```

[Senate Hearing 106-1048]
[From the U.S. Government Publishing Office]

                                                       S. Hrg. 106-1048

                VIOLENCE IN THE MEDIA: ANTITRUST IMPLI- 
 CATIONS OF SELF-REGULATION AND CONSTITUTIONALITY OF GOVERNMENT ACTION

=======================================================================

                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                       SEPTEMBER 20 and 21, 2000

                               __________

                          Serial No. J-106-107

                               __________

         Printed for the use of the Committee on the Judiciary

                    U.S. GOVERNMENT PRINTING OFFICE
74-413                      WASHINGTON : 2001
_______________________________________________________________________
            For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 
                                 20402

                       COMMITTEE ON THE JUDICIARY

                     ORRIN G. HATCH, Utah, Chairman
STROM THURMOND, South Carolina       PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
ARLEN SPECTER, Pennsylvania          JOSEPH R. BIDEN, Jr., Delaware
JON KYL, Arizona                     HERBERT KOHL, Wisconsin
MIKE DeWINE, Ohio                    DIANNE FEINSTEIN, California
JOHN ASHCROFT, Missouri              RUSSELL D. FEINGOLD, Wisconsin
SPENCER ABRAHAM, Michigan            ROBERT G. TORRICELLI, New Jersey
JEFF SESSIONS, Alabama               CHARLES E. SCHUMER, New York
BOB SMITH, New Hampshire
             Manus Cooney, Chief Counsel and Staff Director
                 Bruce A. Cohen, Minority Chief Counsel

                            C O N T E N T S

                              ----------                              

                     WEDNESDAY, SEPTEMBER 20, 2000
                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Biden, Hon. Joseph R., a U.S. Senator from the State of Delaware.    29
DeWine, Hon. Mike, a U.S. Senator from the State of Ohio.........    37
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah......     1
Kohl, Hon. Herbert, a U.S. Senator from the State of Wisconsin...     9
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     3

                               WITNESSES

Brownback, Hon. Sam, a U.S. Senator from the State of Kansas, 
  prepared statment..............................................    13
Pitofsky, Hon. Robert, Chairman, Federal Trade Commission........    11
    Prepared statement...........................................    11

                      THURSDAY, SEPTEMBER 21, 2000
                     STATEMENT OF COMMITTEE MEMBER

                                                                   Page

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah......    39

                               WITNESSES

Andersen, Crossan, ``Bo'', President, Video Software Dealers 
  Association, prepared statement................................    53
Fithian, John, President, National Association of Threatre 
  Owners, prepared statement.....................................    49
Horovitz, Pamela, on behalf of the National Association of 
  Recording Merchandisers, prepared statement....................    47
Rosen, Hilary B., President and Chief Executive Officer, 
  Recording Industry Association of America, prepared statement..    42
Valenti, Jack, President and Chief Executive Officer, Motion 
  Picture Association of America, parpared statement.............    40

                                APPENDIX
                         Questions and Answers

Responses of Jack Valenti to Questions from Senator Hatch........    63
Responses of Jack Valenti to Questions from Senator Leahy........    64
Responses of Jack Valenti to Questions from Senator Thurmond.....    67
Responses of Crossan ``Bo'' Andersen to Questions from Senator 
  Hatch..........................................................    68
Responses of Crossan ``Bo'' Andersen to Questions from Senator 
  Leahy..........................................................    70
Responses of Crossan ``Bo'' Andersen to Questions from Senator 
  DeWine.........................................................    75
Responses of Pamela Horovitz to Questions from Senator Hatch.....    76
Responses of Pamela Horovitz to Questions from Senator Leahy.....    76
Responses of Pamela Horovitz to Questions from Senator Thurmond..    82
Responses of Douglas Lowenstein to Questions from Senator Hatch..    83
Responses of Douglas Lowenstein to Questions from Senator Leahy..    84
Responses of Douglas Lowenstein to Questions from Senator Kohl...    86
Responses of Douglas Lowenstein to Questions from Senator 
  Grassley.......................................................    88

                 Additional Submissions for the Record

Lowenstein, Douglas, on Behalf of the Interactive Digital 
  Software Association...........................................    88
Sunstein, Cass R., Karl N. Llewellyn Distinguished Service, 
  Professor of Jurisprudence, University of Chicago Law School...    95

 
 VIOLENCE IN THE MEDIA: ANTITRUST IMPLICATIONS OF SELF-REGULATION AND 
                 CONSTITUTIONALITY OF GOVERNMENT ACTION

                              ----------                              

                     WEDNESDAY, SEPTEMBER 20, 2000

                                       U.S. Senate,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:10 a.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Orrin G. 
Hatch (chairman of the committee) presiding.
    Also present: Senators Grassley, Specter, DeWine, Leahy, 
Biden, Kohl, and Feinstein.

 OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 
                       THE STATE OF UTAH

    The Chairman. If we could begin, good morning and welcome 
to this Judiciary Committee hearing about violence in the 
media. Today, we will examine the antitrust implications of 
industry self-regulation and the constitutionality of 
governmental action.
    Our goal is to examine what appropriate action Congress can 
take, given the confines of the First Amendment, to assist the 
entertainment industry in limiting the exposure of our youth to 
explicit sex, violence, and other harmful material in music, 
movies, and video games, and I might add the Internet itself.
    Last week, the Federal Trade Commission released a study 
that demonstrated how American media companies may be 
intentionally marketing harmful material to our children. The 
study's findings can be summarized in one sentence: some in the 
entertainment industry have deliberately forced violent and 
unsuitable material on the most vulnerable members of our 
society, our children, for the purpose of making money.
    The harmful effects of violent entertainment are no 
surprise to those of us who have studied this issue over the 
years. A year ago, the Senate Judiciary Committee issued a 
report entitled ``Children, Violence, and the Media: A Report 
for Parents and Policymakers,'' which had similar findings.
    But the point of today's hearing is not to belabor a 
conclusion we have already reached, and I want to be careful to 
avoid disparaging the entire entertainment industry because of 
the actions of some. It is important to recognize that 
America's entertainment industry can be a very positive force.
    For example, I have seen a number of powerful films that 
convey ideas that I believe are greatly beneficial to our 
society. As a songwriter myself, I have experienced firsthand 
the ability of music to uplift and inspire. And many in the 
industry strive to do what is right. In short, it is not my 
intention at this hearing to heap further attacks on the 
entertainment industry. Rather, we are here to find solutions, 
ways of empowering the industry to do what is best for our 
country and our culture.
    As we will hear more about today, the industry has made 
some significant efforts to police itself. Each of the 
industries at issue here--motion picture, recording, and video 
games--has developed voluntary ratings systems that either 
provide notice to parents about unsuitable content of certain 
products or that attempt to restrict the sale of unsuitable 
products to adults or mature audiences.
    Unfortunately, as the FTC report confirms, these efforts 
have failed to produce adequate or sufficient results. Some 
producers demonstrate inadequate adherence to industry 
standards, and retail stores do not enforce the guidelines. The 
FTC report found that 85 percent of children who attempt to 
purchase music or video games that contain unsuitable material, 
as defined by the industry itself, have no trouble at all 
purchasing these items. The report confirms the widely held 
view that voluntary standards are meaningless unless followed 
and enforced, and currently there is no enforcement of these 
voluntary standards.
    The failure of voluntary action necessarily raises the 
question of whether Government regulation is appropriate. Some 
proposals of Government regulation, however, run afoul of the 
first Amendment. We all might remember in mid-1974 when the 
House Appropriations Committee ordered then FCC Chairman 
Richard Wiley to report on actions to be taken by the 
Commission to protect children from violence and obscenity.
    Chairman Wiley began a series of meetings with industry 
heads, and in 1975 the broadcasters adopted a family viewing 
policy as part of the broadcasters' code of conduct. This 
family viewing policy was challenged by the Writers Guild of 
America under the theory that the threat of Government 
regulation amounted to State action and thus was not voluntary 
self-regulation.
    In 1976, a district court agreed with the Guild and 
concluded that the FCC had engaged in, ``a successful attempt * 
* * to pressure the networks and the NAB into adopting a 
programming policy they did not wish to adopt,'' and barred the 
NAB from enforcing the policy. Although this decision was later 
overturned on jurisdictional grounds and the case was not 
further developed due to the antitrust challenge to the overall 
NAB code, the court's holdings should give us pause about the 
constitutionality of proposals that might coerce, 
``voluntary,'' action in regulating protected speech.
    In looking toward solutions, we not only must be mindful of 
the limitations of the First Amendment, but we also need to 
look at the impediments that exist to the entertainment 
industry's successful development and enforcement of meaningful 
codes of conduct. Concerns have been raised that industry fears 
about liability under antitrust laws are hindering successful 
self-regulation.
    For example, it has been suggested that the industry would 
not boycott a video rental chain that routinely refuses to 
enforce industry-imposed age restrictions out of fear of 
antitrust liability. These fears stem largely from the 1982 
case, United States v. National Association of Broadcasters, in 
which the court ruled that the broadcasters' joint code of 
conduct relating to television advertising violated the 
antitrust laws.
    Last fall, I offered a provision as a part of a larger 
floor amendment to the juvenile justice bill to empower the 
entertainment industry to collaborate in order to develop and 
enforce their own voluntary guidelines without the risk of 
liability under the antitrust laws.
    While my hope is that such a law would result in the 
industry limiting the sale to minors of material that the 
industry itself deems unsuitable for them, I want to emphasize 
that my proposal does not impose any particular code or 
requirement. I was pleased that the Senate overwhelmingly 
adopted this provision by a vote of 98 to 0, and I am hopeful 
that we can enact that provision into law this year.
    Today, we have the opportunity to examine howGovernment can 
act both in a constitutional and in a constructive manner to enable 
entertainment companies effectively to limit the exposure of our 
children to materials the companies themselves deem inappropriate.
    Let me just now turn to our distinguished ranking member, 
Senator Leahy, for his statement, and then we will turn to 
Senator Grassley after that.
    You have no statement. Then we will turn to Senator Kohl.

  STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE 
                        STATE OF VERMONT

    Senator Leahy. Thank you, Mr. Chairman. In the past few 
years, we have seen tragic shooting incidents at schools across 
the country. They have prompted a public firestorm of concern 
about the causes of violent acts by our children. Even though 
the rate of serious violence by juveniles in this country has 
dropped dramatically by 33 percent between 1993 and 1997, each 
tragic incident of school violence shocks us and makes every 
parent or grandparent or responsible citizen struggle to figure 
out what is happening.
    In this regard, the FTC report that was released last week 
states that, ``Exposure to violence in entertainment media 
alone does not cause a child to commit a violent act and it is 
not the sole, or even necessarily the most important factor 
contributing to youth aggression, anti-social attitudes and 
violence.''
    We should know instinctively, and studies prove, that the 
root causes of violence are multi-faceted. We can all point to 
inadequate parental involvement or supervision, drugs, crimes, 
poverty, overcrowded classrooms and oversized schools that add 
to students' alienation, as well as a number of other factors 
that are more influential that depictions of violence in 
assorted entertainment media.
    Senator Hatch pointed toward a major factor in his 
testimony last week when he alluded to domestic violence 
against children's mothers, siblings, and themselves. There is 
no single cause, and also there is no single legislative 
solution that is going to cure the ill of youth violence in our 
schools or on our streets. And we delude ourselves if we think 
otherwise.
    But the President and the Congress tried to respond to the 
concern that all of us have youth violence. Both the House and 
the Senate took up and passed juvenile justice legislation 
which included studies proposed by Senator Lieberman and others 
on the marketing practices and guideline systems used by the 
entertainment industry and on the causes and the ways to 
prevent youth violence. In addition, the Senate-passed bill 
included an amendment proposed by Senators Brownback, Hatch, 
Lieberman, Kohl and others that would provide an antitrust 
exemption to the entertainment industry for the purpose of 
developing and enforcing content guidelines.
    Now, of course, despite the strong bipartisan support for 
these proposals, in particular, and for the juvenile justice 
bill in general, they never became law. The Republican majority 
has refused to proceed with the juvenile justice conference, 
and so we do not have that bill and probably will not.
    Fortunately, the Clinton-Gore administration did not wait 
for the Congress to act. On June 1, 1999, the President ordered 
the Department of Justice and the Federal Trade Commission to 
conduct a joint study of the marketing strategies and practices 
of the motion picture, music recording, and video game 
industries to find out whether they are marketing to children 
violent and explicit-content material.
    That report was released Monday, and I am delighted to see 
Chairman Pitofsky here to follow up on his testimony concerning 
this report. Chairman Pitofsky and his department have done a 
very great service, I think, to all of us because the FTC 
report serves as an important wake-up call to those in the 
industry and to us as parents.
    There is good news in the report about the effectiveness of 
the self-regulatory product rating and the labeling systems 
adopted by the movie, recording, and electronic game 
industries. The majority of parents not only understand, but 
they find these systems and these ratings to be invaluable.
    But there is also bad news. It is not acceptable for the 
entertainment to target and market directly to children 
products which the industry itself identifies as inappropriate 
for children. It is not acceptable for the entertainment 
industry to include children in market research tests for 
products which the industry identifies as inappropriate for 
them without parents' approval. And it is not acceptable for 
over 80 percent of the children participating in an FTC survey 
to be able to buy explicit-content labeled recordings and 
electronic games without their parents' consent, and for 46 
percent of unaccompanied children to buy tickets for entry to 
R-rated movies without parental approval.
    These findings do not occur in a vacuum. Parents share a 
responsibility, too. Congress and Government cannot stand in 
loco parentis on these types of things. The majority of parents 
surveyed by the FTC felt they restricted a child's exposure to 
inappropriate entertainment.
    As a parent, and now a grandparent, I well appreciate the 
challenge of limiting a child's exposure to media violence and 
other inappropriate material. But no legislation we could 
pass--and let's not kid ourselves; it is great to make campaign 
statements about all the legislation we might pass, but no 
legislation is going to be an effective substitute for parental 
involvement. No filter, no software, no rules are an effective 
substitute for parents.
    We ought to remember that films like ``The Patriot,'' 
``Saving Private Ryan,'' ``Schindler's List'' and ``The 
Hurricane'' are among those receiving R ratings that invite 
parental permission before a teenager sees them. But many 
parents very appropriately chose to have their teenagers see 
those films, even though they contain very graphic scenes, and 
to consider the important values and lessons and human history 
those films depict.
    At the same time, perhaps what we need to do is to have 
ratings that more clearly tell parents what is in there. One of 
the biggest blockbusters of the summer was a PG movie that had 
100, 200 people murdered in the first few minutes in an 
airplane. Now, that gets PG. If it had been a story of family 
or something like that with no violence or anything else, but 
may have had some nudity, it would have gotten an R rating. 
Parents need to know better what the ratings stand for.
    We have to be very vigilant about feel-good efforts to 
involve Government either directly or indirectly in regulating 
the content of movies, records, and games produced by the 
entertainment industry. In every Congress,we expend a good deal 
of effort on First Amendment issues. We also devote our time to 
ensuring protection under our copyright laws. I hope that no one 
intends to undermine the protection of our freedom of thought and 
religion and political activity that flow from the First Amendment.
    Some have come to me to complain, for example, about a 
television commercial being run currently on behalf of gun 
manufacturers. It shows an American flag being destroyed, as 
the stars and stripes are ripped aside to leave a white flag of 
surrender. It is a powerful and emotional image. It is jarring 
and upsetting. I disagree with the gun manufacturers on this 
even though I am a gun owner, and I certainly disagree with the 
depiction of the American flag being torn apart in this way. 
But it is an expression subject to the provisions of our First 
Amendment.
    This past weekend when speaking to the questions raised by 
the FTC report, Lynne Cheney, the wife of the Republican vice 
presidential nominee and former Chair of the National Endowment 
for the Humanities, said there was no way to legislate or 
regulate this issue without running afoul of the First 
Amendment, and suggested these hearings were politically 
motivated.
    This hearing is focused on a proposal to grant the 
entertainment industries an antitrust exemption. I have worked 
to clarify antitrust laws with respect to joint research and 
manufacturing efforts, and was a principal sponsor of the 
National Cooperative Production Amendments Act, the first high-
tech legislation signed by President Clinton in 1993. But I 
generally disfavor antitrust exemptions.
    Senator Hatch and I have worked building on the efforts of 
Senator Metzenbaum and Senator Bradley to end Major League 
Baseball's antitrust exemption, something artificially declared 
in 1922, I believe it was--I will check with Mr. Fithian out 
here; I believe it was 1922--by the Supreme Court.
    In general, I agree with Teddy Roosevelt and Al Gore--did 
you get that, Mr. Chairman, Teddy Roosevelt and Al Gore?
    The Chairman. Surprise, surprise. [Laughter.]
    Senator Leahy. I agree with both of them that American 
consumers benefit from competition and the protection of our 
antitrust laws. Surely, the burden of persuasion is on those 
who propose an exception to it.
    I don't think the entertainment industries need a statutory 
antitrust exemption in order to curtail inappropriate marketing 
efforts by individual companies. I am wary of granting 
antitrust immunity to the huge multi-national corporate 
conglomerates that dominate so much of our entertainment 
industries. Our antitrust enforcement agencies have said that 
no antitrust exemption is necessary for the industry to engage 
in voluntary efforts to develop and enforce guidelines for 
children, and I think that can be done.
    The Commerce Committee heard that the entertainment 
industry is taking seriously the gaps in their self-regulatory 
system, and I think that is very positive. So let's use the FTC 
report as a tool for dialogue and not a quick legislative fix, 
and then do the things that can help with violence.
    For example, violence against women and children that 
affect them for a lifetime. Let the Senate pass the Violence 
Against Women Act 2000 without further delay. Every Senator on 
my side of the aisle has agreed to let it be passed 
immediately. These are things we can do, and then let us go 
back one more time to what is most appropriate. Remember, 
parents have an obligation.
    We have a remarkable entertainment industry in this 
country. There are things in it I don't like, movies I will not 
see because I don't want to. That is my choice. And when my 
children were young, it was also my choice what movies they 
would see. They survived that, we survived that, and we have 
got good kids as a result. And I would suggest that that might 
be a lot better than those of us who might go on television to 
say how we will take over for the parents.
    Thank you.
    [The prepared statement of Senator Leahy follows:]

              Prepared Statement of Senator Patrick Leahy

    Over the past few years, tragic incidents at schools across the 
country have prompted a firestorm of public concern about the causes of 
violent acts by our children. Even though the rate of serious violence 
by juveniles in this country has dropped dramatically--by 33 percent 
between 1993 and 1997--each tragic incident of school violence shocks 
our conscience and makes every parent, grandparent and responsible 
citizen struggle to find out why some children resort to violence.
    In this regard, the FTC report released last week states that 
``exposure to violence in entertainment media alone does not cause a 
child to commit a violent act and [ ] it is not the sole, or even 
necessarily the most important, factor contributing to youth 
aggression, anti-social attitudes and violence.'' The root causes of 
youth violence are multi-faceted. We can all point to inadequate 
parental involvement or supervision, drugs, crime, poverty, over-
crowded classrooms and over-sized schools that add to students' 
alienation as well as a number of other factors that are more 
influential that depictions of violence in assorted entertainment 
media. Senator Hatch pointed toward a major factor in his testimony 
last week when he alluded to domestic violence against children's 
mothers, siblings and themselves. There is no single cause and no 
single legislative solution that will cure the ill of youth violence in 
our schools or on our streets.
    Nevertheless, the President and the Congress tried to respond to 
the concern that all of us have about youth violence. Both the House 
and the Senate took up and passed juvenile justice legislation, which 
included studies proposed by Senator Lieberman, and others, on the 
marketing practices and guidelines systems used by the entertainment 
industry and on the causes of and ways to prevent youth violence. In 
addition, the Senate-passed bill included an amendment proposed by 
Senators Brownback, Hatch, Leiberman, Kohl and others that would 
provide antitrust exemptions to the entertainment industry for the 
purpose of developing and enforcing content guidelines.
    Despite the strong bipartisan support for these proposals in 
particular and for the juvenile justice bill in general, they never 
became law because the Republican majority in Congress has refused to 
proceed with the juvenile justice conference for over a year. Senate 
and House Democrats have urged repeatedly that the majority reconvene 
the juvenile justice conference and work to craft an effective juvenile 
justice conference report and law. Despite numerous repeated requests 
by Democratic members and the President to reconvene, the Republican 
majority has rejected our pleas for action, as they have those of the 
American people.
    Fortunately, the Clinton-Gore Administration did not wait for the 
Congress to act. On June 1, 1999, the President ordered the Department 
of Justice and the Federal Trade Commission (FTC) to conduct a joint 
study of the marketing strategies and practices of the motion picture, 
music recording, and video game industries to determine whether these 
industries are marketing to children violent and explicit-content 
material. The result is the report that was released last Monday. I 
welcome Chairman Pitofsky here to follow-up on his testimony concerning 
this report to the Commerce Committee.
    The FTC Report serves as an important wake-up call to those in the 
industry and to us as parents. There is good news in the report about 
the effectiveness of the self-regulatory product rating and labeling 
systems adopted by the movie, recording and electronic game industries. 
The majority of parents not only understand but also find these ratings 
systems to be valuable tools in choosing what their children may see, 
listen to and play.
    But there is also bad news. It is not acceptable for the 
entertainment industry to target and market directly to children 
products which the industry itself identifies as inappropriate for 
children. It is not acceptable for the entertainment industry to 
include children in market research tests for products which the 
industry identifies as inappropriate for them and without their 
parents' approval. It is not acceptable for over eighty percent of the 
children participating in an FTC survey to be able to buy explicit-
content labeled recordings and electronic games without their parents' 
consent and for forty-six percent of unaccompanied children to buy 
tickets for entry to R-rated movies without showing proof of age and 
without parental approval.
    These findings do not occur in a vacuum. As parents we have to 
accept our share of responsibility. While the majority of parents 
surveyed by the FTC felt they restricted a child's exposure to 
inappropriate entertainment, almost eighty percent of children felt 
their parents effectively restricted their movies and less than fifty 
percent felt parents restricted their use of music and games.
    As a father and a grandfather, I well appreciate the challenge of 
limiting a child's exposure to media violence and other inappropriate 
material. Yet, no legislation we could pass would be an effective 
substitute for parental involvement. No filter, no software, no rules 
are an effective substitute for parents. We must remember that films 
like The Patriot, Saving Private Ryan, Schindler's List and The 
Hurricane are among those receiving R ratings that invite parental 
permission before a teenager sees them. Many parents chose to have 
their teenager see those films, although they contain graphic scenes, 
and to consider the important values, lessons and human history those 
films depict.
    We must be very vigilant about feel-good efforts to involve 
government, either directly or indirectly, in regulating the content of 
the movies, records or games a produced by the entertainment industry. 
This Committee each Congress expends a good deal of effort on First 
Amendment issues. We also devote our time and energy to ensuring 
protection under our copyright laws. I hope that no one intends to 
undermine the protection of our freedom of thought, and religion and 
political activity that flow from the First Amendment.
    Some have come to me to complain, for example, about a television 
commercial being run currently on behalf of firearms manufacturers. It 
shows an American flag begin destroyed as its stars and stripes are 
ripped aside to leave a white flag of surrender. It is a powerful and 
emotional image. It is jarring and upsetting, but it is also expression 
subject to the protection of our First Amendment.
    This past weekend when speaking to the questions raised by the FTC 
report, Lynne Cheney, wife of the Republican vice presidential nominee 
and a former chair of the National Endowment for the Humanities, said 
there was ``no way to legislate or regulate this issue without running 
afoul of the First Amendment.'' She characterized all the reports and 
hearings and statements as posturing and politically motivated.
    Ironically, this hearing is focused on a proposal to grant the 
entertainment industries an antitrust exemption, a form of immunity 
from laws that have been passed to foster competition and protect the 
American consumer from companies getting together to make their 
business lives easier and to collude, conspire and combine about 
marketing practices that would otherwise be illegal.
    While I have worked to clarify our antitrust laws with respect to 
joint research and manufacturing efforts and was the principal sponsor 
of the National Cooperative Production Amendments Act, which was the 
first high tech legislation signed by President Clinton in 1993, I 
generally disfavor antitrust exemptions. Building on the work of 
Senator Metzenbaum, Senator Bradley and others, Senator Hatch and I 
worked hard for several years to end major league baseball's antitrust 
exemption. That was an exemption that had been declared by the Supreme 
Court in 1922 when it found baseball to be a local matter not in 
interstate commerce. That legal fiction served to insulate professional 
baseball team owners for more than 75 years. Over the last several 
years, I have helped the Senate think twice before enacting antitrust 
exemptions for doctors to collude and possibly engage in price-fixing.
    In general, I agree with Teddy Roosevelt--and Al Gore--that 
American consumers benefit from competition and the protections of our 
antitrust laws. Surely the burden of persuasion is on those who propose 
an exception to our antitrust laws.
    As we begin this hearing, I do not think the entertainment 
industries need a statutory antitrust exemption in order to curtail 
inappropriate marketing efforts by individual companies. I am wary of 
granting antitrust immunity to the huge multinational corporate 
conglomerates that now dominate so much of our entertainment 
industries. I am skeptical of requests for immunity from law for 
marketing practices in particular, because grants of such immunity can 
too easily be used to coordinate marketing in too many ways, and have 
the effect of providing cover to restrict access or affect price in 
ways that disadvantage consumers generally. Much of the current 
consideration of proposed mega-mergers has to do with ensuring access 
and availability to competing entertainment and information sources. To 
seek to impose moral values and restrict depictions of violence through 
grants of antitrust exemptions is not without risks in my view. 
Accordingly, it is with a dose of skepticism that I approach 
legislative proposals for antitrust exemptions.
    Our antitrust enforcement agencies have opined that no antitrust 
exemption is necessary for the industry to engage in voluntary efforts 
to develop and enforce guidelines to protect children from 
inappropriate material, nor have the industries requested such legal 
immunities as far as I know. Each segment of the entertainment industry 
already has a rating and labeling system and a cooperative relationship 
with retailers on how best to implement those systems. That has been 
accomplished within the bounds of our antitrust laws and without the 
need for antitrust immunity.
    The Commerce Committee heard last week that the entertainment 
industry is taking seriously the gaps in their self-regulatory systems 
pointed out in the recent FTC report and taking steps to address them. 
Just last week, for example, the recording industry committed to making 
music lyrics available for parents; Disney announced it would review 
and revise its marketing policy; and retailers Kmart and Wal-Mart 
announced they would not sell violent video games to children under 17. 
The initiative and effort of these industries deserve to be 
acknowledged. Let us use the FTC Report as a tool for dialogue, not 
some quick legislative fix that may pose risks for important First 
Amendment values and for the protection to American consumers provided 
by business competition.
    There are laws we can pass that can make a difference. I return to 
the issue of domestic violence--violence against women and children 
that affects them for a lifetime. Let the Senate pass the Violence 
Against Women Act 2000 without further delay. It was cleared for 
passage by all Democratic Senators in July. It is past time to 
reauthorize and build upon the historic programs of the Violence 
Against Women Act and do all that we can to protect children from the 
ravages and lasting impact of domestic violence.

    The Chairman. Thank you, Senator.
    The chairman of the Antitrust Subcommittee, Senator DeWine, 
is in another committee markup, so we will certainly allow him 
the option of giving opening remarks when he gets here, if he 
desires. But we will call on the ranking member and then we 
will turn to our witnesses.
    Senator Kohl.

 STATEMENT OF HON. HERBERT KOHL, A U.S. SENATOR FROM THE STATE 
                          OF WISCONSIN

    Senator Kohl. Thank you, Mr. Chairman.
    Last week, the Federal Trade Commission reached the 
conclusion that the entertainment industry often willfully, 
consciously, and intentionally markets their most violent 
content to our young. Examples of these practices are all too 
easy to find. At last week's Commerce Committee hearing, a 
senior Sega executive defended his company's practice of 
placing ads for M-rated games, which are games with content 
suitable only for persons aged 17 and older, in magazines with, 
``close to a majority of readers over 18.''
    Like too many others in his industry, he apparently thinks 
it is fine to put an ad for his company's ``Resident Evil'' 
game into a magazine with over 60 percent of readers under age 
17. Mr. Chairman, I strongly disagree. Those who purvey such 
sleaze to our young are motivated by a selfish desire for 
profit and do not care about the damage they do to our society.
    But beyond denouncing the irresponsibility of these 
companies for these practices, what can we actually do to make 
a difference consistent with the First Amendment? We cannot 
regulate content, as some might like, and while exposing the 
industry's practices to public scrutiny has its place, I am not 
satisfied with mere talk, no matter how eloquent or well-
intentioned. But I believe there are two steps we can take and 
should take now.
    First, we can enact legislation which will make clear that 
antitrust law does not prevent entertainment companies from 
voluntary joining together to create and enforce codes of 
conduct which prevent companies from marketing violent or 
explicit sexual content to minors. That is why many of us 
joined you, Mr. Chairman, last year in cosponsoring an 
amendment to the juvenile justice bill which does exactly this.
    But we should not stop with this one measure. Surely, 
marketing violent or sexually explicit entertainment to 
children in violation of industry codes is a deceptive trade 
practice, in violation of the FTC Act. The video game makers, 
for example, have adopted a code prohibiting marketing to 
under-age consumers, but some of these very same manufacturers 
repeatedly ignore their own code. In fact, the FTC found that 
91 percent of the video game companies surveyed targeted males 
under 17 in advertising campaigns for violent M-rated games. We 
should not tolerate such dishonest conduct by these companies.
    Therefore, Senator DeWine and I today have written to 
Chairman Pitofsky calling on the FTC to investigate and 
prosecute companies for deceptive trade practices whenever they 
violate their own codes of conduct by deliberately marketing 
this material to children.
    From our music to our popular music, from TV to video 
games, American society is awash in a glut of violent and lurid 
images. Sadly, many in the entertainment industry often have 
little or no hesitance to market this inappropriate material to 
our young people. The time has come now to do more than merely 
denounce this behavior, though denounce it we should. We can 
and should take sensible action by granting the industry an 
antitrust exemption to enforce voluntary codes of conduct and 
by prosecuting those who violate these codes for deceptive 
trade practices, to do all we can to keep our children safe 
from violence both on our streets and in the media.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Kohl follows:]

                Prepared Statement of Senator Herb Kohl

    Just last week the Federal Trade Commission reached the chilling 
conclusion that the entertainment industry--movie studios, record 
companies, and video game manufacturers--often willfully, consciously 
and intentionally market their most violent content to our youth. 
Examples of these practices are all too easy to find. At last week's 
Commerce Committee hearing on this issue, for instance, a senior Sega 
executive, Pete Moore, defended his company's practice of placing ads 
for M-rated games--with content suitable only for persons aged 17 and 
older--in magazines with ``close to a majority of readers over 18.'' 
Like too many others in his industry, he apparently thinks it's just 
fine to put an ad for his company's ``Resident Evil'' game into a 
magazine with over 60 percent of readers under 17.
    Mr. Chairman, I strongly disagree. Those who purvey such sleaze to 
our youth are motivated only by a base and selfish desire for profits 
and care not in the least for the damage they do to our society. Their 
irresponsibility is unconscionable. Let me state it as plainly as I 
can: These rotten apples of the entertainment industry should be 
ashamed of themselves, and I condemn them.
    But beyond denouncing the irresponsibility of these companies for 
these practices, what can we actually do to make a difference, 
consistent with the First Amendment? We cannot regulate content, as 
some might like. And while exposing the industry's practices to public 
scrutiny has its place, I, for one, am not, satisfied with mere talk, 
no matter how eloquent or well intentioned. But there are two steps we 
can take, and take right now.
    First, we can enact legislation which will make clear that 
antitrust law does not prevent entertainment companies from voluntarily 
joining together to create and enforce codes of conduct which proscribe 
companies from marketing violent or sexually explicit content to 
minors. That's why many of us last year joined you, Mr. Chairman, in 
co-sponsoring an amendment to the Juvenile Justice bill that does 
exactly this.
    Establishment of codes of conduct, and industry self-regulation to 
enforce these codes, are in no way contrary to the goals or principles 
of antitrust law. The purpose of antitrust law is to protect consumers 
by ensuring that members of industry engage in vigorous competition in 
the price and quality of goods and services. This exemption will not 
affect competition in the slightest. Indeed, these codes of conduct 
will benefit consumers by ensuring that industry will clean up its act 
and keep objectionable material out of the hands of youngsters.
    But we should not stop with this one measure. Surely marketing 
violent or sexually explicit entertainment to children in violation of 
industry codes is a deceptive trade practice in violation of the FTC 
Act. The video game makers, for example, have adopted a code 
prohibiting marketing to underage consumers. But some of these very 
same manufacturers repeatedly ignore their own code. In fact, the FTC 
found that 91 percent of the video game companies surveyed targeted 
males under 17 in advertising campaigns for violent M-rated games. We 
should not tolerate such dishonest conduct by these companies. 
Therefore, Senator DeWine and I today have written to Chairman Pitofsky 
calling on the FTC to investigate and prosecute companies for deceptive 
trade practices whenever they violate their codes of conduct by 
deliberately marketing this material to children.
    From our movies to our popular music, from TV to video games, 
American society is awash in a glut of violent and lurid images. Sadly, 
many in the entertainment industry often have little or no hesitance to 
market this inappropriate material to our youth. The time has come now 
to do more than merely denounce this behavior--though denounce it we 
should. We can and should take sensible action--by granting the 
industry an antitrust exemption to enforce voluntary codes of conduct 
and by prosecuting those who violate these codes for deceptive trade 
practices--to do all we can to keep our children safe from violence, 
both on our streets and in the media.

