in its Open Internet rules; but those rules may not 
survive judicial scrutiny. Even if they do, cable and telecom companies 
are experimenting with forms of economic discrimination at the margins 
of current law. For example, broadband providers that also provide 
video programming could implement broadband caps in a way that favors 
their own content. Congress should fully explore these issues and 
prevent cable and telecommunication companies from leveraging their 
dominance in existing markets for video delivery to control emerging 
markets.
6. Ensuring that the future of online video happens
    I'm extremely bullish on the emerging world of Internet-enabled 
video distribution. If properly nurtured, the marketplace will develop 
multiple forms of distribution and many new competitors. This will in 
turn stimulate new sources of content and creativity that will give a 
multitude of options to consumers, while enriching our culture and 
advancing our economy.
    At this time, Congress need only to keep a careful watch as the 
marketplace develops. We know that incumbents have incentives to limit 
competitive threats, and Congress must be vigilant that the rules of 
the game favor entry and innovation. But consumer demand is a powerful 
force, and those who give consumers what they want will be rewarded in 
the marketplace.
    The future of online video is simply ``more.'' More content, more 
innovation, more competition. For consumers, the future of online video 
is more choice and more control. Consumers have the lawful right to 
watch the content they want, when the want it, and how they want it. 
The Internet has spurred technological innovation that now makes the 
exercise of that right possible. And that possibility holds great 
promise and potential benefit for everyone in the online video 
ecosystem.
    Thank you.

    The Chairman. Thank you, Mr. Diller.
    Our next witness is Ms. Susan Whiting, who is Vice Chairman 
of the Nielsen Company. And I think you're going to talk about 
how American viewing patterns are changing, which is for sure, 
and that more households are watching online video than ever 
before.
    Your company has been at this for decades and decades and 
produced data about American television, which is very helpful, 
and particularly helpful as we go into this disruptive period 
where nobody is quite sure where it's all going to end up. So 
we welcome you.

       STATEMENT OF SUSAN D. WHITING, VICE CHAIR, NIELSEN

    Ms. Whiting. Thank you, thank you, Chairman Rockefeller, 
and other members of the Committee.
    As you said, I'm Susan Whiting, Vice Chair of the Nielsen 
Company. You are, I think, familiar with Nielsen's role in 
television ratings in the U.S., but you may not know we're also 
a global information and measurement company measuring what 
people watch on TV, on the Internet, on mobile devices, but 
also what they buy in retail stores all over the world. So I 
appreciate this opportunity.
    Based on our latest research, the average American watches 
nearly 5 hours of video each day, 91 percent of which is done 
watching traditional TV sets in real time or live, meaning 
they're not recording on a DVR, using video-on-demand or even 
watching a DVD.
    But what has emerged in the last 4 or 5 years is a simple 
message: Consumers watch their favorite content on the best 
screen available at that moment, and they watch from more 
locations and on more devices than ever before.
    The availability of digital technology, digital access and 
the explosion of laptop computers, mobile devices and tablet 
computers in American life has really enabled this change. 
These devices, along with, at the same time, a record number of 
TVs in homes, have provided more screens.
    Our latest State of the Media: U.S. Digital Consumer Report 
provides a comprehensive overview of these trends. My testimony 
today is based on the findings in that report, and the report 
has been provided to the Committee.
    Today, more than 274 million Americans have Internet access 
through their computers, which has doubled since 2000. In 
October 2011, nearly 166 million Americans watched video online 
and more than 117 million Americans accessed the Internet 
through a mobile device.
    Nearly half of all the mobile devices used in the U.S. 
today are smart phones, which makes it possible to access the 
video.
    Broadly speaking, each month, the average American spends 
146 hours and 45 minutes watching TV, 4 hours and 31 minutes 
watching Internet videos on a PC and 4 hours and 20 minutes 
watching video on a mobile device. So the use of video and PCs 
continues to increase. It's up 80 percent in the last 4 years.
    So who is using video this way? Our research shows that 
women are 6 percent more likely to view video online than men. 
Eighteen to 34 year olds match 35 to 49 year olds as the 
largest demographic watching videos online.
    Sites like YouTube and Netflix together most recently 
represented 56 percent of the streaming time, which, for the 
average American, is 4 hours and about 31 minutes each month.
    But along with that increase in video consumption online, 
it's worth noting that 33\1/2\ million mobile-phone users now 
watch video on their phones, which has increased almost 36 
percent since last year, and consumers with this access spent 4 
hours and 20 minutes doing this.
    Consumers are increasingly becoming media multitaskers, 
meaning that they'll use more than one form of media at the 
same time. For example, recent Nielsen data shows that 57 
percent of smart phone and tablet users in the U.S. checked 
their e-mail and 44 percent visited a social network site while 
watching TV. Consumers are finding and accessing their favorite 
content on more and more devices, more screens. Consumers are 
saying, unequivocally, that online video will continue to play 
an increasingly larger role in their media choices.
    Thank you, again, Senator Rockefeller, for the opportunity 
to join you today.
    [The prepared statement of Ms. Whiting follows:]

      Prepared Statement of Susan D. Whiting, Vice Chair, Nielsen
    Good morning Chairman Rockefeller, Senator Hutchison and members of 
the Committee. I am Susan Whiting, Vice Chair of Nielsen. You may be 
familiar with Nielsen's television ratings in the U.S., but we are also 
a global information and measurement company, measuring what people 
watch on television, the Internet and mobile devices and what they buy 
in retail stores and on line. I appreciate the opportunity to join you 
at today's hearing to share our insights about consumers watching 
video.
    Based on our latest research, the average American watches nearly 
five hours of video each day, 91 percent of which is done watching 
traditional television sets in real time, or ``live'' (meaning they are 
not recording on a DVR, using Video on Demand, or even watching a DVD.)
    What has emerged in the last four to five years is a simple 
message: consumers watch their favorite content on the best screen 
available at that moment. And, they watch from more locations and on 
more devices than ever before.
    The availability of digital technology, digital access and the 
explosion of laptop computers, mobile devices and tablet computers in 
American life has enabled this change. These devices along with a 
record number of TVs in homes have provided more ``screens.'' Our 
latest ``State of the Media: U.S. Digital Consumer Report'' provides a 
comprehensive overview of trends in video consumption. My testimony 
today is based on the findings in that report and the report has been 
provided to the Committee.
    Today, more than 274 million Americans have Internet access through 
their computers, double those with Internet access in 2000.
    In October 2011, nearly 166 million Americans watched video online. 
And, more than 117 million Americans accessed the Internet through 
mobile devices. Nearly half of all mobile devices used in the United 
States today are smart phones, which makes it possible to access the 
video.
    Broadly speaking, each month, the average American spends 146 hours 
and 45 minutes watching traditional television, 4 hours and 31 minutes 
watching Internet videos on a personal computer and 4 hours and 20 
minutes watching video on a mobile device.
    The use of video on PCs continues to increase--up 80 percent in the 
last 4 years. Who is using video this way? Our research shows that 
women are six percent more likely to view videos online than males.
    Eighteen to 34 year olds match 35 to 49 year olds as the largest 
demographic viewing videos online.
    Sites like YouTube and Netflix most recently represented 56 percent 
of the streaming time, which for the average American is 4 hours and 31 
minutes each month.
    Along with the increase in online video consumption, it is worth 
noting that 33.5 million mobile phones users now watch video on their 
phones, a 35.7 percent increase since last year, and the consumers with 
this access spent 4 hours and 20 minutes each month watching video on a 
mobile device.
    Consumers are increasingly becoming ``media multi-taskers'', 
meaning that they will use more than one form of media at the same 
time.
    For example, recent Nielsen data shows 57 percent of smart phone 
and tablet users in the U.S. checked e-mail and 44 percent visited a 
social networking site while watching television. Consumers are finding 
and accessing their favorite content on more and more devices, or 
``screens.'' Consumers are saying unequivocally, that online video will 
continue to play an increasingly larger role in their media choices. 
Thank you again Senator Rockefeller for the opportunity to join you 
today.


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    Chairman Rockefeller. Thank you, Ms. Whiting.
    Mr. Paul Misener, you're the Vice President of Amazon.com, 
and I believe that you will speak about Amazon's entry into the 
online streaming video business, following on the heels of its 
efforts to digitize books and make them more widely available 
through its Kindle service.
    I'm going out on a limb here, but I think you're going to 
stress the need for an open Internet, called ``network 
neutrality,'' which is controversial around here, but which I 
support and which my colleague to my left does not, in order 
for Amazon to compete against incumbent video service 
providers. We welcome you.
    Mr. Misener. Thank you very much, Chairman Rockefeller.
    The Chairman. Did I get it about right?
    Mr. Misener. Pardon me?
    The Chairman. Did I get it about right?
    Mr. Misener. Yes, sir. Absolutely right.
    The Chairman. Thank you.

  STATEMENT OF PAUL MISENER, VICE PRESIDENT FOR GLOBAL PUBLIC 
                       POLICY, AMAZON.COM

    Mr. Misener. My mom will be proud.
    But thank you, Mr. Chairman, Members of the Committee.
    Exactly a quarter century ago, the FCC set out to establish 
rules for so-called advanced television, which was the very 
first significant update to consumer video quality since the 
introduction of color TV in the early 1950s.
    The commission established a private sector advisory 
committee to evaluate the technology, and I had the honor of 
assisting that committee's chairman, Richard Wiley. His 
committee can be thanked for the beautiful theater-quality 
video that we now take for granted when we watch a movie or 
football game on HDTV.
    But much more emerged from Chairman Wiley's committee than 
pretty pictures. Already in the mid-1980s digital video capture 
and compression had come of age, but in the early 1990s, the 
Committee also oversaw the emergence of digital transmission of 
digital video data bits. The future of video was to be digital 
all the way from the camera to display.
    Two other crucial developments occurred at the same time. 
First, the World Wide Web was invented, forever transforming 
the Internet into a graphic-rich, easily accessible medium.
    Second, Congress overhauled U.S. communications law, and 
although the 1996 Act maintained some legacy distinctions among 
broadcasting, cable, satellite, telephone and mobile services, 
it also presciently codified the concept of an information 
service.
    It was into this era that Amazon.com was born. Amazon 
opened on the World Wide Web in July 1995 as an online 
bookstore and quickly grew to offer other media products, 
including music CDs, VHS tapes--if we remember those--and DVDs, 
all of which require physical delivery.
    But, today, the Amazon Instant Video service offers 
customers throughout the United States--whether in populace or 
in rural areas--the ability to buy, rent or subscribe to a huge 
catalogue of videos delivered instantly, 24 hours a day. Amazon 
Instant Video is available on PCs and Macs and other Internet-
capable devices.
    Amazon Instant Video currently offers more than 120,000 
movies and commercial-free television episodes for purchase or 
rental and about 25,000 of those are available in high 
definition.
    In February 2011, Amazon introduced Prime Instant Video as 
a subscription service, through which Amazon Prime Members can 
watch instantly, and for no additional costs, more than 17,000 
video titles selected from the Amazon Instant Video library. 
This gives our customers an easy opportunity to explore new 
video content.
    Now, although we recognize that our customers want to watch 
video content from the comfort of their homes, we also 
recognize that they are on the move, and thus they want access 
to digital video, not just any time, but also anywhere.
    To support that demand, last September, Amazon introduced 
the Kindle Fire--this device--which is a fully-functioning 
tablet that allows customers to access the Internet, read 
books, play games and, importantly, watch high-quality video.
    And if our customers have any questions about our online 
video services and the Kindle Fire, our customer service team, 
including specialists in our Huntington, West Virginia, 
facility are standing by to help.
    And so, Mr. Chairman, to answer the question posed in 
today's title hearing, online video has emerged, and, 
undoubtedly, will be a key medium of future video delivery.
    With continued growth of broadband Internet-access service, 
we believe the consumer demand and choice will cause continued 
growth of online video services for an even brighter future.
    This assumes, of course, that the Internet will remain a 
non-discriminatory, open platform. The open Internet encourages 
innovation and allows consumers to decide whether a particular 
product or service succeeds or fails, and this openness is 
particularly crucial in rural areas of the country where other 
choices are more limited than elsewhere.
    The FCC has pledged to monitor the potential for any 
competitive or otherwise harmful effects from specialized 
services, but I ask that your committee remain vigilant on this 
and other issues of Internet openness. For example, consumer 
data caps instituted by some network operators merit such 
vigilance. Consumer choice, without impairment, must be 
preserved.
    Amazon would be happy to assist the Committee in any way we 
can be helpful, including if the Committee were to undertake a 
review of the 1996 Act. As the testimony delivered in this 
morning's hearing indicates, the lines between the 
communications services separately addressed in that 
legislation continue to blur, and how consumers, especially 
young people, now think of television does not match 
longstanding legal and regulatory conventions. The hearing 
today already has drawn important attention to that fact.
    And so, in conclusion, Mr. Chairman, Amazon.com believes 
that the future of online video is very bright for consumers, 
and we look forward to working with the Committee to preserve 
consumer choice.
    Thank you again for the opportunity to testify and I look 
forward to your questions.
    [The prepared statement of Mr. Misener follows:]

 Prepared Statement of Paul Misener, Vice President for Global Public 
                           Policy, Amazon.com
    Good morning, Chairman Rockefeller, Ranking Member Hutchison, and 
members of the Committee. My name is Paul Misener, and I am 
Amazon.com's Vice President for Global Public Policy. On behalf of our 
company and customers, thank you for inviting me to testify about the 
emergence and future of online video.
    Exactly a quarter century ago this year, the FCC set out to 
establish rules for so-called ``advanced television,'' the first 
significant update to consumer video quality since the introduction of 
color TV in the early 1950s. The Commission established a private 
sector advisory committee to evaluate the technology, and I had the 
honor of assisting that committee's chairman, Richard Wiley. He and his 
committee can be thanked for the beautiful, theater-quality video that 
we now take for granted when we watch a movie or football game on an 
HDTV.
    But much more emerged from Chairman Wiley's committee than pretty 
pictures. Already in the mid-1980s, digital video capture and 
compression had come of age; but in the early 1990s, his committee also 
oversaw the emergence of digital transmission of digital video data 
bits. The future of video was to be digital--all the way from camera to 
display.
    Two other crucial developments occurred at the same time. First, 
the World Wide Web was invented, forever transforming the Internet into 
a graphic-rich, easily accessible medium. In stark contrast to previous 
media, such as newspapers, magazines, radio, and television, the Web is 
a ``pull''--not ``push''--medium, in which consumers choose what 
content they want, and when. ``On demand'' is essentially baked into 
the Web.
    The second crucial development was that Congress overhauled U.S. 
communications law. Although the 1996 Act maintained some legacy 
distinctions among broadcasting, cable, satellite, telephone, and 
mobile services, it also presciently codified the concept of 
information service.
    It was into this era that Amazon.com was born. Amazon opened on the 
World Wide Web in July 1995 as an online bookstore and quickly grew to 
offer other media products, including music CDs, VHS video tapes, and 
DVDs--all of which require physical delivery. One day back in 2005, 
when my eldest son, Jay, was three years old, he sat on my lap as we 
ordered him a DVD from Amazon. When I clicked to place the order, he 
hopped off my lap and ran to the front door to wait for ``the brown 
truck.'' Amazon endeavors to provide excellent service to our 
customers, but this particular customer really wanted instant delivery, 
which wasn't yet available, but is now.
    Today, the ``Amazon Instant Video'' service offers customers 
throughout the United States, whether in populous or rural areas, the 
ability to buy, rent, or subscribe to a huge catalog of videos, 
delivered instantly, 24 hours a day. Amazon Instant Video is available 
on PCs and Macs and other Internet-capable devices, including 
PlayStation3 consoles, and connected TVs and other living room-based 
consumer electronics components such as Blu-ray players and Roku boxes.
    Amazon Instant Video currently offers more than 120,000 movies and 
commercial-free television episodes for purchase or rental, including 
the latest hit movies like The Descendants, Girl with the Dragon 
Tattoo, and War Horse, and popular television series like Mad Men, 
Vampire Diaries, and Justified. Many TV episodes are available to rent 
or buy within 24 hours after the episode first airs on broadcast or 
cable television. And about 25,000 titles are available in high 
definition.
    In February 2011 Amazon introduced ``Prime Instant Video'' as a 
subscription service. As many of you know, ``Amazon Prime'' is a 
membership program where, for $79 a year, you can receive unlimited 
free two-day shipping on millions of physical products. But there are 
other benefits to Prime membership, including access to Prime Instant 
Video, through which Amazon Prime members can watch instantly--and for 
no additional cost--more than 17,000 video titles selected from the 
Amazon Instant Video library. This gives our customers an easy 
opportunity to explore new video content.
    Although we recognize that our customers want to watch a variety of 
high quality video content at affordable prices from the comfort of 
their homes, we also realize that they are on the move, and thus they 
want access to digital video not just anytime, but also anywhere. To 
support that demand, last September Amazon introduced the ``Kindle 
Fire,'' which is a fully functioning tablet that allows customers to 
access the Internet, read books, play games and, importantly, watch 
high quality video. In addition to being fully integrated with Amazon's 
content offerings, Kindle Fire users have a wide range of popular 
applications available for download, including apps that enable access 
to content from Netflix, Hulu Plus, Pandora, and more.
    Kindle Fire includes ``Whispersync'' technology to remember for you 
the point at which you pause any video you are watching. This means 
that if you pause a movie or television episode on your Kindle Fire, 
you can easily pick up where you left off on another device such as 
your laptop computer or your Internet-connected television at home. 
Device memory is not a constraint because Amazon digital content is 
always accessible from ``Your Video Library,'' where digital content 
owned or rented by customers is stored and accessed via the Internet. 
And, if our customers have any questions about our online video 
services, our customer service team--including specialists at our 
Huntington, WV, facility--are standing by to help.
    So, Mr. Chairman, to answer the question posed in this hearing's 
title, online video has emerged, and undoubtedly will be a key medium 
of future video delivery. Consumers already have a wide array of 
opportunities to stream, rent, or buy online video programming, 
including from Amazon. With continued growth of broadband Internet 
access service, we believe consumer demand and choice will cause 
continued growth of online video services for an even brighter future.
    This assumes, of course, that the Internet will remain a non-
discriminatory, open platform. The open Internet encourages innovation 
and allows consumers to decide whether a particular product or service 
succeeds or fails. Any specialized services offered by network 
operators should not harm the delivery of content via broadband 
Internet access service, nor impede its growth, nor be offered on 
unequal terms (that is, bits are bits). And this openness is 
particularly crucial in rural areas of the country, where other choices 
are more limited than elsewhere.
    The online video services we offer today are only the latest 
examples of benefits to consumers resulting from the open Internet 
functioning as a platform for rapid innovation and vigorous 
competition. The FCC has pledged to monitor the potential for 
anticompetitive or otherwise harmful effects from specialized services, 
but I ask that your Committee remain vigilant on this and other issues 
of Internet openness. For example, consumer data caps instituted by 
some network operators merit such vigilance. Although Internet 
subscribers should pay for the bandwidth they use, immutable or 
unrealistically priced data caps could hinder or prevent competitive 
products and services made possible by online video. Consumer choice, 
without impairment, must be preserved.
    Amazon would be happy to assist the Committee in any way we can be 
helpful, including if the Committee were to undertake a review of the 
1996 Act. As the testimony delivered this morning indicates, the lines 
between the communications services separately addressed in that 
legislation continue to blur, and how consumers--especially young 
people--now think of television does not match longstanding legal and 
regulatory conventions. Your hearing today already has drawn important 
attention to that fact.
    In conclusion, Mr. Chairman, Amazon.com believes that the future of 
online video is very bright for consumers, and we look forward to 
working with the Committee to preserve consumer choice. Thank you again 
for the opportunity to testify. I look forward to your questions.

