Testimony of Lawrence J. Blanford

Philips Consumer Electronics Company

September 17, 2003

Executive Summary

Philips has been a leader in digital television, one of a handful of
companies that developed the digital terrestrial broadcast transmission
standard adopted by the FCC, and a pioneer in digital content protection
technologies for audio and video.

Philips is deeply appreciative of the efforts of this Committee, other
Committees of the Congress and the Federal Communications Commission to
illuminate the key public policy issues raised by digital rights
management, particularly the "broadcast flag" in open, fair public
proceedings, removing decision-making from back rooms occupied
exclusively by private parties with huge financial stakes in the
outcome.

Philips is 100 percent committed to working with all stakeholders -- the
studios, computer hardware and software companies, other consumer
electronics manufacturers and, most importantly, consumers -- to develop
and implement technology solutions that protect high definition and
other high value digital broadcast content from unauthorized
redistribution to the public over the Internet.

There are three essential elements of a digital broadcast content
protection system necessary for a consensus solution. First, it must be
effective to prevent the abuse it is designed to stop. Second, it must
respect consumers' fair use expectations and their aspirations to
utilize digital technology to provide advances in their ability to
store, record and make innovative use of digital broadcast content.
Third, it must not constrain competition or impede innovation.

What is the appropriate role of government, especially the Congress and
the FCC, in digital broadcast content protection?

First, the Congress should decide overarching public policy issues: What
is the impact of encrypting free over-the-air digital broadcasts,
whether at the source or at the instant of reception, on the historic
model of broadcasting which has been "in-the-clear" over public
airwaves? How do we balance the competing, constitutionally rooted
rights of copyright holders and consumers? If necessary, Congress should
confer a specific grant of authority on the FCC and guidance on how to
regulate.

Second, the government, whether the Congress or the FCC, should
[not]{.underline} pick technology winners and losers. Such government
technology-specific mandates are hostile to competition and innovation.

Third, the government must be the guarantor of a fair, open and
transparent decision-making process and must maintain an ongoing
oversight role, through enforceable safeguards, to prevent
anticompetitive and anti-innovation practices or efforts, either in the
approval of technologies or the terms with which licensees are obligated
to comply.

Applying these tests to the Encryption Technology Mandate advocated by
the MPAA and broadcasters in the pending FCC "Broadcast Flag"
proceeding, the proposal fails on every count. It is not effective
because it leaves the analog hole wide open and also can be subverted by
software demodulators. It levies significantly increased complexity and
hundreds of dollars in new equipment purchase costs on consumers to
realize the same fair use recording capabilities that they enjoy today
while precluding them from being able to send a digital broadcast clip
in an e-mail to themselves at their office, to a professor as part of a
student presentation, or to a parent or child.

It is a hybrid proposal which at once asks the FCC to mandate, as part
of a 20-page government regulation, specified digital content protection
technologies, but at the same time effectively delegates the approval of
alternative technologies to private parties and direct competitors,
acting as gatekeeper with zero safeguards to prevent anticompetitive
practices.

There is another far better way, suggested by Senator Brownback's
"Consumer, Schools and Libraries Digital Rights Management Awareness Act
of 2003." That bill's prohibition on specific technology mandates and
its reliance on functional regulation and self-certification would
enable competitive and innovative digital content protection
technologies to flourish, fulfill the legislative objective of content
providers to prevent the unauthorized redistribution of high definition
and other high value digital broadcast content over the Internet to the
public, and give consumers a choice.

Philips reiterates its commitment to work shoulder to shoulder with the
content community on digital broadcast content solutions that meet the
criteria I have outlined here. In particular, my written testimony
discusses the promise of watermarking, which many studios embrace, and
on which Philips already has made substantial progress. In light of the
technical limitations on compression and bandwidth, there is time to do
this right!