    The Chairman. Thank you, Senator.
    Senator Brownback has been held up in a markup, as well. He 
was our first witness. So we will turn to our second witness, 
the Honorable Robert Pitofsky, Chairman of the Federal Trade 
Commission.
    Prior to his 1995 nomination to Chair the FTC, Chairman 
Pitofsky was a Professor of Law at Georgetown University Law 
Center. He is a person I greatly respect, and we really look 
forward to hearing your testimony today, Mr. Pitofsky.

  STATEMENT OF HON. ROBERT PITOFSKY, CHAIRMAN, FEDERAL TRADE 
                   COMMISSION, WASHINGTON, DC

    Mr. Pitofsky. Thank you very much, Mr. Chairman and members 
of the committee. I am pleased to be here once again discussing 
an antitrust question, this time the relationship between 
antitrust and self-regulation. And I am particularly pleased 
because it was this committee and so many members like Senator 
Hatch, Senator Leahy, Senator Kohl, among others, who have been 
so supportive of the FTC's project in this area from the very 
beginning.
    The issue the Commission has been asked to address today is 
whether discussion or implementation of a rating system for 
violent entertainment materials and associated directions to 
its members not to market these products in ways that are 
inconsistent with rating systems could raise serious antitrust 
problems.
    Let me start where the Commission report on violent 
materials ended. The right approach here, if at all possible, 
is industry self-regulation because of the important First 
Amendment considerations that are involved here.
    In Appendix K of our report, the Commission took the 
position that if self-regulation is sensibly designed and 
implemented, there should be no antitrust problem. Problems 
could only arise if the self-regulatory program, the system, 
were a cloak or camouflage to achieve an anti-competitive 
effect, for example, to keep new players out of the 
marketplace. We reviewed thousands of documents in the course 
of our study and we never found any evidence whatsoever that 
that had been the goal or the effect of this regulatory 
program.
    The question then is what could the antitrust problems be. 
With respect to the rating system itself, it simply provides 
information to parents and others about the nature and level of 
violence in entertainment materials, and they are free to use 
the information as they see fit. Scores of industries in this 
country rate their products, usually as a matter of safety, but 
no serious antitrust questions are raised if it is a legitimate 
rating system and not designed to be anti-competitive.
    With respect to a possible restriction on marketing that is 
inconsistent with the rating, that too is highly unlikely to 
have a serious anti-competitive effect. At its core, antitrust 
is concerned with effects on price, on output, on innovation. 
That doesn't appear to be the purpose in any respect of these 
rating systems.
    Also, this is a rating system that is grounded in a policy 
frequently adopted by Congress, by State legislatures, by the 
courts that treat young people as special and give them 
protection against over-reaching marketing behavior.
    The Commission violence study noted that self-regulation, 
to be effective, requires some sort of sanction. And, arguably, 
sanctions begin to move closer to the line where antitrust is 
an issue, but the first question I would ask is what sanctions 
are we talking about.
    In other industries, sanctions have included publishing the 
names of companies that do not abide by industry regulations, 
denial of a seal of approval, or even expulsion from the 
association. But I don't think those sanctions would be an 
antitrust problem. It would only be an antitrust problem if the 
company needed the membership or the seal of approval to stay 
active in the marketplace. And if that is not the case, then I 
don't think that history would indicate that antitrust would be 
involved because it is hard to see how the sanction would have 
an anti-competitive effect.
    It doesn't appear that seals of approval are necessary to 
compete here. I would add, however, that the program would be 
even more invulnerable to challenge if there were some 
procedural regulations, like notice and hearing, so the target 
of the regulation would have some opportunity to argue that the 
rating system was inappropriate.
    It is only if the sanction moved in the direction of 
industry-wide boycotts of those who did not go along with self-
regulation rules, including possible boycotts of retailers, 
than antitrust concerns do begin to arise. But I have no reason 
to believe that boycotts are the direction that these 
industries are inclined to take.
    I should add, as the chairman mentioned, that there are 
some older cases that cast a shadow from antitrust on self-
regulation--the NAB case, Professional Engineers. I think they 
are either distinguishable from what these industries are doing 
or are inclined to do. And several of these cases I just don't 
think would be decided the same way today. The courts are much 
more generous toward self-regulation from the point of view of 
antitrust than they were, say, 40 or 50 years ago.
    Let me conclude. There are many self-regulatory programs in 
effect in this country. The advertisers have an excellent 
program; funeral directors, the direct marketers, among many 
others. Antitrust enforcement officials have never challenged 
any of those for an anti-competitive effect.
    If self-regulators in the music, movie, and video game 
industries are nervous about the issue, they could ask for an 
advisory opinion from my agency, as the direct marketers did 
just 2 or 3 years ago, and we gave them an advisory opinion 
saying their self-regulatory program was not anti-competitive. 
One of the advantages of that is theindustry submits a specific 
program and a Government agency approves or disapproves it. Therefore, 
you don't run the risk of an exemption that covers too much.
    The three entertainment industry sectors that we have 
discussed have already introduced self-regulatory programs and 
they weren't worried at that time about antitrust. We have seen 
that in many respects those programs are not effective. I don't 
see how making those programs effective raises serious 
antitrust questions.
    Now, I do want to address this question. Maybe the industry 
doesn't need an antitrust exemption, but what is wrong with 
granting one? I mean, after all, maybe they will rest easier 
knowing they don't have an antitrust threat.
    There are several problems. One is--and it has already been 
suggested this morning--we ought to be careful about giving out 
antitrust exemptions.
    Senator Feinstein. Could you speak directly into the 
microphone, please, so we can hear you?
    Mr. Pitofsky. Oh, I am sorry.
    Senator Leahy. In fact, repeat that last one. [Laughter.]
    Mr. Pitofsky. Yes. I want to underscore the point that 
antitrust exemptions are frowned upon, and I think we should be 
careful about giving them out if it is not necessary.
    Second, my sense is that the industry is ready to move on 
improving their own self-regulatory programs. And I would hope 
that any suggestion that they need an antitrust exemption 
doesn't lead to delay in their implementing reforms that I 
think are necessary.
    Finally, it is very hard to construct an antitrust 
exemption that covers exactly what you want and goes no 
further. However, if the exemption could be introduced 
promptly, if it could be carefully tailored--and I am sure this 
committee would do exactly that--then I still don't think it is 
necessary, but I can't really oppose an exemption. I don't 
think it would do any harm, and it is possible that there are 
people in the industry who would move more promptly toward 
self-regulation if they weren't worried about antitrust. They 
don't have anything to worry about, but I can see where they 
might be concerned.
    Thank you, and I would be glad to answer questions.
    The Chairman. Thank you, Mr. Pitofsky. If I could have you 
delay for questions to take Senator Brownback's statement, you 
can stay right there.
    Senator Brownback, why don't we take your statement at this 
time and then we will turn to Mr. Pitofsky for questions that 
all of us have. We are happy to welcome you, Senator Brownback, 
a good colleague and friend, and certainly a leader in trying 
to do what is right in keeping our society in somewhat of a 
protected mode for children and people who are vulnerable.
    Senator Brownback.

STATEMENT OF HON. SAM BROWNBACK, A U.S. SENATOR FROM THE STATE 
                           OF KANSAS

    Thank you very much, Mr. Chairman and members of the 
committee. It is a pleasure to be here with you. I appreciate 
your leadership and work on this topic.
    Mr. Chairman, I just want to note for you that the 
conclusions of the report that came out last week were 
considered by many to be common sense. Indeed, when I went home 
this past weekend, people were asking well, what was the real 
news here? They all knew from hard personal experience that the 
entertainment industry was targeting their kids to push 
entertainment that they, the parents, thought inappropriate.
    We see that Hollywood has been making a killing off of 
marketing violence to children. The FTC study--and I want to 
commend Chairman Pitofsky for this--was excellent. The report 
noted that in popular music, a hundred percent of the albums 
that carried a parental-advisory sticker were marketed directly 
to children. We have problems, as well, in the movie and video 
games industry. This is not just irresponsible marketing, it is 
a public health concern.
    We now have six major public health organizations that have 
said that exposing kids to violent entertainment causes 
increased aggressive behavior among some children. The American 
Academy of Pediatrics, child psychologists, the AMA, and three 
others have all signed that document. This is a public health 
concern.
    One step we need to take to ensure that the industries can 
enter into a code of conduct. I have previously introduced 
legislation, S. 2127, the Children's Protection Act, that would 
provide a very limited antitrust exemption that would enable, 
not require, companies to do just that.
    This is an important step and one that we can take 
immediately. There is broad support for such a code of conduct. 
Indeed, the provisions of S. 2127 were passed as an amendment 
to the juvenile justice bill, which passed by a vote of 98 to 0 
last year.
    Paving the way for the entertainment industry to adopt a 
code of conduct is a good idea, but it is not a new one. I have 
modeled my legislation after the old National Association of 
Broadcasters' code of conduct which was in effect for 3 
decades, until questions were raised about whether it violated 
antitrust laws. That is when that codewas done away with when 
those questions were then raised. The Children's Protection Act would 
provide a limited antitrust exemption to enable companies to either 
revive the old NAB code or to formulate and implement a code of their 
own.
    There are several reasons why we need a code of conduct, 
and why we should provide a limited antitrust exemption to make 
such codes possible. First, given the enormous power that 
entertainment companies wield, it is only right that parents 
and consumers should know what their corporate standards are. 
S. 2127 would encourage entertainment companies to define their 
standards, what they will and will not do, what scenes they 
will or will not show, and how low they will go. The public has 
a right to know this, and entertainment companies have a 
responsibility to tell them.
    Second, providing an antitrust exemption to enable a code 
of conduct will not only help inform parents and consumers, but 
by doing so it will hold the entertainment industry 
accountable. Parents will have a written code by which to judge 
movies, music, television, and video games, and be empowered to 
demand that companies live up to their professional standards.
    Last, enabling a code of conduct acknowledges the reality 
that the entertainment industry wields great power, and 
therefore bears some corporate responsibility for the products 
they produce, promote, and peddle.
    There are other steps we should consider, including many of 
the FTC's recommendations, but a rush to legislation is not one 
of those.
    Mr. Chairman, I have worked with the entertainment industry 
and talked with them and pushed them on this issue for several 
years since I have been in the Senate. I have tried to 
encourage them to put forward better products that don't 
directly target market violence and vulgar material to 
children. I have met with resistance all along the way. There 
have been a number of people within the industry that say: we 
want to produce better products, but we have got to get more 
edge to the product because we are aiming at that 18-to-24 male 
audience. We are using, they were saying in some cases, the sex 
and violence to get them hooked into the television and hooked 
into watching or playing the video game or listening to the 
music.
    I think this legislation will empower the industry to do 
what it wants to do, produce a higher-quality, better product 
that people that are working in that business--the writers, the 
directors, the producers, the actors, the technicians--can go 
home at night feeling good about.
    We need to provide this limited antitrust exemption so that 
people within the industry will set standards and self-
regulate. By removing the barriers to self-regulation, 
entertainment executives will be free to clean up their act--
and be accountable to consumers and parents if they fail to do 
so.
    So I would urge the committee to pass this limited 
antitrust exemption. I would hope we could move it to the floor 
and through this Congress, as well. Mr. Chairman, thank you 
very much for allowing me this privilege to testify.
    The Chairman. Thank you, Senator Brownback. We know your 
time is valuable and we won't keep you any longer, but we 
appreciate you coming.
    Senator Brownback. Thank you.
    [The prepared statement of Senator Brownback follows:]

              Prepared Statement of Senator Sam Brownback

    Mr. Chairman, I want to thank you for holding this hearing, and 
giving a public airing to a most important public issue. When I 
introduced legislation last year, along with several of my colleagues 
here today, to authorize this FTC report, I did so because the 
anecdotal evidence was overwhelming that violent, adult-rated 
entertainment was being marketed to children. It's been said that much 
of modern research is the corroboration of the obvious by obscure 
methods. This study does corroborate what many of us have long 
suspected--and it does so unambiguously and conclusively. It shows, as 
FTC Chairman Robert Pitofsky noted, that the marketing is ``pervasive 
and aggressive.'' It shows that Hollywood is making a killing off of 
marketing violence to kids.
    The problem is not one industry, but can be found in virtually 
every form of entertainment: movies, music, and video and PC games. 
Together, they take up the majority of child's leisure hours. And the 
messages kids get, and images they see, often glamorize brutality, and 
trivialize cruelty.
    Take, for example, popular music. The FTC report found that 100 
percent! of the stickered albums they surveyed were target-marketed to 
kids. This is both troubling and fairly predictable: troubling in that 
hyper-violent, misogynistic, and racist lyrics are target-marketed to 
young kids--mostly young boys--whose characters, attitudes, 
assumptions, and values are still being formed, and vulnerable to being 
warped. And predictable in that there are few fans of such music that 
are over 20.
    Movies are equally blatant in their marketing to kids, and 
appalling in their content. Movies have great power--because stories 
have great power. When that power is used responsibly, it can edify, 
uplift, and inspire. But all too often, that power is used to exploit. 
I've seen some movies that are basically two-hour long commercials for 
the misuse of guns.
    The movie industry has had the gall to target-market teen slasher 
movies to child audiences--indeed, the report notes that some movie-
makers used kids as young as ten in focus groups for R-rated movies. 
They then claim that parents bear total responsibility, even as they 
deliberately do an end-run around parents, and make it harder for them 
to make decisions. Of course parents bear primary responsibility in 
policing what their children watch--but that doesn't mean that 
entertainment companies bear no responsibility at all. Moreover, 
entertainment companies cannot simultaneously claim that it is a 
parent's duty to make informed choices, and then make it as difficult 
as possible for them to do so.
    Or take video games. When kids play violent video games, they do 
not merely witness slaughter, they engage in virtual murder. Indeed, 
the point of what are called ``first person shooter'' games--that is, 
virtually all M-rated games--is to kill as many characters as possible. 
The higher the body count, the higher your score.
    Common sense should tell us that positively reinforcing sadistic 
behavior, as these games do, cannot be good for our children. We cannot 
expect that the hours spent in school will mold and instruct a child's 
mind but that hours spent immersed in violent entertainment will not. 
We cannot hope that children who are entertained by violence will love 
peace.
    This is not only common sense, but a public health consensus. In 
late July, I convened a public health summit on entertainment violence. 
At the summit, we released a joint statement signed by the most 
prominent and prestigious members of the public health community--
including the American Medical Association, the American Academy of 
Pediatrics, the American Psychological Association, the Academy of 
Family Physicians, the American Psychiatric Association, and the 
Academy of Child and Adolescent Psychiatrists. This statement 
concluded:
    ``Well over 1000 studies * * * point overwhelmingly to a casual 
connection between media violence and aggressive behavior in some 
children. The conclusion of the public health community, based on over 
thirty years of research, is that viewing entertainment violence can 
lead to increases in aggressive attitudes, values and behaviors, 
particularly in children.''
    There is no longer a question as to whether exposing children to 
violent entertainment is a public health risk. It is--just as surely as 
tobacco or alcohol. The question is: what are we going to do about it? 
What does it take for the entertainment industry, and its licensees and 
retailers, to stop exposing children to poison? And why do see so 
little concern, and so much defiance, from an industry deliberately 
harming kids to make a buck? What can be done to encourage them to 
clean up their act--without resorting to any measure that restricts 
free expression?
    The first step we need to take is to ensure that these industries 
can enter into a code of conduct. Consumers and parents need to know 
what their standards are--how high they aim, or how low they will go. 
I've introduced legislation, S. 2127, that would provide a very 
limitedanti-trust exemption that would enable (not require) companies 
to do just that.
    This is an important step, and one we can take immediately. There 
is widespread support for such a code of conduct; indeed, the 
provisions of S. 2127 were passed as an amendment to the Juvenile 
Justice bill by a vote of 98-0. And the President's Advisory Commission 
on Public Interest Obligations unanimously called for a re-adoption of 
the code of conduct.
    Paving the way for the entertainment industry to adopt a code of 
conduct is a good idea, but is not a new one. I have modeled my 
legislation after the old the National Association of Broadcaster's 
Code of Conduct, which was in effect for three decades, until the early 
1980s, when questions were raised about whether it violated anti-trust 
rules. The Children's Protection Act would provide a limited anti-trust 
exemption to enable companies to either revive the old NAB code, or to 
formulate and implement a code of their own.
    There are several reasons why we need a code of conduct, and should 
provide a limited anti-trust exemption to make such codes possible:
     First, given the enormous power that entertainment 
companies wield, and their insistence that parents and consumers bear 
responsibility for their choices, it is only right that parents and 
consumers should know what their standards are. S. 2127 will 
encourage--without requiring--entertainment companies to define their 
standards--what they will and will not do, what scenes they will or 
will not show, and how low they will go. The public has a right to 
know. And entertainment companies have a responsibility to tell them.
     Second, providing an anti-trust exemption to enable a code 
of conduct will not only help inform parents and consumers, but by 
doing so, it will hold the entertainment industry accountable. Parents 
will have a written code by which to judge movies, music, TV and video 
games, and be empower to demand that companies lives up to their 
professed standards.
     Third, enacting a limited-trust exemption will enable far 
more broad-reaching voluntary agreements than are now possible. 
Although the video game industry has a code of conduct, for which I 
commend them, the FTC report concludes that is not well-known, 
certainly not well-followed, and definitely not enforced. Enacting an 
anti-trust exemption takes away any reason for industries to avoid 
enacting codes of conduct that include the cooperation of retailers, 
and promoters, as well as producers, and to enforce them.
     Last, enabling a code of conduct acknowledges the very 
simple reality that the entertainment industry wields great power, and 
therefore bears some corporate responsibility for the products they 
produce, promote, and peddle.
    There are other steps we should consider--including many of the 
recommendations made by Chairman Pitofsky and the FTC in their report--
but a rush to legislation is not one. Hollow threats may score 
political points, but won't do much good. Frankly, imposing six-month 
deadlines on an industry one is actively fleecing for money is unlikely 
to bring about lasting reform. We need to encourage responsibility and 
self-regulation. We need a greater corporate regard for the moral, 
physical and emotional health and well-being of children.
    Ultimately, what we need is what Edmund Burke called ``obedience to 
the unenforceable.'' Whatever we do in the Senate, there will be ways 
for this multi-billion dollar industry, with all of its brigades of 
lobbyists and lawyers, to find a loophole. We do need to take steps to 
encourage greater self-regulation and self-restraint on the part of the 
entertainment industry. But we need to change minds even more than 
laws.
    Appealing to conscience and reason, finding ways to better inform 
and empower parents, and enabling long-standing and hard-hitting public 
pressure for greater corporate responsibility is difficult work--it 
takes time, effort, and offers little short-term political rewards. But 
it is the best way to keep children protected, parents empowered, and 
speech free.

    The Chairman. Let me turn to you, Mr. Pitofsky. Now, 
Senator DeWine has an opening statement, but he has kindly 
deferred until after we question you so that you don't have to 
stay here longer than necessary. I have just a couple of 
questions to ask you.
    You noted that you do not believe that the antitrust 
exemption is needed to allow the entertainment industry to 
develop responsible codes of conduct which include means of 
enforcement. Yet, in the report you released last week, the 
Commission acknowledged that, ``some industry members have 
raised concerns that collective action to restrict youth access 
to rated or labeled products would violate the antitrust 
laws.'' Now, this is not new. These concerns have been 
expressed by members of the industry in the past, and sometimes 
with glee. The report also concludes that an effective solution 
requires, ``mechanisms to ensure complianc.''
    Could you first elaborate for us why you don't believe a 
collaborative effort by the industry to develop a voluntary 
system and have an effective mechanism to ensure compliance 
would not violate the antitrust laws? And then I would like to 
know what objection the Commission, or anyone for that matter, 
could have to a limited exemption which makes clear that such 
actions would not subject the industry to antitrust liability 
from the Government or from an opportunistic private plaintiff.
    Mr. Pitofsky. Senator, I want to be clear about this. I 
don't think antitrust problems are raised generally, but that 
depends a little bit on what sanction the industry chooses to 
impose. And if the sanction were something along the lines of a 
boycott, for example, that the producers of movies or of music 
were to say with respect to a retailer, you are not doing the 
job that we require you to do, we are not going to sell our 
product to you, then we do have an antitrust concern.
    The Chairman. That is a good reason to have this.
    Mr. Pitofsky. I know that the bill that you have proposed 
has an exception to the exemption, that there will be an 
antitrust exception, but not for boycotts. So if there is to be 
a bill, I think it is very important that it be designed along 
the lines that you have already suggested.
    If there is no boycott issue involved and it is not a 
camouflage for some anti-competitive scheme--and really there 
is no reason to think that that is what these companies are up 
to here--then I certainly think they don't have a problem, in 
my view. I would advise them that they don't have a problem.
    If they think they have a problem, they could ask for an 
advisory opinion. That is what the direct marketers did. We 
gave them an advisory opinion fairly promptly, I think, which 
relieved their minds of any concern. However, if the exemption 
is narrowly tailored and if it can be introduced promptly so 
there is no delay, then I agree with the implication of your 
question, what harm is being done here, other than my concern 
that giving out antitrust exemptions generally is not a good 
idea.
    The Chairman. Well, I share that concern.
    Now, we will hear from a number of our witnesses who have 
expressed concern over possible anti-competitive conduct which 
may occur as a result of the industry's voluntary code of 
conduct. The concerns relate to the possibility that content 
producers such as movie studios and record companies could 
possibly engage in an illegal boycott of a retailer whom they 
conclude has not complied with the labeling or rating system 
which they have instituted. As I understand it, such action, 
unless affecting output or price to the consumer, would not 
appear to violate the antitrust laws. I hope I am right on 
that. If I am not, I will stand corrected.
    Could you put these anti-competitive concerns in context 
for us? You stated in your testimony that you submitted today 
that appropriately structured collective action appears 
unlikely to violate Federal antitrust laws. Can you provide 
more details on such, ``appropriately structured collective 
actions,'' and specifically address the anti-competitive 
concerns raised?
    Mr. Pitofsky. Let me try to make this more concrete. 
Suppose you had a retail chain selling CD's, selling music at 
less than the suggested retail price, and the producers of 
music were very unhappy about that. What they might do is cut 
off the price-cutter and then claim that the reason they are 
doing it is the price-cutter isn't paying any attention to the 
self-regulatory scheme. That is where the antitrust laws would 
kick in.
    If the exemption is so broad as to allow that kind of 
behavior, then the exemption is a bad idea. But you have 
anticipated that by having an exception to your exemption which 
would not cover boycotts, and I think that is well designed and 
appropriate. So like every exemption, one worries that it will 
be used to cover conduct that is not really designed for some 
worthy purpose but is used as a cloak for some kind of anti-
competitive behavior.
    I hope I have answered your question.
    The Chairman. Well, thank you. You have been very helpful.
    Let me turn to our ranking member.
    Senator Leahy. Thank you, Mr. Chairman.
    You know, we have debated the need and usefulness of 
antitrust immunity for parts of the entertainment industry for 
years. I recall--and Senator Biden and Senator Hatch were on 
the committee at the time--the efforts of Senator Paul Simon in 
the 1980's to pass an antitrust exemption for TV broadcasters, 
and it became law, I think, from 1990 to 1993.
    When that sunsetted, the Justice Department issued opinions 
in 1993 and 1994 that really echo the position that you have 
taken, Mr. Chairman, namely that no antitrust exemption is 
necessary for the creation and operation of a rating system for 
products that are inappropriate for children or for the 
enforcement of such a rating system, enforcement against other 
manufacturers and retailers of such products.
    Are you aware of any incidents where concern over antitrust 
liability has stopped any particular entertainment company from 
participating in or enforcing a rating system?
    Mr. Pitofsky. I have heard remarks indicating apprehension, 
but I am not aware that anyone has declined to adopt a self-
regulatory system because of antitrust concerns.
    Senator Leahy. Well, since self-regulatory systems that are 
designed to protect children would be acceptable and legal 
under the antitrust laws, as I understand it, as a reasonable 
restraint on trade, do you have any concern that a grant of 
antitrust immunity would only be necessary to shield 
unreasonable steps from antitrust scrutiny?
    Mr. Pitofsky. Well, that is exactly the point. I don't 
think they need it, and it might end up being used in such a 
way as to at least arguably protect behavior that we don't want 
to see protected. We want the rating code, but we don't want 
the other behavior.
    Senator Leahy. After we passed the juvenile justice bill--
and there are two antitrust exemptions in there that are part 
of the Brownback-Hatch amendment--I said at the time when that 
was going through that I was concerned about the breadth of the 
exemption, but that we would look at it in conference. It 
turned out we haven't had a conference.
    The Justice Department raised a concern that the 
exemptions, ``would raise difficult constitutional questions 
and would be vulnerable to constitutional challenge.''
    Mr. Pitofsky, I won't take up your time now, but I am 
wondering if you could have your staff review this Justice 
Department analysis--I will get it to you to see if you have 
the same sense.
    The Brownback-Hatch amendment to S. 254, the juvenile 
justice bill, would give broad antitrust immunity to a 
consortium of industry members. They may refuse to sell their 
products to certain retailers, including those retailers who 
market the products of other manufacturers that are not part of 
the consortium. The Justice Department pointed out that this 
would restrict the ability of manufacturers outside the 
consortium to distribute their own movies and videos and 
records, and could stifle their speech in the marketplace.
    Have you looked at that at all?
    Mr. Pitofsky. Yes, I have.
    Senator Leahy. And what did you think on it?
    Mr. Pitofsky. Well, I read the Department of Justice's view 
on the constitutionality of an antitrust exemption. I then read 
Professor Cass Sunstein's analysis that comes to an opposite 
conclusion, and what I decided was that is a very close call 
and that you probably wouldn't know the answer to that until 
the Supreme Court passed on it.
    Senator Leahy. There was a suggestion here a bit earlier 
perhaps--this is really not a question from me, this is more an 
observation of mine that Vice President Gore and Senator 
Lieberman, in criticizing an industry which they have also 
supported, as many of us have, may not be being totally 
forthright.
    Governor Bush was paid over $100,000 as a member of the 
board of directors of a company that produced dozens of R-rated 
movies, slasher movies, but I don't think that makes him a bad 
man or a bad parent. From everything I have seen, he seems to 
be a very good parent. Or the tens of thousands of investors 
who invested in that--I don't think they are bad people either.
    I think we ought to be very clear that neither Vice 
President Gore nor Governor Bush are bad people or bad parents. 
I will certify right here that from everything I know about 
them, they are good people and they are good parents, and 
apparently good investors, too.
    But I would still go back to my other point. I think we 
could do more in making some basic changes in the rating 
systems. It is not enough to say that PG-13 where a whole lot 
of people get murdered is OK, or an R that may be is a love 
story is not. I think what we should have at least some kind of 
a synopsis that gives parents some idea of what they are going 
to see and then let parents make some choices, because again 
ultimately I am not going to vote for something that is going 
to have us tell parents how they must decide what their 
children can see or read. I mean, some parents have some books 
they don't want them to read and other parents might think it 
is very good. And I don't think we could if we wanted to.
    I also would emphasize again that the best way of parents 
enforcing the ratings they want or what they want is with their 
wallet. If I don't like a movie, I don't go to see it. If I 
don't like a TV program, I don't turn it on. I vote that way, 
and maybe more of us should do that.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    We will turn to Senator Grassley.
    Senator Grassley. I have three questions. I would like to 
quote from your written statement. ``The Commission found 
evidence of marketing and media plans that expressly target 
children under 17.'' Do you mean by this comment that the 
entertainment companies that you reviewed had the specific 
intention of marketing violent material directly to minors, or 
is it just that these companies adopted marketing plans which 
had the effect of attracting minors to the product containing 
violence?
    I ask the question because I think there is a difference 
between marketing to young adults which also happens to affect 
minors, and marketing aimed at minors, since adults are more 
likely to be more discriminating.
    Mr. Pitofsky. I think both were the case in the documents 
that we saw. I can't quote it exactly, but there was one 
document that said our goal is to see to it that every young 
person from 12 to 18 sees this movie. That is intent, as far as 
I am concerned. Many of the other documents are really the 
other kind that you described. They talk about a marketing plan 
in magazines that have a very high percentage of young people, 
or on MTV which we all know has a high percentage.
    So, many of them had the effect of inducing young people to 
see their movies or buy their products. But also a considerable 
number clearly indicated intentional target marketing of an 
inappropriate audience, inappropriate according to their own 
rating.
    Senator Grassley. In your written statement, again 
referring to that, you discuss how the industry can impose 
discipline on industry participants who don't comply with the 
rules, such as not selling or marketing content labeled for 
adults to minors.
    Are there currently industry codes which prohibit the sale 
or marketing of violent material to minors? And if so, have 
these disciplinary powers ever been used to punish bad actors?
    Mr. Pitofsky. Let me check on that one, Senator.There 
certainly are codes which prevent marketing to minors. For example, the 
alcohol industry has a code that covers that. Whether there is any code 
around that talks about violent materials marketed to minors, I simply 
don't know, but I can get back to you on that.
    Senator Grassley. In a written response. Thank you.
    Then I would ask my last question on something that Senator 
Hatch has already brought up, but I would like to be more 
specific. One of the witnesses that will follow you has 
expressed concerns in his written testimony about creating an 
antitrust exemption for the entertainment industry. 
Specifically, he has concerns that an exemption would 
effectively give the manufacturers of entertainment products a 
monopoly over movie and video game rating systems, an exemption 
would hamper the first sale doctrine, and an exemption could 
seriously weaken competition at the retail level.
    Do you have concerns about that, or whether or not that 
testimony would raise a valid concern?
    Mr. Pitofsky. Well, I mentioned the possibility that an 
exemption could be used to weaken competition at the retail 
level. I think, however, that a carefully tailored exemption 
could address that, as this exemption now does, by taking 
boycotts--if you are going to go this route, maybe we ought to 
take all per se antitrust violations, like price-fixing, market 
division, boycotts, and say with respect to those we don't mean 
that is an exemption from the antitrust laws, only the rating 
code and a provision that says the product should be marketed 
in a way that is consistent with the rating code. I think you 
would want to be careful to take into account what that witness 
will testify to, and that is that an exemption could be misused 
at the retail level.
    Senator Grassley. Thank you very much.
    The Chairman. Let me just clarify one point with respect to 
the antitrust exemption proposal. The group boycott exception 
does not apply to section 405. I believe to have effective 
enforcement, you must allow for a limited group boycott. But as 
you have pointed out, we would not intend to allow producers to 
use a sham excuse to limit sales to a retailer who is pro-
competitive.
    What would be the problem with the boycott of a retailer 
who routinely violates the industry's own code and sells an 
unstable product to the minor?
    Mr. Pitofsky. The problem would be--and we have seen this 
sort of thing--that they claim they are enforcing their self-
regulation against someone that is not abiding by the code, and 
really what they are doing is cracking down on a retailer who 
is unduly aggressive in marketing, and it is hard to tell the 
difference. That is where the problem is.
    The Chairman. Thank you.
    Senator Kohl, you are next.
    Senator Kohl. Chairman Pitofsky, today Senator DeWine and 
myself are sending a letter requesting that you examine whether 
entertainment companies engage in a deceptive trade practice 
when they violate their own codes of conduct by marketing 
violent or otherwise inappropriate entertainment to minors.
    Can we expect you to answer this inquiry within 30 to 60 
days?
    Mr. Pitofsky. Yes, I believe we can do that.
    Senator Kohl. Furthermore, if you find a deceptive trade 
practice, will you commit to bringing an action in court 
against companies that violate their own code of conduct?
    Mr. Pitofsky. Yes, I think we should, yes. If we have the 
authority to challenge that kind of behavior, if it is a 
violation of law, certainly we would bring an action.
    Senator Kohl. Well, then doesn't it follow that we have a 
very fruitful avenue here of trying to alleviate this problem 
by first doing whatever it is we need to do to encourage the 
industries to develop a code of conduct, however we encourage 
them to do that, and once that code of conduct is in place, 
then the Federal Trade Commission has an ability to implement 
the code of conduct if necessary by going to court?
    Mr. Pitofsky. Senator, I am not sure we do under present 
law. We have never brought a case like that. We have never 
brought a case challenging as deceptive or unfair the marketing 
of a product in a way that is inconsistent with their own code. 
We are looking at that. It does have a feel of deception or 
unfairness about it, but I would like some time to think 
through whether or not we are over-reaching in that area.
    And I have said from the very beginning that my hope is 
that self-regulation is really going to be the first line of 
defense in this area. But if it doesn't work out, then we will 
have to think about litigation, and perhaps we can do that 
under existing law.
    Senator Kohl. Obviously, we are hopeful that the Federal 
Trade Commission can be very useful in trying to alleviate the 
problem, or we wouldn't be talking to you today. I don't know 
whether I am reading you as being encouraging in your ability 
to help us or discouraging or trying to straddle the fence.
    I thought I heard you say a minute ago that you would 
believe that you could bring a deceptive trade practice against 
a company that violated their own codes of conduct signed with 
other companies.
    Mr. Pitofsky. Let me be clear.
    Senator Kohl. Did you say that?
    Mr. Pitofsky. Let me be clear. Step one: do we have the 
authority to crack down on companies that market in a way 
inconsistent with their regulations? Maybe I am straddling. I 
would like some time to think that one through, and I have 
asked the staff to give the Commission, my colleagues and 
myself, a formal report on that. If we have the authority, then 
I don't have any reservation about enforcing the law in a 
situation like that.