    The Chairman. Thank you very much, Mr. Misener.
    And, finally, Blair Westlake, who is Corporate Vice 
President, Microsoft, and you're responsible for the Xbox, not 
personally, but perhaps you are, at Microsoft. And that started 
as a video game, but it's gone on to become an amazing 
instrument. We welcome your testimony.

          STATEMENT OF BLAIR WESTLAKE, CORPORATE VICE

           PRESIDENT, MEDIA AND ENTERTAINMENT GROUP,

                     MICROSOFT CORPORATION

    Mr. Westlake. Chairman Rockefeller, members of the 
Committee, thank you for the opportunity to testify on the 
emergence of online video today.
    I oversee the Media and Entertainment Group out of 
Microsoft. That's my core scope and responsibility.
    Microsoft engages with video in several ways, including 
through our various releases of the Windows Operating System 
and Windows Phone products, but I am also here to discuss how 
the market is delivering consumers greater choice and control 
over their viewing with online video through our Xbox Video 
Service.
    I have three ideas for you to consider today. First, we are 
in the early stages of the transition to the future of video. A 
few years from now, current online video offerings will look 
like a mere bucket in the proverbial ocean of content.
    Second, while the current online video distribution 
marketplace is dynamic and vibrant, the Committee is right to 
keep a watchful eye as content and Internet service providers 
adapt to these changes.
    Third, the video marketplace is on the edge of even greater 
change that will feature new forms of content, greater 
interactivity, access and payment choices for the consumers.
    Let's first consider the present online video market. Even 
5 years ago, it was not possible for consumers to access high-
definition, high-quality video content delivered over the 
Internet. The witnesses at today's hearing represent just a few 
of the businesses creating an abundance of viewing options for 
consumers.
    As you may know, Xbox did, in fact, start just as a video-
gaming console. When Netflix chose to make its online video 
service available beyond the PC, so that it could be viewed on 
a TV set, Netflix did so through our platform. That was a 
pivotal moment in TV history that has helped revolutionize 
consumers' viewing habits.
    Today, Microsoft's Xbox LIVE service has more than 40 
million subscribers worldwide watching 300 million hours of 
video per month. Internet-delivered video enables consumers to 
access a broad array of video content at various price points, 
whenever and whatever broadband-enabled device they want.
    These choices from Xbox and others complement traditional 
cable, satellite and telco services, but to emphasize, we are 
not a substitute for traditional video offerings.
    For example, we have also seen consumers choose smaller 
discounted programming packages offered by many of the MVPDs 
and who may then opt to supplement their basic tier cable 
service with online video offerings, such as Netflix, a 
practice that is referred to as cord shaving.
    All this demonstrates a current online video market that is 
vibrant and dynamic. The future will bring even more change. In 
my view, the TV landscape will likely experience more change in 
the next 18 months than the past five years.
    TV will increasingly become a two-way, interactive 
experience. To give just one example, Sesame Street programming 
that Microsoft will release in a few months, will be completely 
interactive for children and leverage the power of gesture and 
voice control.
    Children will be able to interact directly with Elmo and 
Cookie Monster on their TV screen to learn counting and the 
alphabet and to actually see themselves on the TV in the 
program, thereby stretching their imaginations like never 
before.
    TV also will be increasingly a multi-device experience. 
Soon, consumers will be able to watch all the content they want 
and pay for on any and all of their devices. We are already 
seeing production companies create content with mobile screen 
specifically in mind. Innovation also will be introduced into 
other aspects of the television viewing experience.
    For example, the integration of Bing Search functionality 
and voice-recognition technology enables some consumers to find 
an episode of Mad Men by using just their voice. These are just 
some of the exciting changes on the horizon and they highlight 
a key lesson, the vital importance of broadband access.
    Microsoft is committed to digital inclusion and affordable 
access to wired and wireless broadband. As we move forward, 
policies that promote access to universal high speed broadband 
are critical to health and vibrancy of a market that enables 
innovation and benefits consumers.
    Finally, the future of video also depends on companies 
adapting to sustainable, innovative business models and 
broadband management policies that do not discourage or impede 
consumer consumption of the vast and innovative online video 
offerings that are possible in the future and consumers have 
come to expect.
    Today, companies are experimenting with transactional 
video-on-demand, subscription-based distribution and electronic 
sell-through models. All these options enhance choice and are 
good for consumers in so many ways.
    As content owners and distributors develop new ways to 
monetize their products and their services, I fully expect that 
innovative, alternative business models will come into view. 
Out with the old and in with the new.
    In conclusion, Microsoft is pleased to be a part of this 
vibrant and competitive video marketplace that is rapidly 
evolving to a future that will give consumers more choice, more 
control and better offerings.
    Thank you, and I welcome your questions.
    [The prepared statement of Mr. Westlake follows:]

 Prepared Statement of Blair Westlake, Corporate Vice President, Media 
             and Entertainment Group, Microsoft Corporation
    Chairman Rockefeller, Ranking Member Hutchison, Members of the 
Committee, thank you for the opportunity to testify today on the 
emergence of online video.
    I am Blair Westlake, and I serve as the Corporate Vice President of 
Media and Entertainment in Microsoft's Interactive Entertainment 
Business group. Microsoft engages with video in several different ways, 
including through our Mediaroom IPTV product which we license to 
various telephone operators around the world, through MSN, and through 
our Windows operating system and Windows Phone product, but I am here 
to discuss video from the perspective of Microsoft's Xbox and Xbox LIVE 
service.
    As you may know, Xbox is a video game console that Microsoft first 
introduced in 2001. Xbox quickly developed into a leading gaming 
platform which, coupled with the Xbox LIVE service, offers users the 
ability to engage online in multi-player games.
    Over the past several years, Xbox, Xbox LIVE, and, more recently, 
the Xbox Apps Marketplace, which launched in December 2011, have 
transformed Xbox from a leading gaming platform to a revolutionary 
entertainment hub, increasingly used by Microsoft's Xbox users to view 
movies and television shows. With more than 40 million Xbox LIVE users 
across the globe, Microsoft is very much part of the video present, 
coupling online gaming with digital content delivery, and we are 
pleased to share our perspective on what we think the video future will 
look like.
I. The Video Marketplace Today
    Before we look to the future, it is important to understand the 
market today, and how that market has evolved in a relatively short 
period of time.
    In 1992, when this Committee looked closely at the video 
marketplace, the Committee found that the sole cable company providing 
service in a community offered consumers about 60 channels, and 
typically required the consumer to rent a set-top box. Ten years later, 
that picture had changed, but only a little. Satellite providers had 
entered the business, but consumers still had few choices for video 
programming providers and devices to use to access that programming.
    The past few years, by contrast, have produced a huge wave of 
innovation and change, making available to consumers new ``over the 
top'' (``OTT'') video offerings. Today, Microsoft's Xbox LIVE is one of 
several services that delivers OTT high-definition, high-quality video 
content to consumers for viewing on televisions or monitors, something 
that was not possible ten years ago, and was still considered a future 
goal five years ago. Consumers access OTT services, such as Xbox LIVE, 
using broadband connectivity they obtain from an Internet service 
provider (``ISP''), such as their cable or telephone operator, and so 
the expansion of broadband has made OTT services possible.
    In the past two years, these phenomenal changes have migrated to 
new mobile platforms as smartphones, slates, and tablets and have 
forever changed when, how and where consumers enjoy video content. From 
the perspective of 1992, or 2002, or even just five years ago, the 
increase in the number of consumers watching long-form video content, 
such as movies and TV shows, online and on mobile devices is 
staggering, and the increase in the number of video hours viewed online 
each day is amazing.
    Although it is difficult to pinpoint a specific event, I believe 
that the ``tipping point'' of the video ecosystem revolution took place 
in November 2008, when Netflix made its streaming service widely 
available to televisions via Microsoft's Xbox. Since that time, 
innovation and change have moved at least twice as fast as the pace 
during the prior five years. Xbox, for example, initially was a gaming 
device that might have been found in the den, a child's bedroom, or in 
the basement. As streaming video on Xbox LIVE was rolled out several 
years ago and as Xbox video apps, described below, were introduced, the 
Xbox device gradually moved out of areas of the home dedicated to 
individual family members and into the proverbial ``family room.''
    Today, Xbox truly has become a household entertainment hub. In 
December 2011 alone, more than 60 percent of U.S. Xbox LIVE Gold \1\ 
members used Xbox LIVE entertainment video apps, such as Hulu Plus, 
ESPN3, and HBO GO, for an average of an hour each day.
---------------------------------------------------------------------------
    \1\ Xbox LIVE has two services: a free service known as Xbox Live 
Free and a paid service known as Xbox LIVE Gold. ``Gold''--a $5 per 
month subscription service--enables subscribers to access social media 
services, such as Facebook and Twitter, compete in multiplayer games 
with up to eight gamers in other locations, stream music from services 
such as iHeart radio, video chat using the Kinect accessory, and watch 
video content such as Netflix, Hulu and Comcast's video-on-demand cable 
service.
---------------------------------------------------------------------------
    To underscore how much OTT video viewing is occurring today, 
consider the following numbers: Netflix recently announced that during 
the fourth quarter of 2011, its subscribers consumed 2 billion hours of 
video.\2\ Xbox LIVE subscribers are fast approaching 300 million hours 
per month in viewing video apps, and viewing hours are increasing by 
the day. Indeed, the hours of video consumed by Xbox LIVE members 
increased 140 percent from 2010 to 2011.
---------------------------------------------------------------------------
    \2\ Netflix Members Enjoy More Than Two Billion Hours of Movies and 
TV Shows in Fourth Quarter, (Jan. 4, 2012), http://www.prnewswire.com/
news-releases/netflix-members-enjoy-more-than-two-billion-hours-of-
movies-and-tv-shows-in-fourth-quarter-136652138.html.
---------------------------------------------------------------------------
    The entry by Microsoft and others into the video aggregation and 
online delivery market has contributed to consumer choice. The Xbox 
device gives consumers access to a platform which enables them to view 
a broad array of video content whenever they want it, including content 
directly from premium programmers such as Major League Baseball, ESPN, 
HBO, and MSNBC; from MVPDs such as Verizon FiOS and Comcast; and from 
other OTT providers such as Netflix and Hulu. The Xbox platform also 
provides enhanced experiences for consumers, such as our soon-to-be-
released interactive Sesame Street game. And today, rather than 
scrolling through 200 channels on your traditional MVPD service, you 
can use Bing to perform voice-enabled searches for content and then 
stream selections through your Xbox.
    John Skipper, CEO of ESPN, summed it well when he characterized 
ESPN's distribution through Xbox LIVE as ``phenomenal, the usage on 
that platform has been terrific, the quality of what our networks look 
like on that platform is terrific, there is a lot of capability and 
other things you can do around the live games on that platform.'' \3\
---------------------------------------------------------------------------
    \3\ Interview of John Skipper, CEO of ESPN (January 31, 2012) 
available at http://all
thingsd.com/video/?video_id=E672BBB4-F22F-4258-9FF5-0CEE39461E36 
(taking place at the All Thing Digital's ``Dive Into Media'' 
conference).
---------------------------------------------------------------------------
II. Today's Over-The-Top Video Marketplace Is Dynamic and Vibrant
    Some of us before the Committee today are evidence of the vibrancy 
of the over-the-top video distribution marketplace in 2012. It bears 
emphasis that a hearing on video competition held only five years ago 
would have included almost no one on this panel. The OTT providers here 
have afforded consumers new options and created a new dynamic in the 
video marketplace.
    The revolutionary change brought about by online video providers is 
reflected in the new level of choice and control in the hands of 
consumers--choice that goes far beyond DVR time-shifting. Rather than 
having their viewing experiences tied to a network's schedule of 
programs, consumers now can be the master of their own TV viewing 
schedule. Today, consumers can access a vast library of the programming 
they want, when they want it. Xbox LIVE, Amazon Instant Video, Hulu, 
Apple's iTunes, and other OTT providers offer consumers movies and TV 
content at the click of a mouse, the touch of a remote, a wave of their 
hand, or a voice command. And consumers are not limited to just paying 
for a month's-worth of programming, but in some instances may select 
and pay to watch a single program they wish to view.
    These choices complement traditional cable, satellite and telco 
services, and enhance consumer control. For example, with Verizon's 
FiOS apps, FiOS subscribers who also subscribe to Xbox LIVE, may access 
an array of TV programming through Microsoft's Xbox platform. Most of 
the familiar channel-branded apps, such as HBO GO and ESPN, use ``TV 
Everywhere'' authentication to verify that the user has a subscription 
with an MVPD.
    Xbox LIVE and the other companies represented here are part of a 
video ecosystem that gives consumers access to third-party options that 
were not readily available until just two or three years ago. Using 
these new tools, consumers can design the mix of programming options 
that is right for their household's tastes, time and wallets, 
augmenting the content and experience available from their monthly MVPD 
subscription with those enhancements offered by Xbox or other OTT 
services. For example, consumers may elect to drop premium movie 
channels and supplement their basic service with OTT services such as 
Netflix. Industry observers refer to this as ``cord shaving.''
    While consumers are likely to continue to consume video primarily 
from traditional cable, satellite, and telco services,\4\ the choices 
in the market today give all consumers more control over their viewing 
habits, so they are less tied to linear programming that has been the 
norm in the television business for several decades.
---------------------------------------------------------------------------
    \4\ NPD Group, January 2012 (noting that 59 percent of cable/
satellite TV subscribers prefer having one single provider for their 
pay video services, and that many consumers continue to prefer 
convenience over cherry-picking a variety of lower priced subscription 
video-on-demand services.
---------------------------------------------------------------------------
    Consumer demand for high-quality video over multiple devices and 
platforms is today's reality and defines expectations and a marketplace 
that are here to stay. To meet and satisfy consumer demand, content 
owners and key stakeholders must look to exciting new and evolving 
technologies and rethink traditional business models and distribution 
strategies.
    Today, we are witnessing many companies experimenting with and 
evaluating different business models, including new approaches to 
transactional video-on-demand, subscription-based distribution, and 
electronic sell-thru models. Xbox, for example, currently provides 
access to content directly from more than a dozen programming services 
in the U.S., including video apps from Major League Baseball, MSNBC, 
HBO and ESPN, and the number of video apps we offer is expanding by the 
month. All these new options enhance choice, and are compelling options 
for consumers. The challenge remains for content owners and 
distributors to develop new ways to monetize their products and 
services.
    While many see the old models as under pressure in the long term, 
the new alternative business models have not yet come into view. The 
future of video is as much--or even more--dependent upon companies 
devising sustainable and innovative business models that reflect the 
possibilities of this exciting time than technology deployment.
    At Microsoft, our vision for Xbox LIVE is to deliver all the 
entertainment consumers want, while making the enjoyment of that 
content easy. The expansion of Xbox LIVE to Windows Phones and our soon 
to be released Windows 8 operating system, all with a consistent 
``Metro style'' user interface and the ability for consumers to enjoy, 
control and consume content across their various Microsoft software-
enabled devices, are examples of the progress being made in bringing 
new choices for accessing content to consumers.
    This hearing gives the Committee an opportunity to consider the 
future of video. We have set out our picture of the current online 
video marketplace. The single most important issue shaping the future 
of video is the availability of universal, high-speed broadband access. 
We think the Committee is right to keep an eye on this market as it 
unfolds and as Internet service providers and content providers adapt 
to the new market.
    While we are not at an ``end of history'' moment when it comes to 
the video marketplace, the changes that have taken place, and are 
underway, in the video ecosystem are truly remarkable and 
transformative. As we move forward, however, the availability of 
universal, high-speed broadband will continue to be critical to the 
health and vibrancy of a market that supports and enables innovation 
and competition.
III. The Future Video Marketplace: New Forms of Content, Interactivity, 
        Access, and Consumer Choices
    Consumers have benefited from significant changes in the past five 
years. In the next five, change will be even greater. The early 2000s 
saw predictions for how the Internet, growth of broadband, and IT 
infrastructure investments (including those further enabling access to 
the web) were going to change the video marketplace. As we now know, 
that change did not occur in the first half of the decade, but rather 
in the second half, and the change has been exponential.
    The weekend after this year's Consumer Electronics Show, I shared 
some observations with my colleagues. I commented then, and I believe 
even more today, that we will experience more change in the next 18 
months in the TV landscape than we did in the past five years.\5\ And I 
think we are only in the early innings of the beneficial changes that 
consumers have yet to see and experience.
---------------------------------------------------------------------------
    \5\ As Bill Gates observed, ``We always overestimate the change 
that will occur in the next two years and underestimate the change that 
will occur in the next ten.'' Bill Gates, The Road Ahead (1997).
---------------------------------------------------------------------------
    While I do not pretend to predict the future, I think the way 
people access and consume video will continue to evolve in these key 
categories:

          Search and discovery: As we have seen with the integration of 
        Microsoft's search engine, Bing, enabled by Xbox's Kinect 
        accessory, which provides a voice and gesture recognition 
        offering, there is an increased focus on making consumers' 
        experience more intuitive. In only 18 months, Microsoft's 
        Kinect device has transformed experiencing games and 
        entertainment to a level that was ``science fiction'' a few 
        years ago, thanks to its natural user interface which 
        recognizes gestures, voice and motions.

          We are making it easy for consumers to find and enjoy their 
        favorite TV shows, movies and music across a variety of 
        services. Search and discovery will allow the technology to 
        fall into the background and enable the content to be the focal 
        point of the experience. And Kinect for Windows development 
        tools are now in the hands of thousands of creative designers 
        who are building applications that go far beyond anything we 
        could have imagined.\6\
---------------------------------------------------------------------------
    \6\ For example, surgeons are using Kinect to practice surgical 
moves before putting gloves on and researchers are exploring how Kinect 
can be used to help children with autism, stroke, and physical therapy 
patients. For more ``Kinect Effect'' examples, see http://www.xbox.com/
en-US/Kinect/Kinect-Effect. Microsoft is working with more than 200 
innovation leaders around the world including United Health Group, 
Siemens, American Express, Boeing, Mattel, Houghton Mifflin Harcourt, 
Citi, Toyota and Unilever to utilize Kinect in revolutionary ways.

          TV will be a two-way interactive experience: Since the first 
        devices were connected to the Internet, people have held out 
        the promise of interactive television. With Xbox and Kinect, we 
        are beginning to see TV experiences that are truly two-way 
        experiences and go way beyond ordering pizza from your TV. To 
        give one example, in the coming months, we will offer 
        programming like our Sesame Street Kinect--we describe it as 
        ``playful learning''--which will be completely interactive for 
        children and will leverage the power of gesture and voice 
        control. Recent innovation in Natural User Interface technology 
        (``NUI''), will enable children to interact directly with Elmo 
        and Cookie Monster, to advance the story line of an episode, to 
        see themselves in the program (thanks to Kinect's camera), and 
        to learn the alphabet and many other educational offerings--all 
        interactively versus through traditional, linear, one-way 
---------------------------------------------------------------------------
        viewing.

          This may look like magic to children, but in fact it is hard 
        work and takes considerable time and resources. Microsoft has 
        commissioned the shooting of 50 percent more footage of the 
        linear version of Sesame Street so that children will be able 
        to interact fully with the program. The difference between 
        children watching the linear versus interactive versions of the 
        program is simply amazing to see firsthand.

          Television will increasingly be a multi-device experience: In 
        a next wave of evolution, we expect that consumers will be able 
        to watch the content they pay for on any and all of their 
        devices. It is envisioned that the second screen will receive 
        increased attention from content owners, which will actively 
        develop new shows with the smartphone and mobile devices in 
        mind.

          Many in the creative community have recognized what the 
        future holds. Production houses are already developing concepts 
        for new shows that allow viewers to unlock extra content by 
        following along on their second screens. Creating relevant, 
        engaging second screen experiences will encourage fans to 
        interact more deeply with their favorite TV shows.
                          *        *        *

    In conclusion, Microsoft is pleased to be part of a vibrant and 
competitive video marketplace today that is rapidly evolving to a 
future that will give consumers more choice and more control to use the 
vast online resources for their education and entertainment.

    The Chairman. Thank you, Mr. Westlake.
    We'll do five-minute rounds, and I've got about 100, but 
we'll just keep going until you exhaust.
    This is to all of you, if you want. Ms. Whiting notes in 
her testimony the popularity of online video is growing. We 
agree with that, but traditional television also remains very 
popular.
    I want to understand better how online video will compete 
with pay television packages from cable and satellite 
companies, and, therefore, my questions.
    Do you believe online video will grow to become a full 
substitute for pay television? Will it compete directly with 
pay television packages that are so popular still today?
    And, second, even if it does not become a full substitute, 
will it result in some downward pricing pressure on pay 
television service, which costs more for consumers each and 
every year?
    Please.
    Ms. Whiting. So we have a little bit of history to look at. 
In the digital transition that just occurred about three years 
ago, the full digital, many homes actually kept their pay cable 
television or satellite. So it's, in some cases, a matter of 
switching the provider, but they were paying--what we see is, 
as I said before, a record number of televisions in the home, 
which may seem counter-intuitive, but people love large screen 
TVs, high-definition experiences. And I think it's the ease of 
use that will matter.
    So while I won't predict, what we do know is good content 
absolutely wins, whether it's user generated or created in 
other ways. And so if people provide the right content and it 
has a business model, mainly it has been supported by 
advertising or by subscription that works, they'll continue to 
produce the content.
    Consumers follow the content. The devices will multiply, 
and I think it's the ease of use and the ability to watch 
whatever you want wherever you want it whenever you want it 
that we see has supported traditional television programming. 
It actually has grown. It's the access that matters.
    And I think other members of this panel may have more 
insight into the pricing and other things, but if we look at 
consumer demand, people want the content, and as long as the 
content is there, it's a matter of just making access easy, 
simple and different.
    Mr. Diller. To answer directly, I don't think it's going to 
be a substitute. I think it's a supplement. I do think that 
what online can offer is more a la carte programming.
    You spoke earlier about having 500 channels and only 
watching 10, but you essentially pay for the channels that you 
do not watch and therefore subsidize them, and that's our 
current system. It's a totally closed system.
    The Internet gives the ability to offer individual programs 
or discrete packages or the narrowest of narrow casting. And so 
as time goes on and we get more television sets naturally in 
big screen format connected to the Internet, you have this 
incredible optionality that can only come from the Internet. 
There is no closed pipe.
    So I think that its long-term effect is it's not going to 
replace pay television, but it will certainly be up there in 
terms of consumption, if not exceeding the consumption of pay 
television over time.
    The Chairman. For now, it's attitude.
    Mr. Diller. Sorry, did you say attitude?
    The Chairman. Yes.
    Mr. Diller. Yes.
    The Chairman. OK. Let me do one more very quick one, thus 
apologizing to you two.
    Obviously, television is incredibly powerful, and it 
informs us or doesn't inform us and it in some way shapes who 
we are to be.
    So we're talking about the advent of online video and how 
new technologies could change the nature of television. And, 
once again, we go back to, I believe, that disruptive 
technologies come along when there is something to disrupt and 
when what we have is not working for us. So this leads me to 
ask, so what went wrong with television or is it just about 
technology?
    Mr. Diller. It's about technology. Sorry. Please.
    The Chairman. To anybody.
    Mr. Misener. Well, Mr. Chairman, if I may, I think the 
medium of television was always about pushing information out 
to consumers with the hope that they would appreciate it and 
want it.
    The Internet, in contrast, by its very nature, is a pull 
medium, where consumers pull to themselves what they choose and 
what they want. Our whole business model is predicated on vast 
selection, convenience and value, providing low prices to 
customers.
    And nowhere is this more clear than with the provision of 
our video services. We want to give our customers the choice to 
watch what they want to watch, rather than have to watch what 
was pushed to them by someone in the traditional media.
    The Chairman. One more crack?
    Ms. Whiting. Yes. I think, stepping back, it's about what 
you define television to be. So what we see happening is, you 
know, there's live TV, you're watching when it's immediately 
broadcast. There's so much now done with time shifting, with 
DVRs. Obviously, they're distributed online video on your PC, 
on your tablet, on your phone.
    So I'm not sure that anything has gone wrong with TV so 
much as you've had this incredible technology change in how to 
access it, and that's what we see happening, and it's 
complicated. It's complicated for everybody in the business to 
adapt to, but it's really about the distribution.
    Mr. Diller. Just one little fillip here. In 1960 or so, if 
the world had the Internet, the whole distribution system would 
have changed. We would not have wired the country. We would not 
have put up satellites. We would have simply done it over this 
wonderful Internet ubiquity.
    The Chairman. No, I agree. And one thing that occurs to me, 
and I'm coming right to you, Senator DeMint, is the marvel of 
how we push broadband and how, with the exception of some rural 
areas, which I care fiercely about, it has worked wonderfully, 
and also wireless. So it's, in a sense, like public policy, and 
your innovation has created a perfect playing field.
    Senator DeMint. Thank you, Mr. Chairman.
    Mr. Diller, I'm curious, if you were still in the 
broadcasting business, what would you think about Aereo?
    Mr. Diller. Well, you know, if I was in the broadcast 
business, I would do what every broadcaster has done since the 
beginning of broadcasting, which is to protect their arena and 
do anything to prevent anyone else from getting into it.
    But I would also recognize that part of being a broadcaster 
was receiving a free license, and, in return, you programmed in 
the public interest and convenience. And core to that was that 
if you had a finger in the air or an antenna or whatever, you 
could receive a signal without anybody taking a toll or doing 
anything to prevent you from receiving that signal directly.
    That's what Aereo does. Aereo is technology that simply 
allows a consumer to get what was the quid pro quo for a 
broadcaster receiving a free license.
    Senator DeMint. So do you see yourself as selling network 
subscriptions, in effect, or do you see yourself as reselling 
content?
    Mr. Diller. We're not reselling anything. What we're doing, 
what we have is a technological platform.
    Senator DeMint. But it's a network, in effect.
    Mr. Diller. No, it's not a network.
    Senator DeMint. People can subscribe to your network to 
receive content.
    Mr. Diller. Well, it's one to one. Essentially, you have an 
antenna that has your name on it. I mean, not literally, but 
figuratively, because it's very tiny. Your name wouldn't fit on 
it. Certainly, Senator Rockefeller's wouldn't.
    But you have this antenna and it's one to one. It is not a 
network. It is a platform simply for you to receive over the 
Internet broadcast signals that are free and to record them and 
use them on any device you like.
    Senator DeMint. Well, the broadcasters have licensed with 
the producers of the content to broadcast that, but you are 
going to, in effect, capture that and resell it without a 
license.
    Mr. Diller. We're not. Sorry, Senator.
    Senator DeMint. You're not?
    Mr. Diller. We're not reselling anything.
    Senator DeMint. But you charge a subscription.
    Mr. Diller. What we're doing is we charge a consumer for 
the infrastructure that we've put together, for the little 
antenna and for our DVR cloud service. That's what the consumer 
is paying for.
    The consumer doesn't have to pay. We don't charge for 
programming that is broadcast on this free direct----
    Senator DeMint. So you're a distributor.
    Mr. Diller. Pardon me?
    Senator DeMint. You're a distributor then.
    Mr. Diller. No, we're not.
    Senator DeMint. You're not a distributor.
    Mr. Diller. Sorry. I mean, I would like to agree with you 
on something.
    Senator DeMint. OK. Well----
    Mr. Diller. But we're not a distributor at all. We're not 
distributing, except if you say that what we are doing by--if 
you would call an antenna that RadioShack sells, charges a 
consumer for, a distributor, then it would be analogous.
    Senator DeMint. So you would contend, then, if Amazon or 
Microsoft, as businesses, could intercept broadcast signals and 
sell them through what they have set up now, right over the----
    Mr. Diller. Well, the laws, the system for broadcasting is, 
I mean, Microsoft could do it, presuming in Redmond, where 
there is a TV signal, that they offered the same kind of 
platform that we would offer, because the system of 
broadcasting transmission is local. So it's utterly one to one. 
A local broadcaster sends a signal out and we provide an 
antenna to receive it and put it over the Internet and allow 
people to record it.
    Senator DeMint. OK. All right, Mr. Misener, do you plan to 
intercept broadcast signals and sell them over your network? 
Well, I guess, do you sell them as part of your content? Would 
you see that as a legitimate thing to do at this point?
    Mr. Misener. Senator, thank you for the question. We 
currently don't offer live programming in our video service, 
and we don't know what the future holds for our other 
businesses. We're all about providing our customers vast 
selection and choice, and so the 120,000 available movies and 
TV episodes that----
    Senator DeMint. But you license those.
    Mr. Misener. Yes, sir.
    Senator DeMint. Or deal with the copyrights with everyone 
who owns them, right?
    Mr. Misener. That's correct.
    Senator DeMint. So you don't necessarily see yourself as a 
competitor to traditional pay TV services like cable or 
satellite or----
    Mr. Misener. No, we're close partners with the studios who 
produce the content.
    Senator DeMint. Oh, OK. All right. Just as an aside 
question, do you think a Walgreens or a CVS has the right to 
charge a manufacturer more for an end-aisle display than they 
do a position on the shelf?
    Mr. Misener. I'm sorry, Senator, I didn't follow the 
question.
    Senator DeMint. Have you ever seen an end-aisle display of 
products in a grocery store?
    Mr. Misener. Sure. Sure.
    Senator DeMint. Do you think that retailers should have a 
right to charge more for the end-aisle display than they do for 
a position on the shelf?
    Mr. Misener. Goodness, Senator, I guess I feel that the 
products and services that accompany like an Amazon offer is--
--
    Senator DeMint. No, no, this is just a question about a 
grocery store. Do they have a right to charge differently for 
displays versus shelf space?
    Mr. Misener. Well, they do.
    Senator DeMint. OK. Well, that's really all I want to know. 
Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator DeMint.
    Senator Cantwell.

