**Remarks of**

**FCC Commissioner Susan Ness**

**Before the**

**California Cable Television Association Western Show**

**Los Angeles, California**

**December 16, 1999**

(As prepared for delivery)

***"American Family Goes Digital"***

It is a pleasure to be with you again this year. The Western Cable Show
is one of my favorite industry meetings. I especially enjoy the new
technology demonstrations on the floor \-\--and commend them to you.

Being here in Los Angeles, I'm reminded of the Tim Robbins film, "*The
Player*," in which we get a glimpse into the world of the Hollywood
producer. The protagonist, played by Robbins, hears countless pitches
every day from people who want their stories turned into a movie.

So, here's my pitch: A typical American family decides to buy a new
digital TV set. The kids have stashed their allowances for a year. Mom
and Dad have worked overtime to save up. They all go out and buy their
16 x 9 aspect ratio top- quality, cable-ready television set, bring it
home, plug it into their cable system and turn it on.

Into their living room pours exquisite programming \-- nature shows and
feature films in high definition, interactive educational shows and data
applications. And the family lives happily ever after.

Well, Roger Ebert, who will moderate the upcoming panel called
"Hollywood Goes Digital," probably wouldn't give my story "a thumbs up."
But I think he would like it a lot better than the horror-film version,
in which the family brings home the new set, turns it on, and sees
nothing but a blank screen.

How do we avoid the horror story? Obviously, we need to make sure that
the technical issues are resolved so consumers can plug their digital
sets into cable, and receive a proper signal. I know Dick Green at Cable
Labs and many others here have been working hard toward that end.

But in addition to technical compatibility, we need to have compelling
content \-\-- content that is a catalyst for conversion to digital.
That's why "Hollywood Goes Digital" is so important.

And before digital content can flow, Hollywood needs assurance that its
rights to that content are reasonably protected \-- just as they are in
an analog world.

So, how do we achieve an appropriate balance between the content
community's need for copy protection and consumers' desire for digital
content? How do we ensure compatibility between consumer electronics
equipment and cable systems?

Consumers don't really know or care much about the technology that
brings them their news, information and entertainment. They don't
understand the complexities of copy protection. The bottom line is that
a digital television set \-\-- or for that matter a DBS dish, or an
advanced cable set top box \-\-- will not be valuable to consumers
unless it makes first rate digital programming and services available
when they want it \-\-- hassle-free.

And my job is to make sure that the digital revolution works for the
American consumer -- for a "happily ever after" ending.

# Digital Platforms Abound

Hollywood is going digital because everyone else is going digital.

-   **Cable operators** are upgrading to digital and offering an
    increasing range of new services. At the end of last year, 1.4
    million homes subscribed to a cable digital service. A year from
    now, that number is expected to increase to nearly 10 million, and
    in 6 or 7 years, 40 million homes likely will receive digital cable
    services.

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-   **DBS providers** already distribute their programming in a digital
    format. As

> this audience knows well, DBS subscriber rates are rising rapidly,
> with 12.5% of the multichannel video households now subscribing to DBS
> -- in part due to better picture quality. And recent changes in the
> law are likely to spur that growth. Under amendments to the Satellite
> Home Viewer Act, DBS providers will be able to retransmit local
> broadcast signals within the originating market -- the so-called
> "local-into-local" authority. The ball is in our court to adopt must
> carry rules for DBS, under an ambitious, congressionally-mandated
> timetable.

-   **Broadcasters** generally are meeting their deadlines for the
    transition to digital. Over 100 stations are delivering digital
    broadcasts, meaning roughly 50% of the U.S. population can now
    receive one or more over-the-air digital signals. To be sure, there
    have been bumps in the road, as would be expected in any transition
    of this magnitude. But we are headed in the right direction.

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-   **Fixed wireless** providers are also gearing up to provide a wide
    range of broadband services. Some are offering high speed Internet
    access, including streaming video, while others are providing a
    platform that includes digital television and voice, as well as
    Internet access.

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-   The popularity of **DVD players** evidences the enthusiasm of
    consumers for digital home theater with enhanced content.

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-   Finally, the **Internet** hovers behind all these video delivery
    mechanisms as perhaps the ultimate digital platform.

In short, the consumer either has or soon will have available a number
of different vehicles to view digital content. But will there be the
content to view?

# Digital Content

It will take compelling content to drive the transition to digital. We
are making progress but we could be doing even better.

-   HBO now delivers high definition programming and by the end of this
    year will present 60% of its programs in HD. Other pay-per-view
    movie channels plan to follow suit.

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-   A&E Networks began production on a number of high definition
    programs this year.

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-   ABC broadcasts Monday Night Football in digital, using a separate
    production crew to create a whole new sports-programming experience.
    CBS also broadcasts many of its football games and much of its prime
    time lineup in digital. NBC gives us Jay Leno in digital, although
    the jury is still out as to whether it makes Jay's opening jokes any
    funnier.

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-   Cable networks have rolled out a plethora of new digital tier
    services. Last year, for example, BET introduced BET Sounds R&B and
    BET Gospel. And Discovery introduced Discovery Wings, Discovery
    Health, and Discovery en Espanol.