    Senator Kohl. The law would be a violation of their own 
codes of conduct?
    Mr. Pitofsky. Yes, which in turn would be a violation of 
section 5 of our statute.
    Senator Kohl. So I take it from that that you would lead us 
to be encouraged this morning.
    Mr. Pitofsky. Well, I am trying to duck; I am trying to 
duck very hard here. [Laughter.]
    We will have a report in 30 to 60 days, and I assure you 
that we will answer these questions.
    Senator Kohl. Do us a favor and don't make this, ``just 
another hearing.'' Thank you.
    Senator Biden. Could I ask a clarifying point?
    Mr. Pitofsky. Sure.
    Senator Biden. In terms of the code of conduct, wouldthe 
violation lie in violating their code or would the violation lie in 
violating what they said the record said? If the record has a label 
that says ``no violence'' and there is violence in it, or ``no sexually 
explicit language'' and there is sexually explicit language, I can 
understand that being a deceptive trade practice. They have said one 
thing and sold something else.
    Is that what you guys are talking about, or are you talking 
about the code? They violated the code, not what they said on 
their product? Just a point of clarification.
    Mr. Pitofsky. Well, that is exactly where the issue is. 
Typically, advertisements for music or movies or video games 
don't say anything about the level of violence in the material. 
There may be a rating, a tiny little notice at the bottom of 
the ad. I am not sure if that is a material fraud right there.
    But in any event, yes, if they said this is for all 
audiences or there is no problem here, there is no violence, 
and then there was a lot of violence, that would be deceptive. 
But that is not your typical ad for these materials. That kicks 
you over to the question of whether or not it is somehow 
unfair, and unfairness has been interpreted more liberally when 
children or young people are the targets of the marketing 
behavior, whether that is the violation here.
    All I can say is we haven't brought that case in the past, 
and I want to be careful about suggesting that we could bring 
it in the future. If we can't bring it, as I said to Senator 
McCain last week, then I think perhaps legislation which makes 
that behavior an unfair trade practice if what ought to be 
considered; that is, if self-regulation doesn't work.
    The Chairman. Thank you.
    Senator DeWine.
    Senator DeWine. Thank you, Mr. Chairman. I did have an 
opening statement. Do you want me to give that now or do you 
want me to defer on that?
    The Chairman. Why don't you wait until he finishes and then 
we will turn to your opening statement?
    Senator DeWine. That will be fine.
    Let me ask you, if I could, to answer Senator Biden's 
question, I believe that what we are potentially talking about 
is both of what you were referencing. Either you violate the 
code, you say you are going to do one thing and then you just 
don't do it, and the question we have raised is, is that 
deceptive. The other is obviously more micro and it is probably 
an easier case to make, and that is that you label it one way 
and it is clearly something else. So I think the answer is 
both.
    Chairman Pitofsky, when Hilary Rosen, the President of the 
Recording Industry, testified before the Commerce Committee 
last week, she took exception with certain aspect of your 
Commission's report. She appeared to indicate that there were 
only three or maybe four instances where younger teen audiences 
were targeted to market products with explicit material. She 
also was of the opinion that the report demonstrated that the 
labeling and rating system was, in fact, adequate.
    I wonder if you could respond to that testimony.
    Mr. Pitofsky. Before I do, Senator, in my opening statement 
I acknowledged the support of many on this committee for our 
project, and I certainly want to mention your very strong and 
constant support for what we have done here.
    We did not set out to rate the rating systems. We weren't 
asked to do it and I thought it was beyond our mandate. As far 
as the music ratings system is concerned, speaking now only for 
myself, I do have some reservations about it. My principal 
reservation is that the rating is not done by an independent 
third party, but by the artists and their distributors. I think 
that is a matter of concern.
    On the other hand, I can hear the response of the music 
people that maybe it is the best way, maybe it is not, but 
people aren't complaining. And indeed we looked at the 
documents and people are not complaining about the rating that 
is applied to most music lyrics.
    As to how many instances where the music people overreached 
in marketing to young people, I don't know the answer to that. 
I can find out. I am pretty sure it is more than three or four.
    Senator DeWine. Mr. Chairman, Mr. Lowenstein, the President 
of the Interactive Digital Software Association, testified 
before the Commerce Committee that he strongly disagreed with 
the FTC's conclusions that game magazines, which the FTC 
concluded have a majority of under-17 readership, are not 
appropriate outlets for advertising M-rated games. His position 
was that because these magazines have a substantial share of 
older viewers, they are appropriate venues for advertising the 
kind of products at issue.
    Could you respond to that, please?
    Mr. Pitofsky. Well, I think there is a point at which the 
readership, the viewership is mainly adults, and we have no 
business depriving the company of an opportunity to market 
their products to the adults. Therefore, if it is 10, 15, 20 
percent kids, that is the price you pay in a free-market 
system. On the other hand, when the percentage of the market is 
51 percent kids, 60, 70 percent kids, then it seems to me 
troublesome.
    I would not like to see violent entertainment material 
broadcast on Saturday morning cartoon programs. That is the 
extreme example of that. Where you draw that line--is it 35 
percent, 50 percent, some other--that is a point that 
reasonable people can argue over. But there ought to come a 
point where there are so many young people in the audience that 
advertising to that audience is inappropriate.
    Senator DeWine. Thank you. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    Senator Feinstein.
    Senator Feinstein. Thanks, Mr. Chairman.
    Mr. Pitofsky, I read your report with great interest. I 
think beyond any doubt it establishes that the rating system is 
badly broken. The question now is what can be done to fix it.
    Giving the industry a limited antitrust exemption, 
carefully tailored, it seems to me is the kind of nudge that 
was spoken about in terms of saying, OK, industry, we are 
prepared to do this, now it is up to you to sit down together--
and this is difficult because it is a very fragmented 
industry--and try to overcome what is out there and see that 
the system is enforced and corrected.
    I was heartened to see that one large company did step 
forward, and that, of course, is the Disney company. Disney 
essentially said three things, as I understand. One, ABC, 
asubsidiary, will no longer accept advertising for R-rated movies in 
prime time before 9 p.m. in the evening. Second, Disney and its 
subsidiaries will not target audiences under 17 for R-rated movies. 
And, third, the company will provide additional information for parents 
about why a film has been rated R. I think these are very good first 
steps. I applaud Disney.
    I would like to know, in your professional evaluation, how 
far these steps go, and if they were replicated by all other 
filmmakers, whether that would be a substantial improvement.
    Mr. Pitofsky. They go a long way, and that would be a 
substantial improvement, absolutely. I am very admiring of what 
the Disney company did in this area.
    Let me just take one extra minute. There is an interesting 
aspect that you raise with your question. Most people are not 
only satisfied, but they approve the rating systems that are 
out there. If there is a criticism, it is the question of why 
something got that rating. They want more information.
    Therefore, if there is any criticism, it is, well, you gave 
it an R rating, but tell us if it is bad language, nudity, 
drugs, violence, sex. So the Disney people in moving in that 
direction, I think, have taken a very constructive step.
    Senator Feinstein. Thank you very much.
    Second, it is my understanding that the theater owners will 
not enforce the rating system. What can the industry do to 
require that level of enforcement? That would be somebody comes 
who is a juvenile, who is unescorted, and simply to make the 
decision not to sell a ticket to them, I would assume it means 
that the industry would have to hire someone in every theater 
to do just that.
    Mr. Pitofsky. Well, two questions there. What could be 
done? First of all, the movie owners, NATO, the National 
Association of Theater Owners, have taken the position that 
they will respect the rating system and they will improve their 
monitoring of young people buying tickets.
    Senator Feinstein. May I ask you just for clarification on 
that point, are they saying they will enforce it?
    Mr. Pitofsky. I am not sure they have said. No, I don't 
think they have. I don't think they have.
    Senator Feinstein. I intend to ask them when they are here.
    Mr. Pitofsky. It is hortatory. As a matter of policy, we 
want to move in that direction, but I don't believe there has 
been any suggestion that theater owners that essentially ignore 
their obligations under the NATO self-regulation program will 
be disciplined in any way.
    Self-regulation means self-regulation, and therefore I 
would like the industry to take the lead here. One of the 
mildest forms of sanction would be to simply publish the names 
of the theater owners who don't pay any attention to this rule. 
I think that could do a lot of good.
    Actually, I have the impression that more theater owners 
are checking age at the ticket booth before they will sell a 
ticket to a young person, but it is still around 50 percent, 46 
percent, 50 percent. They could do more, they could do better, 
and my hope is they would be willing to do so.
    Senator Feinstein. Let me ask a third question. It is my 
understanding that the youngsters at Columbine, the two 
youngsters that carried out the murders, were obsessed with two 
particular video games, which I am not going to name, spent 
hours watching them.
    What could be done essentially to encourage that industry 
to take some steps to clean up its act?
    Mr. Pitofsky. I suppose our main concern here is that those 
video games--and we have documents to indicate that--those very 
video games may very well have been marketed with a very young 
target audience in mind. I seem to recall documents talking 
about people who are 8, 10 and 12 years old. They ought to cut 
that out.
    But now I want to go back to what Senator Hatch said, 
Senator Leahy said. The Government can't control that kind of 
issue. In the end, parents are going to have to pay attention 
to what kind of video games their children are playing.
    Video games are not the sort of thing I ordinarily do, but 
I tried out the video games that we are talking about here and 
they are incredibly violent. But I think the obligation is on 
the parents to watch to see what their young people are doing, 
and for the industry not to be targeting young people with 
those particular video games after they said they ought to be 
available only for a mature audience.
    Senator Feinstein. Thanks very much, Mr. Pitofsky. Thank 
you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    If we could go to Senator Specter now.
    Senator Specter. Thank you, Mr. Chairman.
    Chairman Pitofsky, this hearing which focuses on the FTC is 
part of a broader effort by the Congress and others to find 
some answer to juvenile violence, and I commend Senator Hatch, 
the chairman, for the application of the antitrust laws, the 
FTC, and the Clayton Act dealing with unfair or deceptive 
practices.
    Looking at the issue before coming to the antitrust 
question more sharply focused, your comments are diplomatic 
where you say although scholars and observers generally agree 
that exposure to violence in entertainment media alone does not 
cause a child to commit a violent act, there is widespread 
agreement that it is nonetheless a cause for concern. I think 
you understate the issue when you later testify about the video 
games being very violent in and of themselves.
    One of the concerns that I have in seeking to get to the 
entertainment industry--movies, TV, records, video games--is to 
have a congressional view that there are many other components 
of the issue which need to be addressed. I have had a couple of 
meetings with Mr. Valenti. He was a very forceful spokesman for 
the movie industry. He has had a fair amount of experience at 
it.
    Our Appropriations Subcommittee on Health, Human Services, 
and Education funding put about $800 million last year into a 
program, and are now in the final stages of upping the ante to 
almost 1.2 billion, looking at a variety of problems such as 
character education, counseling in school, safe schools and 
drug-free schools, and the impact of the National Institute of 
Mental Health.
    We are going to be having a report from the Surgeon General 
in a few months which is going to look at the issues of 
violence in a broader context as to what we do about them. And 
my instinct is that if there is a broadercongressional view 
which identifies the violence problems as only one part of the issue 
that we may have reason to expect a little less reaction that the 
entertainment industry is being picked on and being singled out when we 
identify so many other causes. That remains in the broader picture of 
the Congress with other committees.
    But in focusing on the antitrust issues which are before us 
now--and there is talk about a limited antitrust exemption--I 
am always very leery about limited antitrust exemptions because 
it is very hard to anticipate the impact as to where they are 
going to go.
    We have a limited antitrust exemption for pro football, and 
pooling of receipts, and we have created a situation where 
cities are being subjected to blackmail to keep teams or bring 
teams. So when you talk about amending the antitrust laws with 
respect to exemptions, I am very leery of that.
    But you say, ``An antitrust problem would arise if the 
self-regulatory program was a cloak for an anti-competitive 
scheme and not truly designed to protect young people from 
inappropriate exposure to violent material.'' My question is do 
you think that is realistic, that if there were self-regulation 
it would be susceptible to being anti-competitive to keep the 
little guys out, so to speak?
    Mr. Pitofsky. Well, I certainly have seen absolutely 
nothing to indicate the rating system as of now has ever been 
used in an anti-competitive way. Could it be used in the 
future? Well, we have seen self-regulatory schemes that were 
used as a cloak to get at new entrants with innovative 
products, so it is possible.
    Senator Specter. Can you give us an illustration as to 
where you have seen that kind of an anti-competitive effect so 
that there might be some analogy to this situation?
    Mr. Pitofsky. Not a direct analogy, but the Supreme Court 
in Allied Tube. That is the leading case in this area. What 
happened was the raters, the regulators stacked the deck and 
got the group to agree that a particular product was unsafe. 
Their purpose was really not to protect consumers. Their 
purpose was to drive an innovator out of the market. It does 
happen.
    Senator Specter. Well, I understand that kind of a context, 
but I would have to see something which was much closer to this 
field to justify any antitrust exemption.
    Thank you for an excellent report, Mr. Chairman.
    The Chairman. Thank you, Senator.
    We have 3 minutes left. There has been an objection to any 
committee meeting raised on the part of the minority, any 
committee meeting beyond 11:30 a.m. So I am going to apologize 
to all of you in advance, but I want to give the remaining time 
to Senator Biden.

  STATEMENT OF HON. JOSEPH R. BIDEN, A U.S. SENATOR FROM THE 
                       STATE OF DELAWARE

    Senator Biden. Thank you. You turn to me because I am the 
most concise member of the committee, Mr. Chairman. My 
reputation is that. I have a lot of questions for Cass Sunstein 
and some Jack Valenti. I guess I am not going to get to ask 
them today.
    I will get right to it. Did your report in any way indicate 
whether or not the exposure of a manufacturer or a producer, a 
television show, a movie, a recording that was engaged in what 
some people would call predatory practices--that is, seeking to 
expose 12- to 16-year-olds to untoward material--that if you 
exposed who they were, if they were shamed, that it would 
increase their record sales or diminish their record sales?
    Was there any notion of what merely outing, if you will, 
the bad guys would have on their performance?
    Mr. Pitofsky. No, no finding on that.
    Senator Biden. One of the things, it seems to me--and I 
realize I am not going to get a chance to ask my questions, so 
I will just make a statement. My mom, a pretty smart woman, 
wondered here in this why the industry just doesn't do what 
doctors don't do enough and lawyers don't do enough and just 
point to the bad guy, just say, hey, look, there is xyz 
company, they are deliberately trying to peddle this stuff to 
12-year-olds.
    There is freedom of speech. I am worried about us crossing 
the line. I wanted to talk to Cass Sunstein about commercial 
speech and non-commercial speech, and why non-commercial speech 
is not protected as much. It is not an absolute standard that 
the court applies; it is a more lenient standard in terms of 
regulation of it, and so on.
    But I just want the industry to know--and I respect a lot 
of people in the industry, particularly Jack Valenti, whom I 
have known for years.
    Jack, freedom of speech works two ways. It seems to me one 
of the ways we could deal with this in Congress is not passing 
a law, but just start talking about how rotten certain people 
in the industry are, name them, hold hearings and talk about 
how bad they are. The only reason I wouldn't do that is it 
might--I don't know if there are any studies, but that may 
increase their sales. I am not being facetious.
    The Chairman. They might start talking about how rotten we 
are, you know. You never know.
    Senator Biden. Well, that is part of the deal already. That 
is already done, as it can be and should be.
    But I guess what I am trying to say is it seems to me that 
we are going to be going through this for a long, long time. 
The idea that the industry is going to come up with a self-
regulating system is, I think, somewhat unlikely. I think the 
idea that we are going to come to a consensus here on what laws 
we pass to regulate the industry that don't trample on free 
speech gets very tricky. I don't see why we need an exemption 
to the antitrust laws for the industry to get together now.
    Is there anything in your base of knowledge as a professor 
at Georgetown, a dean down there, an incredibly well-informed 
scholar, anything you have seen, that you have read, any cases 
you are aware of that would prevent the industry getting 
together now and setting out a code of conduct, not an 
enforcement mechanism but a code of conduct? Is there anything?
    Mr. Pitofsky. Just a code of conduct?
    Senator Biden. Just a code.
    Mr. Pitofsky. No. Even the old cases wouldn't----
    Senator Biden. There is no requirement, so it really comes 
down to the enforcement mechanism.
    Mr. Pitofsky. Yes.
    Senator Biden. That is the place where the rubber meets the 
road. Well, that is a bad metaphor these days. That is the 
place where we really get into the question of what constitutes 
a violation of the antitrust laws or not, correct?
    Mr. Pitofsky. Yes, absolutely.
    Senator Biden. Well, obviously, the time is up, the hearing 
is over. But I look forward to having a chance totalk to the 
other witnesses at another time. And I am sure the chairman feels this 
way, too. We apologize to all of you for there being an objection to us 
meeting under the Senate rules. Someone on the floor of the Senate is 
not letting any committees meet under a rule we have relating to you 
can't meet beyond 2 hours after the Senate session goes in without 
unanimous consent.
    Senator Leahy. Mr. Chairman, if I might put a statement in 
the record saying that one of the reasons I understand an 
objection was made was the lack of judges being voted out of 
this committee. I will put the whole statement in the record.
    The Chairman. Well, I thought we might be able to get by 
without another comment about that, especially since we have 
appointed almost as many as the all-time high that we have 
gotten through this committee.
    But be that as it may, I apologize to you witnesses who 
have taken so much time to get here and have put forth such an 
effort. We were looking forward to hearing the rest of the 
witnesses, but any Senator has a right to object to committees 
meeting beyond 2 hours after the Senate comes into session. So, 
that objection has been made for whatever reasons, and we have 
to abide by it and I just want to apologize to all of you folks 
who have made such an effort to get here. We will try to 
continue this hearing at a future date, and please accept my 
apologies for today. There is not much I can do about it, other 
than abide by the rules.
    So with that, we will adjourn until further notice.
    [The prepared statement of Mr. Pitofsky follows:]

                 Prepared Statement of Robert Pitofsky

                            I. INTRODUCTION
    Mr. Chairman and Members of the Committee, I am pleased to appear 
before you to present testimony of the Federal Trade Commission 
(``FTC'') on the issue of the antitrust implications of entertainment 
industry self-regulation to curb the marketing of violent entertainment 
products to children. The Commission recently released its study 
concerning the marketing to children under 17 of violent entertainment 
products labeled or rated with parental advisories, and I discussed the 
conclusions of that study last week before the Senate Committee on 
Commerce, Science, and Transportation.\1\
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    \1\ See Prepared Statement of the Federal Trade Commission 
presented by Robert Pitofsky, Chairman, before the Committee on 
Commerce, Science, and Transportation, United States Senate, on 
``Marketing Violent Entertainment of Children: A Review of Self-
Regulation and Industry Practices in the Motion Picture, Music 
Recording, and Electronic Game Industries,'' September 13, 2000.
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    The FTC is a law enforcement agency whose statutory authority 
covers a broad spectrum of the American economy, including the 
entertainment industry. The Commission enforces, among other statutes, 
the FTC Act \2\ and the Clayton Act,\3\ sharing with the Department of 
Justice authority under section 7 of the Clayton Act to prohibit 
mergers or acquisitions that may ``substantially lessen competition or 
tend to create a monopoly.'' \4\ In addition, section 5 of the FTC Act 
prohibits ``unfair methods of competition'' and ``unfair or deceptive 
acts or practices,'' thus giving the Commission responsibilities in 
both the antitrust and consumer protection areas. The Commission also 
provides advice and guidance to states and other federal regulatory 
agencies on competition issues. Moreover, the Commission has experience 
applying antitrust principles across many different industries.
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    \2\ 15 U.S.C. 41-58.
    \3\ 15 U.S.C. 12-27.
    \4\ 15 U.S.C. 18.
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    The FTC frequently considers issues involving self-regulatory 
initiatives, from both competition and consumer protection 
perspectives. In our competition role, we seek to preventself-
regulatory restraints that harm the competitive process by denying 
consumers the full range of choices or by preventing new forms of 
competition from emerging. We also play a role in counseling self-
regulatory organizations on how they can perform certain collective 
functions without raising significant antitrust concerns. But we also 
seek to prevent self-regulation that unnecessarily restricts 
competition in the market. In our consumer protection role we have 
emphasized the importance of self-regulation and we work with industry 
groups to develop sound self-regulatory initiatives, often to 
complement existing laws.
    We frequently hear concerns expressed that the antitrust laws pose 
obstacles to self-regulation efforts. We think a careful analysis of 
current case law and enforcement agency guidance will alleviate much of 
this concern. In particular, we believe it is unlikely that the 
antitrust laws prevent the entertainment industry from adopting and 
enforcing effective restraints against the target marketing to children 
of violent entertainment products that industry itself labels or rates 
with parental advisories. Self-regulation by the entertainment industry 
is especially important considering the First Amendment protections 
that prohibit government regulation of content in most instances. 
However, antitrust problems would arise if the self-regulatory program 
was a cloak for an anticompetitive scheme, and not truly designed to 
protect young people from inappropriate exposure to violent material.
                             II. BACKGROUND
    On June 1, 1999, following the horrifying school shooting in 
Littleton, Colorado, the President requested that the Federal Trade 
Commission and the Department of Justice conduct a study of whether 
violent entertainment material was being advertised and promoted to 
children and teenagers.\5\ President Clinton's request paralleled 
congressional proposals for such a study.\6\ Revelations that the teen-
aged shooters at Columbine High School in Littleton had been infatuated 
with extremely violent movies, music, and video games reinvigorated 
public debate about the effects of violent entertainment media on 
youth. While opinions vary, many studies have led experts and public 
health organizations to believe that viewing entertainment media 
violence can lead to increases in aggressive attitudes and behavior in 
children. Although scholars and observers generally have agreed that 
exposure to violence in entertainment media alone does not cause a 
child to commit a violent act, there is widespread agreement that it 
is, nonetheless, a cause for concern.
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    \5\ See Letter from William J. Clinton, President of the United 
States, to Janet Reno, Attorney General of the United States, and 
Robert Pitofsky, chairman, Federal Trade Commission (June 1, 1999) (on 
file with the Commission).
    \6\ Legislation calling for the FTC and the Justice Department to 
conduct such a study was introduced in both Houses of Congress 
following the Columbine incident. See Amendment No. 329 by Senator 
Brownback et al. to the Violent and Repeat Juvenile Offender 
Accountability and Rehabilitation Act of 1999, S. 254, 106th Cong. 
Sec. 511 (1999); H.R. 2157, 106th Cong. (1999); 145 Cong. Rec. S5171 
(1999). In May 1999, the U.S. Senate Committee on Commerce, Science, 
and Transportation conducted hearings on the marketing of violent 
entertainment media to children. See Marketing Violence to Children: 
Hearing Before the Senate Comm. on Commerce, Science, and Transp., 
106th Cong. (1999). Based on these hearings, in September 1999, the 
Majority Staff of the Senate Committee on the Judiciary issued a 
committee report on this issue. See Majority Staff of the Senate Comm. 
on the Judiciary, 106th Cong., Report on Children, Violence, and the 
Media: A Report for Parents and Policy Makers (Comm. Print. 1999).
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    In response to the President's request, the Commission, with 
financial assistance from the Justice Department, collected information 
from the motion picture, music recording, and electronic game 
industries regarding their self-regulatory systems and marketing 
practices.\7\ The Commission requested information from the principal 
industry trade associations, as well as the major motion picture 
studios, the music recording companies, and electronic game companies. 
In addition, the Commission contacted interested government agencies, 
public health associations, academics, and parent and consumer advocacy 
groups. We reviewed a substantial amount of information collected from 
consumers through various surveys and polls, and also designed and 
conducted our own surveys for this study. Specifically, we conducted a 
survey of parents and children regarding their understanding and use of 
the rating and labeling systems, and how they made purchase decisions 
for these entertainment products. We also conducted an undercover 
survey of retail stores and movie theaters to see if unaccompanied 
children under 17 could purchase or gain access to products rated or 
labeled as inappropriate or warranting parental guidance. Finally, we 
reviewed Internet sites to study how they are used to market and 
directly access these products.
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    \7\ The Justice Department provided the FTC with substantial 
funding and technical assistance to enable the FTC to collect and 
analyze public and non-public information about the industries' 
advertising and marketing policies and procedures, and to prepare the 
Commission's written report and appendices. The analysis and 
conclusions contained in the Report are those of the FTC.
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    The report answers two questions raised by President Clinton when 
he requested this study: Do the motion picture, music recording and 
electronic game industries promote products they themselves acknowledge 
warrant parental caution in venues where children make up a substantial 
percentage of the audience? And, are these advertisements intended to 
attract children and teenagers? After a comprehensive 15-month study, 
the Commission has found that the answers to both questions are plainly 
``yes.''
    Although all three industries studied have self-regulatory systems 
that rate or label their products to help parents make choices about 
their children's entertainment, the Commission found that members of 
all three industries routinely target children in their efforts to 
advertise and market entertainment products that have been rated or 
labeled with parental advisories due to their violent content. The 
Commission believes that these advertising and marketing efforts 
undermine each industry's parental advisories and frustrate parents' 
attempts to protect their children from inappropriate material.
                     III. THE COMMISSION'S FINDINGS
    The Commission carefully examined the structure of these rating and 
labeling systems, and studied how these self-regulatory systems work in 
practice. We focused on the marketing of products designated as violent 
under these systems. We did not examine the content itself, but 
accepted each industry's determination of whether a particular product 
contains sufficient violentcontent to warrant parental caution.
    The Commission found that despite the variations in the three 
industries' systems, the outcome is consistent: individual companies in 
each industry routinely market to children the very products that have 
industries' self-imposed parental warnings or ratings with age 
restrictions due to violent content. Indeed, for many of these 
products, the Commission found evidence of marketing and media plans 
that expressly target children under 17. In addition, the companies' 
marketing and media plans showed strategies to promote and advertise 
their products in the media outlets most likely to reach children under 
17, including those television programs ranked as the ``most popular'' 
with the under-17 age group, magazines and Internet sites with a 
majority or substantial (i.e., over 35 percent) under-17 audience, and 
teen hangouts, such as game rooms, pizza parlors and sporting apparel 
stores.
    Further, most retailers make little effort to restrict children's 
access to violent products. Surveys conducted for the Commission in May 
through July 2000 found that just over half the movie theaters admitted 
children ages 13 to 16 to R-rated films even when not accompanied by an 
adult. Even when theaters refuse to sell tickets to unaccompanied 
children, they have various strategies to see R-rated movies. The 
Commission's surveys also showed that unaccompanied children ages 13 to 
16 were able to buy both explicit content recordings and Mature-rated 
electronic games 85 percent of the time.
    Although consumer surveys show that parents value the existing 
rating and labeling systems, they also show that parents' use and 
understanding of the systems vary. The surveys also consistently reveal 
high levels of parental concern about violence in the movies, music and 
video games their children see, listen to and play. These concerns can 
only be heightened by the extraordinary degree to which young people 
today are immersed in entertainment media, as well as by recent 
technological advances such as realistic and interactive video games. 
The survey responses indicate that parents want and welcome help in 
identifying which entertainment products might not be suitable for 
their children.
    Since the President requested this study over a year ago, each of 
the industries reviewed has taken positive steps to address these 
concerns. Nevertheless, the Commission believes that all three 
industries should take additional action to enhance their self-
regulatory efforts. The industries should:
    1. Establish or expand codes that prohibit target marketing to 
children and impose sanctions for noncompliance. All three industries 
should improve the usefulness of their ratings and labels by 
establishing codes that prohibit marketing R-rated/M-rated/explicit-
labeled products in media or venues with a substantial under-17 
audience. In addition, the Commission suggests that each industry's 
trade associations monitor and encourage their members' compliance with 
these policies and impose meaningful sanctions for non-compliance.
    2. Increase compliance at the retail level. Restricting children's 
retail access to entertainment containing violent content is an 
essential complement to restricting the placement of advertising. This 
can be done by having retailers voluntarily agree to respect the codes 
and check identification or require parental permission before selling 
tickets to R movies, and not sell or rent products labeled ``Explicit'' 
or rated R or M, to children.
    3. Increase parental understanding of the ratings and labels. For 
parents to make informed choices about their children's entertainment, 
they must understand the ratings and the labels, as well as the reasons 
for them. That means the industries should all include the reasons for 
the rating or the label in advertising and product packaging and 
continue their efforts to educate parents--and children--about the 
meanings of the ratings and descriptors.
                   IV. SELF-REGULATION AND ANTITRUST
    The concern that the antitrust laws pose obstacles to self-
regulatory efforts has some basis in historical fact. Antitrust 
enforcement has not always acknowledged the benefits of industry self-
regulation. Early enforcement was deeply suspicious of any kind of 
cooperative undertaking among competitors, and not without reason. 
Trusts and cartels were common. In contrast, industrial product 
standardization was uncommon, the International Standards Organization 
(``ISO'') did not exist, and the service sector of the economy was 
quite small.
    However, technological innovations and the growing integration of 
the economy acrossregions spurred recognition among competitors and 
enforcement officials alike that some kinds of cooperation were 
important to efficiency and economic success, and beneficial to both 
sellers and consumers. Today, in our interconnected, increasingly 
networked world, many products such as computers, telecommunications, 
and ATM banking systems need compatibility so that consumers can make 
use of the widest and most convenient array of services.
    The benefits of industry self-regulation are numerous. First, many 
product standards developed through self-regulation enhance safety. 
Industry self-regulatory bodies such as the American National Standards 
Institute (``ANSI'') and the American Society of Mechanical Engineers 
(``ASME'') have established thousands of voluntary standards regarding 
matters such as product design, fire prevention, and ethical standards 
of practice. By establishing a floor of common quality, such standards 
increase product acceptability and familiarity, which helps facilitate 
the emergence of new markets and the entry of previously unknown 
products and suppliers. This enhances competition and innovation.
    Second, industry regulatory standards can improve the efficiency of 
industry members, leading to lower costs of production and 
distribution. For example, industry standards can reconcile diverse 
systems or products, permitting greater interchangeability of parts or 
more compatible designs. This is critical in computer, high-tech and 
network industries. As compatibility increases, so do opportunities to 
achieve increased economies of scale and scope, lower costs, and higher 
profits. Compatibility can also facilitate entry by new suppliers and 
growth for smaller firms, thus enhancing competition. And if offers 
consumers more choices by allowing them to interconnect or easily 
substitute rivals' products.
    Third, industry regulatory schemes can provide useful information 
for consumers regarding product qualities, benefitting both consumers 
and competition. As the Circuit Judge Breyer explained, the 
promulgation of standards ``provid[es] information to makers and to 
buyers less expensively and more effectively than without the 
standard.''\8\ Many industry associations have testing or consumer 
education programs, which are particularly important with resect to new 
or highly complex products or services. When consumers know what 
products to trust and how best to use them, they can make better 
choices, and competition on the merits is enhanced. Such information 
also facilitates the entry of new products and suppliers and promotes 
innovation.
---------------------------------------------------------------------------
    \8\ See Clamp-All Corp. v. Cast Iron Soil Pipe Institute, 851 F.2d 
478, 487 (1st Cir. 1988), cert. denied, 488 U.S. 1007 (1989).
---------------------------------------------------------------------------
    In addition, an industry group may engage in self-regulation to 
enhance its reputation for fair and honest service by establishing 
ethical standards and disciplining in a reasonable manner those who do 
not abide by the standards. Through their power to repudiate and 
reward, industry self-regulatory bodies can rapidly achieve a high 
degree of compliance with this standards of competence, safety, design, 
or responsibility to consumers. In most fields, a good reputation with 
competitors, vertically-related industries, and consumers is vital to 
success. Few companies want to jeopardize that reputation by failing to 
abide by measures adopted by their peers. This risk of condemnation by 
other firms, and thus possible rejection by consumers, can be a potent 
sanction.
    Of course, self-regulation can be anticompetitive. Competitors may 
use the self-regulatory process to disadvantage new rivals or new forms 
of competition, or to reduce the rigor of traditional forms of 
competition. When that happens, the antitrust agencies will bring 
enforcement actions. As the Supreme Court observed in connection with 
standard setting:

          There is no doubt that the members of [private standard-
        setting] associations often have economic incentives to 
        restrain competition and that the product standards set by such 
        associations have a serious potential for anticompetitive harm. 
        Agreement on a product standard is, after all, implicitly an 
        agreement not to manufacture, distribute, or purchase certain 
        types of products. Accordingly, private standard-setting 
        associations have traditionally been objects of antitrust 
        scrutiny.\9\

    \9\ Allied Tube & Conduct Corp. v. Indian Head, Inc., 486 U.S. 492, 
500-01 (1988).
---------------------------------------------------------------------------
    In sum. prevailing antitrust doctrine is not inherently 
antagonistic toward self-regulatory efforts. The Supreme Court has 
expressly confirmed the substantial value of such activities.\10\ At 
the same time, the court has recognized the possibility that self-
regulatory efforts can be abused. The role of government enforcers, 
therefore, is not to interdict legitimate industry self-regulation but 
to ensure that such efforts are consistent with the operation of 
competitive markets.
---------------------------------------------------------------------------
    \10\ California Dental Ass'n v. FTC, 526 U.S. 756, 781 (1999) 
(procompetitive potential of self-regulation in restricting certain 
discount advertising mandates ``a less quick look'' rule of reason 
test).