               STATEMENT OF HON. MARIA CANTWELL, 
                  U.S. SENATOR FROM WASHINGTON

    Senator Cantwell. Thank you, Mr. Chairman, and thank you 
for this hearing.
    And I thank the witnesses. I think, combined at least, 
three of you employ about 100,000 people related to Washington 
State, so thank you very much for that, and thank you for 
continuing to innovate in the business models.
    And while we could have a lot of discussions here about a 
wide number of issues from net neutrality and bandwidth caps 
and online distribution rights and piracy and privacy and what 
the FCC is capable of doing and not capable of doing and 
simplicity, one of the things that I wanted to discuss or get 
your input on is just, as we're talking about business models 
related to entertainment and the changes and what Congress 
needs to do, to me, there's one incredible opportunity with the 
advent of online content and distribution of that content, and 
that's in the area of education, and particularly when you talk 
about Kinect and two-way devices.
    I'm curious about what you see, Mr. Westlake, as 
opportunities in the area of education. I could say healthcare 
is another application, but education where just about every 
university could put every bit of content online and change the 
dynamic and access to education, whether you're going to give 
them a degree or not, to me, it's almost irrelevant, the fact 
that you can make educational materials so available.
    And, Mr. Diller, you made a habit of staying ahead, you 
know, innovating and staying ahead of business, making sure you 
don't fall subject to business models as they change or under 
competition. So what do you see as the opportunities for this 
content to be made more readily available to the American 
public, when we know one of our biggest, biggest challenges as 
a country is making sure we have a competitive workforce and 
driving down the cost of education?
    So, Mr. Westlake, anybody on the panel, but, Mr. Westlake, 
I want to know because Kinect, in my understanding, is two-way 
communications, too. So one of the things that people are now 
saying about online or interactive education is the 
limitations. But with Kinect, you're obviously changing the 
dynamic to get more interactive going with individuals.
    Mr. Westlake. Thank you, Senator. Yes, that's correct. In 
fact, I look at the Sesame Street Playful Learning Program that 
we'll be releasing in September as a catalyst for companies, 
producers to actually see what can be done.
    This is technology that, Kinect, that you mentioned, is, 
for those of you not familiar, it's spelled with a K, K-I-N-E-
C-T, as opposed to the word connect, is an accessory that 
attaches to the Xbox and has the capability of detecting voice 
and motion sensing as well as has a video camera.
    And what this program, what we've done is commissioned 50 
percent more programming to be shot integrating it with the 
production of the Sesame Street program that's produced each 
year. They produce about 40 hours of linear program, and taking 
the additional content and combining it with the linear, showed 
they're able to interact, and, as I described, can throw a ball 
toward the television set and actually the ball magically 
appears on the television set as though this nonexistent ball, 
for example, just suddenly fell into their television set, 
something that was previously impossible to do.
    And what we're doing is we look at this as a seed for 
showing others this is what we can do. This is what we've done 
in other areas, which is when we know the technology, what 
better way than to demonstrate it.
    So I think it's the beginning of the stage of being able to 
have producers produce the content that is available for 
children to be used in this fashion.
    As you said, the same with healthcare. There are any number 
of ideas that could be used for this technology to bring 
healthcare content, et cetera.
    Senator Cantwell. Mr. Diller, education. What do you----
    Mr. Diller. Well, I would say that if online technology 
does not transform education, it would be a crime. It is 
already beginning to do so. But have to remember we've only had 
broadband for just a few years. So the ability to have rich 
video transmitted is a recent phenomenon.
    We have things like Khan Academy, which is a wonderful 
service for education. We have online Kaplan's online 
university, which has, I think, 100,000 members, so to speak. 
Everything is eventually going to be online, and there are 
healthy potential business models that are going to support 
that, and they'll have a profound effect, I think, profoundly 
positive effect, because you will finally get some competition, 
some really lively, creative competition in education, how it's 
delivered, what its products are, et cetera. So I'm very, I 
would say, I can't imagine that it won't be transformed.
    Senator Cantwell. Thank you. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Cantwell.
    Senator Thune.

                 STATEMENT OF HON. JOHN THUNE, 
                 U.S. SENATOR FROM SOUTH DAKOTA

    Senator Thune. Thank you, Mr. Chairman, and I want to thank 
the panel. The technology is remarkable. The innovation is 
amazing, and, you know, we here in Congress are just trying to 
keep up with what's going on out there, as you can tell from 
listening to us this morning.
    But I'm curious to know, and this is for anybody on the 
panel, because there are some studies out there that suggest 
that streaming accounts for about 54 percent of Internet 
traffic in North America during peak times.
    Netflix and YouTube account for 37.6 percent of North 
America's daily Internet consumption, which leads to a 
question, and that is do we, as a nation, have sufficient 
infrastructure and bandwidth to support the increased demand 
for high-quality, online streaming services?
    And what are the foreseeable issues that arise for our 
Internet infrastructure in terms of this exploding demand and 
availability of online video, and what should Congress be 
watching for in this area, if anybody would like to take a stab 
at that?
    Mr. Misener. Well, Senator Thune, thank you very much. I 
think the core characteristic of the Internet is that consumers 
are allowed to pull to them the information that they seek. So 
it's all about consumer choice. The information doesn't get 
into the wire, as it were, unless the consumer asks for it.
    And so consumers are driving that growth of online video. 
Consumers are demanding devices like the Kindle Fire. They're 
demanding the broadband delivery of video services.
    And so long as consumers are able to make that choice in 
the future, so long as the networks remain open to that 
consumer choice, it will be a bright future for consumers, 
because they will decide what they want to receive through the 
Internet.
    Senator Thune. But in terms of capacity, just the 
infrastructure to handle all this, I mean, does anybody see 
that as a problem? Does that impose any kind of a constraint on 
the future growth of the industry?
    Mr. Diller. Of course it's a problem. It is going to be a 
problem. We do not have a first-rate broadband infrastructure 
in this country. We are slower and less deployed than, I think, 
15 or 18 countries.
    We also are beginning to strain at capacity. And so I think 
that all the efforts to free up spectrum, the efforts that I 
think should be mandated for the widest broadband coverage, is 
mandatory.
    One way or the other, it will get solved. It would be nice 
if, in fact, enough spectrum is offered and enough bidders bid 
it up to whatever they think is a fair going rate, and then 
they bash each other in competition, for which there is 
relatively little right now. And the potential then is for 
transmission rates to be lowered, which would be a good thing.
    Senator Thune. Yes. And you mentioned, Mr. Diller, in your 
testimony to your prepared statement anyway, you talked about 
broadband being ubiquitous. And as somebody who represents a 
rural area, there are places in the country where that's not 
true. And I think of the reservations, for example, in South 
Dakota, and thinking about, you know, what efforts we need to 
make to make sure that we're including rural Americans in these 
video business models of the future, because there clearly is 
a--I know it seems like it's ubiquitous to many of us who live 
in places where you have access to it, but there are a lot of 
places that don't.
    I had a question having to do with this issue of cord 
shaving. Mr. Westlake, you mentioned that in your prepared 
testimony, where consumers elect to just have basic cable 
service and supplement their service with a subscription to 
Netflix. It seems like there are a lot of content providers 
that are going to have an opportunity to sell their content 
directly to the consumer, which would allow them to bypass 
cable subscriptions.
    And yet many, if not all, of the current online streaming 
models require you to have a cable subscription. For example, 
you can't watch ESPN or HBO on your iPad, unless you've got a 
cable subscription. Your cable provider has acquired the 
licensing rights to stream it. What is stopping ESPN from 
simply selling their content directly to the consumer or the 
NFL, for that matter, to sell directly to the consumer?
    Mr. Westlake. You mean----
    Senator Thune. You mentioned it.
    Mr. Westlake. Yes, in terms of each of these companies of 
course, can make a decision whether they choose to sell 
directly to the consumer. If what you mean is do I know of any 
impediment, there are no impediments. It's more a business 
decision that they make.
    Some of these services are, in fact, selling directly as 
well as on an authenticated basis. So it's really purely a 
business decision on their part. Some have and some haven't. 
And I would expect, over the course of time, there will be more 
services that are offered directly to the consumer.
    Mr. Diller. Simply, Senator, it would be insane for ESPN to 
sell itself directly to consumers, because, right now, it's 
selling itself to me. I don't watch ESPN. I pay God knows what 
for cable transmission, and I am, therefore, paying for ESPN, 
because 100 percent of subscribers have to pay for it. So to 
sell it individually would be something they would avoid.
    Senator Thune. All right. Thank you.
    Mr. Chairman, my time has expired. Thank you all.
    The Chairman. Thank you very much.
    Senator Warner.

                STATEMENT OF HON. MARK WARNER, 
                   U.S. SENATOR FROM VIRGINIA

    Senator Warner. Thank you, Mr. Chairman, and thank you for 
holding this hearing.
    I missed part of Mr. Diller's testimony, but I understand 
he said that incumbents always want to protect themselves and 
we need more disruption, and I agree. My background's on the 
telecom side.
    But I'm trying to get my head around this whole new model 
where we've got, on one hand, we have the content generators. 
In the traditional model, we had, you know, broadcasters and/or 
cable, others, which then had some level of public obligation, 
because they either got that free license or they negotiated 
with the local community.
    So we've got this kind of how you do a distribution through 
either cable, over the air or broadband network providers. And 
we've kind of got this new entity, not so much Ms. Whiting, 
from Nielsen, but everyone else, of you all kind of being, in 
many ways, in between the content creator and the distribution 
system.
    And I guess the question I have for you all is we have 
placed in the past either kind of program access rules or other 
responsibilities on the network providers, some restrictions or 
rules around the content entities.
    What should be kind of the policy ramifications for you 
all? What set of rules? And should we get to the notion of how 
do we define--what Senator DeMint was getting at you was 
whether a distribution network or trying to put you in a 
traditional box, but what should your obligation be and what 
policy restrictions framework should we put around you all? I'm 
not sure that's a very clear question, but let me have you take 
a crack at it.
    Mr. Misener. Well, Senator, if I may, I think vigilance is 
due most in the areas where there's the least competition, and 
so, at present, there are a plethora of content creators, of 
content distributors and certainly consumers.
    But there also are not many conduits by which the content 
can get from producer and provider to consumer, and so that's 
the area I believe requires the most vigilance. And, in this 
context, maintaining an open Internet is crucial to the 
provision of these competitive services and the consumer choice 
that I believe we all agree is the right policy.
    Mr. Diller. Senator, I think that, not to be presumptuous, 
but I think you've got to rewrite the communications act of 
1996. It's overdue, given the Internet, which--and it needs 
revision because the rules started with broadcasting 80 years 
ago, but the rules that essentially protected broadcasters and 
then the rules that enabled cable television, there is a new 
entrant. That new entrant, and it's a healthy entrant, is the 
Internet.
    And so I think the rules now need to reflect that there is 
a potential positive competitor to what has become, as you 
stated earlier, a very closed system of program content makers, 
people who organize networks, whether they be pay networks or 
whether they are advertising-supported networks and subscriber-
supported networks, rather than, quote, you know, pay-per-view.
    But these players actually are in a system where there's no 
air, and there's no air because it's completely closed, 
dominated by relatively few companies, less than a handful, and 
I don't think those companies are going away. My goal in life 
is not to make them disappear, but I think the Internet allows 
for competition.
    Senator Warner. But let me just ask you this, because my 
time's going to run out.
    Mr. Diller. Sorry.
    Senator Warner. No, I just feel like I agree with Senator 
Thune. We've got to push more access. We've got to push more 
conduits.
    But, then, what obligation should you have as the 
intermediary between the content creator and the distribution 
system? What obligation should you have in terms of providing 
equal access, paying for the amount of content you push through 
these pipes? And should we be distinguishing between 
traditional sources, cable, broadcast, wired, wireless through 
all these, should we kind of have a total level playing field? 
And my time's up.
    Mr. Diller. Well, I would just simply say a level playing 
field is mandatory, and that means that the rights and 
obligations that people have are across all of these arenas. 
Absolutely. But, by the way, right now, the profit margins on 
data transmission are in the 90s. So it's not exactly as if 
these systems are not going to be built out. They are being, 
and they're being added to every hour. So I don't think you 
have any worries about that.
    Mr. Westlake. Senator, I would just add, the greatest 
innovation we've seen in the last couple of years has been from 
those that are utilizing broadband online video delivery, bar 
none.
    Access to the broadband and the reach of broadband is the 
essential part. I don't find that we have an issue of getting 
access to the content. In fact, the most profoundly different 
content is coming from those who are utilizing that means.
    Wide access to it, essential. That is essential, but the 
creation of the content is growing exponentially, both the 
volume of it as well as the innovation behind it.
    The Chairman. Senator Klobuchar, to be followed by Senator 
Heller and Senator Kerry.

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Thank you very much. Thank you, Mr. 
Chairman, for holding this hearing.
    I wanted to follow up just quickly first with what Senator 
Thune had referred to, rural America, and I think you all know 
the FCC National Broadband Plan talks about getting broadband, 
including web pages, photos, video, to everyone. Yet, often, 
the speeds aren't as fast in the rural areas. And could you 
talk, maybe one of the three of you that provide these 
services, about how you're working to make your deliver systems 
more available to rural America?
    Mr. Westlake. Senator, well, we are a platform company. We 
don't actually deliver broadband to the end point. We're 
dependent upon that essentially as the consumer is.
    Senator Klobuchar. I understand.
    Mr. Westlake. We are certainly, as I said in my opening 
remarks, encouraging wider access to that at the FCC for 
megged-down minimum threshold, because, at that point, we feel, 
in terms of both what we can deliver in terms of high-quality 
video, high-def quality video, that suits the needs that we 
have as far as giving those consumers what they need.
    But as far as actually being able to facilitate that pipe 
out to the home, that's not a business we're in.
    Mr. Misener. Senator.
    Senator Klobuchar. Mr. Misener.
    Mr. Misener. Thank you very much, Senator. We believe we're 
helping to provide the value proposition for the buildout of 
that broadband. The very fact that 120,000 movies and TV 
episodes already are available from a service like Amazon 
Instant Video makes it more valuable for consumers. And so the 
consumer demand will drive the buildout of broadband.
    Certainly, that's an area of important policy oversight 
from this committee and from the commission. I'm a big believer 
in that, but rural areas especially will benefit from Internet 
video.
    Senator Klobuchar. And there's an article today in the 
Washington Post pointing out the 1934 Telecom Act was ensuring 
programming for rich and poor alike. How about the disparity 
issue in terms of equal access to low-income households? How do 
you think that fits into this, as more and more people are 
going to be getting their news in other ways?
    Mr. Diller. Well, I would say that access is going to be 
increasingly available as the broadband infrastructure not only 
becomes completely ubiquitous, but also has enough price 
competition to allow it to be available.
    I think that what the FCC is doing is, I mean, in terms of 
using the old telecom funds to finance buildouts in rural 
areas, et cetera, for broadband is great. But I think we do 
need a national policy for broadband, because everyone is going 
to be affected by it and we're going to need to have as good a 
system as there is in the world, and right now, we don't.
    Senator Klobuchar. And what do you see as the role for 
local news? In our state, the local news is provided through, 
you know, getting people through tornados, to the flooding in 
Fargo-Moorhead, literally daily reports of where people should 
go, what's happening. What's the role of local news as you see 
the video marketplace maturing?
    Mr. Diller. I've always thought, as people said that local 
broadcasting, local television stations were going to be 
outmoded and were probably, in all of these new development 
areas, are going to be antiquity, and I've always felt 
otherwise, because the strongest local television stations are 
the ones that provide the most news and information and 
community programming, and so I think that continues to be very 
vibrant.
    And, clearly, if you look at the success of any television 
station in any market, they are more dependent upon their 
ability to deliver news than they are having to hit a 
television program of the moment.
    Mr. Westlake. Senator, I find that, based on just viewing 
in the greater Seattle area where two of us live, or, actually, 
I guess you work for one. I live in Seattle, the local stations 
are utilizing online now for a depth of local news that isn't 
practical on air. So there is barely 10 minutes that goes by in 
a broadcast of a local independent or affiliate station that 
does not refer to their website for more in-depth video 
footage, et cetera.
    So, actually, I agree, local content remains, for most 
consumers, first and foremost where they go as opposed to just 
a broader national feed. And the local stations, on the whole, 
I think we're seeing just the beginning of it. I think you will 
see those local stations actually adapt to these video apps 
that others are doing and it will only proliferate.
    Senator Klobuchar. Ms. Whiting, I just had one last quick 
question. I was just looking at your gender breakdown, always a 
good topic to end on, on the digital consumer. So you have the 
TV viewers, 51 men to 49 women watch more TV. Is this right? I 
didn't know that.
    And that online women beat out men 53-47 for videos, 54-46 
for social networks, 50-50 for smart phones, and the tablet 
owners are the only categories where the men are ahead, 53-47. 
So do you see that changing as well, or where do you see that 
going?
    Ms. Whiting. No, I don't see that changing.
    Senator Klobuchar. Why is that?
    Ms. Whiting. Because, well, actually, we see very broad 
distribution of video in the usage on every device. If you mean 
do I think the tablet disparity----
    Senator Klobuchar. Yes, I was just curious where that's the 
one where the men are----
    Ms. Whiting. Oh, no. Yes, I think that's just been, yes, 
he's got an example of----
    Senator Klobuchar. Yes, I know, there's a man up there with 
a tablet.
    [Laughter.]
    Ms. Whiting. No, I think that is mainly because it's a 
newer device, yes.
    [Laughter.]
    Senator Klobuchar. And the women are just like they wait 
more to make sure they work----
    Ms. Whiting. Well, I was going to start, actually, my 
testimony with my iPad and my BlackBerry and my iPhone and my 
PC, but I didn't do that. But I do think that's just a timing 
issue of the distribution of the devices.
    Senator Klobuchar. It's interesting. All right. Thank you 
very much.
    The Chairman. Thank you, Senator Klobuchar.
    Senator Heller.