TESTIMONY OF

LAWRENCE J. BLANFORD

PRESIDENT AND CEO

PHILIPS CONSUMER ELECTRONICS NORTH AMERICA

Before the

COMMITTEE ON COMMERCE, SCIENCE and TRANSPORTATION

UNITED STATES SENATE

SEPTEMBER 17, 2003

Introduction

Mr. Chairman, Senator Hollings and Members of the Committee, my name is
Larry Blanford and I am President and Chief Executive Officer of Philips
Consumer Electronics North America, a division of Philips Electronics
North America Corporation, which is the U.S. subsidiary of Royal Philips
Electronics of The Netherlands. In the United States, Philips employs
approximately 35,000 dedicated workers and sells over \$10 billion of
goods and services in the areas of consumer electronics, lighting,
medical systems and devices, semiconductors, personal care products and
domestic appliances.

Philips commends the Committee for holding this extremely timely
hearing, as the Federal Communications Commission nears a decision in
its "Broadcast Flag" proceeding. Both this Committee, the House Energy
and Commerce Committee, through its hearings, roundtable discussions and
its carefully crafted September, 2002 staff discussion draft, and the
Senate and House Judiciary Committees, have played absolutely crucial
roles in ventilating important public policy issues in the digital
rights management area, especially concerning the broadcast flag.
Congressional oversight has illuminated issues that must be discussed
openly and not decided in back rooms by private parties with enormous
financial stakes in the outcome.

Similarly, Philips commends the FCC for its fair and open conduct of the
broadcast flag proceeding. The Notice of Proposed Rulemaking issued by
the FCC in the Broadcast Flag proceeding reads more like a Notice of
Inquiry, putting out for public comment virtually all of the fundamental
issues associated with protection of digital broadcast content from
unauthorized redistribution, including whether the FCC has jurisdiction
to regulate in this area.

The efforts of the Congress and the FCC to date have gone a long way
toward easing the profound procedural concerns Philips had about the
work of the inter-industry group known as the Broadcast Protection
Discussion Group (BPDG). This hearing and the current intensive phase of
FCC deliberations in the Broadcast Flag proceeding now bring us face to
face with the serious substantive public policy issues raised by the
Broadcast Flag proceeding, which will consume much of my testimony.

Philips Is a Leader in Both DTV and Content Protection Technologies

Philips has a very proud history---and today is at the cutting edge---of
introducing world-class products designed to bring consumers the
benefits of the latest digital technologies for television and
television displays (including the widescreen television format and flat
TV). It is a leader in video compression, storage and optical products,
as well as in semiconductor technology.

Philips co-invented the Compact Disk, or "CD," the most widely
implemented digital technology. Philips is among the leading suppliers
of DVD players and DVD recorders, and is a leader in the PC monitor and
recordable CD markets.

Philips was a founding member of the Grand Alliance, which pioneered the
ATSC DTV standard, adopted by the FCC in 1996 as the digital terrestrial
television standard in the United States, and has been a leader in the
development and implementation of terrestrial digital television in the
United States.

Philips also has been an active participant in the development of
content protection technologies. Philips invented, and offered to the
consumer electronics industry, at no cost, the Serial Copy Management
System, or SCMS, a "bit flag" technology which, by providing the
necessary instruction to the recording device as to whether and to what
extent copying is or is not allowed, prevents the unauthorized
reproduction of multiple generations of copies of digital audio works
from a copyright-protected original (while permitting a single
generation of copies). Philips also is actively developing watermarking
and fingerprinting technology to protect digital video and audio
content.

Philips is committed to seeking content protection solutions that strike
the proper balance among consumers, content owners and equipment
manufacturers. For years, Philips has been a constructive participant in
inter-industry content protection activities, and has dedicated millions
of dollars and thousands of hours of effort from its best engineers to
groups such as the Copy Protection Technical Working Group (CPTWG) and
the Secure Digital Music Initiative (SDMI). Most recently and
relevantly, Philips has participated heavily in two inter-industry
discussion groups, comprising consumer electronics companies,
broadcasters, content owners, IT companies and others, tasked with
finding solutions for the protection of over-the-air digital broadcast
content. The Broadcast Protection Discussion Group (BPDG), which was
unable to reach consensus on a solution, nonetheless, over vigorous
opposition, hurriedly released a Co-Chair's report discussing a proposal
advocated by the major Hollywood studios, the so-called "5C" companies
-- Sony, Toshiba, Matsushita Hitachi and Intel -- and the so-called "4C"
companies -- Toshiba, Matsushita Intel and IBM -- which would require
all devices to recognize a data bit in the digital television signal --
the "broadcast flag" -- and respond by encrypting that signal using only
"authorized technologies." The only "authorized technologies" were
proprietary technologies licensed by authorities consisting of the 5C
and 4C companies. That proposal, in essence, is the Encryption
Technology Mandate Proposal supported by MPAA in the pending FCC
Broadcast Flag proceeding. Today, Philips is a leading participant in
another effort -- the Analog Reconversion Discussion Group (ARDG) --
which is addressing the question of how to protect digital content when
it is passed through an analog output (an issue more commonly referred
to as "the analog hole") -- an essential component of any system that
purports to provide meaningful protection for digital content.