---------------------------------------------------------------------------
    The antitrust laws are concerned about conduct that unreasonably 
restricts competition (e.g., increases prices, reduces output, lowers 
quality or variety, or lessens innovation) and harms consumers. Under 
the antitrust laws, the legal test applicable to most kinds of self-
regulation is called the ``rule of reason.'' This test has two 
components: (1) whether the conduct significantly restricts 
competition; and (2) whether there are legitimate justifications for 
the conduct that further, rather than restrict, the competitive 
process.\11\ The rule of reason test requires a balancing of these two 
elements. Violations of this rule of reason test involve agreements 
that are not truly efforts at self-regulation, but rather are attempts 
to fix prices or reduce output.
---------------------------------------------------------------------------
    \11\ See, e.g., Chicago Board of Trade v. United States, 246 U.S. 
231 (1918).
---------------------------------------------------------------------------
    The Commission has followed the Court's guidance and has supported 
those collective efforts that, on balance, have procompetitive benefits 
for consumers. A recent example involves the efforts of the Direct 
Marketing Association (``DMA``) to enable consumers to restrict their 
receipt of unsolicited direct mail or telephone direct marketing by 
providing a system that allows consumers to place their names on non-
solicitation lists. DMA submitted a proposal to the FTC that in essence 
would require member firms not to engage in mail or telephone 
solicitation of consumers on the nonsolicitation lists. In addition, 
DMA proposed to require each member to notify consumers of its 
information practices (for example, that the member sometimes sells its 
customer list to other firms) and to allow consumers to prevent the 
sale or other disclosure of their name, address, or other information.
    In an advisory opinion, the FTC staff noted that the requirement 
that DMA members not engage in direct mail or telemarketing 
solicitation of consumers who request such treatment could be 
considered a direct restriction on solicitation. Nonetheless, the staff 
suggested that his requirement was not vulnerable on antitrust grounds, 
because it would restrict solicitation only of consumers who 
affirmatively communicated that they do not want the information that 
direct marketers would otherwise seek to provide. The restraint did not 
limit any information consumers desired. From another point of view, 
the restriction improved the information available to consumers and 
gave consumers new choices. Members firms now had to disclose their 
marketing practices to consumers and permit them to opt out. This 
option was previously unavailable to consumers, and was unlikely to 
become available absent government action or self-regulation.
    Similar efforts to provide truthful information to consumers and to 
expand consumers' choices are likely to be found legal, as they would 
advance the purposes of the antitrust and the consumer protection laws.
    V. APPLYING ANTITRUST PRINCIPLES TO ENTERTAINMENT INDUSTRY SELF-
                               REGULATION
    The analysis of current case law and enforcement agency actions 
concerning industry self-regulation makes it clear under the special 
circumstances here, including the unique role of children in the 
marketplace and the nature of the material, that the antitrust laws are 
not a serious impediment to a rational, legitimate effort to control 
the target marketing to children of violent entertainment products 
labeled or rated with parental advisories. A look at some of the 
potential methods of restricting such marketing reveals considerable 
procompetitive benefits.
    Industry self-regulatory efforts to discourage the target marketing 
and sale of entertainment media products with violent content to 
children can take various forms, such as: (1) creation and operation of 
rating or labeling systems to identify and classify those products that 
warrant parental caution; (ii) industry self-regulatory codes that 
prohibit members from selling, renting, or marketing such rated or 
labeled products in a way that undercuts the effectiveness of parental 
cautions; (iii) trade association rules that provide sanctions for 
failing to adhere to such a self-regulatory code; (iv) actions by 
manufacturers to discourage retailers from selling or renting to 
children violent products containing parental cautions; and (v) 
advertising restraints, such as codes that prohibit advertising violent 
products in media with a substantial underage audience. Although each 
of these measures has a somewhat different competitive implication, in 
this instance none is likely to violate the antitrust laws so long as 
the rules are sensibly designed and implemented to achieve the stated 
objective and do not restrict competition in ways unrelated to the 
basic objective.
    Rating or Labeling Systems.--The creation and operation of a rating 
or labeling system to identify and classify entertainment products that 
warrant parental caution is unlikely to have a restrictive effect on 
competition, because a rating or labeling system generally would not 
restrict the products that may be produced or sold.\12\ Producers and 
retailers are still free to make, market, display, and sell the 
products. Rather, the function of such systems is informational. Like a 
safety standard for products, rating or labeling systems convey 
information about the suitability of a product for a particular use. 
Rather than restrict competition in the market, a well-designed rating 
or labeling system can enhance the functioning of the market by 
enabling consumers to make useful comparisons and purchase decisions 
with minimal search costs.\13\ A rating or labeling system may increase 
overall demand for products by reducing consumer confusion or 
uncertainty, and by increasing consumer confidence that the relevant 
attributes of the product will be as advertised.\14\
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    \12\ However, manipulation of a rating system to put a product in a 
restricted category without substantial justification can be 
problematic. See Allied Tube & Conduit Corp. v. Indian Head, 486 U.S. 
492 (1988) (manufacturers of metal pipe unlawfully manipulated the 
certification process to deny market access for manufacturers of 
plastic pipe). Participation in the process by persons without an 
economic interest in stifling competition can help ensure that the 
result is not anticompetitive. See id. at 501 (``When * * * private 
associations promulgate safety standards based on the merits of 
objective expert judgments and through procedures that prevent the 
standard-setting process from being biased by members with economic 
interests in stifling product competition, those private standards can 
have significant procompetitive advantages.'' (citation omitted)).
    \13\ See Clamp-All Corp. v. Cast Iron Soil Pipe Inst., 851 F.2d 
478, 487 (1st Cir. 1989) (Breyer, J.). See also Tropic Film Corp. v. 
Paramount Pictures Corp., 319 F. Supp. 1247, 1254 (S.D.N.Y. 1970) 
(independent movie producer sought preliminary injunction against movie 
studio's refusal to distribute an unrated film, alleging violations of 
Sections 1 and 2 of the Sherman Act and asking the court to enjoin 
Paramount and the MPAA from engaging in an asserted industry-wide 
refusal to deal in and distribute, advertise, and exhibit the film 
Tropic of Cancer without an X rating; court denied the motion, stating 
that the rating system was ``not designed to eliminate competition, but 
to advise motion picture exhibitors and, through them, the public, of 
the content of films which the Supreme Court has held that states have 
the constitutional right to prevent minors under seventeen from 
viewing'').
    \14\ See generally Self Regulation and Antitrust, Prepared Remarks 
of Robert Pitofsky, Chairman, Federal Trade Commission, Before the D.C. 
Bar Association Symposium (Feb. 18, 1998).
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    Restriction on Sales and Marketing to Children.--Industry codes 
that prohibit members from selling, renting, or marketing certain 
entertainment products to children constitute a higher level of self-
regulation and could be challenged as agreements to restrain 
competition. So long as the industry limits the restraint to children 
and pursues fair procedural rules, competition in sales to the adult 
audience is not likely to be affected.\15\ Here, the restraints would 
appear to reflect a determination by the industry, reflecting public 
concerns, that sale to children of entertainment products that warrant 
parental caution is inappropriate.\16\ In this situation, the sale of 
such products to children could undermine the efficient functioning of 
the market by creating mistrust of the industry rating system and 
apprehension among consumers, possibly leading to a longer-term 
dampening effect on overall sales.\17\ Consequently, restrictions on 
sales and targeted marketing to children appear likely to have a 
legitimate business justification if appropriately tailored.\18\
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    \15\ Restrictions on sales of entertainment products to adults 
inevitably raise First Amendment issues. The Commission's support for 
enhanced industry self-regulation in the advertising context is 
motivated in part by our strong belief in the benefits of self-
regulation, and in part by our concern that government regulation of 
advertising and marketing--especially if it involves content-based 
restrictions--may raise First Amendment issues. The First Amendment 
issues that have been raised in the context of restricting or limiting 
advertisements for media products are identified in Appendix C of the 
Commission's Report (First Amendment Issues in Public Debate Over 
Governmental Regulation of Entertainment Media Products with Violent 
Content).
    \16\ That the restraints have broader public origins, and are not 
imposed solely by agreement of competitors, is a relevant consideration 
under a rule of reason analysis. The Supreme Court has been skeptical 
of arguments that competitors alone should be permitted to restrict 
consumer choice on grounds that consumers may make ``unwise'' or 
``dangerous'' decisions under competitive market conditions. See 
National Soc'y of Prof'l Engineers v. United States, 435 U.S. 679 
(1978). In Professional Engineers, an association attempted to justify 
a ban on competitive bidding by claiming that such competition would 
lead to ``deceptively low bids, and would thereby tempt individual 
engineers to do inferior work with consequent risk to public safety and 
health.'' Id. at 693. The Supreme Court rejected the asserted 
justification, explaining that ``the Rule of Reason does not support a 
defense based on the assumption that competition itself is 
unreasonable.'' Id. at 696. In contrast, an agreement to refrain from 
marketing restricted entertainment products to children would reflect a 
broader societal view that children occupy a unique place in the 
marketplace.
    \17\ Further, it is not entirely clear that the prohibited 
conduct--selling to children products that warrant parental caution--is 
one that the competitive process is intended to foster. Professional 
associations often adopt ethical standards to govern members' conduct. 
Such agreements are permissible so long as they do not unreasonably 
restrict competition.
    \18\ Reasonable self-regulation to prevent targeted marketing of 
restricted products to children, therefore, could be defended within 
the parameters established by the ruling of the Supreme Court in 
Professional Engineers, 435 U.S. 679, where the Court held that the 
rule of reason analysis is limited to competitive considerations. 
Reasonable self-regulation to prevent marketing of such products to 
children can lend credibility to the rating system and thereby assist 
the function of the market. The situation in professional Engineers was 
different. In that case, an association attempted to justify a ban on 
competitive bidding--i.e., on price competition--by claiming that such 
competition would lead to ``deceptively low bids, and would thereby 
tempt individual engineers to do inferior work with consequent risk to 
public safety and health.'' Id. at 693. The Supreme Court rejected the 
asserted justification.
---------------------------------------------------------------------------
    Disciplining Members for Non-Compliance.--Industry codes that 
impose disciplinary measures on members that fail to adhere to rules 
regarding the sale, rental, labeling, or marketing of restricted 
entertainment products to children are yet another step in the self-
regulatory process. Possible forms of discipline might include 
expulsion from membership in the association or withdrawal of other 
membership privileges. Such rules could be challenged as an agreement 
to restrain the competition offered by the disciplined member. Although 
such disciplinary actions potentially could affect the disciplined 
member's sales to only to children but also to other segments of the 
market, they generally are unlikely to impose a significant restraint 
on competition in this situation unless the withdrawal of membership or 
of membership privileges would substantially impair the disciplined 
member's ability to compete.\19\ This is unlikely in the entertainment 
media industry. Association membership generally is not so important 
that loss of membership would effectively exclude a firm from the 
market.
---------------------------------------------------------------------------
    \19\ See Northwest Wholesale Stationers, Inc. v. Pacific Stationery 
& Printing Co., 472 U.S. 284, 296 (1985) (expulsion from a purchasing 
cooperative did not create a probability of anticompetitive effect 
``unless the cooperative possess[ed] market power or exclusive access 
to an element essential to effective competition'').
---------------------------------------------------------------------------
    The use of clear and fair procedures in the design, implementation, 
and enforcement of such restrictions should further lessen any 
antitrust concerns.\20\ Such procedural safeguards help ensure that the 
self-regulatory group's actions are impartial and not calculated to 
gain an economic or competitive advantage for particular members. 
Further, such rules may be justified because the prohibited conduct, if 
left unchecked, may subvert or distort the competitive process if other 
firms succumb to a temptation to compete at the same level, and 
consumers lose confidence in the industry's ability to market its 
products properly. Thus, appropriately designed self-regulating code 
mechanisms to enforce compliance with reasonably designed labeling 
restrictions also are likely to avoid antitrust problems.
---------------------------------------------------------------------------
    \20\ See, e.g., Allied Tube & Conduit, 486 U.S. at 501.
---------------------------------------------------------------------------
    Actions Against Retailers.--Entertainment media producers might 
also act collectively to discipline retailers that voluntary agree to 
and yet fail to observe restrictions on selling or renting certain 
violent-content products to children. Of course, there may be some 
antitrust risk if manufacturers seek to preclude a retailer from 
dealing with a non-member manufacturer, as in Fashion Originators' 
Guild where the Supreme Court held that a group boycott of retailers 
who dealt with price-cutting pirates violated section 5.\21\ However, 
while issues relating to actions against retailers may raise some of 
the most difficult concerns, appropriately structured collective action 
of this type appears unlikely to violate federal antitrust laws.\22\ 
Other avenues that may be pursued include seal programs and ``Hall of 
Shame'' type publication of offending retailers. And of course, 
entertainment media producers could individually opt not to deal with 
offending retailers.
---------------------------------------------------------------------------
    \21\ See Fashion Originators' Guild v. FTC, 312 U.S. 457 (1941) 
(group of designers of higher-priced dresses unlawfully boycotted 
outlets that dealt with manufacturers that ``pirated'' the higher-
priced designs).
    \22\ If retailers voluntarily agree to such a restriction, the 
First Amendment should not be implicated. However, any legislation 
giving producers power over marketing by retailers may raise First 
Amendment issues. In Denver Area Educ. Telecomm. Consortium, Inc. v. 
FCC, 518 U.S. 727, 737-39 (1996), all members of an otherwise divided 
Court accepted the notion that First Amendment analysis should be 
applied to enactment of a federal statute itself where that legislative 
enactment alters the legal relations between private entities in a way 
that empowers one category of private entities to control or suppress 
the speech of other private entities.
---------------------------------------------------------------------------
    Advertising Restraints.--Efforts by producers to place appropriate 
limitations on the targeted advertising of products that are rated or 
labeled as warranting parental caution need not restrict competition 
unreasonably. If, as suggested above, it is reasonable to impose 
certain restrictions on actual sales or rental of certain rated or 
labeled products to children, it should be reasonable under the 
antitrust laws to restrict advertising of these products to children. 
So long as the content of, and means available for, marketing these 
products to adult audiences are not unduly restricted, consumers will 
continue to have access to product information, and sellers can 
continue to compete for their patronage.\23\ Consequently, self-
regulation reasonably tailored to prevent the advertising of certain 
entertainment products with violent content to children should not 
impose a significant restraint on legitimate competitive activity. In 
fact, reasonable self-regulation should further the competitive process 
by focusing competitive efforts on legitimate marketing activities and 
by lessening the need for government regulation.
---------------------------------------------------------------------------
    \23\ Even if a restricted advertising venue has a substantial 
audience suitable for the advertised product, as well as a significant 
underage audience, competition will not be significantly affected if 
firms have adequate access to other, permissible advertising venues 
that reach adults. Only if the various advertising or marketing 
restrictions, taken together, significantly restrict the flow of 
information to adult consumers might there be an antitrust or First 
Amendment concern.
---------------------------------------------------------------------------
                             VI. CONCLUSION
    The Commission's exhaustive study of certain segments of the 
entertainment industry reveals a continuous pattern of target marketing 
to underage users. Industry self-regulation designed to eliminate this 
marketing is unlikely to violate the antitrust laws. The kinds of self-
regulation that would be necessary are likely to be analyzed under the 
rule of reason. Thus, the Commission concludes that an exemption from 
the antitrust laws is unnecessary for the industry to establish or 
expand codes that prohibit target marketing to children and impose 
sanctions for noncompliance, increase compliance at the retail level, 
or increase parental understanding of the ratings and labels.
    [The prepared statement of Senator DeWine follows:]
    [Whereupon, at 11:33 a.m., the committee was adjourned.]

 Prepared Statement of Hon. Mike DeWine, a U.S. Senator From the State 
                                of Ohio

    Chairman Hatch, thank you for holding this hearing today. I had the 
opportunity to testify just last week before the Senate Commerce 
Committee regarding the Federal Trade Commission's (FTC) recent 
findings on the marketing of violent entertainment to children. At that 
hearing, we heard convincing evidence indicating that the entertainment 
industry often employs marketing strategies designed to entice children 
to watch violent movies, listen to violent music, and play violent 
video games. These marketing ploys are encouraging kids to seek out the 
very entertainment that the industry's current voluntary ratings 
systems indicate is unsuitable for children.
    At that hearing, we talked about the FTC's recommendations for 
implementing tougher marketing standards and ratings systems to deal 
with this pervasive problem. So, I asked the representatives from the 
entertainment industry who were there if they believed that additional 
antitrust protection would help them implement the FTC's 
recommendations. And, I told them that if that's what they need--if 
that's what it is going to take to get some action on this--then, by 
all means, the Antitrust Subcommittee is ready to help. They didn't 
answer my question, Mr. Chairman, so I will pose it again today to the 
industry representatives on the panel: Do you believe that additional 
antitrust protection would help you implement the FTC's 
recommendations?
    But, before we talk more about those antitrust concerns, 
specifically, let me just say that I am very distressed by the FTC's 
findings. I am convinced that the entertainment industry is at war with 
parents. They are trying to get between parents and their children. 
And, it is our children who are the casualties.
    The FTC's findings are alarming and reveal a double standard that 
prevails in the entertainment industry. For example, of the 44 movies 
rated ``R'' for violence that the Commission selected for its study, 80 
percent of them were targeted toward children under 17 years of age. 
Marketing plans for 64 percent--that's two-thirds of those movies--
contained express statements that the films' target audiences included 
children under 17, even though the ``R'' rating says children under 17 
shouldn't watch those films without adult supervision. Unfortunately, 
we all know, and the FTC report confirm this, that many children do 
watch ``R'' rated movies without adult supervision. What that means is 
that even if the motion picture industry admits that a film is 
inappropriate for unsupervised children, they still encourage them to 
go see it anyway--knowing full well that many will do so without adult 
supervision. That defies the very logic of their own ratings system!
    The industry says that it is up to parents to monitor what their 
children do. And, of course, it is up to parents to use these ratings 
as a guideline. But, the value of these voluntary ratings systems is 
destroyed when individual entertainment producers go out of their way 
to undermine parental decisions by enticing children to seek out 
inappropriate entertainment. That's just plain wrong.
    So, where do we go from here? Last week during the Commerce 
Committee hearing, I encouraged the FTC to provide Congress with an 
annual report on the industry's marketing practices. With an annual 
report, we can continue to monitor the industry and their 
implementation of the FTC's recommendations.
    In addition, today Senator Kohl and I sent a letter to the FTC, 
asking them to investigate the video game industry for possible 
deceptive trade practices. Specifically, most companies in the video 
game industry have pledged to not market inappropriate video game 
products to children, but, according to the FTC's report, many 
companies appear to be doing just that. That said, I would like the FTC 
to examine whether such conduct may constitute a deceptive trade 
practice.
    Regarding specific antitrust concerns, some in the entertainment 
industry have raised antitrust concerns as an excuse--as an excuse for 
why they cannot get together, agree to some sensible rules or 
guidelines, and then police themselves. The FTC report indicates that 
such guidelines--if carefully drafted and reasonably enforced--will not 
pose any antitrust problems. As Chairman of the Antitrust Subcommittee, 
I tend to agree with that assessment. However, I also believe, as I 
think you do, Mr. Chairman, that as legislators and as parents, we have 
an obligation to remove any possible barrier that the entertainment 
industry feels currently impedes their ability to devise tougher 
standards.
    Also, several years ago, I worked with you, Mr. Chairman, as well 
as Senators Brownback, Kohl and Lieberman on legislation designed to 
give the television industry, specifically, antitrust protection 
because some in the industry believed it might be necessary. Mr. 
Chairman, I also co-sponsored your amendment to the Juvenile Justice 
bill to do the same thing for the entertainment industry as a whole. I 
will continue to support such legislation.
    I will note for the record that I believe it is important that any 
legislation continue to be drafted narrowly. We need to make it clear 
that antitrust protection applies only to cooperative action that will 
prevent the pervasive practice of marketing violent and other 
inappropriate entertainment media products to children. We must also 
make it clear that we expect the entertainment industry to live up to 
its own ratings recommendations. Such legislation should take away any 
excuses for this industry to ignore its moral responsibility to 
parents--and especially to children.
    It's time for the entertainment industry to live up to its 
responsibility, and I will support any legislation that will help them 
do just that.
    Thank you, again, Mr. Chairman, for convening this hearing today.

 
 VIOLENCE IN THE MEDIA: ANTITRUST IMPLICATIONS OF SELF-REGULATION AND 
                 CONSTITUTIONALITY OF GOVERNMENT ACTION

                              ----------                              

                      THURSDAY, SEPTEMBER 21, 2000

                                       U.S. Senate,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 8:03 a.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Orrin G. 
Hatch (chairman of the committee) presiding.

 OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 
                       THE STATE OF UTAH

    The Chairman. If we can begin, good morning. We are back to 
continue our hearing from yesterday on violence in the media 
and what Government can do. I extend my apologies to all of you 
for what happened yesterday, with the minority objecting to any 
Senate committee business beyond the 2 hours. We will just 
chalk that up to election year politics.
    I want to thank those of you who were able to come back for 
taking time to continue the hearing this morning. This is an 
important issue which should not get mired in politics, so I 
appreciate you all being here. So let me introduce our 
distinguished panel.
    First, we will hear from Mr. Jack Valenti. Mr. Valenti is 
President and CEO of the Motion Picture Association of America 
and one of the great leaders of film in the world. He is a 
former top staffer with President Lyndon Johnson, somebody that 
I had a long relationship with. I appreciate you being here, 
Jack.
    Our next witness is Ms. Hilary Rosen, if she is here; if 
not, when she gets here. Hilary is President and CEO of the 
Recording Industry Association of America, and she has been a 
leader in the field of digital copyright protection, as well as 
a strong defender of the arts. So we will be happy if Hilary 
can be here.
    Next, we will welcome Mr. John Fithian, President of the 
National Association of Theatre Owners, whose legal experience, 
coupled with his time in the entertainment industry, provides a 
unique perspective at our hearing today.
    Next, we will hear from Ms. Pamela Horovitz, President of 
the National Association of Recording Merchandisers.
    Well, she will not be with us. I am sorry.
    Mr. Douglas Lowenstein, President of Interactive Digital 
Software, is also unable to be with us today.
    But we will welcome Mr. Crossan ``Bo'' Andersen, President 
of the Video Software Dealers Association. Mr. Andersen, a 
former assistant U.S. attorney, has used his legal expertise to 
defend and protect the First Amendment rights of video 
retailers, as well as consumers.
    Now, we are very happy to have you begin, Jack, and we are 
going to make this record regardless of the time in the 
morning. I am sorry. I know this is really early for some of 
you folks, but I have been here since 6 a.m., so it is nothing 
for me.

PANEL CONSISTING OF JACK VALENTI, PRESIDENT AND CHIEF EXECUTIVE 
OFFICER, MOTION PICTURE ASSOCIATION OF AMERICA, WASHINGTON, DC; 
    HILARY B. ROSEN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, 
RECORDING INDUSTRY ASSOCIATION OF AMERICA, WASHINGTON, DC; JOHN 
  FITHIAN, PRESIDENT, NATIONAL ASSOCIATION OF THEATRE OWNERS, 
 ALEXANDRIA, VA; AND CROSSAN ``BO'' ANDERSEN, PRESIDENT, VIDEO 
            SOFTWARE DEALERS ASSOCIATION, ENCINO, CA

                   STATEMENT OF JACK VALENTI

    Mr. Valenti. Mr. Chairman, you are going to get a terrible 
reputation in this town for punctuality. At any rate, thank 
you.
    I want to congratulate you and Senator Leahy and your 
colleagues for addressing this issue in such a sensitive and 
sensible way, understanding the need for protecting 
constitutional freedoms, and I am grateful to you for that.
    When you testified before the Senate Commerce Committee, I 
listened with interest in and approval of what you had to say. 
I agree with you that the entertainment industry has much to be 
proud of. I agree with you that parents should exercise more 
responsibility with their children. I agree with you that faith 
is indispensable in sustaining this free Republic and keeping 
its moral compass on course. And, finally, I agree with you 
that the motion picture industry has to stand up to its 
responsibilities, and I might add has been.
    One of the things that I want to point out is that I am not 
an antitrust expert, which will come as a surprise, I know, to 
you and all of your committee. But I am not sure that we need 
this amendment yet. I agree with you that I think voluntary 
action is much better. We are looking at this, and in all 
candor I have to say we are not quite sure if we need it, but 
whether we can do all the things that you think ought to be 
done within the circumference of voluntary action.
    By the way, I must say that the motion picture industry 
probably is more attentive to the needs of parents and what 
they have to have in helping shape the conduct of their 
children than any other industry in the United States. For 
almost 32 years, we have been giving advance cautionary 
warnings to parents so they can better judge what movies they 
want their children to see or not to see, and that is a power 
that only parents are authorized to wield.
    For almost 32 years, we have been turning away revenues in 
order to redeem the obligation that we have made to parents. No 
other non-entertainment industry in this country can make that 
statement. For almost 32 years, we have been monitoring 
parents' reactions to this rating system that we have proffered 
to them.
    Each year since 1969, the Opinion Research Corporation, of 
Princeton, NJ, has been taking national surveys of between 
2,300 and 2,600 respondents. The last one was just completed 2 
weeks ago, and found that 81 percent of all parents with 
children under 13 found this rating system very useful to 
fairly useful in helping them guide their children's movie-
going.
    And I might add that in an independent survey which is 
contained in the FTC report, the FTC found a marvelous 
coincidence. They found 81 percent of parents that they checked 
were, ``satisfied,'' with the rating system. Nothing in the 
last 32 years in this unfaithful, abrasive marketplace, Mr. 
Chairman, unless they are providing some kind of benefit that 
they aim to serve, in this case parents of America.
    So I am saying to you that I believe that in a very 
stalwart and enduring way, we are standing up to our 
responsibilities.
    Now, it is has been 9 days since the FTC report came out, 
and I must tell you that in those 9 days I have been going 
around the clock almost in conference calls and in face-to-face 
meetings in California with the major studios, where we are 
trying to put together our response, a responsible response, I 
might add, to the recommendations made by the Federal Trade 
Commission.
    I am not prepared at this time to tell you exactly what we 
will say because we haven't finished our deliberations, but I 
can assure you that we will act on these. And I hope when we do 
that you and Senator Leahy and others on your committee will 
feel that we have had a serious response, and that our concern 
is evidenced in the way that we do respond.
    Now, about the exemption, as I said, I don't know if it is 
required. I can certainly sympathize with the concerns of our 
allies and partners and customers about what some antitrust 
exemption might do to them. I can understand that. I will tell 
you this: we are looking at this and sitting down to talk about 
this with our allies and customers. And then if we feel that an 
antitrust exemption is needed to do the things that you and 
your committee feel we ought to do, then we will sit down with 
you and work out with you some carefully tailored, carefully 
shaped amendment that would allow us to do what it is that we 
think ought to be done.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Valenti follows:]

                   Prepared Statement of Jack Valenti

    Chairman Hatch, I congratulate you for addressing the issue of 
media violence in a constructive manner that is respectful of First 
Amendment freedoms. I listened with attention to and approval of your 
testimony last week before the Senate Commerce Committee. I agree with 
you that there is much to be proud of in the entertainment product of 
this nation; parents must exercise responsibility in supervising their 
children; faith is important to provide a moral compass in our society; 
and yes, the entertainment industry must stand up to its 
responsibilities to America's parents and their children.
    I am not an antitrust expert. Having said that, MPAA agrees that 
voluntary industry action, as distinguished from government intrusion, 
is the best way to address the exposure of children to inappropriate 
material.
    MPAA has a long and distinguished record of voluntary initiatives 
aimed at recognizing and meeting its responsibilities to parents and 
their children. As you know, for almost 32 years, through our voluntary 
movie rating system, we have been offering advance cautionary warnings 
to parents about individual films so that parents can more watchfully 
and carefully make their own decisions about the films they want their 
children to see or not to see. Only parents, not government, should 
have that power.
    For almost 32 years, we have been monitoring parents' reaction to 
movie ratings. In the latest of annual surveys conducted by the Opinion 
Research Corporation of Princeton New Jersey, with 2,300 respondents, 
the rating system got an all-time high in parental endorsement. This 
year some 81 percent of all parents with children under 13 found the 
movie rating system ``Very Useful'' to ``Fairly Useful'' in helping 
them to choose the films they want their children to see or not to see. 
Nothing lasts 32 years in this volatile marketplace unless it is 
providing a benefit to the people it aims to serve.
    Moreover, we have stepped up our efforts to make information about 
ratings available to parents in many different locales. All advertising 
carries the rating and a legend that defines that rating category. We 
have web sites: (1) ``filmratings.com'' which allows a parent to get 
specific reasons for ratings, (2) ``parentalguide.org'' which offers to 
parents a guide to ratings systems for movies, TV programs, video games 
and music, (3) ``MPAA.org'' gives specific reasons for ratings, (4) 
Moviefone.com gives specific reasons for ratings, (5) Weekly bulletins 
which catalogue movies rated that week along with reasons for the 
ratings are sent to magazine, newspaper and TV movie critics. Reviews 
of just about movie released appear in publications and on television. 
There is no scarcity of ratings advice for parents.
    For almost 32 years the movie industry has been the only segment of 
our national marketplace, including all business enterprises, that 
voluntarily turns away revenues in order to redeem the pledge we have 
made to parents. No other non-entertainment American enterprise can 
make that statement.
    MPAA member companies have adopted and put in place an industry 
``code of conduct'' which governs the marketing of films. All 
advertising/publicity (newspaper and magazine ads, outdoor advertising, 
previews of coming attractions, television spots, radio spots, Internet 
sites) for rated movies must be submitted and approved for general 
audiences prior to being shown to the public, and must contain nothing 
that most parents would find objectionable for their young children to 
see or hear.
    Although I am very proud of MPAA's record, we are committed to do 
more. It has been nine days since the FTC Report was released. While I 
cannot tell you at this moment precisely how we will act on the FTC's 
recommendations, I can tell you that we will act. As I reported I would 
do, I am now in the process of sitting down with each studio 
represented by the MPAA and talking with them about what it is that we 
can and should do to do better in meeting our solemn obligations to 
parents.
    Because we have not had time to flesh out an action plan, I cannot 
say that the antitrust amendment you propose is necessary to its 
success. Quite frankly, I would prefer to take actions that would not 
run afoul of current law. Even though the antitrust exemptions you have 
proposed are for our benefit, I understand and sympathize with the 
concerns such exemptions would create among those with whom we do 
business.
    We are committed to addressing the recommendations made by the FTC. 
We will work within our industry and with our business partners in the 
theater, home video and television industry to fashion a plan of action 
that is effective and also consistent with existing antitrust law. If 
we find that there are things we should be doing, then we would like to 
work with you and other interested parties to fashion a narrow, 
carefully crafted amendment that specifically addresses the actions 
that need to be taken.
    To conclude, Mr. Chairman, I commend you, Senator Leahy and other 
members of this Committee for addressing this very complicated, 
emotionally charged issue in a way that does no violence to our most 
cherished Constitutional protections. I appreciate your giving me this 
opportunity to appear before you and I look forward to working with you 
and the Committee as we move forward.

    The Chairman. Thank you, Mr. Valenti.
    We will turn to you, Ms. Rosen. We are very interested in 
what you have to say.

                  STATEMENT OF HILARY B. ROSEN

    Ms. Rosen. Thank you, Mr. Chairman. My full statement will 
be in the record, right, Mr. Chairman?
    The Chairman. Without objection, we will put it in the 
record.
    Ms. Rosen. And I also want to associate myself with and ask 
that Pam Horovitz' full statement be placed in the record.
    The Chairman. We will place that in the record as well.
    Ms. Rosen. She was sorry that she could not be here back 
again this morning. She obviously doesn't live here.
    The Chairman. We understand. I apologize for not being able 
to pull that off yesterday, but that is just one of those 
things we have to put up with.
    Ms. Rosen. I understand.
    I just want to share a few things with you today, and I 
have to most especially say good morning to the loyal staff of 
the Senate Judiciary Committee.
    A few things this morning. I want to just remind you, Mr. 
Chairman, that we have made significant changes to the parental 
guidelines already that the FTC commented upon. I want to talk 
a little bit about my concerns about a potential antitrust 
exemption, and I want to compliment you and other members of 
the committee in the way that you, in a bipartisan way, have 
steadfastly avoided some of the constitutional pitfalls of 
other kinds of proposals in this area.
    As a practical matter--and Chairman Pitofsky touched upon 
it yesterday--the FTC didn't really find problems with our 
rating system, although they have a personal problem with it. 
But they basically said that consumers and parents actually 
find it useful. I don't see much changing in that because the 
voluntary nature of the system is such that, with 26,000 albums 
released a year, it is simply not practical for this system to 
be administered any other way. Indeed, we don't simply have the 
complaint that things that should have been stickered weren't 
stickered. So in my view, the FTC's conclusions of parents is 
well warranted.
    There were a few marketing concerns that the FTC raised, 
although in the music industry we are again somewhat unique 
because we often offer edited versions of music. And what was 
not clear in the FTC report was in those few instances where 
there were marketing questions that seemed to have been 
directed to younger teens whether those were edited versions of 
albums or not.
    The one thing that the FTC did find, I know, is something 
that this committee is focusing on, which is that record 
retailers will sell stickered product in certain areas of the 
country to young people. This is a choice that they make for 
their own local community, and frankly I don't think it is 
something that we are very much in a position to do something 
about, nor do I think it appropriate for us to attempt to 
collectively try and stop.