                STATEMENT OF HON. DEAN HELLER, 
                    U.S. SENATOR FROM NEVADA

    Senator Heller. Thank you, Mr. Chairman. Thanks for holding 
this hearing today.
    And I want to thank the panel for being here. It's 
enlightening to hear your comments. I know we ask a lot of 
questions. We just do it in a different way. It's usually the 
same question, just asked a little bit different, and I assure 
you that my question probably runs right down that line.
    But I would hope that we have more hearings like this, Mr. 
Chairman. In fact, I would hope that we talk about the 
communications act a little bit more and the cable act and some 
of these issues.
    In fact, I would respectfully ask in the near future that 
we hold an oversight hearing on the FCC and discuss some 
reforms that I've introduced. So that would be my request.
    I would also like to submit a statement for the record, if 
that's OK, Mr. Chairman.
    The Chairman. It is included.
    Senator Heller. Thank you.
    [The prepared statement of Senator Heller follows:]

    Prepared Statement of Hon. Dean Heller, U.S. Senator from Nevada
    Thank you, Mr. Chairman, for holding this hearing today. I am 
appreciative of the time we are spending to listen to our panel on the 
future of content distribution. I hope that we have more hearings on 
this issue going forward and I would also like to respectfully ask that 
in the near future we can hold an oversight hearing on the FCC and 
discuss some reforms that I have introduced.
    I believe that today is the start of a conversation on content 
viewership in America. I would like to thank our panelists here and I 
look forward to studying your comments.
    Like all of you, I have marveled at the technological advancements 
and innovations that have taken place over the last fifteen years. An 
unregulated Internet market has been a dynamic force for our economy, 
creating many sustainable well-paying jobs in America.
    With these advancements have come faster video streaming technology 
that allows multiple family members to sit in the same room and watch 
four different shows on different devices while checking their Facebook 
status and reading The Hunger Games online. And, if you don't believe 
me, you are welcome to stop by my house at Christmas.
    These advancements also beg the question of whether the laws passed 
in the 20th century are outdated in relation to today's changing 
landscape.
    That is why Congress should look at the laws regulating content 
distributors that are on the books and determine what makes sense and 
what does not for a world with a participant who is unregulated.
    They should do this while remembering that content should be 
protected and compensated accordingly.
    But, focusing on the laws on the books is also a discussion for 
another day. Today I am hopeful that our panelists can provide us with 
an outlook of where we may be headed with content distribution and 
perhaps what consumers may expect around the corner.
    Thank you again, Mr. Chairman.

    Senator Heller. Like all of you, I marvel at the 
technological advancements and innovations that have taken 
place over the last 15 years. An unregulated Internet market 
has been a dynamic force and it's created many substantial and 
well-paying jobs abroad and, of course, in the state of Nevada. 
These advancements beg the question of whether the laws passed 
in the twentieth century are outdated in relation to today's 
changing landscape.
    That's why Congress should look at the laws regulating 
content distributors that are on the books and determine what 
makes sense and what does not for a world with a participant 
who is unregulated. They should do this while remembering that 
content should be protected and compensated accordingly. But 
focusing on the laws on the books is also a discussion for 
another day.
    Today, I'm hopeful that our panelists can provide us with 
an outlook of where we may be headed with content distribution 
and perhaps what consumers may expect around the corner.
    I'll tell you one of the great benefits of being a Senator 
from Nevada is to tout the conventions that come to my state, 
such as the Consumer Electronics Show and a recent convention 
held by the National Association of Broadcasters.
    These gatherings are always informative because they 
showcase what's coming down the pike from innovators for 
consumers. Knowing where we're going is helpful to me because 
the last thing that I want to do as a lawmaker is to stifle 
that innovation.
    So with that in mind, I'd like to ask the panel a kind of 
an open question to all of you in regards to viewing content. 
Where do you think we're going? And do the laws in existence 
help or hurt us from getting there? Mr. Diller, I'll start with 
you.
    Mr. Diller. Well, I said it earlier----
    Senator Heller. I said we were going to ask questions.
    Mr. Diller. Oh, no, no. I expect that, Senator, but I think 
that where we're going is obvious. We have a new, radical 
revolution in communications called the Internet. And so more 
is going to transfer, not completely, but more is going to 
utilize the capacity of the Internet to provide more 
information, more services, more programming. And the laws we 
have, that 1996 communication act, do not address the reality 
of this new force that has only been really going on since 
1995.
    Ms. Whiting. Senator, I would probably add a couple of 
things. We see a trend of people using multiple media multiple 
devices simultaneously. So, one, more people watch television 
while they're using their tablet or their PC or their phone, 
which only leads to the need for more, as we were talking 
about, broadband, because many of those applications are like 
that.
    So we see more multitasking. We see people wanting access 
to their favorite programs, their favorite content, their news 
and information wherever they are, and, again, on the best 
device possible, wherever that is.
    But as phones, in particular, smart phones also have wider 
and wider penetration, you know, that device really is a video 
device for any of the different kinds of content we're talking 
about. So I think that increases as well.
    So they complement each other. People are using multiple 
media at the same time, and that will grow. So those are the 
big trends we see in the next couple of years.
    All the innovation everyone else is talking about I leave 
to the experts about that.
    Senator Heller. Sounds like you're an expert.
    Mr. Misener. She is.
    Senator, the distinctions drawn among different 
communications services in the 1996 Act, in the 1934 Act 
before, the 1992 Cable Act, those distinctions have blurred 
significantly over the past decade or so.
    And I'd be happy to work closely with the Committee to 
address that blurring and to see if perhaps there are ways we 
ought to update the law to reflect the business models in 
technology that exist today.
    Senator Heller. Thank you. My time has run out, Mr. 
Chairman. Apologize, Mr. Westlake.
    The Chairman. You do not have to apologize ever for 29 
seconds in this committee.
    Senator Kerry, then Senator Pryor.

               STATEMENT OF HON. JOHN F. KERRY, 
                U.S. SENATOR FROM MASSACHUSETTS

    Senator Kerry. Thank you, Mr. Chairman.
    Indeed, the lines are blurred. In fact, it's pretty unclear 
right now where a lot of jurisdictions begin and where they 
end, and I think we're way behind the curve.
    Ironically, and I've said this before with the Chairman 
here, and as Chairman of the Subcommittee, I've said that we 
were really behind the curve within 6 months of the 1996 bill 
being signed, because we didn't really think very hard about 
data transmission.
    So a hearing like this is pretty important as we think 
about what's the role of government in the market going 
forward. And, hopefully, it'll help us understand how free 
Americans are to really engage in the creation and consumption 
of video in fair terms at fair prices, as well as the role that 
competition is going to play in those choices. And I don't 
think we've tapped the answer to that yet, to be honest with 
you.
    I mean, you mentioned it a moment ago, Ms. Whiting, that 
the four-apparatus experience you live, and some people may 
even have more, it's pretty normal, actually, for people to be 
doing that nowadays.
    And there's nobody here who doesn't understand the ways in 
which the digital technologies have shaped the video landscape, 
from YouTube, Amazon Instant Video, Facebook, Netflix, and many 
others, have now made it possible for Hollywood to distribute 
television and movies over the Internet, for the rest of us to 
produce and distribute our own video, from the sort of 
innocuous and silly and personal, family oriented, kid-oriented 
kinds of things to the Joseph Kony video, which had profound 
impact and a stunning over 80-million-plus whatever hits in a 
short period of time.
    And, now, the smartphone and the tablet folks who make it 
possible for people to capture video, not just on your 
television or your computer, but anytime, anywhere. So it's a 
brave new world. It's a whole new deal.
    And most of these services are riding on either the wired 
or the wireless investments of a group of companies--the 
satellite, cable, telephone folks. And, now, they're using 
their broadband capabilities to put content out in new ways, 
such as the Comcast, Microsoft Xbox setup.
    So a lot of us are sitting here trying to figure out, OK, 
what are the principles that ought to guide us going forward. 
And, Mr. Chairman, I think it's critical that whatever we do we 
help to grow and empower and enable this innovation.
    That means, on the wireless side, that we have to do a 
better job of managing and releasing the spectrum, because 
video takes up a heck of a lot more bandwidth.
    On the wired side, we need to be pushing out broadband 
networks to underserved regions. Still a problem here. And, Mr. 
Chairman, you and I have talked about this, and the Committee 
has had hearings before on it. We've had policies put in place.
    I think President Bush, way back in 2003 or so, said we're 
going to have a policy that had everybody in America wired, 
and, as we all know, we're just light years behind that, in 
fact, dropping behind other countries, which we really ought to 
take note of.
    I mean, if you want to talk about American competition and 
preeminence in the marketplace, it's going to be dictated, 
largely, by some of this, and we're not doing what we need to 
do, by any sense of the imagination.
    Finally, I'd just say, and these are sort of part of the 
opening comments I wanted to make earlier, Mr. Chairman, but we 
have to protect net neutrality, I believe, and that's critical 
as we approach this, and we fought back against one effort here 
in the Senate to undo that.
    So I remain very committed, as the Chair of the 
Subcommittee, working with my full Chair to make sure that we 
enhance this marketplace as we go forward, and, frankly, make a 
little sense out of it, because I think consumers are bouncing 
off the walls right now, in some ways. In other ways, they're 
benefiting just enormously through the increased access and 
different appliances, and we have to be careful not to nip that 
because of its power in the marketplace.
    So let me ask you a couple of questions, if I can. One, I 
might ask Mr. Diller, given your success in the marketplace in 
a number of different venues and the knowledge you have of 
this, what would prevent you from, say, going out and creating 
now your own sort of Fox Network or some network, any other 
name you could attribute to it, but exclusively----
    Mr. Diller. I think I would pick a new name.
    Senator Kerry. Well, pick a new name. But your own network.
    Mr. Diller. Yes.
    Senator Kerry. Your own individual network outside of the 
broadcast or the cable world and just distribute it purely on 
the Internet?
    Mr. Diller. Absolutely nothing.
    Senator Kerry. Doable.
    Mr. Diller. Yes. The wonderful thing about this miracle of 
the Internet is you literally get to make up whatever you want, 
press a send button and publish to the world without anybody 
between your effort and the consumer. So it gives you an 
absolutely open possibility to create anything.
    Now, we're at a very early stage. We've only had video for 
a few years, the ability to transmit rich pictures over the 
Internet. And there's no question in my mind that as time goes 
on and systems for consumers get used to, to the same degree 
that they're used to the one click on Amazon, so that if you 
have something you can offer it to someone in a payment system 
that they'll understand and easily be able to access, and so 
this will happen over time. It is the promise of a la carte 
programming that I think is probably the greatest opportunity 
that there is.
    Senator Kerry. And in that context, we don't have a cable 
or broadcast representation to answer this, but do they have an 
incentive, therefore, to try to limit the growth of online 
alternatives?
    Mr. Misener.
    Mr. Misener. Thank you, Senator. I can't speak for them, 
obviously, but we've seen indications that they may wish to 
restrict the availability of competing content, and that has to 
be monitored vigilantly, I believe, by the Commission and this 
committee.
    Senator Kerry. And Congress should probably look pretty 
carefully at that playing field, shouldn't it?
    Mr. Misener. Yes, sir.
    Senator Kerry. To make sure there's fair access and 
competition.
    Mr. Misener. Yes, sir. And if I may suggest, at Amazon, we 
start with our customers and work backward and try to figure 
out what they would want. And so, in this context, in Congress' 
role, to look at the citizen consumer and then work backward 
from that, what would they want.
    I believe that they would want as much choice, as much 
selection, the greatest value and the greatest convenience 
possible. And as we look at the telecommunications laws as they 
exist today, try to put ourselves in the shoes of the citizen 
consumer and see what they would want, rather than what the 
industries do.
    Senator Kerry. I want to ask this of both Mr. Diller and 
Mr. Misener, how critical is net neutrality to this ability to 
distribute and to develop in this sort of way that you've 
described?
    Mr. Diller. I would say it's at parity with the need for 
national broadband policy that gets us to be, if not number 
one, I wouldn't settle for less than number two. We are now 
number 18, I think.
    Senator Kerry. Something like that, 16, 18.
    Mr. Diller. Net neutrality is mandatory, because there is 
no question that without it you will see the absolute crushing 
of any competitive force. It's just not going to be possible if 
you say that distributors can put tin cans and anchors around 
anyone that wants to deliver programming that they don't own, 
those distributors. And since we have a universe today where 
there are very few distributors, that's not a good thing.
    Senator Kerry. Mr. Misener, do you agree with that? You 
don't have to get a line in.
    Mr. Misener. I'm confident that I could not have said it 
better.
    Senator Kerry. OK. Final question, if I may. As we all 
know, hundreds of thousands of movies are illegally downloaded 
every day. One could block that by preventing people from 
getting to sites that stream the video, but I don't think 
anybody, obviously, wants to impede the freedom to go where you 
want to go.
    So, then, the question is asked or begged is there, in the 
current copyright and proposed copyright law both civil and 
criminal, too little protection for traditional video creation 
and too much constraint on innovation or is the balance right, 
and should we simply enforce the protection in this new era? 
Where do we come out on that?
    Mr. Misener. We're in the business of selling legitimate 
product, and thus we fundamentally abhor piracy. And so we're 
concerned, of course, about the prevalence of piracy in some 
places around the world. And so if there are ways to get at 
those kinds of copyright protection issues more effectively, we 
certainly would support that, Senator.
    Mr. Diller. I think copyright protection works pretty well 
right now. I do think some strengthening, particularly outside 
the United States, would be very helpful. I did not think that 
SOPA was good legislation, because I thought it was a 
ridiculous overreach. But current law is fine, hopefully 
enhanced somewhat.
    Senator Kerry. Well, this is something we obviously need to 
follow up on. There are a whole lot of sidebar issues to each 
of the questions I asked, and we look forward to working with 
you all closely as we work through this, and, hopefully, can 
make sense out of it, Mr. Chairman. Thank you.
    The Chairman. Thank you, Senator Kerry.
    Senator Pryor.

                 STATEMENT OF HON. MARK PRYOR, 
                   U.S. SENATOR FROM ARKANSAS

    Senator Pryor. Thank you, Mr. Chairman, and thank you for 
having this hearing. It has been great.
    Mr. Diller, if I can start with you. I know that when 
Senator Kerry, a few moments ago, asked you about what is there 
to prevent you to start your own thing on the Internet is 
absolutely nothing. You've obviously excited about that, and it 
is exciting.
    But I also have a question about regulation and what 
regulatory environment you think there should be out there. For 
example, we recently passed, I guess it was last year, the 
Twenty-First Century Communications Video Accessibility Act, 
which makes sure that certain devices that aren't covered by 
previous law, the handicapped could have access to those.
    And, you know, one of those examples that we gave was when 
folks were watching a movie, say, like the Wizard of Oz online, 
it doesn't have to be closed captioned, but, obviously, on 
television, it is.
    So those are regulations that don't necessarily infringe 
much, but they do make this access available to everybody.
    So if you look at something like today like an Xbox 360, I 
don't think it is covered under our new Act. As far as I know, 
it's not. Maybe it should be, but I think that technology has 
changed so rapidly we've not been able to keep up.
    So what's the balance there in this--I would call it legacy 
regulation? You're very comfortable with all kinds of 
regulations, given your background. What's the balance there as 
we move forward and as we're doing more and more online? How 
much regulation should there be and how equal should those 
playing fields be?
    Mr. Diller. Well, I think that regulation should be 
relatively light touch, but I think that given this very 
powerful mass communications, the engines of such, there has 
got to be, first of all, the levelest playing field that can be 
legislated.
    At the same time, there are all sorts of legacy obligations 
that broadcasters took on, that cable companies took on and 
satellite companies took on that should now be covered and 
included with the Internet and the issues of the Internet.
    I don't think it's that hard to do. I mean, the last time 
around, the 1996 Act took a lot of plot and preparation and 
endless noises heard from. Not that that's not going to happen 
again, but I actually think this time around it's easier.
    And the reason it's easier is because the Internet and its 
ubiquity and its adoption has changed so many things naturally 
that amending the act for the future that includes the 
Internet, the reality of the Internet, I don't think is going 
to be that problematic.
    Senator Pryor. Did the other panelists have any comments on 
that, any response?
    Mr. Westlake. Senator, you mentioned the Xbox. I'll respond 
on that. We are working toward the implementation of closed 
captioning. It's a complex undertaking. The volume of content 
that is flowing and the amount of metadata that's associated 
with the closed captioning is no small task, but that is 
certainly our goal and one that we treat very seriously.
    Senator Pryor. Good. Anybody else?
    Let me ask this question about something that Senator Kerry 
alluded to a minute ago and that's intellectual property, and 
it does seem to me that given the ubiquity of the Internet, as 
you said, it just becomes harder and harder and harder for 
folks who own that intellectual property to enforce that.
    And do the same old rules apply or should the Congress, 
should specifically the Commerce Committee be considering other 
approaches to make sure that folks get their intellectual 
property protected both domestically and abroad? Anybody?
    Mr. Misener. Senator, if I may. Thank you. At Amazon, we've 
been working with rights holders, since our inception, to 
ensure that their legitimate product is made available to the 
widest range of consumers, and, likewise, for our customers 
that we provide them the legitimate product.
    And so the 120,000 videos that I've referred to, available 
in Amazon Instant Video and on Kindle Fire, those were all 
obtained by working with the rights holders. So we're very 
comfortable continuing to work with them to respect their 
intellectual property rights.
    Senator Pryor. Good. And one last question, if I may, for 
Ms. Whiting from Nielsen, I know you look at all this data all 
the time. You see what people are doing and see how they're 
behaving out there.
    One of the things that this committee has been working on 
is trying to get high quality broadband to every American that 
wants it and it's particularly challenging in rural areas. Do 
you think that as more and more content is available online 
that it will actually incentivize people to get broadband, 
especially in the rural areas?
    Ms. Whiting. I think it just seems like a logical 
conclusion because so much of what you could talk about and 
experience every day, the applications that are useful, you 
know, the way you can communicate, the way you can learn and 
get your entertainment being available, particularly on a 
phone, as I said before, I think will lead to more people 
asking for broadband and requiring that access. So that usually 
leads to a commercial discussion about making it available.
    Senator Pryor. And then that's going to lead to the issue 
of affordability for broadband and trying to get it deployed. 
But one of the concerns I think this committee has expressed 
over and over is, we don't want two Americas. We don't want 
urban to have all the latest and greatest and high-tech stuff, 
and then rural just be left behind.
    So all right. Well, thank you very much.
    Mr. Westlake. Senator, I would add that the offering of all 
this additional video, which really requires that broadband 
capability, which I mentioned before as far as the four-meg 
threshold that the FCC has stipulated, my impression in dealing 
with these various ISP, Internet service providers, is they are 
looking for new ways to be able to offer broadband to more 
households and to be able to sell it.
    It is, frankly, a good margin business, and as people see 
more and more of this content, the demand goes up. And, as 
typically occurs with most businesses, when demand rises, 
businesses typically see that void and try to fill it.
    So I actually think that this increase in video content may 
well be a catalyst for many to build more. We hope so.
    Senator Pryor. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Pryor.
    Senator Nelson.