Philips' strong record of achievement in technological innovation---and
consumer acceptance of these technologies---is directly attributable to
the availability and use of open standards, a commitment to preserving
consumers' fair use expectations, and a competitive environment that
promotes the development and introduction of innovations in technology
and products while not overburdening manufacturers.

Digital Broadcast Content Protection: We Must Work Together

This debate is about how best to achieve the twin goals of providing
appropriate protection for high definition and other high value
over-the-air digital broadcast television content against unauthorized
redistribution to the public over the Internet and ensuring that the
digital television experience that consumers receive meets or exceeds
their fair use and technological expectations.

Philips believes firmly that these need not -- and must not -- be rival
objectives, for each addresses a legitimate concern with long-term
implications for the future of digital entertainment and innovation and
acceptance by consumers.

Just as with digital music, over-the-air digital television raises
understandable concerns for content owners about the potential
vulnerability of their content to large-scale unauthorized
redistribution to the public over the Internet. Philips is supportive of
content owners when they seek solutions that provide meaningful and
effective protection for their content to ensure its continued value.

At the same time, consumers have been promised revolutionary
enhancements to their television experience. In addition to prettier,
better, high-resolution pictures and better sound, that means more
flexibility, more functionality and more interactivity. At a bare
minimum, it also means no loss of functionality from what they
experience today, including with regard to recording and time-shifting
of free over-the-air television. These promises simply must be kept if
consumers are to embrace DTV. Indeed, the legitimate utilization of
broadcast content (at a time and place of their own choosing) by
consumers should be enhanced by the introduction of digital television.

All of the affected industries -- studios, broadcasters, and consumer
electronics manufacturers -- must work with each other and, most
importantly, with consumers, to strike the delicate balance needed to
achieve both critical objectives. Such cooperation and dialogue should
be characterized by open processes and be framed by a commitment to
competition, innovation and the constitutionally-rooted rights of both
copyright holders and the viewing public. Philips reaffirms its
unwavering dedication to developing collaboratively digital content
protection solutions. Unless all stakeholders commit to that course, we
risk, at best, a legal and political quagmire, and, at worst, consumer
rejection of DTV. Neither is a risk we can afford to take if we are
serious, as we must be, about moving the transition to DTV toward an
expeditious and successful conclusion.

The Role of Government

Clearly, the issue of digital broadcast content protection raises
fundamental questions of public policy -- with far-reaching effects on
consumers. Should we be encrypting free, over-the-air broadcast
programming, whether at the source or the instant a consumer receives
it, because it is now transmitted digitally? If so, how does that affect
the fundamental broadcasting model in the United States? Will the
technology choices preserve consumer fair use rights and enable
consumers to exploit the enormous flexibility of digital technology and
the openness of the Internet while effectively protecting copyright
holders' property interests? Are there safeguards in place to prevent
practices, through technology selection or licensing terms, that
restrain competition and inhibit innovation?

Government has an essential role to play in answering these overarching
public policy questions and in ensuring that the public interest will
not become captive of private, parochial interests seeking competitive
advantage for their business models or technologies in the marketplace.
Specifically, if over-the-air television content is going to be
protected in light of digital technology, Congress should be the first
to act. This is the only way to ensure that digital content protection
measures, whatever they may be, reflect and adhere to the broad policy
parameters Congress deems necessary to protect the interests of
consumers, content owners, competition and innovation.