    And I guess that gets to the heart of the antitrust 
proposals because while, in concept, I agree with Jack, there 
is nothing wrong with an antitrust proposal, my concern would 
be what this committee's expectations would be 6 months or a 
year down the road, once such a proposal were passed, for 
actually what changes would take place in the marketplace.
    And to the extent that the results were expected to be some 
sort of collective decision not to sell to certain retailers 
because they chose to have individual policies that fit their 
local community area, I think that is going to be a problem. 
Chairman Pitofsky put it another way yesterday which I might 
not have chosen, but I think he sort of bluntly said we can't 
be trusted.
    The other expectation that I think is problematic from the 
retail level is that simply because this committee exempts 
industries from engaging in individual activity, it doesn't 
exempt individual retailers from liability for withholding 
product or not having product available for individual adult 
consumers. So there are some significant problems with 
expectations on restricted sales, and Bo Andersen probably has 
some more views on that.
    The second area where I have some concerns is the idea that 
we would fundamentally get together among industries and 
develop different rating systems. Music is different than 
movies, is different than video games, is different than 
television. And despite the potential uncertainty as to whether 
parents can accommodate these various systems in the 
marketplace, the marketplace does seem to be accommodating 
them. And we don't think, at least in the music community, we 
are going to be able to come up with a uniform rating system. 
So to the extent that that were an expectation of this 
committee, I want to lower those expectations because the last 
thing we want to do is disappoint the committee about their 
expectations.
    So I would be happy to answer any questions that you have, 
and my statement has some more detail on those thoughts.
    [The prepared statements of Ms. Rosen and Ms. Horovitz 
follow:]

                 Prepared Statement of Hilary B. Rosen

    I am President and CEO of the Recording Industry Association of 
America. RIAA is the trade association of America's record companies. 
Our membership is as diverse as our music:
    I speak for thousands upon thousands of people in the recording 
industry. Our views on youth violence and culture--just like those of 
members of this committee and others who testify before it--are not 
informed by their professional capacity alone.
    They are informed by our dreams for our own kids--our concerns 
about our community--and our commitment to our country.
    We are proud to be members of an industry who work with artists to 
create the most diverse music in the world filled with a multitude of 
musical styles, lyrical imagination and cultural experiences. And we 
are also proud of our 15-year track record of helping parents make 
informed choices about their children's entertainment.
    Throughout that period, the issue of how entertainment affects 
children has wandered back and forth between the headlines from the 
back pages. But we have been consistent.
    Today, as the issue finds itself back on the front pages again, we 
are proud to speak with you just as authoritatively and every bit as 
passionately as we have for each of the last 15 years.
    Mr. Chairman, I want to explain how the recording industry's 
Parental Advisory system works, describe how it has been improved, 
respond to some of the FTC's criticisms, and address some of the 
antitrust issues this Committee is considering.
               THE RECORDING INDUSTRY'S VOLUNTARY PROGRAM
    The premise of our system is to balance an artist's right of self-
expression with a parents' need for information to make choices based 
on their children's individual situation and their own values.
    In 1985, we reached agreement on that approach with the National 
Parent Teacher Association and the Parents Music Resource Center. 
Within months, music releases with explicit lyrics, whether about 
violence or sex, were identified.
    I should add that despite the emphasis at these hearings on 
recordings with explicit content, they comprise a relatively small 
proportion of our industry's output and the themes and language 
contained in all of our music is a part of today's society.
    In an average retail store with 110,000 titles, about 500 will 
carry the Parental Advisory logo. That's less than one-half of one 
percent of that store's total inventory. And the major labels produce 
clean versions of nearly all recordings that carry the logo.
    And let me assure you, Mr. Chairman, that this industry is a very 
tough customer. Recently a story in the New York Times carried this 
headline: ``Recording Industry's Strictest Censor Is Itself.''
    Is this system perfect? Of course not. Even if it had been, 
entertainment is a constantly evolving industry.
    So where our system was imperfect, We have tried to improve it. 
Where entertainment media evolved, we have tried to adapt to them.
    Some thought we hadn't gone far enough--that parents couldn't spot 
the advisory easily.
    So in 1990, we established a uniform, universally recognizable 
Parental Advisory logo. It is one inch by a half-inch on cassettes and 
CD jewel boxes.
    We have launched extensive marketing campaigns to educate both 
parents and retailers about the system.
    With the advent of the Internet, we recently created standards for 
applying the Parental Advisory logo to online sales.
    We worked with retailers to use the logo in the way they feel best 
squares with their own values and needs. Some retailers, for example, 
chose not to sell recordings carrying the Parental Advisory logo to 
minors. As I indicated before, we cooperate with this decision.
    Indeed, we welcome it as an indication that this system is working 
precisely as we intended--by giving people the information they need to 
make their own decisions based on their own values.
    Our most recent to fine-tune this system will take effect just over 
one week from now, on October 1, with the implementation of RIAA's new 
guidelines for the Parental Advisory label.
    The revised guidelines cover the following areas.
    First, they provide uniform standards to guide a label and artist 
in deciding whether to apply the Parental Advisory logo. They advise 
that this decision be made by weighing contemporary cultural morals. 
They clarify that the logo should be applied to single-track recordings 
when they are commercially released as well as full albums.
    Second, these guidelines indicate that the Parental Advisory logo 
should be applied in all advertising of a recording that carriers the 
logo.
    Finally, we created Internet guidelines for the first time. These 
guidelines call for a specific display of a parental advisory logo for 
on-linesales. The Parental advisory should be visible from the catalog 
pages all the way through to the shopping basket.
    We have done all this in a manner that you have supported, Mr. 
Chairman--voluntarily.
    Today, the recording industry's system has taken root in the public 
mind and the popular culture. They are instantly recognized. And 74 
percent of parents say they are effective.
                         WHAT DID THE FTC FIND?
    From what I can tell, the FTC's findings can be summed up in few 
sentences. Parents are satisfied with the industry's rating systems to 
the extent that 74 percent said so, but the FTC is not. The majority of 
CD's that carried the sticker were also available in edited form. So 
far as I can tell, there was one--I repeat one--specific incident of a 
television program where this music was advertised with a majority 
under 17 years of age audience and three more that were questionable. 
Hardly a sweeping industry condemnation. Indeed, since our guidelines 
are only voluntary and have never contained any age specific 
restrictions, there is nothing wrong with these companies leaving the 
decision to parents to determine what their kids should own.
    There were a few instances where an album was seemingly marketed to 
younger teens (the actual specifics are not in the report) although 
since the FTC report does not delineate whether or not those albums had 
edited versions available, it is impossible to draw the conclusion that 
younger teens were subjected to anything that might have been 
inappropriate.
    The report also says that all of its conclusions were reached prior 
to having the revised guidelines issued by the RIAA, which addresses 
these concerns.
    The FTC recommends three things that all of the industry should do:
          1. Establish guidelines for adversiting--we have
          2. Increase compliance at retail--retailers make their own 
        decisions
          3. Increase parental understanding of the label--77 percent 
        of the people have said that they are aware but we can always 
        do more education
                          the antitrust issues
    Mr. Chairman, I want to compliment your longstanding effort to 
avoid the constitutional pitfalls of other proposals by encouraging the 
entertainment industry to voluntarily develop systems to better inform 
parents and consumers about explicit content contained in entertainment 
products.
    I have no objection to the concept of simply permitting industry 
competitors to come together without fear of being sued under the 
antitrust laws to discuss ways to improve ratings and labeling 
systems--in fact, we do this already in the music industry even in the 
absence of an antitrust exemption. With regard to proposals to create a 
legislated antitrust exemption for certain purposes, I do have some 
concerns. Principally, I fear there may be an unstated expectation in 
the granting of this exemption that we develop a universal ratings 
system or create an ``industry code'' to prohibit the sale or marketing 
of certain products. In such an expectation lies the greatest danger of 
all--that of restraining sales to and by retailers of certain products 
based on subjective analyses of the content of protected speech. And to 
that, I respectfully but strenuously object.
    As I have said many times before, we take our responsibility to 
warn parents seriously, and remain committed to advising consumers when 
an album contains explicit material that some may consider offensive.
    We have a successful system in place, have recently adopted 
modifications to our guidelines, and like the Federal Trade Commission, 
believe we can implement these modifications with or without a specific 
exemption in the antitrust laws.
    Our members cooperate with merchandisers who have quite different 
policies when it comes to selling labeled content: some, like KMart and 
Walmart, refuse to sell labeled product, and our members often create 
edited versions which are sold in these and other stores. The FTC found 
that 82 percent of labeled recordings have edited versions available.
    Other stores sell both edited and unedited versions of music which 
is labeled with the Parental Advisory, and we are endeavoring to ensure 
that customers are adequately informed about what the Parental Advisory 
label means. We support a retailer's decision whether it is to carry 
only edited versions of recordings or to sell recordings based on the 
community in which they do business.
    The point is that this is a matter of local choice and local 
concern. I believe the Committee will hear more about this from the 
National Association of Recording Merchandisers. Community standards 
differ, and we don't believe it would be appropriate for an 
organization like ours to dictate to local retailers what they can sell 
to their customers, so long as their customers are adequately informed 
about music lyrics that may be offensive because of explicit content.
    Because we don't try to directly police sales to consumers or 
control retail merchandising, and because we have an effective 
voluntary system, we don't believe that antitrust concerns are raised 
by our actions, and would certainly oppose any exemption that would 
carry with it--explicitly or implicitly--a mandate to create a 
mandatory system or to police sales.
    Indeed, efforts to restrict distribution of certain music in an 
official way is complicated immensely by changing technology. As 
Members of this Committee know better than most, music distribution 
today is vastly different than it was just five years ago. Thousands 
and thousands of songs and albums are posted by individual creators (or 
in some cases ``infringers''!) who are distributing them to as wide an 
audience as possible without any formatted security or certainly 
without regard to potential explicit lyrics.
    We have created guidelines for the Internet which we hope 
legitimate distributors will follow for music sales but the sheer 
volume of music available and surging onto the Internet, by individual 
artists and musicians of their own work, makes traditional sanctions 
and enforcement efforts in this area extremely difficult if not 
virtually impossible to monitor effectively.
                          THIS IS ABOUT MUSIC
    This debate over music keeps coming back to the same thing. Despite 
all of the trappings and new ways to look at the issue, the fact is 
that some people just don't like the music. And that is not an 
antitrust issue or a labeling system issue--it is a freedom of 
expression issue.
    The committee is concerned about violent and sexual lyrics. As a 
parent, so am I. But I want to apply my own values--the needs of my 
individual children--to decide what sources of entertainment are 
appropriate for them.
    If we attempt to apply any other standard, no bonfire will be tall 
enough to burn the centuries of art that will have to go up in flames.
    If violence is inherently demeaning to culture, then Verdi's 
Rigolletto--in which he opens a sack to find it contains his dying 
daughter--belongs on the pyre. So does Strauss's Salome--in which Herod 
presents Salome with the head of John the Baptist on a platter. For 
that matter the recent Dixie Chicks song ``Earl'' where a wife exacts 
revenge for an abusive spouse by poisoning his food is, in theory, 
equally violent. A new Steve Earle song talks about a death row killer, 
his crimes and the value of life and death.
    Incidentally, nobody has asked for an advisory label or restricted 
sales for those CD's.
    I fully understand those who, with utter sincerity, feel there is a 
difference between rap lyrics and grand opera or country music. But 
there really isn't.
    Remember that these artists have been criticized. So were others 
like them, from Picasso to Stravinsky, Flaubert to James Joyce, Charlie 
Chaplin to Lenny Bruce to George Carlin to Imus--dismissed in their 
time. Classics are rarely recognized in the momentary heat of 
controversy.
    And remember that the distinction between high art and the low road 
is deeply rooted in individual values and perspectives.
    For each person who believes rap lyrics portray a foreign world, 
there is another who finds them deep and powerful because that world is 
all too real.
    And above all, we must remember this: In our country, expression is 
not required to pass any test of validity, or even propriety, to be 
both permitted and protected.
    After all, the test of whether America allows free speech is not 
whether it grants freedom to those with whom we mildly disagree. It is 
whether we protect the freedom of those whose views--and language--make 
us apoplectic.
    Still, I testify today in a spirit of confidence and cooperation--
because I speak here as both an executive and a parent.
    I care as deeply and passionately about my own children as I know 
you do about your own. So do my colleagues in the recording industry, 
from artists to executives.
    The real test of commitment to our youth is not how strongly each 
participant in this discussion can defend its positions or papers, but 
whether every party can work together to address the complex blend of 
challenges facing our children.
    The last 15 years have proven that we can. And I am confident that 
we can do so for decades to come. Thank you.
                               __________

   Prepared Statement of Pamela Horovitz, on Behalf of the National 
                 Association of Recording Merchandisers

    Good morning. My name is Pamela Horovitz, and I am President of the 
National Association of Recording Merchandisers, the trade association 
for retailers and wholesalers of recorded music. I am also the mother 
of a ten year old.
    NARM has supported the RIAA Parental Advisory Program since its 
inception in 1985. Over the years we have worked closely with RIAA on 
improving the program, providing feedback from retailers who hear 
directly from their store personnel and from parents about what is or 
isn't working. Because of that feedback, the language, look and 
placement of the logo have been refined, and more uniform guidelines 
for applying the label have been developed. We have collaborated with 
RIAA in publicizing the program to parents via posters and counter 
cards in the stores. This past year we have been working with our 
members and with RIAA to take the Parental Advisory online.
    Our members use the Parental Advisory in a variety of ways. Some 
companies choose not to purchase recordings that carry the sticker. 
Some restrict the sale of these titles to 18 year olds, others to 17 
year olds, others to 13 year olds. Some companies let the advisory 
sticker speak for itself, and some companies place the responsibility 
for how to handle the product in the hands of a local store manager who 
is frequently most in touch with the needs of a specific community.
    Last week, the findings of the FTC report on industry practices 
with respect to violent entertainment were presented to the NARM Board 
of Directors. We welcomed this study as a useful snapshot of how the 
various segments of the music industry are addressing this important 
issue, and also as a benchmark of comparison between music, film, and 
videogames. We are in the process of publicizing the findings of the 
FTC to our member companies along with the newest guidelines for the 
Parental Advisory program.
    We also discussed the recommendations of the FTC and concur with 
the conclusion that marketing plans fro entertainment products should 
be consistent with the content. We concur that the findings indicate 
that we need to redouble our efforts to increase parental awareness not 
just of the music industry advisory, but of all the entertainment 
industry ratings programs.
    The one recommendation with which we do not agree is the one which 
advocates restricting access to this music by anyone under the age of 
17 and which characterizes this as ``compliance'' with a system that 
was never intended to be more than an informational aid to parents. Let 
me tell you why we disagree.
    The FTC report has a lot of good information in it, but sometimes 
facts just don't tell the whole story. For example, here's one fact 
that every parent knows: kids mature at different speeds and in 
different ways. Some kids can play violent video games but have 
nightmares after a scary movie. Some kids' neighborhoods are scarier 
than any song will ever be. And Bobby Knight still isn't old enough to 
go see Gladiator or play Doom or listen to Eminem. So what is 
appropriate for one child isn't always appropriate for another child, 
even if they're are the same age, or go to the same school, or are even 
in the same family.
    Several years ago, NARM and RIAA sponsored focus groups on the 
Parental Advisory program. We learned about the wide variety of 
responses that parents had to situations in which their kids had 
purchased records that carried the PA sticker. Some parents returned 
the CD to the store. Some parents threw the tapes in the trash and told 
the kids they had just blown their allowances by purchasing something 
they knew wasn't allowed. Other parents restricted play of such records 
to personal listening devices because older siblings had permission to 
hear the record, but younger ones didn't. Still other parents used the 
appearance of stickered product in the house to listen to the record 
themselves and later ask their kids why they were attracted to these 
songs. The parents' interactions with the PA program were as varied and 
unique as the kids themselves were.
    If you try to restrict kids under the age of 17 from access to all 
of this music, either through direct legislation prohibiting the sale 
of such music to minors or through legislation that would enable 
content providers to boycott retailers who sell stickered or rated 
product, you are taking away every parent's opportunity to have these 
kinds of interactions. You are saying, in essence, that Americans don't 
have the right to practice their parenting in this area because 
Congress has decided that they aren't up to the challenge. ``Parents, 
you don't have to monitor entertainment products anymore, because we've 
taken care of the problem by removing it from the marketplace.'' You 
would have us believe that all kids, once they hit age 17, will somehow 
magically be ready to hear, play, or watch adult material even though 
they haven't had the benefit of any dialog with their parents 
beforehand.
    And you are also saying, at least in the case of the music 
industry, that five giant companies, (all of whom are now beginning to 
sell music over the Internet themselves) should get together and 
jointly decide to boycott any retailer they claim has not complied with 
the labeling system applicable to music products. Not only am I told 
that such an exemption from antitrust law would be unprecedented, but 
the opportunity for abuse--i.e., to eliminate from the marketplace 
retailers with whom the five major music companies are themselves now 
directly competing--is obvious and, quite frankly, frightening.
    I believe America's parents and America's kids are much better 
served by a retail environment in which the practices of retailers are 
as varied as the families that they serve. This approach inevitably 
means that more kids, including my daughter, will come in contact with 
entertainment products that they're not yet ready to handle.
    Each day that I send my daughter out the door, I know that 
potentially she will encounter language that I don't approve of or see 
behavior that I don't condone, not just in entertainment, but at the 
softball game, at the playground, at the grocery store. I will have 
nights when I'm too tired to do a good job of explaining a news story 
on TV, and times when I will lose my patience at the constant barrage 
of advertising masquerading as entertainment. But when I signed on for 
this job of parent, I knew I wasn't going to get to pick which nights 
would be sleepless and which battles would be easy. And even if I do a 
less than perfect job, I still think it will be better than letting 
some record company or retailer who doesn't know anything about me or 
my daughter decide what's appropriate for my family.
    The music industry is filled with people like me, who aren't just 
in the business, but who are parents. We have worked hard at balancing 
artist's rights with parents' rights. We recognize that businesses need 
to thrive, but that kids do too. We will use all the tools available to 
us to keep on improving our understanding of this issue, including the 
feedback from parents as articulated in the FTC report. We know from 
talking to parents year in and year out that they prefer a voluntary 
information system to censorship and government regulation. 
Accordingly, we object to censorship by a private trade association of 
content providers that is given congressional authority to do what 
Congress itself is prohibited from doing directly.

    The Chairman. Well, thank you.
    Mr. Fithian, we will turn to you.

                   STATEMENT OF JOHN FITHIAN

    Mr. Fithian. Thank you, Chairman Hatch. I want to echo the 
compliments on your leadership on this issue. I think it is 
particularly appropriate that this committee is bringing a 
reasonable deliberative approach to something that has been 
subject to a great deal of heated political rhetoric lately. I 
think the fact that you are willing to reconvene back at eight 
o'clock in the morning and take these issues seriously shows 
that this is a real legislative and deliberative process, and 
that is a welcome change from what we have seen recently in 
some of the campaign rhetoric.
    My Association, the National Association of Theatre Owners, 
represents over 730 companies in this country that show movies 
on screens. They range from a few large national circuits with 
thousands of screens to hundreds of little mom-and-pop 
operators who have two or four or six screens. We operate in 
every State in the country. Last week, I was in Park City 
meeting with the theater owners in Utah and Colorado, talking 
to them about the rating system.
    I think the theme I want to emphasize the most today is 
that enhanced voluntary entertainment rating systems can do 
much more to protect America's kids than can any government 
mandates. Concepts or proposals to take our rating system, to 
write it into law, and then enforce it with other civil or 
criminal penalties are a bad plan--violate the First Amendment, 
unenforceable in many ways. And we are delighted that this 
committee is seeking a different approach.
    We have been partners with Jack and the MPAA for 32 years 
in our rating system, and frankly we are quite proud of it. We 
have turned away millions of dollars of business over those 
years, denying kids the right to come into our theaters.
    And I wish Senator Feinstein were here this morning. We 
will go and talk to her personally. When she asked yesterday if 
theaters enforce the rating system, I think the emphatic answer 
is yes, and we know we have to do better. Last summer, we 
announced a national policy to I.D.-check kids for R-rated 
movies, the first time we put this policy into place just last 
June.
    The FTC report commenced just a few months after we started 
that policy. Even so, the theater industry had the best 
enforcement record of any of the industries surveyed by the 
Federal Trade Commission. But we know that we need to do more. 
We are working to develop a Web site on ratings information 
that we can coordination with Jack's Web site at the MPAA.
    We are distributing posters that explain what the rating 
system means, and encouraging all of our members to post them 
so that parents can learn even more about the system. And 
parents already know a great deal about our system. The highest 
numbers in the investigation were for awareness and support of 
the movie rating system. Ninety-one percent of the parents 
surveyed said that they knew about the system. And more 
importantly, 90 percent said they actually use it. They check 
the ratings and then they help to control and work with their 
children on their movie-going choices. Those are numbers that I 
think any politician would die for, and that comes from 32 
years of history of constantly working to improve the 
enforcement and the education about our rating system.
    I will be meeting with all my members in the first week in 
November to discuss additional ways that we can respond to the 
report of the Federal Trade Commission because we do take it 
very, very seriously. We have to be careful of course, in what 
we decide to do and what Congress decides to mandate that we 
do.
    If you have read the business page lately, you know that 
the exhibition industry is in some very troubled times. Four of 
my largest members have declared bankruptcy in the last few 
months, and I have several more who are very close to doing the 
same. So we need to find ways to balance the importance of 
improving our enforcement of our rating system without driving 
up labor costs and driving our members out of the market at the 
same time. But I am confident that we can do both.
    You have asked about the antitrust exemption and how that 
might help us in our collaborative discussions of what to do 
with the rating system. Let me say that we are very willing to 
work with you and Senator Leahy on crafting appropriate 
language.
    As you know, Chairman Hatch, over a year or two we did the 
very same thing on the baseball antitrust exemption, and I 
appreciate your leadership on that. I think if it were needed, 
we could come up with appropriate language. We cannot support 
the current draft of the amendment that was proposed on the 
Senate floor last year. It is flawed in several ways.
    First, the exemption doesn't apply to us. It only applies 
to the producer of the product, so we could not be allowed to 
be involved in the discussions. And as Jack knows even better 
than I, we have been involved together with the Motion Picture 
Association and the studios for 32 years. It is very much a 
partnership. So if there were to be any legislation, we would 
like to be able to be at the table. With or without 
legislation, that is what we are going to do. Jack and I have 
committed, and we have already begun talking about ways that we 
can work together to improve the system.
    Second, as Chairman Pitofsky illuminated yesterday, a 
blanket antitrust exemption is dangerous if it doesn't take 
care of certain types of violations. We would not support an 
amendment, for example, that allowed group boycotts of our 
theaters--a classic per se violation. There are other types of 
per se violations that we would like exempted from the bill--
allocations of product or price-fixing, refusals to deal. Those 
types of classic per se violations that traditionally Congress 
has written out of antitrust exemptions need to be included in 
whatever legislation this committee wants to consider.
    And the reason for that, as Chairman Pitofsky alluded to, 
is quite simple. If a small theater for some reason is not 
liked by the studios--and I am not saying this would happen, 
but theoretically it could--the studios, under the guise of 
enforcing the rating system, could deny all their product to 
that theater. That would put the theater out of business, 
obviously. The way the amendment is drafted currently, we 
couldn't even be involved in that discussion under the 
antitrust exemption about whether or not the studios would deny 
the product. That being said, there are other ways that an 
antitrust exemption could be used to increase enforcement and 
education, and I would be very willing to work with your staff 
and Senator Leahy's staff if that were deemed necessary.
    Again, I agree with Jack that we are taking the steps we 
need to take. The FTC report and these congressional hearings 
have been very helpful in pointing out areas for improvement 
and we are working on them. And we think our own voluntary 
efforts are the best way to go. But if Congress must legislate, 
we would be delighted to work with you on what the language 
should look like.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Mr. Fithian follows:]

                   Prepared Statement of John Fithian

    Chairman Hatch, Senator Leahy, and other members of the Committee. 
I am pleased that the Senate Committee on the Judiciary is holding this 
hearing. I especially appreciate your leadership in bringing a 
deliberative approach to a set of difficult issues that have been 
subject to much heated rhetoric.
    I serve as the President of the National Association of Theatre 
Owners, or ``NATO.'' NATO is the largest trade association of theatre 
owners and operators in the world. We represent over 700 movie theatre 
companies, ranging from a few large national circuits with thousands of 
screens, to hundreds of small operators with only a few screens. Our 
members operate more than 27,000 movie screens in the United States, or 
approximately 70 percent of all domestic screens. NATO members operate 
in every state in the union.
             THE VOLUNTARY RATING SYSTEM AND THE FTC REPORT
    The theme of my remarks is simple--enhanced voluntary entertainment 
rating systems will do more to protect America's kids than will any 
attempt by the government to censor speech and regulate commerce. For 
over thirty years the movie rating system has served to provide 
America's parents with the information necessary to make informed and 
responsible decisions about their kids' movie going choices. NATO co-
founded the system with the Motion Picture Association, and we continue 
to work on improvements.
    There are two components to our efforts--enforcement and education. 
For three decades our members have turned away millions of dollars in 
business to enforce the ratings. And we work continually to tighten 
enforcement.
    Last year, NATO announced a new national ID-check policy for ``R'' 
rated movies. We have distributed materials and training video tapes to 
our members to assist them in their enforcement efforts. I travel 
around the country often to speak to our theatre managers about the 
importance of the system.
    We note that our enforcement record is the best of the three 
industries surveyed by the Federal Trade Commission. The Commission 
found that theatre circuits included in their investigation ``have 
taken responsible measures to increase enforcement of the minimum age 
requirement for the purchase of tickets to R-rated features since the 
Columbine shootings.''
    That said, we certainly are not satisfied with the enforcement 
numbers reflected in the report and will be redoubling our efforts. The 
FTC's investigation began just a few months after we adopted and 
announced our new ID-check policy. We are confident that as our members 
continue to train their employees, and as we develop new ways to 
tighten up enforcement, our numbers will improve even more.
    Education is equally important. The rating system is a shared 
responsibility between the entertainment industry and America's 
parents. We work to make ratings information available while parents 
must strive to become informed. As the FTC noted, over 80 percent of 
America's parents are satisfied with the movie rating system.
    What's more important than parental satisfaction is the fact that 
parents use the ratings. Ninety-one percent of the parents surveyed by 
the Commission indicated their awareness of the moving rating system, 
and 90 percent said they consulted the system and restricted their 
child's movie going as a result. Those numbers were considerably higher 
for movies than for the other industries surveyed for the report.
    Through increased education, NATO hopes to involve more parents in 
their children's movie-going decisions. For example, we are 
distributing free ratings posters for our members to display so that 
even more parents can learn what the ratings mean. We are developing a 
new NATO web site which will contain ratings information, and will be 
linked to the MPAA's rating sites as well. At our annual membership 
meeting in November, we will be discussing additional ways to provide 
information about the ratings, and to improve enforcement.
               ECONOMIC VIABILITY OF THE THEATRE INDUSTRY
    As we and Congress examine our system, we must work to improve 
education and enforcement without driving up costs. If you have read 
the business page lately, you are aware that the motion picture 
exhibition industry faces very tough economic times currently. Four 
major theatre circuits have declared bankruptcy in the past few months, 
and others may follow soon. Better policies won't mean a thing to a 
theatre that closes it doors to the public. We must redouble our 
efforts to improve the workings of the voluntary system while keeping a 
careful eye on costs. I am confident we can do both.
    The Commission recognized these pressures in its report, by noting 
that ``theaters must strike a delicate balance between the need for 
enforcement (including the costs associated with measures beyond 
identification checks) and the need to maintain a friendly and 
welcoming environment'' (parenthetical included in the original).
    The release of the Federal Trade Commission's report last week, 
combined with these congressional hearings, provide important 
government oversight to the entertainment culture in our country.We got 
the message, Now we industry leaders must take what we've learned from 
the oversight and apply it, by working within the voluntary system.
                         FIRST AMENDMENT ISSUES
    As I did at the beginning of this testimony, I emphasize the 
voluntary nature of the system. Proposals to codify the industry's 
voluntary code, or to impose a new government system, would be tied up 
in the courts for years and eventually declared unconstitutional under 
the First Amendment.
    The FTC report, which advocates continued self-regulation, notes 
that ``most commentators agree that any law requiring the rating or 
labeling of entertainment media products would raise the 
[constitutional] issue of `compelled speech'.'' Moreover, courts have 
uniformly invalidated the enforcement of the industry's ratings by 
government officials. See Drive-In Theatre v. Huskey, 305 F.Supp. 1232 
(W.D.N.C. 1969), aff'd 435 F.2d 228 (4th Air. 1970) (enjoining sheriff 
from prosecuting exhibitors for obscenity based on ``R'' or ``X'' 
rating); Engdahl v. Kenosha, 317 F.Supp. 1133 (E.D.Wisc. 1970); and 
MPAA v. Specter, 315 F.Supp. 824 (E.D.Pa. 1970).
    Although oversight is healthy and productive, Congress must also be 
cautious not to threaten the industry to improve its voluntary system 
or face government regulation. Courts have found that industry self-
regulation can be unconstitutional if it is undertaken merely because 
of the threat of government regulation. As the FTC report noted, the 
First Amendment applies to private activity if ``the government has 
exercised coercive power or provided such significant encouragement 
that the challenged action can fairly be attributed to the 
government.'' See FTC Report, Appendix C at 2 (citing Rendell-Baker v. 
Kohn, 457 U.S. 830 (1982); Lugar v. Edmonson Oil Co., 457 U.S. 922 
(1982); and blum v. Yaretsky, 457 U.S. 991 (1982)). Furthermore, 
government pressure compelling industry self-regulation has been found 
to violate the First Amendment. Cf. Writers Guild of America, West, 
Inc. v. FCC, 423 F.Supp. 1064 (C.D. Cal. 1976) (holding that the 
television industry's adoption of the ``family viewing hours'' was 
unconstitutional state action because if was adopted in direct response 
to the threat of government regulation.)
    Some in Congress and on the campaign trail have repeatedly 
threatened the industry with regulation if additional self-regulatory 
steps are not taken. Such continued threats would increase the 
likelihood that additional self-regulation will be successfully 
challenged in court. The proper role of Congress is oversight--to 
highlight the need for further education and enforcement without 
threatening unconstitutional government regulation. Working together, 
Congress and industry can improve on a rating system that has grown 
over thirty years.
                         ANTITRUST LEGISLATION
    Chairman Hatch's staff has also asked us to consider legislation 
which would grant a limited antitrust exemption to permit the industry 
to work together better on matters involving the voluntary rating 
system. NATO is willing to work with the committee to fashion 
appropriate legislation in this regard.
    In an earlier career, I worked with the leaders of this very 
committee on legislation to clarify the application of the antitrust 
laws to Major League Baseball. We knew then that antitrust exemptions 
are dangerous, and that antitrust legislation must be carefully 
crafted. As Senator Leahy said during the baseball debate, ``Our 
antitrust laws are intended to protect competition and benefit 
consumers. No one is or should be above the law.'' And as Chairman 
Hatch cautioned, we must ensure that antitrust exemptions do not allow 
businesses to ``conspire and collude without restraint--the precise 
practices the antitrust laws were designed to prohibit.''
    If the committee were to consider antitrust legislation, it should 
do so very carefully. For example, legislation should not exempt any 
so-called ``per se'' violations, such as price fixing, boycotts, 
refusals to deal or allocation of territories, when Congress has 
considered antitrust exemption in the past, it has tended to protect 
the application of antitrust scrutiny to per se activities.
    Sometimes Congress used general language to cover per se 
violations. See the limitations section of The Television program 
Improvement Act of 1990, P.L. 101-650, Section 501(d). Other times 
Congress specified which type of actions would be exempted and which 
would not. See the limitations section of The National Cooperative 
Research Act of 1984, and The National Cooperative Production Amendment 
of 1993, codified at 15 U.S.C. Sec. 4301(b).
    As for the ``rule of reason'' violations that might be exempted by 
the bill to help facilitate useful dialogue within the industry, we are 
willing to work with the committee to craft appropriately limited 
language.
    We would also recommend that the committee consider limiting the 
duration of any antitrust exemption legislation. The Television Program 
Improvement Act, for example, expired after three years.
    The movie rating system began in 1968. Since that time it has been 
tooled and re-tooled to reflect societal changes as they relate to 
parents, their kids and the movies they see. This is both the beauty 
and the strength of our voluntary system. We look forward to working 
with the committee and others in our industry to improve upon this 
valued parental tool.
    Thank you for the opportunity to testify, and for your leadership 
on these important issues.

    The Chairman. Well, thank you, Mr. Fithian. I am serious 
about getting an antitrust exemption and I would like all of 
your input on how that might best be written. I am not caught 
up in any language, although we did pass the amendment 98 to 0. 
So I am serious about it because I can't see where--well, we 
will get into that in a minute.
    Mr. Andersen, we will take your testimony.

              STATEMENT OF CROSSAN ``BO'' ANDERSEN

    Mr. Andersen. Good morning, Mr. Chairman. Retailers welcome 
the opportunity to appear this morning, and appreciate the 
attention that this committee has brought to the need for 
bringing more information to parents about the content of 
movies and video games. I should say in opening that retailers, 
video retailers in particular, believe that motion pictures and 
video games should be marketed consistent with the age groups 
to which they are intended.