                STATEMENT OF HON. BILL NELSON, 
                   U.S. SENATOR FROM FLORIDA

    Senator Nelson. Thank you, Mr. Chairman.
    Of course, Senator Pryor, you've been such a champion for 
rural America, and, as you know, the fruits of your labors in 
getting broadband, the fruits of the Chairman's labors in 
getting broadband out into the rural areas have helped my state 
enormously as well, as a lot of people don't think of Florida 
as being rural, but there are vast portions of Florida that are 
rural.
    And I might say, having done a number of town hall meetings 
in the rural parts of the state, now that, as a result of the 
stimulus bill having put money into expanding broadband into 
the rural areas, which is now just occurring, that is being 
greeted with exceptional excitement and approval among the 
rural areas, so that, basically, as you say, that we don't have 
two Americas, that the children in rural America have the same 
access to the information that children in urban America do.
    I wanted to ask a question of Ms. Whiting, because I was 
fascinated the other day when a senior member of our staff said 
to me that she does not watch television anymore, that she gets 
all of her information, basically, from either her computer or 
from her iPad.
    So how in the world is Nielsen, which has now refined the 
technique so well in determining how many eyeballs are watching 
a TV set with your boxes, your electronic boxes, now that 
measure it exactly, how in the world is Nielsen adapting to 
determine how many eyeballs are watching content on the 
Internet?
    Ms. Whiting. Thank you for the question, Senator Nelson. 
We've obviously had to adapt, because, as we just talked about, 
if we want to follow the audience of a program across any 
screen, the TV, the PC, the phone, the iPad soon, any websites, 
we have to measure that, and we do that for both the 
programmers and advertisers, and so we use technology to do 
that. We recruit samples of consumers who let us measure that.
    There are a growing number of people who do not own--there 
are contradictions going on. There is a small, younger, 
generally, group of people who do not own a TV set. They tend 
to have a smartphone, not a landline, and they're getting their 
content and their information that way. And you balance that 
with households that now have four TV sets and their PCs and 
every other device.
    And our task, because programmers and advertisers really 
require it, is to measure the programming across that. And so 
technology is our friend here. Without giving a long 
explanation, we use technology to help us measure, with 
permission, the behavior on all those screens in samples of 
people.
    So it's possible and we're doing it, and I expect we'll 
have to continue to innovate, because there'll just be more 
screens.
    Senator Nelson. Well, technology refined your technique 
with regard to television screens, because you could put a box 
on a representative sample and then determine who was watching 
what program. How do you do that with a handheld computer 
device?
    Ms. Whiting. So very specifically, it's usually a software 
application that we basically recruit someone to participate. 
We download either a software application or we're measuring a 
commercial or a program and there's a code in the commercial 
and program and we pick it up if you're part--basically, it's 
code recognition. So it's technology that's residing on 
whatever the equipment is. Whether it's a phone or a PC or, 
soon, your iPad, we use software. So it's not a separate box 
that's connected. It's a way of understanding behavior, with 
your permission.
    Senator Nelson. How do advertisers understand that they are 
being charged appropriately on the Internet as compared to the 
satisfaction and confidence that they have in the number of 
eyeballs that are watching a TV program because of you?
    How are they being satisfied that they're being accurately 
charged a fee for their advertising on the Internet or any way 
that it's distributed through an Internet-type program?
    Ms. Whiting. So the really simple measures advertisers are 
looking for, you know, how many people or what exposure did my 
ad have. They have estimates for television. There are a number 
of different ways they can get those estimates for online 
display ads. Search advertising they get feedback, and we 
provide it, other companies do.
    The number one question we're getting now from major 
advertisers is to understand, across the screens, how an ad 
campaign can be effective, how to balance the money they put 
in.
    And so that's, again, done recruiting panels, using 
technology to measure, same kind of way we do in television, 
exposure to an ad, and then there's the effectiveness. But 
there are many ways, because you have website information, you 
have other technology, that people can do that.
    So we have similar methods to television, similar answers 
for advertisers, and the big question that's happening is 
trying to understand how they complement each other, an ad on 
TV and an ad on the Internet.
    Senator Nelson. If I use myself as an example, a TV program 
goes dark, and an ad comes up. Now, maybe my mind is watching 
it or not, but that's what's filling the space. Not so with an 
Internet screen. I may be looking at content on the screen on 
an iPad and there's an adjacent ad, but I'm not paying any 
attention to that. How do you go about measuring the 
effectiveness of that compared to a TV program?
    Ms. Whiting. So we actually use a method that involves both 
understanding that a panel we've recruited has that ad up and 
on the screen, and then recall, after the fact, and certain 
measures we create for recall and impact for that advertising 
for major advertisers.
    So it's a combination of things along with demographic 
information we have. So we can say this ad was viewed by an 
estimate of, you know, men 18 to 49, and then, additionally, 
would look at the impact of the ad in the recall. And we do 
that for a number of major advertisers, many of them, in fact.
    Senator Nelson. Do you find that the recall for Internet 
ads is much lower than the recall for TV ads?
    Ms. Whiting. It depends on the creative. It depends on the 
placement, in other words, the actual ad, the placement.
    What we do find is that ads that are shown on both 
television and the Internet have much higher recall and much 
higher effectiveness when they're combined. So that's something 
that many advertisers are studying with interest. They 
complement each other.
    Mr. Westlake. Senator, I would add also that, to the point 
I made in my remarks about innovative business models and new 
offerings, that various content companies, which obviously use 
advertising as, in part, a way to fund the programming, are 
experimenting with ways of a lighter ad load, for example, 
shorter ads.
    So, again, to my comment, out with the old, in some 
respect, the new way that online video is being delivered, it's 
not just the means by which the content is being delivered, but 
the way in which it's offered up as far as the price point for 
the access to the content, how the ads are delivered up, pre-
rolls, it's called, where you watch an ad before.
    So there are a number of things that are being done, 
putting aside the actual measurement, which is a separate 
discussion and not my expertise, that's being utilized, and 
some refining it, from what we hear, extremely effective.
    Senator Nelson. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Nelson.
    I'm going to ask the final question, there being nobody 
left, and so I'll have to roll several into it.
    Ms. Whiting, the way you answered Senator Pryor's question 
was very interesting, because you really hesitated when you 
talked about the effect of technology leading to rural 
coverage. You had an answer, but it was a while in coming, and 
I thought that was honest, and I happen to agree with that.
    The business of when rural state senators talk about rural 
people or poor people in far-off places and people say, ``Oh, 
well, they're just, you know, pandering to their 
constituency,'' is really not at all the case.
    This is a basic American precept, and Mr. Diller has said 
that a number of times. You've all said it, everything has to 
go to everybody. And that's such a fundamentally American 
concept, and it's also a concept which is so probable, can be 
probable, with this proliferation of platforms and delivery 
areas.
    However, I think this committee has done a very good job in 
three areas of all this, and that is we started the E-Rate. 
Houston went wireless the second day and every classroom was 
done on the third day. Others didn't do that, and so it was a 
much longer process, but, now, E-Rate has worked. Connectivity 
is always a starting point.
    I think we've pushed real hard on, as Senator Nelson said, 
broadband, and through the stimulus package, which some people 
say, ``I never want to see the likes of that again.'' And 
therein lies a problem, because what we have done in broadband, 
as a matter of public policy, may have reached its point of no 
return.
    Then, I think we've done also a very good job in wireless, 
put a lot of money into wireless. On the other hand, we haven't 
done that by ourselves. Obviously, others have done it.
    But with all of these things going on, all I can think of 
when I hear about rural America, and I'm going to think about 
the rural part of Florida, not the rural part of West Virginia, 
just for the moment, so that I appear to be more honest in my 
questioning, and that is that, for the most part, it has been 
the business of the telecommunications companies up until now.
    And there's always this wonderful thing, because there are 
lots of mergers, and so there are lots of conditions, and the 
conditions always include precisely that, you've got to go 
everywhere, cover everybody.
    And all of the telephone companies that have ruled over 
West Virginia over the years, they've all promised it and then 
none of them have done anything about it.
    Yes, they've incrementally moved things further, but if you 
talk about mine disasters, if you talk about driving down any 
interstate in West Virginia, you have to kind of memorize the 
places where the interstate rises high enough so that you have 
cell service, which is absolutely humiliating and embarrassing 
in a modern world. That's our world. That's our world. That's 
rural America's world.
    And so I am on fire on the business of whether we are going 
to have this explosion of technologies, which I welcome, I 
totally welcome, and I welcome for several reasons. One is that 
I think this explosion of technology and capacity to see, 
learn, listen, and watch may be the salvation of the older 
generation, because you read so much about people being alone 
and they don't have friends and they can't communicate. Well, 
all of a sudden, they have all the friends in the entire world. 
They can make 25 friends every single hour if they want to.
    But the problem is they sort of have to have children in 
their household, but most of them don't. So that whole problem 
of how is it that they come to the marvels of this new way of 
watching, learning, going back to twelfth century British 
history and finding out marvels of how people actually built 
cathedrals back then--the stonemason process--how could they do 
it. I mean, it's all interesting stuff. It's exactly the kind 
of thing which keep them company, keep them motivated.
    And then the whole news factor, when they get to the news 
factor, I also have a big problem and question because news 
outlets are diminishing. I think there's one AP person left in 
Charleston, West Virginia, which is our largest city, and 
capital.
    And newspapers are getting smaller. The Post is getting 
easier and faster to read, as is the Times. That is slightly 
less, the Times, a little bit less quickly. And television 
increases, and news is now gotcha, and local news is a little 
bit less than CNN and MSNBC and Fox, et cetera, but it's still 
that nature, and then local broadcast has some of the same. So 
I worry about those things greatly.
    But what I worry most about is access to this, that we're 
talking here an exciting, marvelous, technologically 
proficient, slick, but profoundly important and right 
development.
    I'm a true believer in net neutrality. I want everything to 
go out to everybody. I don't want anybody stopping anything. We 
haven't really dealt with caps here, because, at some point, 
you can't create spectrum, and you can buy it back or give it 
back and then the FCC can sell you some. But, you know, the 
streaming, as Bill Nelson pointed out, eats up a lot of 
megabits really, really fast.
    So my question to you is, having neatly wrapped all my 
complaints into that, what's going to happen in this new 
revolution, which is going to force not just the 
telecommunications companies, but others who are in the game 
now to get it out to people who are not asking for it?
    They're not asking for it. I don't believe they are. I 
think when they knew they could have it and then overcame their 
fear of doing it, and had access to getting it, we might start 
with connectivity at that. They can't go down to their local 
public library to do all of this stuff. There's a connection 
down there, connectivity, but I think that's going to be a 
really tough slot, but it is the classic American requirement 
of this new explosion of possibilities.
    And I have absolutely no idea who I asked that question to, 
so I'll just ask it to Barry Diller.
    Mr. Diller. Thank you so much.
    I think, just like long ago, phone companies were forced, 
that in return for their monopoly, that they had to connect to 
everyplace that existed.
    The Chairman. But they didn't do it. None of them.
    Mr. Diller. Well, I don't know. They didn't----
    The Chairman. No, they focused mostly on the interstates 
and went to the cities and where the business was and where the 
prosperity was, and they got all of that. So Fairmont and 
Morgantown, all those places are happy, but out where people 
mine coal, whatever you think of that, and in the rural parts 
where I live, where our farm is, you can't get anything.
    Mr. Diller. Well, I had thought phone coverage was pretty 
much everywhere. However, if it wasn't and it isn't, then it's 
replacement, to a large degree, which is wireless.
    The Chairman. Right.
    Mr. Diller. And broadband, it should be the policy, I 
think, of this country that every place must have the ability 
to receive both wireless and broadband connectivity. And that 
ought to be our law. We cannot compete in the world with the 
sixteenth or eighteenth best communications infrastructure.
    The Chairman. Now, you're talking more broadband than you 
are wireless.
    Mr. Diller. No, wireless as well. But by the way, you know, 
you speak about if you go too low in parts of West Virginia, I 
promise you if you drive around Los Angeles or New York City or 
Seattle, you're going to find lots of dropped calls. You're 
going to find lots of places where there's spotty coverage.
    And I think that, again, we haven't had enough competition. 
We haven't had enough national policy that----
    The Chairman. How does national policy do this? I mean, I'm 
meant to be in love with national policy, and I've seen these 
national policies, but it's always the people who have to make 
the money who decline to get it out there, because it's at the 
margins.
    Mr. Diller. We built a highway system in this country, 
which we did in the 1950s, I believe.
    The Chairman. Right.
    Mr. Diller. That got done. Why is this so impossible for us 
to organize a system where it does get done?
    The Chairman. Because that was an executive decision 
approved by the Congress in a much simpler time, and this is an 
explosion of technologies, which so many people are just barely 
holding onto by fingertips, particularly the more rural you 
get.
    And inner city is the same thing. If it's not going to the 
inner city, that's the same complaint I would have.
    Mr. Diller. Sure.
    The Chairman. So who's going to push this?
    Mr. Diller. I'm sitting here pushing it. My colleagues will 
push it. Most of the people in this room, I think, would push 
it.
    I think you ask anybody, they'll say, Yes, we want 
competition in communication infrastructure. We want it to be 
universal. We want it to be the best in the world, and we'll 
support it.
    The Chairman. But, Mr. Diller, do you understand what it 
feels like when you go to a place called Upper Big Branch 
somewhere in Raleigh County, and they've just had a big 
explosion at a Massey mine and 29 miners have been killed, but 
nobody's really quite sure of that yet.
    So everybody's gathered around the portals, as close as 
they're allowed to get, and everybody is trying to dial their 
mother, their son, their grandmothers, et cetera, in Detroit 
and around West Virginia, and they cannot do it.
    And charging up the road comes boatload after boatload of 
wireless poles from Verizon, because they're going to set them 
up. But you see what I mean? In other words, and any kind of a 
rural mishap.
    Now, IT and healthcare are helping a lot on this, on that 
particular aspect, but the general availability and the 
accessibility remains very much on my mind and I worry about 
it.
    Mr. Diller. I sympathize.
    The Chairman. Any concluding Aristotelian comments?
    Mr. Westlake. Mr. Chairman, I guess what I would weigh in 
with is that a balance is required because it is a combination 
of factors, like anything.
    Certainly, most of these companies sitting at the table are 
benefited from the very notion of having wide distribution of 
broadband on many levels, everything from the very basic, for 
us, of pushing out updates to our operating systems to the 
delivery of entertainment. So they're all essential. And the 
reason we supported the FCC position on net neutrality was 
because it was a balanced approach.
    And I think, as you evaluate it, since we're down to the 
last, I don't know that I'll have the last word, but the last 
one of the closing thoughts is to balance those interests, 
because the companies that actually build, implement this, are 
in a better position than certainly I am or we are to address 
what all is involved, but it is really looking at that. It is a 
balancing act. And I think as we evaluated that, we realized 
just that, that you have to take into account the innovation 
opportunities, the delivery of content.
    As I said before, I believe that as more high-speed content 
is delivered, I'd like to believe that there will be an 
incentive for the investment made to deliver that broadband, 
and it is essential for this country. And certainly agree with 
Mr. Diller and the rest of you that whether we're eighteenth, I 
know we're way down on the list and that is certainly something 
that, whether it's delivery of education, which is fundamental, 
all the way to the more mundane in relation to education, 
entertainment, it's essential, because this is where we are 
headed.
    The Chairman. Right. Right. All right.
    Senator Nelson. Mr. Chairman, may I make a corroborating 
comment?
    The Chairman. Well, is there a possibility that you won't 
make a corroborating comment?
    [Laughter.]
    Senator Nelson. But you will be very happy if I do.
    The Chairman. Of course I will. Of course I will.
    Senator Nelson. I just want to say, if it's any 
consolation, the highest point in Florida is 350 feet, so not a 
lot of hills and valleys, and very spotty coverage.
    But, as Mr. Diller says, in any urban area, it has crossed 
every one of our thoughts, you're in the middle of a very 
important cell-phone conversation and you lose it, and you 
wonder why don't they have this problem in Third World 
countries on this planet.
    And I would just like to throw out a final thought that we 
need to consult with folks like this on what Congress should do 
in the updating of our video and communications laws, given the 
fact of the subject of this panel today.
    Thank you.
    The Chairman. You have been a superb panel, and many ideas 
have been thrown out, frustrations have been thrown out, and 
the opportunities are endless.
    And so it really is the most exciting period in 
telecommunications and all of this since I came here, by 
definition, and so I congratulate you all for being a part of 
it and for being warriors in the War of the Roses.
    This hearing is adjourned.
    [Whereupon, at 12:08 p.m., the hearing was adjourned.]
                            A P P E N D I X

                                                    Syncbak
                                                         Marion, IA
Hon. John D. Rockefeller IV,
Chairman,
U.S. Senate Committee on Commerce, Science, and Transportation,
Washington, DC.