And digital can bring an entirely new viewing experience to consumers
through interactive TV -- a new way to disseminate valuable information
to those who wish to receive it. I look forward to hearing from our next
panel about the many ways that digital technology will change the nature
of programming itself.

To get there, we need to see cooperation across many industries to
address the obstacles that remain.

**Copy protection**

One of the obstacles preventing the free-flow of digital programming is
copy protection. Given the ease with which digital information can be
replicated, the perfect quality of every digital copy, and the limitless
distribution potential of the Internet, content producers understandably
are concerned about placing their works on a cable system or broadcast
network without adequate protections in place.

The marketplace tells us that production of video product depends upon
the ability to amortize its cost \-- not just over first-run in
theaters, but also on pay per view, cable networks, broadcast channels,
home video players and international distribution.

But if a first-run digital product immediately can be captured off air
or off cable and replicated like a master copy -- or webcast globally
\-- without payment to the copyright holders, producers are going to be
reluctant to release their product.

I am committed to seeing a technological and legal environment in which
Hollywood and the content community reasonably know that their product
will retain its value and not be pirated.

But the family I described in my "pitch" wants to be able to view the
programming of their choice regardless of what kind of electronics they
own. If they want to "time shift" programming \-- to record a show and
view it later, to be able to record a pay-per-view movie and watch it
later \-- they should be able to do so. The Supreme Court has said as
much and consumers have come to expect it.

The FCC -- thankfully \-- does not oversee administration of the
copyright laws. (It is comforting that not all hot potatoes fall into
our lap!). But if we are going to see widespread availability of quality
programming, the copy protection issues must be resolved.

To this end, we have tried to let market forces drive the outcome. We
have encouraged private negotiations between content providers and
distribution providers to hammer out the terms under which the content
community will make its wares available. Some progress has been made.
The parties generally have agreed to an encryption standard.

But we're not there yet.

Getting back to the American family that would like to view new digital
programming and be able to record it for later use \-- we need to see
the negotiations quickly brought to a close so that consumers may
benefit. The process is taking too long. The American public deserves
resolution of these issues now.

## Commercial Availability of Navigation Devices 

Related to the issue of copy protection are the issues of commercial
availability of navigation devices and "cable ready" receiver
designations. Copy protection will only work if all of the network
equipment, consumer equipment and software enable it.

As you probably know, FCC rules require that set top boxes with separate
security modules must be commercially available by July of next year.

This concept is deceptively simple: consumers should be able to buy a
set top box wherever they want and be able to use it wherever they want.
However, these set top boxes and separate modules must have adequate
security protection so that content is made available.

I understand that good progress has been made through the mutual efforts
of the cable industry, their vendors and the consumer electronics
industry. However, I will be watching this situation very carefully as
we approach next summer to make sure that our deadline is met and that
the envisioned consumer benefit of added choice are \--in fact \--
realized.

### "Cable Ready" Receiver Designation

I have also been told that the cable and consumer electronic industries
have resolved most of the technical issues associated with ensuring
future compatibility between cable networks and consumer electronic
equipment. That\'s the good news.

However, I also understand that there are two primarily non-technical
\-- or policy issues \-- still to be resolved.

The first issue is what constitutes a \"cable-ready\" set in the era of
digital television. Must a digital connector and copy protection
circuitry be built into *all* integrated DTV sets that carry the \"cable
ready\" label?

The cable industry argues that IEEE 1394/5C connector \-- as it is
fondly known in technical circles \-- is necessary to ensure that
consumer receivers are "forward compatible" or \"future proof.\" That
means that a cable-ready set, by definition, would have copy protection
and be able to hook up with other digital devices, such as recorders or
DVD players. The consumer electronics industry on the other hand argues
that it should have the option of building receivers without the added
complexity and expense of the digital connector.

The key is to have a simple to understand labeling system \-- and
consumer education \-- to make sure the consumer truly knows what he or
she is buying. What does the consumer *expect?* If it is cable ready in
the digital era, it should have full cable functionality. Otherwise
don't label it "open cable." With such labels and education, I believe
we can leave it to the market to determine whether low-end sets with
limited "forward compatibility" can succeed.

Again, the key is consumer choice and education.

### Electronic Program Guides

The second issue involves the availability of the cable systems\'
proprietary electronic program guide information.

The cable industry\'s position is that the program information for cable
channels is proprietary material for which you have had to pay and that
it can only be made available to consumer\'s with the consent of the
those who own the rights to the material.

The consumer electronic industry feels that it needs access to the
information if it is to build competitive products. I am still trying to
assess this issue in all of its dimensions. Let's bring a common
sense-consumer perspective to this. Let's make it easy for viewers to
get the information they want from the source they want so they can make
the choices they expect. I urge the industries to work it out now.

## CONCLUSION

We have made a lot of progress in bringing digital services to my
hypothetical American family. But we still have a long way to go.
Hollywood and the content community have a critical role to play in
bringing high quality digital programming to the American consumer.

But will my American Family be able to see compelling content when it
plugs in its newly acquired digital cable ready set? Or a blank screen?

Stay tuned. I'll be watching.

Thank you.