Moreover, Philips believes that the Communications Act confers no
authority upon the FCC to regulate in this area absent an unambiguous
grant of statutory authority by Congress, similar to that which enabled
the Commission to adopt requirements for the V-chip, closed captioning,
competitive availability of navigation devices and cable compatibility.
In fact, FCC adoption of the Encryption Technology Mandate Proposal
currently before it -- which would require the issuance of 20 pages of
regulations dictating the design and manufacture of virtually every
consumer electronics device in the home and mandating the use of
"authorized" encryption and decryption technologies -- would run
directly contrary to Congress's recent policy decision, in Section
1201(c)(3) of the Digital Millennium Copyright Act, [not to
require]{.underline} consumer electronics or computer products to
respond to particular technological measures. In fact, this provision --
which explicitly required the use only of one, analog technology --
Macrovision -- was a core compromise that permitted passage of that
legislation, and represents a clear policy direction adopted by
Congress. Any determination to undo that compromise and change the
policy direction adopted by Congress in that Act must necessarily be
made by Congress, not the FCC.

The Brownback Bill

Senator Brownback's legislation clearly recognizes the importance of
having Congress, not the FCC, take the first step toward, and lay out
the appropriate ground rules for, digital broadcast content protection.
Philips strongly supports Senator Brownback's efforts and leadership in
this area, and commends him and his staff for the legislation that we
are focusing upon today.

Senator Brownback "gets it right." By that I mean that he clearly
recognizes that protecting digital content and protecting consumers'
fair use expectations necessarily must go hand-in-hand, and that digital
content protection solutions must be developed in fair and open
processes, address narrowly-defined goals, and above all, not impede or
diminish consumers' fair use expectations, especially in the DTV arena.
These are not, from a public policy perspective, mutually exclusive. In
fact, they are and must be complementary.

Importantly, the approach taken by the Brownback bill focuses on
functional regulation. It relies on self-certification rather than
government selection of technology "winners and losers" -- a critical
element to protecting, indeed driving, robust competition and innovation
in digital broadcast television content protection software and hardware
markets. In so doing, it respects the policy determination made by
Congress in Section 1201(c)(3) of the DMCA. In this regard, it contains
common elements with the House Energy and Commerce Committee's September
2002 staff discussion draft which envisions pro-competition and
pro-innovation safeguards regarding the broadcast flag and expressly
commends self-certification.

By contrast, proposals that would have the government put its imprimatur
on specific technologies would have precisely the opposite effect,
harming competition and innovation, upending the compromise struck in
the DMCA, and threatening consumer acceptance of DTV.

The "Consumers, Schools and Libraries Digital Rights Management
Awareness Act of 2003" is worthy of the Committee's support and Philips
hopes that the Committee will act quickly toward its enactment.

The Encryption Technology Mandate Proposal Advocated by MPAA In the
FCC's Broadcast Flag Proceeding Fails Every Test

Unfortunately, the Encryption Technology Mandate Proposal made by the
Motion Picture Association of America to the FCC is neither an effective
content protection solution, nor does it enable digital television to
meet consumers' expectations.

[The Encryption Technology Mandate Proposal Erects Unacceptable Cost and
Complexity Barriers to Consumer "Fair Use.]{.underline}" Proponents of
the Encryption Technology Mandate Proposal claim that its approach
preserves consumers' fair use recording capability for over-the-air
broadcast content. However, this claim conveniently omits the fact that,
under the proposed system, in order for a consumer to replicate today's
"freely copiable" over-the-air television environment -- wherein
multiple devices within a consumer's home network seamlessly receive and
send content to and from each other for recording and/or display --
consumers first must replace virtually every existing digital device in
their home with those that contain the same "authorized"
encryption/decryption technology. That is simply the nature of
encryption systems: they rely on an "unbroken chain" of devices that all
exchange content using the same encryption and decryption technologies.
And, as illustrated by the chart below, virtually every single device
within the home would be regulated under the Encryption Technology
Mandate Proposal:

FCC-Regulated Devices Under the

Encryption Technology Mandate Proposal

+----------------------------+-------------+------------+------------+
| Device                     | Demodulator | M          | Downstream |
|                            |             | odulator\* | P          |
|                            |             |            | roduct\*\* |
+----------------------------+-------------+------------+------------+
| Integrated DTV Sets        |            |            |           |
+----------------------------+-------------+------------+------------+
| DTV Monitors               |             |            |           |
+----------------------------+-------------+------------+------------+
| Cable Set-Top Boxes        |            |           |            |
+----------------------------+-------------+------------+------------+
| DBS Receivers              |            |           |            |
+----------------------------+-------------+------------+------------+
| Personal Video Recorders   |            |           |           |
|                            |             |            |            |
| (*e.g.,* TiVo, Replay)     |             |            |            |
+----------------------------+-------------+------------+------------+
| Advanced PVRs              |            |           |           |
|                            |             |            |            |
| (incorporating             |             |            |            |
| twin-tuning, video editing |             |            |            |
| and other capabilities)    |             |            |            |
+----------------------------+-------------+------------+------------+
| DVD Players                |             |           |           |
+----------------------------+-------------+------------+------------+
| DVD Recorders              |            |           |           |
+----------------------------+-------------+------------+------------+
| D-VHS Recorders            |            |           |           |
+----------------------------+-------------+------------+------------+
| Computer with DTV Tuner    |            |           |           |
| Card                       |             |            |            |
+----------------------------+-------------+------------+------------+
| Computer without DTV Tuner |             |            |           |
| Card                       |             |            |            |
+----------------------------+-------------+------------+------------+
| Network Routers/Switches   |             |            |           |
+----------------------------+-------------+------------+------------+
| \* Devices identified in |             |            |            |
| this category              |             |            |            |
| [could]{.underline}        |             |            |            |
| include modulators and     |             |            |            |
| therefore be subject to    |             |            |            |
| FCC regulation.            |             |            |            |
|                            |             |            |            |
| \*\* Devices identified    |             |            |            |
| in this category could   |             |            |            |
| be used as a "downstream   |             |            |            |
| product" within a          |             |            |            |
| consumer's home network.   |             |            |            |
| For the consumer to        |             |            |            |
| utilize the device on that |             |            |            |
| network [and]{.underline}  |             |            |            |
| be able to access flagged  |             |            |            |
| digital broadcast content, |             |            |            |
| however (*i.e.,* as        |             |            |            |
| opposed to its being a     |             |            |            |
| "stand-alone" device), the |             |            |            |
| device would be required   |             |            |            |
| to utilize FCC-"authorized |             |            |            |
| technologies," or comply   |             |            |            |
| with the MPAA/5C's         |             |            |            |
| FCC-adopted                |             |            |            |
| "Requirements."            |             |            |            |
+----------------------------+-------------+------------+------------+

Moreover, the Encryption Technology Mandate Proposal would stifle use of
the Internet for the wholly lawful and desirable purpose of transmitting
free, over-the-air digital content from a consumer's home to an office,
second home, automobile, or other remote location. These transmissions
pose no threat at all to content owners' syndication markets and foreign
broadcast rights -- the problem they repeatedly claim to be addressing.
In fact, it's very possible that permitting such non-public, directed
transmissions could benefit broadcasters and content owners by
increasing viewership of DTV programming and its associated
advertisements.

[The MPAA Encryption Technology Mandate Proposal places fundamental
public policy decisions in the hands of a self-selected group of private
interests]{.underline}. Under the MPAA Proposal, each device that
handles broadcast DTV content over a digital interface or from a digital
recording would be subject to a regulatory regime triggered by the
mandatory use of "authorized technologies." These "authorized
technologies" would be subject to private control, such that the major
Hollywood studios would have "veto power" over their selection, and thus
their success in the marketplace. Specifically, to become an "authorized
technology," the technology would have to meet one of four criteria for
approval:

-   **Criterion 1**: approved by three major studios or two major
    studios and a major television broadcast group;

-   **Criterion 2**: licensed by ten major device manufacturers and
    approved or used by two major studios;

-   **Criterion 3**: at least as effective as a technology already
    approved, subject to objection by major studios and/or major
    television broadcast groups; or,

-   **Criterion 4**: listed as permitted under a license applicable to
    an already-approved technology.