    I do represent video retailers and video distribution 
companies, but I am also the father of a soon to be 4-year-old 
daughter and two post-teen children, all of whom I am immensely 
proud of, but that is another story. I also should mention on 
the personal side that I started my legal career in the 
Antitrust Division, and for me that was a high calling for more 
than 10 years.
    I mention that because I do want to address at least 
briefly some of the problems presented by the chairman's 
suggestion and the chairman's amendment to the Child Protection 
Act involving an antitrust exemption for these purposes.
    First, concerning the notion of a need for more intensive 
enforcement of ratings in video stores, particularly rental 
video stores, there is simply a misconception. There is no 
evidence of a failure of denying access to children of M-rated 
video games and R-rated movies in the rental context. The 
Federal Trade Commission report recognized this in several 
ways, and the core of their recognition of that was a statement 
that in the home video context the involvement of parents is 
required. By the very nature of the rental arrangement in video 
stores, parents are involved.
    I admit that perhaps too few parents know that they can 
make individual choices about products to be rented to their 
children individually for their children in home video stores. 
We have a program which is called Pledge to Parents, branded 
that way, and that brand is available to any video retailer. 
The Blockbusters and Hollywoods among the video retailers have 
this program under different names. But what it means is that 
parents can register their individual choices, more restrictive 
or less restrictive, for their individual children. And I doubt 
that we should intervene between parent and video retailers, or 
that Congress would want to.
    Where parents have not registered a specific choice or 
control, video retailers default to the ratings and do not rent 
R-rated videos or M-rated video games to children under 17, 
unless there has been that level of parental intervention and 
parental consent.
    This program is not an 11th-hour conversion. This has been 
a program available in video stores for at least 10 years, and 
there is no evidence that it is not working well and that it is 
not serving the needs of parents. These programs have been 
called ratings enforcement programs. I think of them as 
parental empowerment programs, and as I said, parents have used 
this system for more than a decade.
    But I think equally important to this debate that the 
committee will have is that parents often just start with the 
video and video game rating. They use other rating systems, the 
Internet. The Hollywood Reporter yesterday listed 14 family-
focused Internet sites rating and reviewing movies. They use 
religious publications, and they use probably most widely the 
advice of neighbors and family members.
    So, often, the MPAA rating or the ESRB rating is only the 
start of a process. And, often, parents use the MPAA rating as 
only a starting point and then make individual adjustments, 
setting either a higher or a lower age for their individual 
children for access to M-rated and R-rated products. In other 
words, we think that there is some danger in elevating a 
single, monolithic rating system and denying parents the 
attention that they would give to other systems, other ratings, 
other reviews that they might prefer to trust.
    We ask the committee to examine on the antitrust question 
how studio executives might use the antitrust exemption that is 
contained in section 405. And here I am not speaking of the 
sham use of the exemption that Chairman Pitofsky referred to 
yesterday. Instead, I am referring to the potential use of the 
antitrust exemption and the boycott power specifically with 
reference to the enforcement of supplier-run ratings programs.
    Let me ask the chairman to consider a hypothetical. Suppose 
an independent rating system, perhaps entitled Movie Ratings 
2001--this independent rating system, one of several, assume 
that it had been too hard, if you will, on the products of the 
major motion picture studios and that it was hurting their 
sales to video rental and hurting box office.
    An exemption would allow the studios to boycott a retailer 
who promoted these ratings in his advertising or enforced these 
ratings in a more restrictive way as a default in his stores. I 
agree that perhaps it is more likely that the exemption would 
be used to manage the inventories of independent video stores 
or small chains of video stores.
    By that I mean who would studio executives react to the 
dominance of unrated products in a video store which was 
cutting their access or cutting the shelf space of the major 
releases? Would they be authorized to agree to quotas ofunrated 
and rated products, and apply it to retailers? Could they prohibit the 
use of competing rating systems because it might confuse consumers?
    And then there is the issue of unrated films. Presumably, 
if the rating systems will remain voluntary, there will always 
be unrated product. But any significant economic imperative 
that the studios could place by way of a threatened boycott on 
video retailers that would limit or cut shelf space for unrated 
product would create an economic imperative to rate the product 
and cut off a choice, and would make the rating systems less 
than voluntary.
    What concerns us most as retailers, however, is probably 
the loss of freedom that retailers have enjoyed. Traditionally, 
home video retailers have not purchased directly from the 
studios, and this fact, plus the first sale doctrine, has given 
them a high degree of freedom over the stocking of and the 
rental and sale of products once the studios have sold them 
into the stream of commerce.
    Video retailers chose to share this level of control with 
parents with respect to the content for youth and children, and 
I think that opportunity for sharing that control in varied 
ways should be continued. Particularly, our view that the 
antitrust exemption would be dangerous and problematic is 
supported by the absence of any evidence that these controls 
are not working well in the home video rental context. In our 
view, this would be problematic and perhaps a little bit 
dangerous.
    Beyond that, Mr. Chairman, we are willing to consider and 
work with the committee to consider a voluntary approach in 
which retailers would participate in establishing and enhancing 
ratings and finding ways to voluntarily enforce them at the 
retail level. But the exemption that is proposed in section 
405, we feel, is currently unnecessary.
    Thank you.
    [The prepared statement of Mr. Andersen follows:]

                   Prepared Statement of Bo Anderson

    Mr. Chairman: Thank you for inviting the Video Software Dealers 
Association (VSDA) to testify at this hearing on antitrust law and the 
entertainment industry's efforts to restrict marketing and sales of 
violent entertainment to children.
    My name is Bo Anderson and I am president of VSDA. VSDA is a not-
for-profit international trade association for the $17 billion home 
entertainment industry VSDA represents over 3,000 companies throughout 
the United States, Canada, and 22 other countries. Our core membership 
comprises the full spectrum of video retailers (both independents and 
large chains), as well as video distribution companies.
    VSDA is pleased that the recently released Federal Trade Commission 
(FTC) study, ``Marketing Violent Entertainment to Children,'' supports 
what we have long said: There is no better place than a home video 
store for parents to control the content of the movies and video games 
to which their children have access.
    I want to assure the committee that VSDA and its members are 
concerned about the level of youth violence in our society. While we 
have no expertise in the relationship between depictions of violence in 
entertainment and real-world youth violence, the home video industry 
believes it has a role to play in helping parents ensure that their 
children do not gain access to movies and video games that the parents 
deem inappropriate for them. We want to share with you the actions 
video retailers take to assist parents in this regard through ratings 
education and effective, voluntary parental control programs.
    While the home video industry supports and indeed actively utilizes 
voluntary ratings programs, we strongly oppose proposals to grant 
antitrust immunity to the producers of entertainment so that they may 
enter into restraint of trade agreements to enforce their ratings 
systems at the retail level. These proposals would allow entertainment 
media executives to gain unprecedented control over the sale and rental 
of movies and video games by video stores, to the detriment of both 
video stores and their customers.
                     FTC REPORT AND VIDEO RETAILERS
    Individuals who have not read the FTC report will assume, given the 
report's recommendation for retail enforcement of motion picture and 
video game ratings, that the FTC found deficiencies in ratings 
enforcement by video stores.
    In actuality, the FTC report portrayed the rental of movies and 
video games positively. Specifically citing the policies of Blockbuster 
and Hollywood Video, the FTC acknowledged that ``[p]arents have 
significant controls over the videos their children rent because of 
limitations established by the major rental outlets'' and the rental of 
videos ``requires a degree of parental involvement.'' VSDA believes 
these findings are true also for the vast majority of other chains and 
independent video retailers, as video stores of all sizes have 
effective parental control policies.
    The FTC report also found that the only major brick and mortar 
sellers of videos that it examined that had policies restricting the 
sale of R-rated videos to children were stores that also rent videos. 
It correctly noted that retailers that both sell and rent videos are 
``more attuned to the issue of parental consent in this area.''
    In light of the findings regarding video stores, the FTC's 
statement that ``[c]hildren's access to violent movies on home video 
differs according to whether the video is rented or purchased,'' would 
have been more accurate had it said that access differs according to 
whether the rental or purchase occurs at a video store or a non-
specialty retailer.
    In sum, the FTC study does not support the inference that there is 
a ratings enforcement problem in video stores. Quite the opposite is 
true.
    Regarding sales of movies and video games outside of video stores, 
most of which are conducted by mass merchants, enforcement of industry 
ratings is more difficult to manage. We are pleased to note that major 
retailers such as Wal-Mart, Kmart, and Toys R Us have resolved to work 
through the logistical barriers to ratings enforcement in their stores. 
VSDA is prepared to serve as a facilitator and manager of more 
widespread adoption of ratings-based ``stops'' and ``ID checks'' in 
checkout lines of mass merchants. We feel that the ``checkout time'' 
devoted to this effort will be understood by consumers and will reflect 
positively on mass merchants that choose to adopt such approaches.
                   VOLUNTARY USE OF INDUSTRY RATINGS.
    The FTC report encouraged retailers to check IDs or require 
parental permission before selling or renting R-rated movies and M-
rated video games. It also suggested that steps be taken to better 
educate parents about movie and video game ratings by providing ratings 
information in retail outlets. I am pleased to report that these steps 
are already being taken in video stores, and have been for many years.
    The video retailers of VSDA agree with this Committee that the best 
control is parental control. As stated in ``Children, Violence, and the 
Media: A Report for Parents and Policy Makers,'' issued by the 
Committee in September 1999: ``[P]arents should realize that there is 
simply no substitute for close adult supervision of, and involvement 
in, the lives of their children. Parents must take the time to learn 
what their children are viewing and playing.'' We are also pleased to 
note that the FTC acknowledged that ``parents must become familiar with 
the ratings and labels, and with the movies, music, and games their 
children enjoy.'' Accordingly, we insist on approaching this as an 
issue of enforcing ``parental control'' rather than enforcing ratings.
    VSDA-member retailers have taken action to aid parents in making 
more-informed entertainment choices for their families. They do this 
through voluntary ratings enforcement programs, such as the company-
specific programs used by VSDA members Blockbuster, Hollywood Video, 
and Movie Gallery and VSDA's own ``Pledge to Parents'' program.
    The centerpiece of Pledge to Parents, established by VSDA in 1991, 
is a commitment by participating retailers:
    1. Not to rent or sell videos or video games designated as 
``restricted'' to persons under 17 without parental consent, including 
all movies rated ``R'' by the Motion Picture Association of America and 
all video games rated ``M'' by the Entertainment Software Rating Board.
    2. Not to rent or sell videos rated ``NC-17'' by the Motion Picture 
Association of America or video games rated ``Adults Only'' by the 
Entertainment Software Rating Board to persons aged 17 or under.
    In addition, as part of the Pledge to Parents program, many 
retailers solicit from customers written instructions regarding what 
types of movies and video games can be rented or purchased by family 
members. For instance, a customer can limit all of his or her children, 
regardless of age, to videos rated ``G'' by the Motion Picture 
Association of America, or indicate that one child is permitted to rent 
``G'' games while another can rent ``PG-13.'' Thus, our voluntary 
system allows parents, if they so choose, to be even more restrictive 
than any industry- or government-enforced system would be.
    The program also includes educational materials to make parents 
more aware of and better utilize movie and video game ratings.
    In 1999, we updated our Pledge to Parents materials and provided 
the revised kit, at no cost, to each retail member of VSDA.
    Each Pledge to Parents kit contains the following:
     Customer Flyer and Parental Consent Form--These materials 
provide information about the Pledge to Parents program and allow 
customers to indicate their restrictions or authorizations on video and 
video game rentals and sales by their family members.
     Terminal-Topper Sign--This sign, to be displayed near the 
cash register, draws customers' attention to Pledge to Parents and the 
retailer's ratings enforcement policy.
     ID Check Sign--We encourage retailers to post this sign, 
which indicates that IDs will be checked when appropriate, throughout 
their store.
     MPAA Theatrical-Size Ratings Poster--This poster provides 
customers with movie ratings information to further assist them with 
their selection of movies.
     Video Game Ratings Poster and Brochures--The poster and 
brochures are designed to help customers make informed decisions 
concerning their children's video game rentals.
    We encourage VSDA members to make maximum use of the Pledge to 
Parents materials and proving ratings and content information to 
customers of all ages. We also strongly urge our members to check IDs 
whenever appropriate. We are pleased to report that the response to 
this program from our members has been extremely positive.
    VSDA educates consumers about the entertainment ratings systems and 
video stores' voluntary parental control programs. As part of the 
relaunch of Pledge to Parents, we conducted a substantial public 
outreach campaign that reached millions of consumers through 
television, radio, newspapers, and the Internet. The purpose of this 
campaign was to make parents aware of the resource available to them in 
video stores.
    The voluntary Pledge to Parents demonstrates our industry's 
commitment to the communities in which we live. Video stores and their 
employees are part of the neighborhoods where they are located. They 
often know their customers by name. They know what is acceptable and 
what is not acceptable in their communities. They take pride in the 
entertainment they bring into people's homes. And they realize that 
their reputations and livelihoods are on the line every time they sell 
or rent a movie or video game. Video retailers do not put their 
businesses at risk by providing to children movies and video games that 
their parents don't want them to have.
         ANTITRUST EXEMPTION TO ENFORCE INDUSTRY RATINGS SYSTEM
    VSDA is opposed to providing the producers of entertainment with 
antitrust immunity to enter into restraint of trade agreements to 
enforce their ratings systems at the retail level.
    Sections 404 and 405 of the Juvenile Justice Act (H.R. 1501), as 
passed by the Senate, would grant antitrust exemptions to the 
entertainment industry for agreements to reduce the impact on children 
of violence in entertainment products. Section 405 would exempt from 
the coverage of the antitrust laws agreement among entertainment 
industry organizations to ensure enforcement of ratings and labeling 
systems by video retailers, theater owners, and others. Section 404 
would provide a separate exemption for agreements to develop and 
disseminate voluntary guidelines ``to alleviate the negative impact'' 
of movies, video games, and other entertainment that contain depiction 
of violence, sexual activity, or criminal behavior, so long as the 
guidelines do not result in a boycott of any entity.
    We oppose Section 405 and similar proposals for three principal 
reasons. First, they would effectively give the manufacturers of 
entertainment products a monopoly over movie and video game ratings 
systems.
    VSDA supports the ratings systems of the Motion Picture Association 
of America and the Entertainment Software Rating Board. In fact, we 
have formally endorsed each, in 1987 and 1994 respectively. We do not 
object to an antitrust exemption for entertainment industry 
organizations to develop and disseminate guidelines regarding the 
content of their products, should Congress determine that such 
authority is necessary. However, we strongly oppose granting the motion 
picture studios and game manufacturers the power to strip from parents 
the right to make decisions regarding what movies and video games are 
right for their individual children.
    The customers of video retailers are sophisticated consumers who 
rely on a variety of reviews and rating systems to determine their 
viewing choices. They seek guidance from family, friends, reviewers, 
critics, religious leaders, and informed retailers. There are numerous 
opinions in the marketplace concerning movies and video games, but none 
of the sources of opinions currently have the power to impose their 
views on others. Most importantly, parents are currently the final 
arbiters of whether, for example, their 15-year-old may rent 
Schindler's List or Saving Private Ryan, two highly acclaimed R-rated 
movies that many parents may definitely want their teenagers to see. An 
antitrust exemption for entertainment industry executives would place 
competing independent ratings systems at a competitive disadvantage, 
place at risk the current parental control over whose guidance to 
follow, and grant ultimate authority to entertainment industry 
executives, the very individuals who create the product that is being 
evaluated.
    Second, we must not lose sight of the implications such an 
exemption would have for copyright law. The power of copyright owners, 
recently expanded by Congress to unprecedented levels, would be 
expanded once more to create a dangerous exception to the first sale 
doctrine.
    The first sale doctrine, as codified in Section 109 of the 
Copyright Act, provides that the owner of a lawfully made copy of a 
movie, video game, or other copyrighted work is entitled, without the 
consent of the copyright owner, to sell or transfer possession of that 
copy. The first sale doctrine is the legal underpinning of the home 
video retailing industry. It gives retailers the right to rent and sell 
prerecorded videos and video games without the authorization of the 
copyright holder. The United States' longstanding policy against 
restraints on alienation of property has served us well for more than 
200 years, and we believe it would be a very dangerous precedent indeed 
to given copyright owners the right to continue to control the 
distribution of copies of their works after they have transferred title 
to them.
    VSDA has fought hard through the years to maintain the independence 
of video retailers and their ability to sell and rent movies and video 
games to the public without interference from the motion picture 
studios and game manufacturers.
    VSDA was formed, in part, as a response to the motion picture 
studios' efforts to abolish the first sale doctrine and prohibit the 
rental of movies. It is difficult to believe today, when home video 
represents approximately one-half of the total domestic film revenues 
of the studios, but the studios tried to destroy the video rental 
industry in its infancy. Legislative initiatives such as the ``Consumer 
Video Sales/Rental Amendment of 1983'' (H.R. 1029.S. 33, 98th Congress) 
sought to require anyone wishing to rent videotapes to obtain prior 
permission from the copyright owner, which would have effectively 
precluded video rentals. VSDA was instrumental in defeating efforts to 
undermine the first sale doctrine. In doing so, we ensured the 
phenomenal growth of the home video industry and contributed to the 
financial health of the studios.
    An antitrust exemption would jeopardize our hard-won right to rent 
movies and video games and allow entertainment industry executives to 
dictate to video stores what they can sell and to whom.
    Third, we oppose granting the manufacturers of entertainment 
products an antitrust exemption to control retail distribution because 
such an exemption could seriously weaken competition at the retail 
level.
    There is a very real possibility that the studios would use this 
authority to force video stores to adopt a certain product mix or buy 
specific genres or titles. They could even use it to preclude stores 
from offering unrated product or ``NC-17'' or other adult videos and 
video games. This would deny adult consumers the full range of 
entertainment choices to which they are entitled under the 
Constitution.
    Given the studios' historic antagonism towards home video, the 
studios might use the antitrust exemption to restrict competition 
within the industry and engage in otherwise impermissible group 
boycotts.
    We also fear that the enforcement power would be used selectively. 
It is natural to assume that the studios would be loathe to use the 
enforcement power against major retailers from whom they gain 
significant revenue, and would be more willing to use it against 
retailers who have little economic power.
    Restrictions on product, group boycotts, and selective enforcement 
are most likely to be directed at independent video retailers, a market 
segment that has shrunk tremendously in recent years due to changing 
business models and heightened competition. Because of the nature of 
video retailing, retail consolidation financially benefits the studios.
    We must also add that it is inconceivable to us, given the 
excellent job that video retailers have done in empowering to keep R-
rated movies and M-rated video games out of the hands of their 
children, that Congress is seriously considering granting ratings 
enforcement authority to the very companies the FTC has determined 
routinely target those products to children.
    In addition to being unwise, we believe the antitrust exemption 
proposals for enforcement by entertainment media producers are 
unnecessary given the voluntary programs of video stores I mentioned 
earlier to enforce parental control, and the recent actions of major 
mass-merchant retailers to institute similar programs.
    We believe a more appropriate course of action would be for the 
home video industry to police itself. Consistent with the FTC report's 
call for entertainment industry trade associations to ``actively 
monitor compliance [with self-regulatory programs] and ensure that 
violations have consequences,'' VSDA will examine whether we should 
require our members who engage in video retailing to certify that they 
have effective policies for ratings education and of parental control, 
and impose sanctions on members that violate those policies.
    Allowing the home video industry to regulate itself would reassure 
parents that they can rely on their neighborhood video stores to help 
them control their children's access to entertainment. It also would 
allow VSDA to police conduct that the public believes is inappropriate, 
but for which there is no other effective or legal control mechanism. 
Due to its expertise and experience in video retailing, VSDA is best 
suited to evaluate alleged violations and has a strong interest in 
ensuring the integrity of its programs.
    It is our opinion that existing antitrust laws allow us to take 
such actions and we require no further legal authority. However, if the 
Congress disagrees with our interpretation, we would not oppose 
legislation clarifying our authority in this regard.
                               CONCLUSION
    Finally, we must keep in mind that, in addressing the issue of 
violence in American society, the government cannot infringe the 
constitutional rights of video retailers and consumers--or of parents 
to raise their families as they see fit. Ultimately the responsibility 
for raising children lies with their parents, not the government and 
certainly not video store clerks. As you said last week, Mr. Chairman, 
we must ``recognize that the responsibility for what our children are 
watching is not the burden of someone else but our own.''
    The nation's video stores are doing their part to make sure that 
America's children are not exposed to R-rated movies and M-rated video 
games without their parents' consent. The FTC report supports the 
premise that home video provides parents with the greatest control of 
their children's movie watching and electronic game playing. Voluntary 
programs, such as VSDA's Pledge to Parents, are the best way to help 
parents exercise that control, and appropriate self-regulation by the 
retail community can ensure that such programs exist and are utilized.

    The Chairman. I want to thank all of you. I am going to 
submit the questions because I have gotten you up early enough 
here. Some of the questions are very specific and very legally-
oriented, and I would like to submit questions to you and have 
you answer them by next Monday. We will get them to you today 
and if you can get the answers back by next Monday, it will 
help us in making a final determination on what to do.
    Now, look, there are a lot of problems here. There is a lot 
of demagoguery about the movie industry, the music industry, 
the videotape industry, the Internet, and so many other aspects 
of entertainment in our society today. Everybody knows my 
feelings about protecting children from salacious and 
detrimental materials.
    On the other hand, I am really offended, to be honest with 
you, with politicians who are trying to make hay at the expense 
of these industries, when there are great aspects to every one 
of your industries. And you know it and I know it. Our country 
would not be nearly as good today or as viable or as enjoyable 
or as successful today in creating materials that literally 
uplift if it wasn't for your respective industries.
    On the other hand, we do know that there are people in your 
industries who don't give a damn about anything. They don't 
care about our children, they don't care about any moral high 
road in our society. In fact, there is a moral bankruptcy that 
is developing in this country that is starting to bother a lot 
of people.
    But to demagogue about it and to scream and shout about it 
and to act like you can pass laws that are literally going to 
enforce or impose voluntary rules and regulations on your 
respective industries is just total BS, and you know it and I 
know it. And it is done for political purposes, and that is 
offensive to me.
    That doesn't mean we can't be political in a political 
institution like the U.S. Senate or the Congress of the United 
States, but I think we ought to be really careful about working 
on these First Amendment rights and freedoms in ways that 
really make sense.
    This hearing is very important because my own personal 
feeling is it would be helpful to you to have a limited 
antitrust exemption, if it is written properly, that would 
provide a means whereby we might be able to get rating systems 
that can be enforced voluntarily by you, without Congress 
trying to put you through years of litigation contesting the 
constitutionality of what really are political statements by 
Congress rather than true constitutional approaches.
    In the process, a lot of people are critical because people 
within the industry themselves do the rating, and therefore it 
can't be valid and it is a phony system. I don't agree with 
that, but I do think that we need to resolve a lot of problems. 
I would like to have your input on just how rating systems 
should be done, who should do them, how should they be 
enforced, what is voluntary. These are all questions that are 
very important to me.
    I respect each of your industries and I see a lot of good 
that comes from your industries, and I do see a lot of bad that 
occasionally crops up that really can hurt our children.
    In the music industry, Hilary, you know as well as I that 
there are things being put out today that are extremely 
detrimental, although for the life of me it is hard to 
understand the lyrics sometimes. The music overrides the lyrics 
anyway. But on the other hand, there are some bad things.
    Jack, you know that in the movie industry there are some 
very detrimental things that hurt everybody in the industry. 
And there are some people who don't give a darn about anything 
except the almighty buck. I think it is important to be 
profitable so that you can continue, but it is also important 
to have some measure of consideration for the community as a 
whole.
    Well, I don't mean to lecture you folks. I just have been 
grateful to have your testimony here today. I am sorry to put 
you through this eight o'clock thing, but I am not going to put 
up with that stuff. If they want to play that game, we will 
start our hearings at eight o'clock, and we will at least have 
until 11:30 a.m. everyday, it seems to me.
    But it is important that you showed up here today. It is 
important that you gave the testimony that you gave, and it is 
important that you answer any questions that we send to you so 
that we can approach this in an intelligent, non-political, or 
at least as apolitical as we can way that might help to resolve 
some of these problems so that parents and communities and 
churches and other institutions will have some degree of 
confidence that what we are doing in these various 
entertainment industries is not totally detrimental to our 
children and our society.
    So with that, rather than ask a lot of questions and keep 
you here any longer, I would rather put them in writing so that 
you can take some time to answer them. These are significant 
and important questions that we will put into the full record.
    [The questions of Senator Hatch are located in the 
appendix.]
    The Chairman. We will keep the record open until next 
Monday for anybody who would like to submit statements. I know 
there are some of you who would like to have testified here 
today. We will take your statements and make them part of the 
official record.
    So with that, I appreciate all of you coming and we will 
adjourn until further notice.
    [Whereupon, at 8:41 a.m., the committee was adjourned.]

                            A P P E N D I X

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                         Questions and Answers

                              ----------                              

                           september 21, 2000

       Responses of Jack Valenti to Questions From Senator Hatch

    Question 1. The entertainment industry has repeatedly cited 
potential antitrust violations as a reason for not developing voluntary 
codes of conduct with a meaningful enforcement mechanism. In response, 
the Senate has already voted 98 to 0 for an antitrust exemption that 
removes the legal barriers to acting responsibly. In light of the 
concerns expressed by your industry, please elaborate on why you would 
not fully support a limited exemption that gives you legal certainty to 
collaborate, develop and enforce a set of responsible codes of conduct 
that could limit the exposure of minors to material your industry finds 
unsuitable.
    Answer. The Motion Picture Association and its member companies are 
fully committed to acting responsibly in fulfillment of our solemn, 
long-enduring obligations to parents. That commitment is at the heart 
of voluntary initiatives, like the movie rating system and the MPAA 
advertising code, that are designed to help parents make their own 
decisions about what films they want their children to see or not to 
see, and to limit exposure to material that parents may find 
objectionable. Moreover, as a result of these obligations taken very 
seriously by us, the movie industry has been the only segment of our 
national marketplace, including all business enterprises, that for 
almost 32 years has voluntarily turned away revenues in order to redeem 
the pledge we have made to parents. Thus far the antitrust laws have 
not stood as barriers or prevented us from undertaking such voluntary, 
responsible efforts.
    As I indicated in my testimony, while I am proud of MPAA's record, 
we are committed to doing more in light of the findings and 
recommendations of the FTC Report. I am confident that the antitrust 
laws similarly will not get in the way of our determined efforts to 
respond to the FTC's findings. I am confident we can work within our 
own industry and with our partners in the exhibition, home video, and 
television industries to respond in a way that does not impose 
unreasonable restraints on trade in contravention of existing antitrust 
principles.
    As you know, the member companies of the MPAA and Dreamworks SKG 
recently announced a 12-point set of voluntary initiatives that 
responds to each of the FTC's recommendations. I attach a copy of these 
initiatives--which were delivered to you prior to their being made 
public on September 26--for your reference. Each of these initiatives 
is fully consistent with current antitrust principles and, I believe, 
when implemented, will address in a serious and significant way the 
concerns raised by the FTC Report. Included in these initiatives is a 
commitment to work with theater owners--who are our partners in the 
voluntary rating system--to improve on-the-ground enforcement. These 
initiatives mark significant new commitments on the part of our studios 
and should be given a chance to work. If in implementing these 
initiatives we find that there are things we can and should be doing to 
better fulfill our commitment to parents, and that antitrust law 
prohibits us from doing those things, then we will work with you and 
other interested parties to fashion a narrow, carefully crafted 
exemption that specifically addresses the actions that need to be 
taken.

    Question 2. In a legal memorandum prepared for the Recording 
Industry by David Kendall, it was concluded that a government imposed 
labeling system--like that proposed by Senator and Vice Presidential 
candidate Lieberman--would likely be unconstitutional. Such a labeling 
system would be unconstitutionally vague or overbroad, and would like 
not be the least restrictive means of dealing with the government 
interest in limiting violence to minors. Kendall's memorandum 
suggested, ``Perhaps the most obvious alternative involves augmenting 
collaborative efforts among the media industries to expand currently 
existing voluntary labeling endeavors.'' Isn't that what the antitrust 
exemption I have proposed would allow you to do, without the fear of 
antitrust liability?
    Answer. I agree that a government imposed labeling system would be 
constitutionally deficient for a host of reasons, including those you 
describe. I commend you for your longstanding commitment to addressing 
these issues in a manner that does not compromise First Amendment 
freedoms. I also agree that renewed attention to voluntary rating and 
labeling systems is the logical and most effective alternative in 
addressing concerns regarding exposure by children to material that 
parents may deem objectionable. It is not clear to me, however, that an 
expansion of these existing endeavors, as referred to in Mr. Kendall's 
memorandum, would run afoul of antitrust principles thereby 
necessitating an antitrust exemption.

    Question 3. Professor Sunstein, a member of the President's 
Advisory Committee on Digital Television and Violence, noted in an 
article that members of the industry have raised antitrust as the 
reason to oppose developing ``any code.'' He also noted, ``[T]his is 
very odd, because in private discussions, members of the NAB treated 
the possibility of an antitrust violation asextremely good news. It is 
not often that high-level corporate officials are smiling when they 
discuss the possibility that certain action would be found unlawful.'' 
How would you respond to Professor Sunstein's comments?
    Answer. I do not speak for the NAB. I wish only to note that any 
consideration of an antitrust exemption by the NAB and its members must 
be viewed in the historical context of the NAB's experience with 
antitrust scrutiny of the earlier-adopted NAB code of conduct. the 
voluntary initiatives of the motion picture industry have rightly not 
been the subject of similar scrutiny, and those initiatives continue to 
be effective and well-received by parents. I think if it far better to 
seek solutions that would not be found unlawful under current antitrust 
principles as unreasonable restraints on trade. One resorts to 
antitrust exemptions only when otherwise lawful means prove 
insufficient or ineffective in meeting our obligations to parents.

       Responses of Jack Valenti to Questions From Senator Leahy

    Question 1. The Congress has been debating the need and usefulness 
of antitrust immunity for parts of the entertainment industry for 
years. As a result of the efforts of Senator Paul Simon in the 1980s, 
an antitrust exemption for television broadcasters became law for three 
years from 1990 and 1993. After that antitrust exemption sunset, the 
Justice Department issued opinions in 1993 and 1994 that echo the 
position of the FTC in 2000: namely, that no antitrust exemption is 
necessary for the creation and operation of a rating system for 
products inappropriate for children or for the enforcement of such a 
rating system against other manufacturers or retailers of such 
products. Are you aware of any incidents since 1994 where concern over 
antitrust liability has stopped any particular entertainment company 
from participating in or enforcing a rating system?
    Answer. I do not recall any incidents since 1994 where concern over 
antitrust liability has stopped an MPAA member company from 
participating in or enforcing a rating system.

    Question 2. Since self-regulatory systems that are designed to 
protect children would be acceptable and legal under the antitrust laws 
as reasonable restraints on trade, do you have any concern that a grant 
of antitrust immunity would only be necessary to shield unreasonable 
steps from antitrust scrutiny?
    Answer. You are right to point out that an antitrust exemption is 
necessary, by definition, only to shield conduct that would otherwise 
be prohibited as an unreasonable restraint on trade. I most 
respectfully petition the Congress and industry not to rush to hasty 
judgment, and in the doing to abandon reasonable, voluntary, and lawful 
mechanisms for addressing the needs of parents and children. Such a 
swift and unnecessary action would also significantly undercut the 
public confidence in the existing rating system and the partnerships 
that have made it successful.
    For nearly 32 years the motion picture rating system has been a 
working partnership between the movie studios and theatre owners, as 
well as through our relationships with video retailers. All this 
rapport works to the benefit of parents. Studios, theatre owners, and 
retailers are committed to working together to improve the usefulness 
and enforcement of the existing rating system. We are committed to 
continue our service to parents, without running afoul of the antitrust 
laws. To suggest that otherwise unreasonable and unlawful measures--and 
thus an exemption from the antitrust laws--are now somehow necessary to 
the success of the voluntary rating system absolutely contradicts the 
high parental endorsement that parents accord the movie rating system 
(81 percent of all parents with children under 17 find the rating 
system `very useful' to `fairly useful' and comports with the FTC own 
independent poll which found that 81 percent of parents are `satisfied' 
with the voluntary movie rating system). Perhaps, even more 
importantly, to expressly sanction unreasonable and otherwise unlawful 
restraints on trade in the name of ratings enforcement could 
substantially impair the cooperative relationships between theatre 
owners, retailers, and motion picture studios that are absolutely 
necessary for the success of any voluntary system.

    Question 3. The FTC report says that restrictions by manufacturers 
on inappropriate retail sales, pursuant to a self-regulatory system to 
protect children, would pass muster under the antitrust laws. In light 
of this opinion by an antitrust enforcement agency, do you believe that 
an antitrust exemption is necessary to enforce a rating system against 
retailers?
    Answer. As I said in my testimony before the Committee, I am not an 
antitrust expert. I give substantial deference to Chairman Pitofsky's 
judgment on such matters. I am concerned, however, by the implications 
of a regime whereby the ratings system is to be ``enforced against'' 
retailers. Retailers, like theatre owners, are our business partners, 
not our adversaries, and the government ought not force on us a most 
unsuitable relationship which would enfeeble our partnership. That 
partnership is the prime reason for the success of our voluntary 
system. It is for that reason the MPAA member companies are committee 
to working cooperatively with our retail and exhibition partners to 
ensure that the needs of parents are met through voluntary, industry-
led initiatives.