Dear Chairman Rockefeller:

    Thank you for the opportunity to contribute to the Committee's 
important work in examining how disruptive technologies will affect the 
future of online video. I have a keen interest in the subject of this 
hearing. I have spent most of my career figuring out how we can use 
technology to make it easier for consumers to receive local broadcast 
television on new television distribution platforms.
    I hold 19 patents related to distribution of broadcast content. The 
services I created in 1999, Geneva and AntennaWeb, are still used 
today, in all 50 states, by television stations, satellite television 
providers, and consumers. Neither of these attracted headlines when 
they were created. But they each deployed new technology that has 
helped tens of millions of people get local television over new 
platforms.
    Today I run Syncbak, a media technology company I founded in 2009 
to help consumers legally access live, local broadcast television over 
the Internet. Syncbak's Internet broadcast platform with underlying 
authentication technologies enable broadcasters and studios to 
distribute in real time live and on-demand content over the Internet to 
consumers in their homes and on mobile devices. We do this with 
inexpensive hardware that is installed in broadcast stations. The 
hardware inserts a special token inside a station's over-the-air 
signal. This hardware communicates with mobile and in-home technologies 
to authenticate viewers for broadcast content distributed over-the-top 
of the Internet. This guarantees that viewers can receive over the 
Internet only the content they can receive over-the-air. Let me explain 
why this step--authenticating viewers to receive broadcast content via 
the Internet--is so important.
    As many Internet media companies know, collecting live television 
signals and retransmitting them on the Internet is a relatively simple, 
inexpensive task that has been readily available for many years. 
However, very little live local television content is available on the 
Internet at present due to the complexities around distribution of 
broadcast TV. Simply put, the Internet is global and broadcast 
television is local. This means that local TV stations (who are, by and 
large, affiliated with a major broadcast network) can only distribute 
programming to households that can be reached by their over-the-air 
broadcast signal. To distribute live broadcast programming over the 
Internet, the same territorial exclusivity must be replicated to ensure 
appropriate compensation and protection of content owners (e.g., the 
NFL and Disney Studios). Otherwise, content owners, and advertisers who 
underwrite distribution of content, cannot be assured that only viewers 
with the ``rights'' to receive or who have purchased the rights to 
receive their content in a particular market are viewing it. Syncbak's 
proprietary technologies and Internet TV platform protect these rights 
and enable viewers to watch television over the Internet on mobile 
phones and connected devices.
    For example, in my hometown of Marion, Iowa (Cedar Rapids-Waterloo-
Dubuque television market 89), KGAN is the local CBS affiliate. It has 
produced local news and been a CBS affiliate since before I was born. 
KGAN pays the CBS network for the right to carry live CBS programming 
in my market and it pays syndicators for the right to carry Judge Judy 
and other popular syndicated programs in my market. These exclusive 
rights are limited to a 65 mile radius, or as far as the KGAN broadcast 
signal can reliably reach.
    The Cedar Rapids market is one of ten smaller local television 
markets surrounded by the much larger markets of St. Louis, Kansas 
City, Minneapolis and Chicago. In each one of those ten small markets 
and the four large ones, a different station has the exclusive rights 
to live CBS programming and popular syndicated programs. Those 
exclusive rights allow stations to invest in and be responsive to their 
local communities. This model--a mix of local news and other local 
programming with exclusive local market rights to network and 
syndicated programming--has been the foundation of local television 
broadcasting for decades. Congress and the FCC have acknowledged many 
times how important territorial exclusivity of programming is to our 
system of local broadcasting. Without exclusive rights to network and 
syndicated programming, KGAN wouldn't be able to support the high cost 
of producing local news. I would have to get my ``local'' news from a 
much larger market, like Kansas City or even Chicago. Without market 
exclusivity, local news and other local television programming would 
disappear from all but the very largest television markets.
    Respecting market exclusivity has presented technical obstacles in 
the past, as new systems of television distribution have developed. As 
cable and satellite television services developed it became possible 
for a station's signal to be carried outside of the areas in which that 
station had the rights to that programming. The technical challenge was 
not retransmitting the local broadcast signal on a cable or satellite 
system; it was making sure consumers got the signals of the stations 
that held the program rights in their local market.
    This turned out to be a particularly thorny problem when DIRECTV 
and DISH launched ``local in local'' services starting about 12 years 
ago. As the CEO of the company that was then called Decisionmark, I 
created a technology that allowed DIRECTV and DISH to determine which 
households should receive which local signals. The Geneva technology I 
created then is still used today by satellite television providers, all 
major networks, and every local ABC, CBS, FOX and NBC affiliate.
    In 1999, when Congress enacted SHVIA, satellite television was the 
frontier. Today, as the subject of this hearing recognizes, the 
frontier is Internet distribution. But in many ways the real technical 
challenges are the same. It's not streaming television content on the 
Internet; it is protecting television content on the Internet. The 
challenge lies in legally providing consumers with the live broadcast 
content they want on mobile and connected devices without undermining 
the foundation of broadcast localism and all of the public interest 
benefits and good jobs that come along with the package. That is the 
challenge that Syncbak overcomes.
    It is inevitable and desirable that local broadcast television will 
be widely available via the Internet on connected devices. It is good 
for consumers and the entire television industry, from content owners 
and studios to broadcasters. However, content owners (including local 
broadcasters, networks and studios) must be protected with technology 
that can effectively limit Internet distribution of live TV content to 
local geographic areas. Syncbak, which is already operating in 38 
markets on 54 TV stations, reaching nearly 25 million households, has 
solved this problem. We give content owners the confidence that they 
can control where their content is distributed. With that confidence, 
we have reached agreements that allow local broadcasters to distribute 
their programs on Syncbak's Internet broadcast platform via the 
Internet. The Syncbak platform is available to any television station 
that installs our server. Once the hardware is in place, stations can 
stream any content they own or negotiate the rights to distribute to 
viewers in their market. This simple and elegant solution is been 
supported by the two most powerful associations in TV and consumer 
electronics, the National Association of Broadcasters and the Consumer 
Electronics Associations, which are both strategic investors in the 
company. The NAB and CEA recognize that Syncbak seeks to collaborate 
with broadcasters rather than trying to make an end-run around content 
owners.
    In the three years Syncbak has been building a legitimate Internet 
broadcast platform, several other companies have formed to sell 
broadcast content on the Internet. Most have taken a very different 
approach. Instead of developing technology that legally ports broadcast 
TV to a broadband platform, they have relied on creative legal 
theories. Although the theories have varied a bit, all have argued, in 
effect, that they are legally permitted to pick up broadcast signals, 
process, re-code and degrade them, and retransmit them on the 
Internet--all without getting consent from the stations, respecting 
market boundaries and the rights of content owners.
    So far the courts have disagreed. Carriage of broadcast television 
over the Internet, without the consent of local stations and without 
respecting local broadcast markets, is not a solution. A contrived 
apparatus for Internet rebroadcasting that relies on copyright 
infringement, illegal carriage without consent or theft of service 
cannot be brushed aside with strained legal theories or cloaked by 
superficial technical innovation. Legal and technical contrivances do 
not provide a firm foundation on which to build the future of 
television distribution. Fortunately, real technical innovation exists. 
Syncbak's solution extends the reach of local broadcasting to the 
Internet with the support of broadcasters and content owners, without 
infringing on intellectual property rights and without undermining 
localism.
    Thank you, Mr. Chairman, for your consideration of these important 
issues. As you continue to examine both the business and legal 
implications of the migration of viewing from traditional television to 
the Internet, I hope you will keep in mind how important it is that 
localism is maintained via collaboration with local broadcast stations. 
I look forward to serving as a resource for you and the Committee as 
you delve further into these issues.
            Sincerely,
                                                Jack Perry,
                                                   Founder and CEO,
                                                               Syncbak.
                                 ______
                                 
Response to Written Questions Submitted by Hon. Kay Bailey Hutchison to 

                              Barry Diller
    Question 1. If Aereo prevails in court and is able to offer its 
service with ongoing certainty in New York City (and possibly expand 
into other markets), what effects--both immediate and longterm--do you 
think it may have on:

  a. transmission consent negotiations between MVPDs and television 
        broadcasters?

  b. the type of content broadcast over the air?

    Answer. If Aereo prevails in Court and is permitted to continue 
offering a remote antenna and DVR system to consumers, I am convinced 
it will have a thoroughly positive effect on broadcast content, 
broadcast revenue, and, most importantly, consumer choice and 
satisfaction.
    From the Radio Act of 1927 through to the present, Congress has 
declared that television airwaves belong to the public, and that 
broadcasters must operate in the public interest, convenience, and 
necessity. Indeed, broadcasters have been provided with very valuable 
spectrum conditioned on the specific attendant obligation to provide 
consumers with convenient access to terrestrial broadcast channels 
using antennas. Throughout the 1950s and 1960s and much of the 1970s 
and 1980s, consumers primarily relied on rooftop and rabbit-ear 
antennas as their gateway to broadcast television.
    In recent decades, cable and satellite services have increased 
their penetration and popularity, such that today only approximately 17 
percent of American consumers use antennas to watch television. 
Consumers still, of course, have the right to use an antenna to watch 
broadcast television, and the advent of digital television is 
reinvigorating that right. The FCC informs consumers that antennas are 
just as valuable for reception of digital broadcasting as for past 
analog television services. http://www.fcc.gov/guides/antennas-and-
digital-television. The National Association of Broadcasters website 
agrees that, following the DTV transition, ``[m]illions of households 
are now enjoying dramatically better pictures and sound and free high-
definition broadcasts are available in every market in the country with 
just an antenna and an HDTV set, proving that free TV is better than 
ever.'' \1\ And the Wall Street Journal recently observed that ``[i]t's 
cool to have rabbit ears again.'' Christopher S. Stewart, ``Over-the-
Air TV Catches Second Wind, Aided by Web,'' Wall Street Journal, 
February 21, 2012. But still, given the ubiquity of cable and 
satellite, many consumers are not taking full advantage of their right 
to access broadcast television via an antenna, and the reality in many 
metropolitan areas remains that tall buildings and other obstructions 
can interfere with broadcast reception using conventional antennas. To 
address such barriers to consumer choice, Aereo's technology is 
designed to empower consumers to access broadcast television 
effectively and efficiently.
---------------------------------------------------------------------------
    \1\ National Association of Broadcasters, ``Innovation in 
Television,'' available at http://www.nab.org/television/
innovation.asp.
---------------------------------------------------------------------------
    Particularly as MVPD monthly fees continue to significantly outpace 
the cost of inflation, consumers deserve actual, functioning 
alternatives to cable or satellite services, including enhanced ability 
to watch broadcast television using antennas. The effect, if any, that 
such alternatives might have on negotiations between MVPDs and 
television broadcasters is difficult to predict at this very early 
stage. In this regard, the existing retransmission consent regime 
applies only to services that retransmit broadcast content, such as 
cable and satellite MVPDs. No retransmission consent is required where 
consumers access television broadcasts over the air, regardless of 
whether they use antennas from Aereo or Radio Shack.
    At its core, Aereo is about giving consumers greater choice about 
and control over their television viewing experience. Aereo provides no 
greater access to broadcast television than consumers already are 
entitled to using home equipment, but it provides it in a convenient, 
innovative, easy-to-use way that maximizes their right of access. They 
can get the broadcast content they want and watch it at their 
convenience and on the device of their choosing. There is no law 
requiring consumers to watch television only on television sets, and 
for good reason. Today's consumer watches video everywhere there is a 
screen--on home computers, tablets, laptops, and mobile phones. In 
giving broadcast television that same flexibility, Aereo has the 
potential to increase significantly the broadcast television audience. 
When consumers watch television more, the broadcast industry wins. The 
industry can garner greater advertising revenue, which ultimately will 
translate into the creation of more and better programming. And the 
integration of social networking features into the Aereo platform will 
benefit the broadcast industry, at no cost to the broadcasters, by 
giving fans of even the most obscure television programs an easy way to 
spread the word about their favorite shows.

    Question 2. Do you believe there is a solution that would provide 
the positive benefits of cable encryption to cable operators while also 
allowing for IP-based devices and other innovative products that more 
consumers are purchasing to have the opportunity for success in the 
marketplace? Are there any risks to consumers of allowing innovative 
devices the ability to decrypt the basic cable signals so they can 
access those channels unencumbered by additional equipment or reduced 
functionality?
    Answer. I would urge Congress to ensure that if basic tier 
encryption is to be permitted, any impact does not affect innovative 
services and products that benefit consumers and does not limit in any 
respect the existing rights of consumers to access over the air 
broadcast television.

    Question 3. Do you believe more should be done to reform spectrum 
policy in order to freeing up spectrum to meet the growing demand for 
wireless broadband and mobile and nomadic viewing of online video? If 
so, what specific recommendations do you have to making more spectrum 
available?
    Answer. Expanding the availability of spectrum dedicated to 
wireless broadband is an urgent priority and Congress should establish 
a date-certain for the Federal Communications Commission to act. New 
spectrum licenses should likewise contain rigorous build-out 
requirements that ensure prompt deployment. And finally, new spectrum 
should be allocated in a manner that, as best as practicable, brings 
new competitors into the marketplace.

    Question 4. How important is unlicensed spectrum to users that 
watch online video via their smartphone or tablet?
    Answer. There is a clear role for unlicensed spectrum. The ability 
to use unlicensed spectrum for online video delivery, particularly by 
making available white spaces between existing licensed video broadcast 
spectrum, will support opportunities that we cannot now anticipate, but 
that we will regrettably lose if sufficient unlicensed spectrum is not 
made available. However, unlicensed spectrum alone may not be a panacea 
for the needs of many online services, including Internet video, and 
Congress and the FCC should consider also how to make available more 
licensed spectrum as well.

    Question 5. Do you have concerns about the growing problem of 
piracy, primarily with online video? In the wake of PIPA & SOPA 
protests, how can the government properly balance its efforts to 
protect intellectual property but do so in a way that doesn't hinder 
innovation or free speech?
    Answer. Intellectual property enforcement, innovation and free 
speech can and should co-exist. The Copyright Act generally works well. 
The private sector increasingly has taken steps to work collaberatively 
to make lawful content more accessible while assisting rightsholders 
with efforts to combat unlawfully distributed content.
    SOPA and PIPA were overly broad attempts to tackle the problem of 
foreign websites that engage in unlawful activity. This is a 
complicated issue. I am not convinced that a legislative response is 
needed, but if so, Congress should proceed carefully to develop a 
narrowly-tailored remedy that avoids chilling innovation or free 
speech.
                                 ______
                                 
Response to Written Questions Submitted by Hon. Kay Bailey Hutchison to 

                            Susan D. Whiting
    Question 1. Do you believe there is a solution that would provide 
the positive benefits of cable encryption to cable operators while also 
allowing for IP-based devices and other innovative products that more 
consumers are purchasing to have the opportunity for success in the 
marketplace? Are there any risks to consumers of allowing innovative 
devices the ability to decrypt the basic cable signals so they can 
access those channels unencumbered by additional equipment or reduced 
functionality?
    Answer. As you know from my testimony at the hearing, Nielsen's 
primary business is measuring what consumers watch on various media 
platforms what consumer package goods they purchase. The question is 
beyond the scope of our primary business activities, so I feel it would 
be inappropriate for me to provide a specific response.