These criteria, which proponents claim to be market-based, are in fact
neither market-based nor objective, and will harm competition in both
the markets for digital content protection technologies and consumer
electronics products.

The first two criteria require at least two of the major motion picture
studios to grant approval. Criterion 1 also requires an additional major
studio or major television broadcast group to approve, but since three
of the four major broadcast networks are owned by major studios, and the
remaining "broadcast groups" are dependent on studios for programming,
this criterion is essentially a studio designation mechanism. Criterion
2 at least affords device manufacturers a role, but requires licensing
by ten major device manufacturers before a technology will be accepted,
and still necessitates approval by two major studios, highlighting
studio dominance of the selection process. Criterion 3 would appear to
allow a role for the FCC in the addition of alternative technologies,
but that role is very tightly circumscribed, with deference to the views
of studios and broadcast groups, and relies on vague criteria the
baseline for which is established by the pre-approved 5C and 4C
technologies and license terms. Moreover, the technologies that MPAA and
5C argue should be exempt from analysis are proprietary, making it
difficult, if not impossible, for a developer of new technologies to
learn the standards against which it will be judged. Criterion 4
explicitly turns licensors of previously approved technologies into
gatekeepers, and allows them to leverage their control over those
technologies to new technologies. It is perhaps the most dangerous of
the criteria from a public policy point of view, paving the way for
leveraging market power into adjacent markets and technologies.

Thus, the criteria for selection of authorized technologies are not
market-based -- they are studio-based.

In addition, under the Encryption Technology Mandate Proposal, device
functionality is dictated by compliance rules set by the approved
technologies. Those rules permeate to every device in the chain other
than the receiving device. The power to establish and change compliance
rules (in ways that differ from those set by the FCC) is a key place
where the Proposal would place the power over fundamental public policy
decisions in private hands. Rules to which devices must conform should
be set by those who answer to the public, not by private groups of
self-interested parties.

In fact, we have already seen significant changes to the rules, and
others are being "negotiated" even as we speak. The private control that
these select parties can exert does not promote consumers' ability to
utilize and enjoy DTV, nor does it promote a competitive and innovative
marketplace. It does just the opposite.

[The Encryption Technology Mandate Proposal contains no safeguards to
prevent anticompetitive abuses by technology licensors]{.underline}. In
fact, under this scheme, content owners and digital content protection
technology licensors (the 5C and 4C companies) would have both the
incentive and ability to abuse their control of so-called "authorized
technologies" and the licenses that accompany them to the competitive
disadvantage of their direct competitors. Unlike the far-preferable
"functional regulation" and self-certification approach taken in the
Brownback bill, the Encryption Technology Mandate Proposal's
"pre-anointment" of the 5C and 4C content protection technologies sets a
very dangerous precedent for government selection of technology winners
and losers.

Let's look at one recent instance. Just as an open inter-industry group
-- the Analog Reconversion Discussion Group, or ARDG -- is addressing
technical solutions to the so-called "analog hole" issue, the 4C
companies (three of which also are part of 5C), have made sweeping
changes in the compliance rules applicable to one of the "authorized
technologies" -- CPRM. These changes obligate consumer electronics
devices licensed to make recordings using CPRM to search all analog
content reaching the device for rights information transmitted using a
marking technology called CGMS-A. No similar obligation is imposed on
computers or devices used with computers.

These changes to the CPRM compliance rules provide a stark demonstration
of the concerns identified by Philips and confirm that the Encryption
Technology Mandate Proposal would grant the providers of a
government-anointed technology:

-   The right and ability to change the relevant rules unilaterally,
    without advance notice, public scrutiny, FCC scrutiny, or even
    licensee input or consultation;

-   The ability to preempt public discussion of basic public policy
    issues (in this case, the analog hole), despite the ongoing
    consideration of the issue by the FCC and a multi-industry working
    group;

-   The ability to distort competition in technology markets, by tying
    their selected technology to inferior or ineffective technologies at
    the expense of superior technologies (such as watermarking), in
    which others own relevant IP;

-   The ability to distort competition in product markets by adopting
    changes in the rules governing their selected technology that
    further their own competitive interests;

-   The ability to discriminate without justification between consumer
    electronics products and computer-related products;

-   The ability to attempt to extend the power of their license
    agreements into functions of a device that do not in any way make
    use of the licensed technology, in a manner contrary to basic
    principles of IP licensing.