    Question 4. The Brownback-Hatch amendment to S. 254, the juvenile 
justice bill, appears to grant broad antitrust immunity to a consortium 
of industry members who may refuse to sell theirproducts to certain 
retailers, including those retailers who market the products of other 
manufacturers that are not part of the consortium and do not abide by 
the consortium's rating and labeling systems. a. Do you believe this 
goes too far?
    Answer. Yes, it goes too far. The example posited in this question 
is a good example of why the enactment of a broad antitrust exemption 
would threaten to undermine the public confidence in the existing 
rating system and undercut the cooperative relationships between 
studios, exhibitors, and retailers. I find it hard to believe that the 
Senate intended to sanction this sort of group boycott when it adopted 
the Brownback-Hatch amendment to the juvenile justice bill. Again, I do 
not believe that any antitrust exemption is necessary to implement 
successfully the rating system and our responsibilities to parents. 
Even so, such an example demonstrates the need to give far greater 
scrutiny to any proposed exemption to the antitrust laws than has been 
afforded any antitrust exemption currently before Congress.

    Question 4b. The Justice Department has expressed concern that this 
amendment would restrict the ability of manufacturers outside the 
consortium to distribute their own movies, videos and records and pose 
the risk of stifling their speech in the marketplace. Do you share this 
concern?
    Answer. I am concerned that even the perception that such a result 
could flow from the implementation of the voluntary rating system 
through an antitrust exemption would undercut the public confidence in 
the rating system and with it its usefulness to parents.

    Question 5. Professor Sunstein testified before the Antitrust 
Subcommittee in 1997 regarding a proposed antitrust exemption for TV 
broadcasters, staging, ``In my view, a general grant of permission, by 
the Congress, for broadcasters to engage in collusive behavior would 
probably be unconstitutional . . . and in any case would depend on a 
judgment that, in practice, legislative authorization for concerted 
action had serious consequences in limiting diversity for the viewing 
public.'' Would it be fair to say that Congress should only grant 
antitrust immunity with great caution since opening the door to 
unreasonable collusive behavior would do far more harm than good?
    Answer. I believe Congress should treat grants of antitrust 
immunity with both skepticism and caution.

    Question 6. Do you agree that the entertainment industry should 
stop marketing directly to children products which the industry itself 
identifies as inappropriate for children? What steps is the 
entertainment industry taking to this end?
    Answer. Much of the current debate turns on a misperception of what 
the ratings mean and a view that the industry has rated certain movies 
as ``inappropriate for children.'' The ratings (other than NC-17) 
merely alert parents when a movie contains material that may not be 
suitable for children and allow them to choose whether to allow their 
children to view those movies. The ratings system does not offer 
`recommendations' to parents. All the ratings do or should do is to 
provide parents with advance cautionary warnings, so that parents can 
make their own judgments. That is a decision they and only they are 
empowered to make.
    It is particularly important to recognize that the ``R'' rating 
does not mean ``adults only.'' That is the province of the ``NC-17'' 
rating. The ``R'' rating clearly and openly informs parents that 
children are admitted to R-rated movies if accompanied by a parent or 
adult guardian. Many parents take their children approvingly to R-rated 
movies, and many parents allow their children to attend R-rated movies 
with other adults. The selection of such movies for attendance by 
children is a choice that parents, and parents alone, are qualified to 
make. The rating system, most assuredly, does not intervene in such 
choices. All the ratings system is designed to do is offer an advance 
cautionary warning to parents so they can decide whether or not a 
specific R-rated movie is appropriate for their own children. It would 
be both improper and impertinent for industry or government to attempt 
to stand in the shoes of parents in this regard.
    Having said that, I testified that I believe it is unsuitable to 
``target'' very young children in advertising R-rated movies. That is 
wrong. I believe the FTC report and its recommendations merit very 
serious consideration and substantive response. As you know, the MPAA 
member companies and Dreamworks SKG have embarked on a 12-point set of 
initiatives that respond seriously and responsibly to each of the FTC's 
three basic recommendations. I attach a copy of these initiatives--
which were delivered to you prior to their being made public on 
September 26--for your reference. some companies may--as some have 
already done--go beyond these initiatives, but these basic 12 points 
form the platform on which all the eight companies stand. The companies 
have just now begun the process of implementing these changes, which 
will be reviewed regularly by each company and annually by the MPAA. I 
will be personally in contact with the compliance mechanisms that all 
the companies are constructing, so that what we said we will do, we 
will do.

    Question 7. Do you agree that the entertainment industry should 
stop including children in market research tests for products which the 
industry identifies as inappropriate for them without their parents 
approval? What steps is the entertainment industry taking to this end?
    Answer. As I indicated in my answer to the previous question, the 
motion picture ratings system does not pretend to make judgments as to 
what is or is the appropriate for children. Again, having said that, 
included in our 12 point set of initiatives is a commitment by each of 
the MPAA member companies and Dreamworks SKG to not knowingly include 
persons under the age of 17 in research screenings for films rated R 
for violence, or in research screenings for films which the company 
reasonably believes will be rated R for violence, unless such person is 
accompanied by a parent.

    Question 8. Chairman Pitofsky made clear in his testimony that 
giving out antitrust exemptions was not good policy but that a narrowly 
drafted antitrust exemption may do no harm, particularly if group 
boycotts, which constitute a per se antitrust violation, were excluded 
from the exemption. a. Are there other types of per se violations that 
should be expressly excepted from any antitrust exemption the Congress 
may consider?
    Answer. I defer to others more expert in the intricacies of 
antitrust law to answer this question. I do believe, however, that this 
is the type of question that would need to be considered and addressed 
very carefully before the Congress chooses to enact an antitrust 
exemption.

    Question 8b. If so, please provide examples of anti-competitive 
conduct that should also be excepted from such an antitrust exemption.
    Answer. Same as (a).

    Question 8c. Given the difficulty in specifying every example of 
anti-competitive conduct that should be excluded from an antitrust 
exemption, is it fair to say that a congressional grant of an antitrust 
exemption to the entertainment industry poses the risk of 
unintentionally shielding some forms of anti-competitive conduct?
    Answer. I believe this is a real risk. I believe that risk would be 
enlarged and infected by the failure to explore fully these questions 
in the legislative process, which has not occurred to date.

    Question 9. Some witnesses have expressed concern about the 
expectation that the Congress would have actions by the entertainment 
industry if an antitrust exemption were granted, particularly in the 
face of current cooperative efforts ``to discuss ways to improve 
ratings and labeling systems * * * even in the absence of an antitrust 
exemption.'' Do you have any concern that congressional pressure to 
fulfill those expectations could implicate any First Amendment rights?
    Answer. Absolutely. As you indicated, a number of the witnesses 
addressed this concern in their testimony, including a discussion of 
the relevant judicial precedents which insist that Congress cannot, 
consistent with the First Amendment, compel industry to do by private 
agreement what it cannot achieve directly through governmental action. 
I will not repeat the legal analysis here. I will merely note the FTC's 
own findings that the First Amendment can be brought to bear when ``the 
government has exercised coercive power or provided such significant 
encouragement that the challenged action can fairly be attributed to 
the government.'' See FTC Report, Appendix C at 2.
    There is no question that recent legislative proposals granting 
antitrust immunity express a desire on the part of Congress, if not an 
expectation, that the entertainment industry act to restrict 
voluntarily expressive conduct protected by the First Amendment. These 
proposals are often described as an ``alternative'' to more onerous 
proposals that are, at best, of questionable constitutionality. This 
backdrop lends credibility and coherence to the argument that voluntary 
industry action taken under a grant of antitrust immunity would be 
subject to constitutional challenge.

    Question 10. The hearing elicited a number of important 
observations regarding the possible anti-competitive consequences and 
effectiveness of any antitrust exemption and, specifically, the 
antitrust exemption adopted as part of S. 254, the juvenile justice 
bill, including that the antitrust exemption would: (i) not protect a 
company from civil lawsuits under state antitrust laws; (ii) not 
address the practical concerns of developing a sanctions policy; (iii) 
effectively give the manufacturers of entertainment products a monopoly 
over movie and video game rating systems; (iv) place competing 
independent rating systems at a competitive disadvantage; (vi) place at 
risk the current parental control over whose guidance to follow: (vi) 
expand the power of copyright owners over the distribution of their 
products, even after transfer of title of such products, to an extent 
that may undermine the first sale doctrine, as codified in section 109 
of the Copyright Act; (vii) empower manufacturers of entertainment 
products to preclude retailers from offering unrated products or adult 
videos and video games; and (vii) empower manufacturersof entertainment 
products to adopt a certain product mix or buy specific genres or 
titles. Do you believe these observations and concerns are valid?
    Answer. These observations raise serious questions that merit 
careful and thorough review. Moreover, each of these expressed concerns 
demonstrates the often-ignored complexity of this issue and the fact 
that a grant of antitrust immunity would affect different sectors of 
the entertainment industry in very disparate ways. Many of these 
observations go to the heart of the concerns of our partners in retail 
and exhibition and make very clear some of the reasons why a grant of 
antitrust immunity would threaten to thwart the cooperative efforts 
between these parties that are so essential to the successful 
implementation of a voluntary rating system.
                                 ______
                                 

      Response of Jack Valenti to a Question From Senator Thurmond

    Question 1. Mr. Valenti, should the entertainment industry allow 
its members to market violent movies, music, and other products to 
children without consequences?
    Answer. I do not believe one can say that depictions of violence 
per se are inappropriate for under 17 audiences. This is reflected in 
the rating system itself, which allows for different ratings depending 
on the type, intensity, context, and frequency of violence, among other 
considerations.
    As I have said in my answers to the questions posed by Senator 
Leahy and in my testimony before the Committee, there are movies 
depicting violence that are entirely appropriate for youth audiences, 
and which parents may--and do--what their children to see. The move 
Amistad, for example, was a wonderful movie of great educational and 
social value. That movie received an R-rating based on, among other 
things, ``strong brutal violence'' in the depiction of the 19th Century 
slave trade. I myself recommended to high school students that they see 
Saving Private Ryan--rated R for ``intense'' and ``prolonged'' war 
violence--so that they might understand how brave American warriors 
bled and died so that this loving land could remain free. You were 
among those, Senator, who were there on June 6, 1944 and who fought so 
valiantly for a great battle triumph. That film needed to be seen by 
youngsters, so they would maybe for the first time understand that the 
liberties and freedom they so casually take for granted were purchased 
for them at a terrible price. I do not believe there is anything 
inappropriate about producers letting teenagers know about such movies.
    The point is, whether a movie is appropriate for any child is a 
decision that only a parent can make. We are committed to do our part 
to give parents advance cautionary warnings so they are better informed 
to make the right choices about their children's viewing habits. This 
commitment is reflected in the 12-point set of initiatives adopted by 
the MPAA member companies and Dreamworks SKG in response to the FTC 
Report, which is attached. I have pledged to personally monitor the 
compliance mechanisms which each company has committed to construct. 
Our aim is to redeem the pledge we have made to Congress, and to keep 
our promises to the parents of America.
                  INITIATIVES OF MPAA MEMBER COMPANIES
    1. Each company will request theater owners not to show trailers 
advertising films rated R for violence in connection with the 
exhibition of its G-rated films. In addition, each company will not 
attach trailers for films rated R for violence on G-rated movies on 
videocassettes or DVDs containing G-rated movies.
    2. No company will knowingly include persons under the age of 17 in 
research screenings for films rated R for violence, or in research 
screenings for films which the company reasonably believes will be 
rated R for violence, unless such person is accompanied by a parent or 
an adult guardian.
    3. Each company will review its marketing and advertising practices 
in order to further the goal of not inappropriately specifically 
targeting children in its advertising of films rated R for violence.
    4. Each member company will appoint a senior executive compliance 
officer or committee to review on a regular basis the company's 
marketing practices in order to facilitate the implementation of the 
initiatives listed above.
    5. The MPAA will review annually how each member company is 
complying with the initiative listed above.
    6. The MPAA will strongly encourage theater owners and video 
retailers to improve compliance with the rating system.
    7. The companies will seek ways to include the reasons for the 
ratings of films in its print advertising and official movie web sites 
for such films.
    8. The MPAA has established or participated in the establishment of 
the following web sites: ``mpaa.org''--``filemratings.com''--
``parentalguide.org.'' ``Mpaa.org'', among other things, describes the 
rating system and includes database listing almost every movie rated 
since the commencement of the rating system in 1968. 
``Filmratings.com'' is a separate site devoted exclusively to providing 
ratings information on all rated movies, including the reasons for the 
ratings on recent releases. ``Parentalguide.org'' was established by 
MPAA in conjunction with the electronic game, music, cable and 
television broadcast industries. The site is intended to provide 
parents with one central site where they can obtain information about 
each of the ratings systems that have been developed in those 
industries. To insure that this information reaches a wider audience, 
each company will link its official move web site to mpaa.org, 
filmratings.com and parentalguide.org.
    9. Henceforth, each company will include on all packages of new 
rated releases for its videocassettes and DVDs the rating of such film 
and the reasons for the rating.
    10. Henceforth, each company will include in the preface to its new 
rated releases for videocassettes and DVDs the reasons for the rating 
of the film, plus information about filmratings.com web site.
    11. The MPAA and each company will strongly encourage theater 
owners to provide reasons for the ratings of films being exhibited in 
their theaters in their customers call centers.
    12. Each company will furnish newspapers with the reasons for the 
ratings of each of their films in exhibition and will request that 
newspapers include those reasons in their movie reviews. The MPAA and 
each company will seek newspapers' cooperation in printing a daily 
column listing films in exhibition, their ratings and the reasons for 
the rating.
                               __________

  Response of Crossan ``Bo'' Anderson to Questions From Senator Hatch

    Question 1. Concerning whether we still have concerns about the 
anticompetitive effects of a limited antitrust exemption to facilitate 
the development and enforcement of entertainment industry ratings 
systems after having heard the testimony of FTC Chairman Pitofsky and 
Professor Sunstein.
    Answer. The answer is emphatically ``yes.'' Chairman Pitofsky's 
testimony underscored that validity of our concerns, as he described 
how easily ratings enforcement strategies could be used as a pretext 
for fundamentally anticompetitive purposes, such as terminating a 
retailer who sells below the manufacturer's suggested retail price 
under the pretext that the discounter had violated one of the terms of 
the industry's rating system. As Chairman Pitofsky noted, ``issues 
relating to actions against retailers may raise some of the most 
difficult concerns.'' Although he noted that ``appropriately structured 
collective action'' might be permissible, the only examples of an 
appropriate structure were where the retailer voluntarily agreed to 
adhere to the norm, or where ``seal [of approval]'' or ``Hall of 
Shame'' lists were used.
    Professor Sunstein, in contrast, appears to have misconstrued the 
proposed sections 404 and 405 as authorizing only voluntary action. No 
retailer in America would believe that enforcement against retailers of 
a standard set through legalized voluntary collusion on the part of its 
suppliers would be voluntary in any meaningful sense of the word. It 
also appears that Professor Sunstein's analysis was developed from his 
background in the First Amendment rules applicable to broadcasting, 
which are substantially different because of the public ``ownership'' 
of the airwaves, limited frequencies available, and other unique 
characteristics. Perhaps Professor Sunstein's views would be a step 
forward in relation to other countries where he renders advice 
(according to his biography at http://www.law.uchicago.edu/faculty/
sunstein/, he ``has been involved in constitution-making and law reform 
activities in a number of nations, including Ukraine, Poland, China, 
South Africa, and Russia''), but his advocacy of a revisionist approach 
to the First Amendment offers what is most certainly a step backward in 
American First Amendment jurisprudence. Nevertheless, Professor 
Sunstein himself concluded that even if not compelled by existing law, 
in his own view ``a general grant of permission, by the Congress, for 
broadcasters to engage in collusive behavior would probably be 
unconstitutional--at least if the consequence of the grant was sharply 
to reduce diversity over the airwaves.'' Statement of Cass R. Sunstein 
Before the Senate Judiciary Committee September 20, 2000. Given that 
Congress has less authority to control dissemination of speech where 
the airwaves are not involved, we believe Professor Sunstein's concern 
that Section 405 could be unconstitutional is well-founded.
    Your question not only raises a legal these legal issues, but also 
raises concern that Congress approach this issue from a sound factual 
basis. Your first question states that retailers of entertainment 
products are an integral part of any voluntary codes that ``delineate 
what is appropriate for minors.'' We respectfully suggest that one of 
the difficulties with the various proposals to enforce a voluntary code 
is precisely this premise, which VSDA believes to be a false premise. 
None of the current industry codes for any entertainment media 
delineate what is appropriate for minors, much less for all minors. 
Rather, as noted in your reference to FTC Chairman Pitofsky's testimony 
in the next paragraph of your first question, these ratings and 
labeling systems seek to identify ``those entertainment products that 
warrant parental caution.'' These systems are not intended to 
objectively declare what is or is not appropriate for all minors nor 
could they possibly do so.
    Given the wide diversity of minors, even minors of identical ages 
in identical communities, and given the wide diversity in parental 
values, child-rearing approaches, and both moral and faith-based norms, 
these parental advisories reflect nothing more than a rough estimate of 
where most parents might either draw the line, or at least want to be 
cautioned about the content before allowing their respective children 
to enjoy the product. To put it simply, the entertainment industry has 
never declared any of its products unsuitable for all minors of all 
ages under all conditions. No parents should be deemed unfit because 
their judgment of what is or is not appropriate for their own child 
differs from the judgment of industry-appointed panels or lawmakers, 
nor should any retailer be penalized for adopting a different rating 
system or for following the parents' instructions. It is the 
prerogative of the parent, not the entertainment industry, to decide 
whether to allow a teenager to watch an R-rated movie before his or her 
seventeenth birthday, and that is certainly every parent's prerogative. 
it is the prerogative of the parent to use these ratings systems as 
merely a starting point--an ``advisory'' that cautions them to pay 
close attention to whether a particular product is appropriate for a 
particular child.
    It is for this reason that VSDA members have taken a lead in 
empowering parents to control these sensitive decisions. For nearly a 
decade, VSDA has been advocating and improving upon its Pledge to 
Parents program described in my testimony. This week, the VSDA Board of 
Directors carefully considered the FTC's recommendation that trade 
associations enhance their programs regarding children's access to 
certain entertainment products. The Board voted unanimously to accept 
this recommendation by launching a three-point ``Parental Empowerment 
Program'' (1) endorsing and encouraging every retailer (including those 
outside of VSDA) to use parental control programs relating to movie and 
video game ratings, (2) directing that VSDA's popular ``Pledge to 
Parents'' materials continue to be made available to all video 
retailers, including non-members, and (3) authorizing VSDA staff to 
develop a certification program for video retailers who provide 
parental education and empowerment tools regarding their control over 
access by their children to movies and video games at the retail level. 
The objective is to make certain that consumers cannot miss this 
important starting point in their evaluation of the suitability of 
entertainment products for themselves and their families, and that 
parents be empowered to exercise as much control as they desire over 
their children's choices.

    Question 2. Concerning how industry guidelines for keeping violent 
material out of the hands of children should be enforced at the retail 
level.
    Answer. The home video industry already enforces the ratings 
systems of the motion picture and video game industries, and has for 
many years. Retail enforcement is achieved through company-specific 
programs used by VSDA members Blockbuster, Hollywood Video and Movie 
Gallery and VSDA's own ``Pledge to Parents'' program, which has been in 
existence since 1991.
    It is important to reiterate that the FTC report found the programs 
in video stores that it examined to be effective. The FTC acknowledged 
that ``[p]arents have significant controls over the videos their 
children rent because of limitations established by the major rental 
outlets'' and the rental of videos ``requires a degree of parental 
involvement.'' VSDA believes these findings are true also for the vast 
majority of other chains and independent video retailers, as video 
stores of all sizes have effective parental control policies.
    The FTC report also found that the only major brick and mortar 
sellers of videos that it examined that had policies restricting the 
sale of R-rated videos to children were stores that also rent videos. 
It correctly noted that retailers that both sell and rent videos ``are 
more attuned to the issue of parental consent in this area.''
    The FTC report did not identify a single specific instance of a 
video store renting an R-rated video or an M-rated game to a person 
under 17 years of age. It is important to note that the FTC's ``Mystery 
Shopper'' program did not include attempts by persons under age 17 to 
rent movies or video games or to purchase R-rated videos.
    Regarding sales of movies and video games outside of video stores, 
most of which are conducted by mass merchants who are not video 
specialists, the FTC found less ratings enforcement. However, major 
retailers such as Wal-Mart, Kmart, and Toys R Us have resolved to work 
through the logistical barriers to ratings enforcement in their stores.
    The FTC report made a valid suggestion that trade associations 
enhance their self-regulatory programs. As noted in the answer to 
Question 1, the VSDA Board has done precisely that, and VSDA staff have 
already begun to carry out the Board's unanimous directive.
                                 ______
                                 

  Responses of Crossan ``Bo'' Anderson to Questions From Senator Leahy

    Question 1. Concerning whether we are aware of any incidents since 
1994 where concern over antitrust liability has stopped any particular 
entertainment company from participating in or enforcing a rating 
system.
    Answer. VSDA is unaware of any such incidents.

    Question 2. Concerning whether a grant of antitrust immunity would 
only be necessary to shield unreasonable restraints on trade from 
antitrust scrutiny.
    Answer. This is precisely the problem with the proposed antitrust 
exemption. Many restraints of trade have long been permitted. It is 
only the unreasonable restraints on trade that are prohibited by the 
antitrust laws. The antitrust laws prohibit only those agreements 
``which were unreasonably restrictive of competitive conditions.'' 
Standard Oil Co. v. United States, 221 U.S. 1, 58 (1991). Accordingly, 
an exemption to engage in such restraints means, a fortiori, that the 
only new restraints authorized by the proposed exemption are the 
restraints that are currently considered so unreasonable as to carry 
serious civil and potentially criminal penalties. We see no reason to 
condone such conduct.

    Question 3. Concerning whether, in light of the FTC report, we 
believe that an antitrust exemption is necessary to enforce a rating 
system against retailers.
    Answer. For the extensive reasons outlined in our written statement 
and our oral testimony, VSDA believes it is inappropriate and wholly 
unnecessary to grant entertainment manufacturers an antitrust exemption 
to enforce their ratings systems at the retail level.
    Moreover, when we speak of allowing manufacturers to enforce a 
rating system ``against retailers,'' an important fact that has been 
missed in this debate is that some major retailers are also 
manufacturers (acquiring exclusive rights in films), and some 
manufacturers have already begun to develop a retail presence, 
particularly over the Internet and through emerging digital delivery. 
Retailers that are also manufacturers would thus be given power to 
negotiate and enforce a manufacturer-imposed rating system against 
their direct competitors at the retail level. Certainly this can be of 
no benefit to consumers.

    Question 4. Concerning the Brownback-Hatch amendment to S. 254, 
granting broad antitrust immunity for manufacturers to engage in 
concerted refusals to deal with retailers who market products of other 
manufacturers outside of the consortium, and who do not abide by the 
consortium's rating and labeling system.
    Answer. Part a (whether it goes too far). VSDA believes that the 
Brownback-Hatch amendment to S. 254 would allow a consortium to affect 
the products of competing manufacturers outside of the consortium, such 
as by restricting retail channels that market (and perhaps even favor) 
the products of the competing manufacturers who choose not to 
participate in the consortium's rating system or to adopt a competing 
rating system. Therefore, it would naturally tend to victimize 
retailers caught in the crossfire between competitors. Because some 
retailers are also market participants at the manufacturing level, and 
some major manufacturers are also engaged in retail sales, it would 
allow these vertically integrated companies to gain a significant 
competitive advantage over non-integrated companies, such as smaller 
independent retailers.
    Part b (whether we share the Justice Department's concern). VSDA 
certainly shares the concern of the Department of Justice stated in 
this question. Because each motion picture is unique, none are 
fungible. That is, the consumer demand for each motion picture is for 
that motion picture itself, and the retailers who purchase them are 
motivated to purchase each individual title at the volumes necessary to 
service the consumer demand which they anticipate for that title. 
Although each retailer's monthly purchasing budget is limited, cheaper 
copies of other titles are simply not an effective substitute, so 
suppliers have a limited ability to increase their market shares purely 
by price cutting. However, if manufacturers are permitted to form 
consortiums that use a joint ratings system to compete with 
manufacturers outside of theconsortium, the consortium members will be 
able to restrict retail channels for their competitors and thereby be 
assured that the retailer's limited purchasing dollars will flow to 
films of the consortium members.

    Question 5. Concerning whether a grant of antitrust immunity 
encouraging unreasonably collusive conduct impinging on freedom of 
speech would do more harm than good.
    Answer. Allowing unreasonable conduct in restraint of competition 
is inherently harmful. As FTC Chairman Pitofsky indicated, any 
manufacturers who wish to institute reasonable restraints may do so 
now, and if they have any doubt concerning the legality of the measures 
they may be considering, they are free to seek guidance from the FTC or 
the Department of Justice. Moreover, because the purpose in allowing 
the use of unreasonable restraints of trade to enforce an industry-
sponsored ratings system has both the purpose and effect of limiting 
public access to constitutionally protected material, the harm is not 
just to competition, to individual retailers and to manufacturers 
outside of the consortium. The harm is also to the creators and 
consumers of artistic works, and thus to civil rights protected by the 
Bill of Rights.

    Question 6. Concerning whether we agree that the industry should 
stop marketing certain products to children.
    Answer. It is important to note that the FTC study was critical of 
the marketing activities of manufacturers, not retailers. We are 
unaware of any allegation that the home video industry at the retail 
level has targeted children in its marketing of R-rated movies of M-
rated video games. We will defer to the manufacturers of entertainment 
products to describe the actions they have taken as a result of the FTC 
study.
    Nevertheless, VSDA members realize that it is impossible for any 
product advertisement to be entirely shielded from children. For 
example, children are regularly exposed to television commercials for 
products that are exclusively for adults, ranging from shaving cream to 
retirement programs, even though the advertiser has no interest in 
attracting children to the product. The same can be said for many 
entertainment products. It is simply impossible to shield everyone 
under seventeen from all R-rated movies. Ironically, the very young may 
have no interest in an advertisement for an R-rated movie, while those 
who are closer to the age of seventeen would probably have a greater 
interest.
    Precisely because it is impossible to shield everyone under 
seventeen from the knowledge that R-rated movies and M-rated video 
games exist, VSDA supports providing more product information to inform 
consumers, including children and their parents, concerning the content 
of the home video entertainment products they wish to consider. It is 
for this reason that VSDA welcomes the announcement by the major motion 
picture studios and the MPAA that videos with clearer content 
descriptors will soon be arriving in our members' stores. VSDA will 
continue to encourage reliance upon the MPAA rating system as a 
starting point, while encouraging customers to continue to look beyond 
the rating to determine the suitability for their family of every 
contemplated movie purchase or rental, regardless of the rating.
    We note, also, that this question rests on a false premise. The 
``industry itself'' does not identify certain motion pictures or video 
games as being ``inappropriate for children.'' Rather, in the case of 
motion pictures and video games, the industry has ratings which simply 
reflect the informed opinion of a panel of individuals concerning which 
video games or motion pictures the panel believes warrant a consumer 
advisory as a guide. This guidance is a far cry from condemnation of 
the material as being harmful for minors, much less a determination 
that all minors under a specific age must be shielded from the material 
until a requisite birthday is reached.
    In the final analysis, VSDA agrees with the proposition that if a 
supplier has reached a determination that a given product may not be 
appropriate for children below a certain age--regardless of the 
rating--the supplier should not specifically target that age group in 
its marketing and should be selective in its general marketing to avoid 
creating demand among unintended audiences. While VSDA cannot speak to 
the marketing practices of our suppliers, it is precisely because of 
these difficult questions that the home video retail industry has 
chosen to use the predominant industry rating systems as only a 
default, while giving preference to empowering parents to control the 
decision concerning whether entire categories of products or specific 
products within a ratings category are appropriate for their children.

    Question 7. Concerning the use of children in certain market 
research tests.
    Answer. VSDA strongly condemns the use of children in market 
research tests for products that the motion picture studios and game 
manufacturers identify as inappropriate for them without their parents' 
approval. We are unaware of any such tests having occurred in the home 
video industry, and therefore would defer to others to detail what 
steps they are taking.

    Question 8. Concerning the possible exclusion of per se violations 
of antitrust law from the exemption.
    Answer. VSDA shares the concern of the National Association of 
Recording Merchandisers (NARM) about the anticompetitive consequences 
to retailers, and joins in the response to this question by Pamela 
Horovitz, NARM's President. We add the following observations.
    Answer. Part a. VASDA opposes any exemption from antitrust law that 
would give any power over suppliers to control their products beyond 
their current power under the Copyright Act. You have asked whether, in 
the event Congress were to grant an exemption from antitrust laws, 
there are per se violations in addition to group boycotts that should 
be expressly excepted from any such exemption. It should be noted, 
however, that the line between conduct that warrants per se treatment 
or is subjected to a rule of reason analysis is not a clear one. Under 
current law, courts will often employ a rule of reason type of analysis 
to determine whether certain conduct will be given per se treatment. 
Generally speaking, however, other types of violations which are 
condemned outright under per se treatment, or are ordinarily condemned 
unless certain saving facts can be shown, are price fixing, bid-
rigging, market or customer allocations, and product tying. In this 
context, an agreement which does not boycott a retailer directly but 
encourages retailers to refuse to deal with certain consumers, 
encourages consumers to refuse to deal with certain retailers, or 
encourages suppliers (including retailers who are also suppliers) to 
penalize a retailer for what amounts to a difference of opinion, should 
also be excluded from any exemptionunder the same principles that give 
rise to per se treatment--there simply is no conceivable pro-
competitive basis to support such conduct, particularly in light of the 
constitutionally protected rights of retailers and their customers to 
the entertainment products of their choice.
    Part b. As for examples of other types of anti-competitive conduct 
which should be excluded from any exemption, the short answer is that 
all anti-competitive conduct should be excluded. This would include all 
per se violations of the antitrust laws and also all conduct which, 
when judged under the rule of reason, constitutes an ``unreasonable'' 
restraint on trade. The fact is that we believe it is fundamentally 
unreasonable to allow suppliers to agree with each other on how they 
will do business with retailers, even if under the guise of preventing 
some Americans from having access to what the suppliers may deem to be 
unsuitable for them, unless it can be shown that the purpose and effect 
of the agreement is not anticompetitive and has either procompetitive 
benefits or other social value. One principal reason for this position 
is that suppliers often compete with retailers at the retail level (and 
this is happening with greater frequency through the use of Internet-
based retailing models), and an increasing number of retailers are able 
to enter into direct competition with other suppliers at the production 
and distribution level. For example, it is estimated that more than one 
hundred films were produced or entered production over the past year by 
companies whose primary business is video retailing.
    The threat of possible pretextual and anticompetitive use of a 
ratings enforcement program as described by Chairman Pitofsky is not 
just a speculative proposition. VSDA has already been rocked by 
controversy within the home video industry. In particular, small 
independent retailers have been troubled by the ability of larger 
retailers to acquire exclusive rights in films, which can then be 
marketed on an exclusive basis. A group of independent retailers are 
currently engaged in an antitrust lawsuit against another retailer and 
the major motion picture studios alleging what is, in plain English, 
favorable treatment to one retailer. These plaintiffs are 
understandably alarmed at the prospects of the defendants in their 
lawsuit being given the power to agree upon, and enforce against the 
plaintiffs, restrictions on their freedom to continue to market freely 
and competitively. Though I do not wish to imply that the defendants 
would take advantage of the proposed tool to control the plaintiffs, 
what is being proposed is a permanent change in our antitrust laws at a 
time when emerging new technologies are giving rise to new business 
models and strategic relationships in a market with increasing vertical 
integration and rapid consolidation. This is simply not the time to 
interfere with the free market, even if out of a genuine concern for 
encouraging parents to alter their parenting choices.
    Part c. A grant of an antitrust exemption to the entertainment 
industry poses not only a risk, but a certainty that the exemption will 
serve to shield forms of anti-competitive conduct that Congress would 
never condone directly. This is primarily because so many suppliers are 
also retailers, and so many retailers are also suppliers. For example, 
under current law, a supplier could unilaterally refuse to sell its 
product through any retail channels but its own, or grant exclusive 
access to only one or a small number of select retailers. Similarly, a 
major retailer which owns the copyright to a new release may keep it as 
an exclusive product for its own stores. It would be a very simple 
process for such a supplier/retailer to explain its refusal to deal as 
being necessary to prevent children form having access to the product, 
and not trusting the competing retailers to do a good enough job of 
enforcing the supplier-imposed restriction.

    Question 9. Concerning whether we have any concern that 
congressional pressure to fill expectations could implicate First 
Amendment rights.
    Answer. You have raised a very important issue because, in our 
judgment, which we share with NARM, the increasing pressure upon 
members of the entertainment industry to do by agreement with each 
other what Congress cannot lawfully do outright raises a very real risk 
that what would otherwise be lawful private action will be challenged 
and condemned under the long line of cases exemplified by Shelley v. 