    Question 2. Do you believe more should be done to reform spectrum 
policy in order to freeing up spectrum to meet the growing demand for 
wireless broadband and mobile and nomadic viewing of online video. If 
so, what specific recommendations do you have to making more spectrum 
available?
    Answer. Nielsen is committed to providing its wide variety of 
clients the best possible measurement of media use regardless of the 
platform where it originates. We believe it is best for those who have 
a direct interest in spectrum allocation, including our clients, to 
offer suggestions on spectrum policy.

    Question 3. How important is unlicensed spectrum to users that 
watch online video via their smartphone or tablet?
    Answer. In our role as a measurement service for online video, we 
do not have a position on the importance of unlicensed spectrum.

    Question 4. Do you have concerns about the growing problem of 
piracy, primarily with online video? In the wake of PIPA & SOPA 
protests, how can the government properly balance its efforts to 
protect intellectual property but do so in a way that doesn't hinder 
innovation or free speech?
    Answer. Nielsen is a privacy observant and compliant company that 
believes in the value of consumer opt in as essential to good research. 
Where external databases may be utilized, aggregated and made 
anonymous, data is the preferred pathway whereby modeling can be 
employed to determine likely audiences.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Olympia J. Snowe to 
                              Paul Misener
Video Innovation and User Experience
    As consumer prices for fuel, food and health care continue to 
increase, Americans are struggling to stretch every dollar. Unlike our 
government, many consumers have chosen to cut back on spending, 
including opting for basic-tier cable packages that are more 
affordable. Some consumers are even ``cord-shaving''--choosing to 
access free over-the-air television in combination with cheaper 
alternatives for their entertainment, including innovative products 
such as Apple TV, Xbox 360, Roku and Boxee that allow them to stream 
online content, including Netflix, Hulu, TED talks and YouTube. These 
products allow consumers to stream online content, including videos 
from their friends and family and also fit their family budget by 
utilizing free other the air broadcasts or basic cable service.
    The Commission is considering an order that would allow for the 
encryption of basic cable signals. While there are benefits to 
encrypting basic cable service, some parties have expressed concerns 
that innovative devices allowing users to combine online content with 
basic cable service may no longer be compatible without additional 
hardware or software or reduced functionality of the device. 
Additionally, consumers will be required to add yet another electronic 
device, a cable box, to their home and may face additional monthly fees 
for it.
    As you probably know, Congress specifically addresses this issue in 
Section 624A of the statute, which requires the FCC to assure 
compatibility between consumer electronics equipment and cable systems 
so cable customers can enjoy the full benefits of both.

    Question 1. Do you believe there is a solution that would provide 
the positive benefits of cable encryption to cable operators while also 
allowing for IP-based devices and other innovative products that more 
consumers are purchasing to have the opportunity for success in the 
marketplace? Are there any risks to consumers of allowing innovative 
devices the ability to decrypt the basic cable signals so they can 
access those channels unencumbered by additional equipment or reduced 
functionality?
    Answer. Amazon currently has no position on cable encryption. 
Amazon Instant Videos are available via broadband Internet access for 
instant streaming on the Kindle Fire, as well as Xbox 360, PlayStation 
3, PC, Mac, Roku, and hundreds of TVs and Blu-ray players.
Wireless Broadband
    The wireless industry has seen explosive growth and amazing 
innovation over the past decade. Currently, there are more than 330 
million wireless subscribers in the U.S. and more consumers are viewing 
online video via their mobile devices. According to Cisco, 
approximately seventy percent of all global mobile data traffic will be 
video by 2016.
    While Congress has taken an incremental step to make more spectrum 
available, I believe more can and must be done to meet the future needs 
of all spectrum users and properly address existing spectrum 
challenges. For example, for over three years now, I have been calling 
for a comprehensive inventory of both Federal and non-federal spectrum 
usage yet such essential exercise has not been done. We also still lack 
a national strategic spectrum plan, which would provide a long-term 
vision for domestic spectrum use and strategies to meet those needs.
    We should also take additional steps to modernize our Nation's 
radio spectrum planning, management, and coordination activities 
through better collaboration between the FCC and NTIA, fostering 
greater technical innovation, as well as promoting more investment in 
infrastructure. Such multi-faceted approach will ensure the long-term 
health of the spectrum ecosystem, that innovation can continue to 
flourish, and consumers will be able to continue to reap the amazing 
benefit of all types of wireless communications.

    Question 2. Do you believe more should be done to reform spectrum 
policy in order to freeing up spectrum to meet the growing demand for 
wireless broadband and mobile and nomadic viewing of online video? If 
so, what specific recommendations do you have to making more spectrum 
available?
    Answer. Increasing the availability and performance of broadband 
Internet access is an important policy goal for the benefit of 
consumers. Of course, wireless broadband access is crucially important, 
but we do not have specific recommendations for how to make additional 
spectrum available.

    Question 3. How important is unlicensed spectrum to users that 
watch online video via their smartphone or tablet?
    Answer. Unlicensed spectrum is an important component of broadband 
Internet Access. For example, Wi-Fi allows consumers more flexibility 
in how and where they can obtain broadband access to the Internet.
Online Piracy
    While the increase in broadband speeds has brought significant 
benefit to users, it has also made it easier to distribute illegal 
content. A movie that once took hours to download can now be uploaded 
and transmitted across the Internet in mere seconds. In addition, 
consumers are increasingly lured to well-designed websites that are 
devoted almost exclusively to unauthorized downloading and streaming of 
copyrighted content such as music and movies. It is my understanding 
that more than 167 million copies of the top 10 most pirated movies on 
the Internet have been illegally downloaded over the past five years.
    This illegal activity attributes to a significant economic loss to 
the intellectual property community through lost revenue and has an 
adverse impact on jobs in that industry. It can also create congestion 
on broadband networks and many of these illegitimate websites can 
compromise millions of personal computers through the distribution of 
malware that might be embedded in the illegal content--according to 
McAfee, 12 percent of all known sites that distribute unauthorized 
content are actively distributing malware to users who download 
content.

    Question 4. Do you have concerns about the growing problem of 
piracy, primarily with online video? In the wake of PIPA & SOPA 
protests, how can the government properly balance its efforts to 
protect intellectual property but do so in a way that doesn't hinder 
innovation or free speech?
    Answer. We strongly oppose online video piracy. Although we did not 
support SOPA as it was drafted, we agree that piracy is a public policy 
challenge, and that public policy should strike the balance between the 
need to combat piracy without hindering innovation or free speech.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Jim DeMint to 
                              Paul Misener
    Question 1. How many American households have access to Amazon's 
video services?
    Answer. Anyone with a broadband Internet connection can rent or buy 
Amazon Instant Videos or access thousands of Prime Instant Video 
selections at no additional cost with a paid annual Amazon Prime 
membership. Amazon Instant Video is a digital video streaming and 
download service that offers Amazon customers the ability to rent, 
purchase or subscribe to a huge catalog of videos. Customers can choose 
from more than 120,000 titles to purchase or rent and content ranges 
from new release movies to classic favorites, major television shows, 
entire seasons, or even day after air TV. Prime Instant Video is 
Amazon's video subscription offer--it includes more than 18,000 movies 
and TV episodes selected from the full assortment available at Amazon 
Instant Video. This subscription offer allows U.S. Prime customers to 
stream as many Prime Instant Videos as they like, at no additional 
cost.

    Question 2. How many Internet service providers does Amazon use to 
reach its American consumers?
    Answer. Amazon customers choose their own provider of Internet 
access service.

    Question 3. To the best of your knowledge, how many households with 
access to Amazon's video services have more than one option for a high 
speed Internet service capable of delivering them Amazon's video 
services?
    Answer. We do not have any independent data, but are aware that the 
Federal Communications Commission collects and reports this 
information.

    Question 4. Would you describe for the Committee the amount of 
capital and types of facilities Amazon has built to provide its video 
services to consumers?
    Answer. We do not report our investments or specific technologies, 
but we are constantly working on ways to increase selection and 
convenience for our Amazon Instant Video customers. Amazon Instant 
Video is a digital video streaming and download service that offers 
Amazon customers the ability to rent, purchase or subscribe to a huge 
catalog of videos. Customers can choose from more than 120,000 titles 
to purchase or rent and content ranges from new release movies to 
classic favorites, major television shows, entire seasons, or even day 
after air TV. Prime Instant Video is Amazon's video subscription 
offer--it includes more than 18,000 movies and TV episodes selected 
from the full assortment available at Amazon Instant Video. This 
subscription offer allows U.S. Prime customers to stream as many Prime 
Instant Videos as they like, at no additional cost.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Olympia J. Snowe to 
                             Blair Westlake
Video Innovation and User Experience
    As consumer prices for fuel, food and health care continue to 
increase, Americans are struggling to stretch every dollar. Unlike our 
government, many consumers have chosen to cut back on spending, 
including opting for basic-tier cable packages that are more 
affordable. Some consumers are even ``cord-shaving''--choosing to 
access free over-the-air television in combination with cheaper 
alternatives for their entertainment, including innovative products 
such as Apple TV, Xbox 360, Roku and Boxee that allow them to stream 
online content, including Netflix, Hulu, TED talks and YouTube. These 
products allow consumers to stream online content, including videos 
from their friends and family and also fit their family budget by 
utilizing free other the air broadcasts or basic cable service.
    The Commission is considering an order that would allow for the 
encryption of basic cable signals. While there are benefits to 
encrypting basic cable service, some parties have expressed concerns 
that innovative devices allowing users to combine online content with 
basic cable service may no longer be compatible without additional 
hardware or software or reduced functionality of the device. 
Additionally, consumers will be required to add yet another electronic 
device, a cable box, to their home and may face additional monthly fees 
for it.
    As you probably know, Congress specifically addresses this issue in 
Section 624A of the statute, which requires the FCC to assure 
compatibility between consumer electronics equipment and cable systems 
so cable customers can enjoy the full benefits of both.

    Question 1. Do you believe there is a solution that would provide 
the positive benefits of cable encryption to cable operators while also 
allowing for IP-based devices and other innovative products that more 
consumers are purchasing to have the opportunity for success in the 
marketplace? Are there any risks to consumers of allowing innovative 
devices the ability to decrypt the basic cable signals so they can 
access those channels unencumbered by additional equipment or reduced 
functionality?
    Answer. Microsoft has not participated in the FCC's proceedings 
regarding cable basic service tier encryption. (In the Matter of Basic 
Service Tier Encryption, MB Docket No. 11-169 and Compatibility Between 
Cable Systems and Consumer Electronics Equipment, PP Docket No. 00-67, 
FCC 11-53, rel. Oct. 14, 2011.) The docket raises complicated issues 
regarding whether the Commission's basic service tier encryption 
prohibition remains necessary to promote compatibility between digital 
cable service and consumer electronics equipment in all circumstances. 
It appears as if there have been over 150 filings by cable operators, 
consumer groups, and the consumer electronics industry with a more 
direct stake in the outcome of the proceeding. Microsoft is monitoring 
the record as it develops and will participate as necessary to ensure 
that the interest of our consumers and business are considered by the 
Commission.
Wireless Broadband
    The wireless industry has seen explosive growth and amazing 
innovation over the past decade. Currently, there are more than 330 
million wireless subscribers in the U.S. and more consumers are viewing 
online video via their mobile devices. According to Cisco, 
approximately seventy percent of all global mobile data traffic will be 
video by 2016.
    While Congress has taken an incremental step to make more spectrum 
available, I believe more can and must be done to meet the future needs 
of all spectrum users and properly address existing spectrum 
challenges. For example, for over three years now, I have been calling 
for a comprehensive inventory of both Federal and non-federal spectrum 
usage yet such essential exercise has not been done. We also still lack 
a national strategic spectrum plan, which would provide a long-term 
vision for domestic spectrum use and strategies to meet those needs.
    We should also take additional steps to modernize our Nation's 
radio spectrum planning, management, and coordination activities 
through better collaboration between the FCC and NTIA, fostering 
greater technical innovation, as well as promoting more investment in 
infrastructure. Such multi-faceted approach will ensure the long-term 
health of the spectrum ecosystem, that innovation can continue to 
flourish, and consumers will be able to continue to reap the amazing 
benefit of all types of wireless communications.

    Question 2. Do you believe more should be done to reform spectrum 
policy in order to freeing up spectrum to meet the growing demand for 
wireless broadband and mobile and nomadic viewing of online video? If 
so, what specific recommendations do you have to making more spectrum 
available?
    Answer. Given the growing demand for video and data applications 
over wireless connections more must be done to ensure that consumers 
are able to have meaningful wireless broadband connectivity. That means 
making sure more radio spectrum is made available for wireless 
broadband connectivity. It will be important for policymakers to ensure 
that (1) there are sufficient amounts of spectrum available in the TV 
bands for unlicensed use; and (2) underutilized spectrum, especially 
spectrum below 3 GHz, is made available for additional dynamic spectrum 
access. Making unlicensed spectrum available in the TV bands ensures 
that the first sharing technologies involving databases are able to 
emerge and are available to facilitate sharing in other bands. In 
addition, unlicensed TV band spectrum is expected to provide 
opportunities similar to that of Wi-Fi except those opportunities will 
be greatly enhanced given the propagation characteristics of the band. 
As NTIA and the FCC are doing in the 1755-1850 MHz band, it is 
important that both entities work together to identify additional 
sharing opportunities below 3 GHz leveraging dynamic access sharing 
techniques and cognitive radios as well as database and sensing 
technologies. Also, the Commission should continue promoting secondary 
markets use by licensees and other spectrum users.
    In order to better understand the potential sharing opportunities, 
Microsoft has established spectrum observatories in DC as well as in 
Redmond and Seattle. Through our observatory, we are recording the 
amount of spectrum used in a given spectrum band at those locations. 
More information on our observatory can be found at http://spectrum-
observatory.cloudapp.net/ and anyone will be able to access and 
leverage our results.

    Question 3. How important is unlicensed spectrum to users that 
watch online video via their smartphone or tablet?
    Answer. It is very important. We know that video traffic is 
increasing on mobile networks and that tablets increasingly leverage 
Wi-Fi networks as a means of broadband connectivity. This year, video 
traffic represented a half of all data traffic on mobile networks and 
NetworkWorld indicated that it represents as much as 69 percent of the 
traffic on some mobile networks. Last year, Commscore found that in 
October 2011, more than 40 percent of U.S. digital traffic coming from 
mobile phones occurred over Wi-Fi connections and projections suggest 
that 90 percent of tablets in use are Wi-Fi only. These statistics 
demonstrate that Wi-Fi is particularly important to consumers seeking 
broadband connectivity when using a smartphone or tablet and consumers 
are increasingly accessing video content wirelessly. Having more 
unlicensed TV Band spectrum will help to meet this unfolding demand.
Online Piracy
    While the increase in broadband speeds has brought significant 
benefit to users, it has also made it easier to distribute illegal 
content. A movie that once took hours to download can now be uploaded 
and transmitted across the Internet in mere seconds. In addition, 
consumers are increasingly lured to well-designed websites that are 
devoted almost exclusively to unauthorized downloading and streaming of 
copyrighted content such as music and movies. It is my understanding 
that more than 167 million copies of the top 10 most pirated movies on 
the Internet have been illegally downloaded over the past five years.
    This illegal activity attributes to a significant economic loss to 
the intellectual property community through lost revenue and has an 
adverse impact on jobs in that industry. It can also create congestion 
on broadband networks and many of these illegitimate websites can 
compromise millions of personal computers through the distribution of 
malware that might be embedded in the illegal content--according to 
McAfee, 12 percent of all known sites that distribute unauthorized 
content are actively distributing malware to users who download 
content.

    Question 4. Do you have concerns about the growing problem of 
piracy, primarily with online video? In the wake of PIPA & SOPA 
protests, how can the government properly balance its efforts to 
protect intellectual property but do so in a way that doesn't hinder 
innovation or free speech?
    Answer. Piracy is a serious issue which threatens jobs and 
innovation and needs to be addressed, but as we made clear in our 
opposition to the SOPA legislation as drafted, any solution must 
absolutely preserve an open Internet. This is a highly complex problem 
and any legislative solution must avoid unintended consequences. Any 
legislation must include a sufficiently high standard for determining 
whether a site is rogue, so as to truly target the worst of the worst. 
Moreover, to further ensure proper application of new remedies, rights 
holders should be required to produce sufficient evidence of a site's 
wrongdoing so that decisions of the courts are well-founded and not 
based on mere notice pleading. Efforts to develop a robust solution to 
this real problem should continue so that legislation targeting the 
truly rogue sites without harm to the Internet can be achieved.

                                  