What is particularly perplexing is the fact that many in the industry,
including content companies, have observed that CGMS-A is easily
stripped or forged, thereby depriving the content of any protection.
This is precisely the kind of behavior that threatens to deprive
technology innovators, device manufacturers and consumers of the
benefits of robust competition and innovation in digital content
protection technologies and equipment.

[The Encryption Technology Mandate Proposal Fails to Provide Meaningful
Protection Against The Very Threat It Seeks to Address]{.underline}. At
the outset, there is a very real question about the nature of the threat
the content community seeks to address. Early in the debate, nearly two
years ago, the objective of the studios and the major broadcast networks
owned by studios was clear: prevent the unauthorized retransmission of
high definition and other high value digital broadcast content over the
Internet to the public because failure to do so would result in HDTV and
the highest value digital programming migrating from free, over-the-air
broadcast television to pay services, namely cable and direct broadcast
satellite. The Encryption Technology Mandate Proposal pending before the
FCC, however, is much broader. It applies to all digital broadcast
transmissions, standard as well as high definition, and it applies to
all unauthorized redistribution, with no limitation to the Internet and
no limitation to the public at large. This "mission creep" of the
Encryption Technology Mandate Proposal raises the fundamental question
of whether this proposal is aimed at saving broadcast television or
securing control over consumer electronic devices and how consumers use
them.

Even if one accepts the greatly increased scope of the proposed
regulations as legitimate, most incredibly, the proposed system *just
doesn't work*. In fact, it leaks digital content like a sieve -- leading
many to point out that the proposed system, while locking the front
door, leaves the rear door -- and perhaps a few windows -- wide open.
This is due, most notably, to its failure to protect digital content
that has been passed through analog outputs, which can easily be
redigitized, stripped of its protection, and sent off to the Internet.

This is not an oversight on MPAA's part, but rather reflects a
recognition of the fact that restrictions on analog outputs would doom
the DTV transition to certain failure by causing the obsolescence of
hundreds of millions of legacy devices. Nevertheless, because it does
not protect analog content, the Encryption Technology Mandate Proposal
fails to achieve its core goal of effectively preventing unauthorized
redistribution of digital broadcast content to the public over the
Internet. In fact, MPAA itself has admitted this, stating in the FCC's
just completed "Plug and Play" proceeding that systems "...\[that
permit\] the continued availability of unprotected analog
connections...\[fail\] to achieve meaningful protection of digital
content."[^1]

The proposed system has the potential to leak in other ways as well --
including through the expected use of "software demodulators." Because
the proposed system cannot protect digital content in a pervasive or
robust manner, there is simply no sustainable public policy rationale
for its adoption and implementation, especially in light of the
substantial cost and complexity impact it would have on consumers.

For these and other reasons, and like so many other groups -- including
major public interest groups, software companies, IT and computer
companies, libraries, consumer electronics companies, advocates for
persons with disabilities, privacy groups, and literally thousands of
individual consumers -- Philips believes that adoption of the Encryption
Technology Mandate Proposal would be a grave mistake. We can and must
work together to explore alternatives that are both consumer friendly
and effective.

There is Time To Explore Alternatives

Importantly, there is time to find such an alternative. The state of
consumer broadband technology -- both in terms of bandwidth and digital
compression -- largely mitigates the immediacy of the threat of
widespread redistribution of high definition digital broadcast content
over the Internet.

First of all, the vast majority of consumers do not have the necessary
bandwidth to engage in widespread uploading and downloading of HDTV
content to and from the Internet. In fact, today and for the foreseeable
future, sending broadcast HDTV over the Internet in any reasonable
amount of time requires such a level of compression as to necessarily
degrade the signal well below even today's analog television resolution.

In fact, as revealed in the chart below, using today's Internet
technology, it would take at least 25 hours using even an advanced
(i.e., 1.5 Mbps) broadband connection, and [28 days]{.underline} using a
more common dial-up modem, to retransmit a 2-hour HDTV broadcast movie
in its native resolution, even assuming that the connections operated at
their maximum speed, which they rarely, if ever, do. Even a 2-hour SDTV
broadcast would take approximately 5 hours to retransmit in its native
resolution using a perfect 1.5 Mbps broadband connection, or 142 hours
over a 56 kbps dial-up modem.

![](media/image1.wmf)

And, importantly, no meaningful advances in digital compression
technology are envisioned in the foreseeable future that would provide
uploads and downloads of high resolution content at any reasonable
speed. Even assuming that a twice as efficient compression scheme as
MPEG2 were developed (and it has not been), the transmission times are
still too lengthy to make widespread broadband Internet distribution of
high definition content an imminent or significant problem. Thus, to the
extent content owners are concerned that the existence of digital
television receivers suddenly dramatically increase the risk of massive
unauthorized redistribution to the public over the Internet of their
"highest value" content, Philips would respond that such concern is
unfounded and should not drive us to accept content protection solutions
that do not achieve minimally acceptable levels of competence and
consumer friendliness.

Watermarking Offers A Better Answer

Given the fact that we have time to do so, we owe it to consumers, in
particular, to work together to seek a more holistic solution that
provides effective and [pervasive]{.underline} protection for digital
broadcast content from unauthorized redistribution to the public over
the Internet -- including after it has been passed through an analog
output -- and that has as light a touch on both devices and consumers as
possible. Philips believes that a system, based principally on
watermarking, instead of encryption, offers such a solution.

It could preserve the functionality of legacy equipment and permit
seamless interactivity between both existing digital devices and those
designed to recognize the watermark. Unlike the "chaining dependencies"
that afflict an encryption system, devices in this system function
independently of others, thus avoiding any need to replace an entire
system. Rather, a consumer will add compliant equipment in the normal
course of upgrading. A watermarking system can preserve fair use without
imposing unfair costs on consumers.

It could effectively and pervasively address concerns about Internet
redistribution of digital content, including content that has passed
through an analog output, by making content that has traversed the Net
incapable of being re-recorded or displayed. By recognizing when a
watermark has been copied -- which is what occurs in Internet
retransmission -- this system could prohibit a compliant device from
either recording or displaying that content, essentially making the
content useless to the recipient.

Finally, unlike the Encryption Technology Mandate Proposal and other
encryption approaches, which can impose multiple layers of
encrpytion/decryption requirements (including licensing costs) on every
digital interface in every device in a home network, a
watermarking-based system could be far less invasive, less costly and
less complicated to regulate.

This is not to say that a solution based upon watermarking -- a
technology that content owners strongly support -- is achievable
overnight. The complexity of the business, technical, and legal issues
at stake necessarily require a fully cooperative effort be undertaken,
in an open process, by all stakeholders. Just as the stalemate over
DTV-cable compatibility was successfully ended when the cable and
consumer electronics industries negotiated in good faith for months to
develop an agreement, so too will DTV content protection only be
achieved in a manner acceptable to all parties when all of those parties
agree to work together in good faith.

Conclusion

In closing, Philips calls upon Congress to ensure that the adoption of
any digital broadcast content protection system meets the core
requirements we believe are essential to consumers and to the successful
transition to digital television: meaningful competency in protecting
against unauthorized retransmission of high definition and other high
value digital content to the public over the Internet, preservation of
consumers' fair use expectations without oppressive costs and
complexity, and clear and enforceable safeguards to ensure robust
competition and innovation in the CE and digital content protection
marketplaces.

Philips pledges its full, continued support toward finding solutions
that meet these requirements, and further pledges to do its part to make
technological solutions available on open, fair and reasonable terms to
all interested parties. We look forward to this Committee's continued
leadership in this critical arena and I would be pleased to take any
questions you might have.

[^1]: Comments of MPAA on the FCC's Notice of Proposed Rulemaking in the
    "Plug and Play" Agreement (CS Docket 97-80, PP Docket 00-67) (March
    28, 2003) at 2.