Kramer, 334 U.S. 1 (1948). To put it simply, the greater the 
congressional pressure upon the entertainment industry to take 
``voluntary'' action (under frequent threats that failure to act will 
be addressed by more restrictive legislation), the greater the 
likelihood that what might otherwise be lawful private action will be 
converted into ``state action'' and subject to challenge under 42 
U.S.C. 1983. It would be both ironic and disappointing if the zeal and 
urgency with which some members of Congress are pressing private actors 
to do what Congress cannot do directly would so infect otherwise 
voluntary private action that it will be found to be coerced state 
action in violation of the First Amendment.
    We do not raise this concern in a vacuum. For many Americans, the 
memory of government ``encouragement'' of private action to deny equal 
rights to persons on the basis of race remains fresh. For example, 
although private landowners are free to seek enforcement of the 
trespass laws against trespassers even if they file charges on a 
racially discriminatory basis, the Supreme Court reversed the trespass 
conviction of sit-in demonstrators where local government actors had 
encouraged such private voluntary action by condemning the sit-ins and 
publicly stating that the government was prepared to prosecute anyone 
charged with trespass. Lombard v. Louisiana, 373 U.S. 267 (1963).
    ``The line sought to be drawn is that beyond which the state 
assists a private person in seeing to it that others behave in a 
fashion which the state could not itself have ordained.'' Pollak, 
Racial Discrimination and Judicial Integrity: A Reply to Professor 
Wechsler, 108 U. Pa. L. Rev. 1 (1959). In Lugar v. Edmondson Oil Co., 
457 U.S. 922 (1982), the Supreme Court reviewed several of the factors 
which the Supreme Court has used over the years, in different contexts, 
to determine whether what may appear to be private conduct is in fact 
the conduct of a ``state actor'' for purposes of liability for 
infringing constitutionally protected rights, id. at 939 (noting the 
``public function'' test, the ``state compulsion'' test, the ``nexus'' 
test, and the ``joint action'' test). It concluded that, regardless of 
the test used, ``the first question is whether the claimed deprivation 
has resulted form the exercise of a right or privilege having its 
source in state authority. The second question is whether, under the 
facts of this case, respondents, who are private parties, may be 
appropriately characterized as `state actors.' '' Id. Concerning the 
latter question, the Court quoted approvingly from United States v. 
Price, 383 U.S. 787, 794 (1944), the Court reiterated: ``It is enough 
that [the private person] is a willful participant in a joint activity 
with the State or its agents.'' (Edmondson Oil Co., 457 U.S. at 941.)
    Thus, the proposed antitrust exemption, which has the fundamental 
purpose of empowering private parties to engage in conduct, currently 
prohibited, to deprive persons of their constitutional right to freedom 
of speech, places retailers in an untenable position. If they resist 
this action, they can be penalized to the point of bankruptcy. If they 
cooperate with thegovernment scheme, they become exposed to liability 
for violation of civil rights under 42 U.S.C. Sec. 1983.

    Question 10. Concerning several important observations regarding 
the possible anticompetitive consequences and effectiveness of any 
antitrust exemption.
    Answer. VSDA continues to believe that the concerns we expressed at 
the hearing are valid and should lead to the conclusion that an 
antitrust exemption for entertainment manufacturers to enforce their 
ratings systems at the retail level should not be granted. In fact, if 
anything, the hearing heightened our concern because of the statement 
of the Chairman that he seeks to remove any question that the 
entertainment industry could engage in a group boycott of ``a video 
rental chain'' that does not adhere to industry age advisories for 
their products. Retailers and their customers must remain free to 
disagree with their suppliers concerning such a sensitive matter. 
Congress did not put Joe Camel in charge of dictating to tobacco 
retailers and consumers what the appropriate smoking age should be. 
Where the Constitution reserves such a right to the people and 
prohibits congressional abridgement of that right, Congress should not 
delegate power that it does not have to entertainment product 
suppliers.
    Although VSDA's position in relation to the issues raised in this 
question is addressed in my written testimony, we wish to give special 
attention to the issue in (vi) concerning the effect that this proposed 
antitrust exemption would have on a well established body of copyright 
law--the first sale doctrine.
    The Constitutional authority vested in Congress to enact copyright 
laws is for the purpose of promoting the progress of science and the 
useful arts ``by securing for Limited Times to Authors and Inventors 
the exclusive Right to their respective Writings and Discoveries.'' 
(U.S. Const., art. I, cl. 8.) Early on, the courts determined, however, 
that one of ``the ordinary incidents of ownership in personal 
property'' is ``the right of alienation'' of that property, which is 
``attached to'' the ownership. Harrison v. Maynard, 61 F. 689, 691 (2d 
Cir. 1894). Accordingly, the right to vend (or the distribution right) 
is exhausted once exercised. This is commonly referred to as the 
``first sale doctrine,'' which has now been codified in Section 109 of 
the Copyright Act.
    Section 109(a) provides that, notwithstanding the copyright owner's 
distribution right, the owner of a particular copy or phonorecord 
lawfully made under U.S. copyright law ``is entitled, without the 
authority of the copyright owner, to sell or otherwise dispose of that 
copy or phonorecord.'' Accordingly, America's retailers of copyrighted 
artistic and entertainment works are entitled to sell them without 
interference from the copyright owner as to what price they may sell 
them, or to whom they may sell them, or how they will merchandise them.
    Thus, the proposed exemption from antitrust law, ostensibly 
intended to allow copyright owners to enforce their own ratings system 
as against all others, would in fact upset over 100 years of copyright 
jurisprudence and hand to copyright owners an unprecedented right to 
continue to control the distribution of copies of their works long 
after they sold them. They could control distribution by, in the name 
of ``enforcing'' a ratings system, restrict how their products are 
merchandised in every retail store, designate specific classes of 
consumers to whom the copies could or could not be sold, place 
additional burdens on retailers to perhaps keep records of the names 
and addresses of all persons to whom they sold or rented titles of a 
given rating, and effectively control all retail and other reselling 
channels for their works, long after they had conveyed all right, title 
and interest in a given copy.
    Recently, copyright owners have been seeking greater control over 
copies of their works by trying to avoid the effect of Section 109 of 
the Copyright Act and purporting to ``license'' copies of their works. 
Under the Uniform Computer Information Transactions Act, copyright 
owners are seeking to gain a foothold in controlling distribution by 
making a end run around Section 109 where copies are made and 
distributed in digital format. The copyright power grab would continue 
if copyright owners are given a direct exemption from antitrust laws 
for the specific purpose of controlling and limiting public access to 
copies of their works which they no longer own. In other words, this is 
not just the power to limit output and keep our competition that is 
anathema to antitrust law, but also a power to continue to control 
distribution of copies long after copyright law would extinguish that 
right and give it to the retailer and the consumer.
    ``One of the most important limitations on copyright owners' 
exclusive rights is embodied in Section 109 of title 17, United States 
Code,'' H.R. Rep. No. 735, 101st Cong., 2d Sess. (1990) (Statement of 
Legislative History, Title I, pagination unavailable). This right has 
even been recognized as implicating First Amendment rights. United 
States v. Bily, 406 F. Supp. 726, 735, n.15 (E.D. Pa. 1975). We 
therefore urge Congress to not allow the rush to encourage private 
censorship through antitrust exemptions and collusion among copyright 
owners to restrict distribution and trample such a mainstay of 
copyright law.
                                 ______
                                 

 Response of Crossan ``Bo'' Andersen, to a Question From Senator DeWine

    Question 1. Mr. Andersen, you have raised concerns about 
entertainment producers having an antitrust exemption for the purpose 
of enforcing their ratings at the retail level. Will you agree to work 
to establish enforcement provisions at an association level that will 
ensure that inappropriate products are not sold to children by your 
members without parental involvement?
    Answer. VSDA is committed to continuing and enhancing the home 
video industry's voluntary programs to empower parents to control the 
movies and video games to which their children have access. We 
appreciate your emphasis on parental involvement, an emphasis we 
embrace.
    At the outset, it bears repeating that video stores already have in 
place parental empowerment programs that provide parents with 
information about the motion picture and video game ratings systems and 
ensure that children do not have access to movies and video games that 
their parents determine are inappropriate for them. The study of the 
Federal Trade Commission, ``Marketing Violent Entertainment to 
Children,'' showed these programs to be the most effective of any that 
the FTC examined and did not identify a single specific instance of a 
video store renting an R-rated video or an M-rated game to a person 
under 17 years of age. The study supports the contention that a video 
store is the best place for parents to control the content of the 
movies and video games to which their children have access.
    Yet, VSDA recognizes that, to keep our pledge to parents, we must 
constantly look for ways to improve the parental empowerment programs 
of video retailers. We appreciate the recommendation of the FTC that 
entertainment industry trade associations ``actively monitor compliance 
[with voluntary self-regulatory programs] and ensure that violations 
have consequences.'' Just two weeks after the issuance of the FTC 
study, the Board of Directors of VSDA discussed this recommendation and 
took action on it.
    At a September 25, 2000, meeting, the VSDA Board of Directors voted 
unanimously to: endorse members' parental empowerment programs related 
to movie and video game ratings; direct that Pledge to Parents kits 
continue to be made available to all retailers, members and nonmembers 
alike (Pledge to Parents is VSDA's model ratings education and 
enforcement program); and authorize the establishment of a retailer 
certification program for parental education on movie and game ratings.
    The retailer certification program is intended to provide parents 
with a recognizable ``seal of approval'' for video retailers who 
prominently provide ratings information and train their employees in 
the ratings systems of the Motion Picture Association of America and/or 
the Entertainment Software Rating Board, as appropriate.
    In light of the existing effective parental empowerment programs of 
video stores, the lack of any suggestion of systemic failures of 
ratings enforcement by video stores, and the difficulty in devising and 
implementing a punitive enforcement system (see the testimony of 
Douglas Lowenstein, President, Interactive Digital Software 
Association, for a discussion of these difficulties), VSDA believes 
that an aspirational program that provides positive incentives for 
retailer action will serve parents best.
    Finally, we are compelled to add a clarification. Although we 
understand and appreciate the spirit and intent of the question, we are 
reluctant to ``agree'' with Congress not to provide constitutionally 
protected materials to an individual otherwise entitled to receive 
them. Video retailers have voluntarily adopted programs to ensure that 
certain products are not rented or sold to children without parental 
involvement. This voluntary private conduct is not the result of an 
agreement with members of Congress. If it were, it would place these 
programs and participating retailers at risk. To put it simply, the 
Supreme Court has determined that private actors can become state 
actors, and be subject to liability for civil rights violations, if 
their conduct is the result of too much encouragement, cooperation, or 
agreement with the state. The analysis would be fact intensive, and we 
hope that you understand our reluctance to create any factual basis for 
a disgruntled consumer to challenge under 42 U.S.C. Sec. 1983 a 
retailer's voluntary decision not to sell or rent a particular product 
to him or her. It could result in a serious set-back to positive 
programs of video retailers.
                               __________

      Response of Pamela Horovitz, to Questions From Senator Hatch

    Question 1. With respect to a limited exemption for record 
companies for developing voluntary and enforceable guidelines, what 
actions from record companies concern us and why?
    Answer. NARM has no objection to entering into discussions with 
record companies for the purpose of reviewing the findings of the FTC 
report and developing ways of improving the voluntary Parental Advisory 
program. We think this is an appropriate use of the FTC report and 
there is no need for an antitrust exemption to have this conversation. 
However, if an antitrust exemption is granted for the purpose of 
recommending improvements to the Parental Advisory program, the 
exemption should extend to include the retail community.
    We take a different position with respect to an anti-trust 
exemption for the purpose of ``enforcing'' the Parental Advisory. 
Because ``enforcement'' translates to mandating restrictive retail 
sales policies on a program which is not age based, we believe that if 
record companies are granted even a limited exemption in which they 
have the opportunity to impose sanctions on companies with which they 
compete, there is potential for abuse.
    The music industry is rapidly moving to the internet for the 
marketing and delivery of music. While digital delivery holds much 
promise for retailers, it also heralds the entrance of suppliers into 
the marketplace as direct competitors. All five major recording 
corporations already own or control web sites which sell directly to 
consumers in direct competition with NARM member retailers. While NARM 
member retailers do not fear competition (even from suppliers) and are 
confident of their ability to compete for consumers, our members are 
concerned about the ability to compete on a level playing field in a 
digital world. NARM is now in the middle of litigation against Sony 
Music in which we seek to limit their unfair marketing to consumers via 
hyperlinks on the Internet. It is not hard to imagine a scenario in 
which an online retailer could be punished for selling a title to a 
minor responding to the marketing of the record company doing the 
punishing.
    Any anti-trust exemption which is given to a few companies who 
control the vast majority of copyrights for music must be scrutinized 
against their behavior in the existing marketplace. Their strategies 
clearly indicate a desire to control content, delivery mechanisms, 
pricing models, and marketing strategies on a worldwide basis. Adding 
to this list their ability to control ratings programs is both 
inappropriate and unwise and would facilitate collusion in a highly 
concentrated market.
    Because antitrust analysis is a complex area of the law, we have 
developed NARM's legal concerns in greater detail with the assistance 
of counsel in our response to Question 8 by Senator Leahy.

    Question 2. How would we suggest enforcing guidelines for keeping 
violent material out of the hands of children at retail?
    Answer. NARM opposes the concept of ``enforcing'' guidelines at 
retail and believe that America's parents and children are better 
served by the variety of programs now at work in the marketplace. The 
FTC findings did not include any indication that parents are demanding 
that all retailers restrict sales of Parental Advisory recordings. 
Because retailers must be responsive to the individual communities in 
which they operate in order to be successful, we believe that the 
variety of policies and programs now in place is the best reflection of 
the degree to which parents needs are already being met.
                                 ______
                                 

     Responses of Pamela Horovitz, to Questions From Senator Leahy

    Question 1. Are you aware of any incidents since 1994 where concern 
over antitrust liability has stopped any particular entertainment 
company from participating in or enforcing a rating system?
    Answer. No.

    Question 2. Since self-regulatory systems that are designed to 
protect children would be acceptable and legal under the antitrust laws 
as reasonable restraints on trade, do you have any concern that a grant 
of antitrust immunity would only be necessary to shield unreasonable 
steps from antitrust scrutiny?
    Answer. Suppliers, retailers, and government representatives may 
have differing definitions of what constitutes reasonable or 
unreasonable restraints on trade. However, for music retailers, who 
increasingly face competition from their own suppliers, any steps which 
give a marketplace advantage to suppliers and have the potential to 
drive them from the marketplace as cause for concern.

    Question 3. Do you believe that an antitrust exemption is necessary 
to enforce a rating system against retailers.
    Answer. NARM disagrees with the premise that an effective rating 
system requires enforcement actions against retailers, regardless 
whether an antitrust exemption were necessary to achieve that 
objective. NARM opposes the notion of ``enforcing'' at retail a program 
which is not age based by design (the FTC arbitrarily assigned 17 as 
the appropriate age for all music carrying the RIAA Parental Advisory 
sticker), and which was created with the intent of being advisory only. 
We believe that the range of options available to parents under the 
diversity of programs now available in the marketplacebetter serves the 
needs of parents who may have differing views of how intrusive they 
wish retailers to be in parenting decisions.

    Question 4a. Does NARM believe the Brownback-Hatch amendment goes 
too far?
    Answer. Yes. We believe the voluntary self-regulation program can 
be improved without the measures outlined in the Brownback-Hatch 
amendment. The benefits of the amendment are far outweighed by the 
potential for abuse and offer parents the false hope that they need not 
be concerned with the media their children may be exposed to because 
Congress is ensuring that no exposure can occur.

    Question 4b. Do we share the Justice Department concern that the 
amendment would restrict the ability of manufacturers outside the 
consortium to distribute their own movies, videos, and records?
    Answer. Yes. The antitrust exemption places no limit on the 
creative uses to which such power could be placed. Critics have already 
noted that the cost of submission of a movie for the MPAA rating is a 
barrier to emerging independent film companies. The grant of what would 
amount to a monopoly on a single rating system could easily be used 
through licensing or service fees to raise competitors' costs and 
increase barriers to entry.

    Question 5. Do we think granting anti-trust immunity would open the 
door to collusive behavior and do more harm than good?
    Answer. Yes. See response to Question 8.

    Question 6. Does NARM agree that the entertainment industry should 
stop marketing directly to children products which the industry itself 
identifies as inappropriate for children?
    Answer. NARM believes that the findings of the FTC report were a 
useful snapshot of the practices of certain segments of the 
entertainment industry with respect to marketing to children. However, 
NARM disagrees with the notion that industries as diverse as music, 
motion picture and video games can be treated as one industry, nor 
should retailers be painted with the same brush as the suppliers who do 
the marketing. For example, we wish to point out that music retailers 
were not accused of marketing to children inappropriately in the FTC 
report. NARM believes that the vast majority of advertising and 
marketing plans executed by our retail members target mass market 
audiences and are designed primarily to alert the buying public to the 
new titles which are available in any given week. Artist-specific 
marketing is generally executed by the labels, although certain 
merchants may be ``tagged'' in a given ad. We support the revised 
guidelines of the RIAA which specifically preclude advertising 
recordings which contain the Parental Advisory in media with 50 percent 
of the demographics below the age of 16.

    Question 7. Does NARM agree that the entertainment industry should 
stop including children in market research tests for products which the 
industry identifies as inappropriate for them without their parents 
approval?
    Answer. We certainly agree that market research activities should 
not target young children if an age based rating does not indicate the 
content is suitable for them. However, NARM is not aware of any music 
retailers conducting any market research projects for any artist 
specific projects, so no steps are necessary to end a practice which 
does not exist for our segment of the entertainment industry.

    Question 8. In light of Chairman Pitofsky's testimony, a. Whether 
other types of per se violations of antitrust law, in addition to 
boycotts, should be excepted from the antitrust exemption? b. If so, 
give examples. c. Whether the grant of an antitrust exemption for the 
purpose of ratings enforcement poses the risk of unintentionally 
shielding some forms of anti-competitive conduct.
    Answer. NARM's concerns about the anticompetitive consequences to 
retailers are rooted in the basic premise that there is no need for an 
antitrust exemption to facilitate the development of a truly voluntary 
code governing the appropriate content for entertainment products for 
minors. This type of activity is governed under the Sherman Antitrust 
Act pursuant to a ``rule of reason'' analysis that permits such 
activity, provided, however, it does not result in an unreasonable 
restraint of trade or commerce. Voluntary standards or codes, which are 
unbiased and the product of objective and legitimate expert judgment, 
do not require an antitrust exemption. American Society of Mechanical 
Engineers, Inc. v. Hydro-Level Corp., 456 U.S. 556 (1982). However, 
when such standards or codes negatively impact competition or create 
circumstances that facilitate anticompetitive collusion, such as 
boycotts or other per se type violations, there is no sound public 
policy reason to exempt them from antitrust proscriptions even if the 
goal is to satisfy some societal purpose.
    The Supreme Court's decision in National Society of Professional 
Engineers v. United States, 435 U.S. 679, 692-93 (1978) provides an 
excellent rationale for not exempting concerted or collusive conduct 
from antitrust scrutiny. In that case, an association's canon of ethics 
ostensibly designed to protect public health and safety, and to protect 
consumers from inferior engineering work, was viewed as nothing more 
than a pretext to stifle competitive bidding for engineering services. 
We share FTC Chairman Pitofsky's concern that exempting group boycotts 
from antitrust scrutiny would permit the exemption to be used 
pretextually to the competitive disadvantage of retailers. This is 
particularly true where, as here, the markets for the supply of 
recorded music and motion pictures are both highly concentrated--five 
suppliers control over 90 percent of the sound record market, and seven 
suppliers enjoy similar control in the motion picture market. Those 
very suppliers are in direct competition with retailers for Internet 
sales or the digital delivery of entertainment products to consumers. 
Conversely, there is increasing competition between those suppliers and 
certain retailers who function at the supplierlevel in attracting 
recording artists and producing recorded music, or in acquiring 
copyrights in motion pictures.
    Granting an antitrust exemption, which permits boycotting or 
refusals to deal aimed at retailers who are also direct competitors at 
the retail level and, in several cases, also at the supply level, is 
fraught with serious anticompetitive concerns. The proposed legislation 
discriminates against retailers by permitting boycotts an similar 
restrictions against them while at the same time excluding boycotts and 
advertising restrictions aimed at suppliers. Compare Section 404(b) 
with the absence of any similar language in Section 405. It is our 
position that boycotts or refusals to deal raise such serious 
anticompetitive concerns as to preclude their exemption from antitrust 
scrutiny. Where there is high market concentration with few suppliers, 
such as exists in the market for prerecorded music and motion pictures, 
an antitrust exemption facilitates collusion due to the centralization 
of power in determining what types of entertainment products are 
acceptable.
    Per se violations are those that almost always restrict competition 
and have little or no redeeming value in enhancing competition. Thus, 
price fixing, bid rigging, territorial and customers allocations by 
competitors fall within the per se category. Jefferson Parish Hosp. 
Dist. No. 2 v. Hyde, 406 U.S. 2, 9, 15-16 (1984); Northern Pac. Ry. 
Inc. v. CBS, 356 U.S. 1, 5 (1958). Where suppliers have market power 
other practices such as tie-in sales, group boycotts or refusals to 
deal are treated as per se violations. Even boycotts by groups without 
market power are per se unlawful if they are designed to obtain higher 
prices. FTC v. Superior Court Trial Lawyers' Ass'n, 493 U.S. 411, 432-
35 (1990).
    Even the exclusion of boycotts from the proposed exemption would be 
inadequate because it would not cover a number of other per se 
violations or predatory conduct. The complexities of definition alone 
argue against granting any exemption particularly where it is 
unnecessary. At a minimum these complexities certainly would require 
extensive hearings and investigation to evaluate the impact that an 
antitrust exemption would have in industries as diverse as those 
encompassed by the ``entertainment industry.''
    It should also be noted that the courts frown upon and do not 
lightly infer antitrust exemptions. United States v. National Ass'n of 
Sec. Dealers, Inc., 422 U.S. 694, 719-20 (1975). A group boycott or 
refusal to deal by competitors targeting other competitors generally 
falls within the per se category of antitrust violations. The courts 
view such conduct as so antithetical to the public policy favoring 
competition as to be beyond justification. A statutory exemption for 
such conduct would be unprecedented and unwise public policy, 
especially where the objective--a voluntary code aimed at protecting 
minors--can be achieved without an antitrust exemption. The McCarran-
Ferguson Act, 15 U.S.C. Sec. Sec. 1012(b)-1013(b), which excludes 
boycotts from its limited insurance antitrust exemption, is instructive 
with respect to the parameters of the term ``boycott.'' Under this 
provision, ``boycott'' includes more than an absolute refusal to deal; 
it also includes conditional refusals to deal and partial boycotts--
refusals to engage in some but not all transactions with the target. 
Hartford Fire Insurance Co. v. California, 509 U.S. 764, 801 (1993). In 
Hartford Fire Insurance, Justice Souter, based on Supreme Court 
antitrust precedent, included an even broader array of activity where a 
group uses coercion and intimidation as part of its enforcement 
activities. Id. at 786-88.
    In Fashion Originators' Guild of America, Inc. v. FTC, 312 U.S. 
457, 467-68 (1941) the Supreme Court held that a program to detect 
``style piracy,'' under which industry members agreed not to deal or 
purchase products from other manufacturers who engaged in style piracy, 
violated the Federal Trade Commission Act and was a per se violation. 
The Court viewed the program as setting up an ``extra-governmental 
agency'' which prescribed a restraint on interstate commerce. Indeed, 
the Court analogized the practice of imposing sanctions as the 
assumption of judicial and legislative powers by a private group. To 
the extent that the proposed legislation would exempt boycotts or 
variants of boycott activity as enforcement mechanisms, it certainly 
would smack of delegating governmental powers to private groups. 
Sanctioning boycotts and concerted refusals to deal that negatively 
impact competition cannot be justified under some generalized public 
policy goal.
    It cannot be overemphasized that the danger of the proposed 
exemption is that it provides governmental approval of a standard 
setting program or voluntary guidelines which encourage or facilitate 
collusion or monopolistic activity in a highly concentrated industry 
setting. XIII H. Hovenkamp, Antitrust Law para. 223lb at 349 (1999). It 
makes it relatively easy for those in control to establish a standard 
or rule--ostensibly neutral on its face--to remove mavericks or 
aggressive marketers at all levels from the market or raise their costs 
of doing business. Id.
    Providing the umbrella of governmental approval to such a program 
or standard-setting process raises serious issues concerning whether 
such a program's ratings and enforcement activities could be viewed as 
governmental action impinging upon important First Amendment rights. 
Were Congress to confer such power to private entities, albeit for 
social welfare benefits, it is difficult to perceive how such a 
statutory scheme could not implicate first amendment concerns. Even 
Professor Sunstein conceded as much in his statement:

          . . . a general grant of permission by the Congress for 
        broadcasters to engage in collusive behavior would probably be 
        unconstitutional--at least if the consequence of the grant was 
        sharply to reduce diversity over the airwaves. But this 
        conclusion is not compelled by existing law, and in any case it 
        would depend on a judgment that, I practice, legislative 
        authorization for concerted action had serious consequences in 
        limiting diversity for the viewing public. A statute that 
        allowed collusive and monopolistic activity would of course 
        count as state action.

    Statement of Cass R. Sunstein, Before Senate Judiciary Committee 
(Sept. 20, 2000). Despite Professor Sunstein's efforts to distinguish 
the proposed legislation from this characterization, the proposed 
legislation suffers from the same infirmities: it has the earmarks of 
governmental or state action, in all likelihood has the potential of 
serious consequences limiting diversity, and facilities collusion and 
anticompetitive activity.
    The proposed legislation would certainly be vulnerable to challenge 
as governmental action impinging upon fundamental First Amendment 
rights. Despite the government's legitimate interest of protecting 
children, there are less restrictive or more tailored means of 
achieving that goal without granting an antitrust exemption to insulate 
boycotting or refusals to deal that could limit diversity and which 
appear to be the product of Congressional intimidation or coercion. 
See, Denver Area Ed. Telecommunications Consortium, Inc. v. FCC, 518 
U.S. 727, 755 (1996). A proposal that discriminates against retailers 
by permitting them to be targets of boycotting activity or group 
intimidation and coercion by the very suppliers with whom they compete 
and who have substantial market power, raises serious constitutional 
problems when the same legislation protects those same competing 
suppliers from such conduct.

    Question 9. Does NARM have any concern that congressional pressure 
to fulfill expectations concerning voluntary industry action if an 
antitrust exemption is granted could implicate any First Amendment 
rights?
    Answer. Not only is NARM concerned that First Amendment rights 
might be implicated if the antitrust exemption is granted, but we 
believe that congressional pressures, accompanied by individual threats 
that direct legislative action might be taken if voluntary measures are 
not implemented, may have already placed existing voluntary measures at 
risk of being challenged as ``state action'' under 42 U.S.C. Sec. 1983. 
We join with VSDA in the following observation: The increasing pressure 
upon members of the entertainment industry to do by agreement with each 
other what Congress cannot lawfully do outright raises a very real risk 
that what would otherwise be lawful private action will be challenged 
and condemned under the long line of cases exemplified by Shelley v. 
Kramer, 334 U.S. 1 (1948). Thus, the more pressure the government puts 
on the entertainment industry to take ``voluntary'' action to fend off 
enactment of restrictive legislation, the greater the likelihood that 
what might otherwise constitute lawful private action will be converted 
into ``state action'' and subject to challenge under 42 U.S.C. 
Sec. 1983. It would be both ironic and disappointing if the zeal and 
urgency with which some members of Congress are pressing private actors 
to do what Congress cannot do directly would so infect otherwise 
voluntary private action that it will be found to be coerced state 
action in violation of the First Amendment.
    We do not raise this concern in a vacuum. For many Americans, the 
memory of government ``encouragement'' of private action to deny equal 
rights to persons on the basis of race remains fresh. For example, 
although private landowners are free to seek enforcement of the 
trespass laws against trespassers even if they file charges on a 
racially discriminatory basis, the Supreme Court reversed the trespass 
conviction of sit-in demonstrators where local government actors had 
encouraged such private voluntary action by condemning the sit-ins and 
publicly stating that the government was prepared to prosecute anyone 
charged with trespass. Lombard v. Louisiana, 373 U.S. 267 (1963).
    ``The line sought to be drawn is that beyond which the state 
assists a private person in seeing to it that others behave in a 
fashion which the state could not itself have ordained.'' Pollak, 
Racial Discrimination and Judicial Integrity: A Reply to Professor 
Wechsler, 108 U. Pa. L. Rev. 1 (1959). In Lugar v. Edmondson Oil Co., 
457 U.S. 922 (1982), the Supreme Court reviewed several of the factors 
which the Supreme Court has used over the years, in different contexts, 
to determine whether what may appear to be private conduct is in fact 
the conduct of a ``state actor'' for purposes of liability for 
infringing constitutionally protected rights, id. at 939 (noting the 
``public function'' test, the ``state compulsion'' test, the ``nexus'' 
test, and the ``joint action'' test). It concluded that, regardless of 
the test used, ``the first question is whether the claimed deprivation 
has resulted from the exercise of a right or privilege having its 
source in state authority. The second question is whether, under the 
facts of this case, respondents, who are private parties, may be 
appropriately characterized as `state actors.' '' Id. Concerning the 
latter question, the Court quoted approvingly from United States v. 
Price, 383 U.S. 787, 794 (1944), the Court reiterated: ``It is enough 
that [the private person] is a willful participant in a joint activity 
with the State or its agents.'' (Edmondson Oil Co., 457 U.S. at 941.)
    Thus, the proposed antitrust exemption, which has the fundamental 
purpose of empowering private parties to engage in conduct, currently 
prohibited, to deprive persons of their constitutional right to freedom 
of speech, places retailers in an untenable position. If they resist 
this action, they can be penalized to the point of bankruptcy. If they 
cooperate with the government scheme, they become exposed to liability 
for violation of civil rights under 42 U.S.C. Sec. 1983.

    Question 10. Does NARM believe the following concerns and 
observations are valid: a. the antitrust exemption would not protect a 
company from civil lawsuits under state antitrust laws.
    Answer. As a general rule, the federal antitrust laws do not 
preempt state antitrust laws. In this case, given the effort to affect 
purely local concerns at the retail level, it is unlikely that 
preemption would be availing, particularly not where the legislation 
does not expressly preempt state law, there is no Congressional intent 
to occupy the whole field, and no actual conflict exists between 
federal and state provisions. California v. ARC America Corp., 490 U.S. 
93, 101 (1989). Moreover, given that the purpose of the antitrust 
exemption has nothing to do with Congress' power under the Commerce 
Clause, but has the clear intent of causing private parties to abridge 
the First Amendment rights of others, the proposal is not likely to 
have any possible shielding effect from state antitrust laws.
    NARM's concern does not end with state antitrust laws, however. 
Many music retailers have experimented with restrictive sales policies 
over the years in an attempt to find the right program for a specific 
community. What is surprising to many legislators is the fact that 
restrictive sales programs are not uniformly met with enthusiastic 
support from parents. Retailers have been criticized by parents for a 
variety of reasons (``You mean my kid is old enough to drive to your 
store by himself but not old enough to buy a record once he gets there? 
'' , the most important of which is anger over intrusion into their 
parenting decisions (``How dare you tell me how to raise my 
children!''). In other cases, retailers have been picketed for being 
racists (``How dare you put all the rap music behindthe counter?'') and 
accused of fraudulent selling practices for stocking edited or 
``clean'' versions of recordings which carry the Parental Advisory. 
Given that the industry has been subject to numerous class action suits 
in the past (Milli Vanilli, pricing), it is not unreasonable to expect 
that civil litigation against retailers would be a tool used by 
consumers whose views differ from those of Congress on restrictive 
sales policies regarding stickered music. Their standing to bring a 
claim under 42 U.S.C. Sec. 1983 is discussed in response to Question 9.

    Question 10b. The antitrust exemption would not address the 
practical concerns of developing a sanctions policy.
    Answer. There is an existing voluntary program for street date 
violations in the music industry where the practical concerns of 
imposing sanctions may be useful to consider in terms of the likely 
issues to be faced for a content based program. It has been extremely 
difficult for individual companies to determine at what point sanctions 
should be triggered. If a retailer has a thousand stores and millions 
of transactions each month, is it reasonable to impose sanctions for a 
single violation? What about multiple violations occurring on the same 
day in the same store? What if the store manager is a new employee? 
What if different employers were responsible for different violations? 
Is it fair to impose a different standard on the owner-operator of a 
single store? Deciding what is appropriate an appropriate sanction can 
also be extremely difficult. If product is withheld, should it be just 
the title in question? Should just the violating locations lose 
product? If the product was purchased through a sub-distributor, should 
the sanctions apply to the sub-distributor as well? How long does the 
sanction last? If a fine is imposed, what level is appropriate (and 
should it vary with the size of the retailer) and to whom should the 
money go? Who polices the marketplace, and who bears the cost of such 
policing? Should there be an arbitration procedure? If a company is 
damaged by a sanction, can they sue? These issues have been extremely 
challenging for individual companies who have explored sanctions as a 
means of enforcing a voluntary policy in the marketplace and would 
become exponentially more complicated if they needed to be coordinated 
at an industry level.

    Question 10c. The antitrust exemption would effectively give the 
manufacturers of entertainment products a monopoly over movie, music, 
and video game rating systems.
    Answer. In the existing music marketplace, market dominant 
retailers have the ability to command the release of edited versions of 
titles simply by having a policy of refusing to stock recordings which 
carry the Parental Advisory. Other retailers have internal programs in 
place which supplement the RIAA program. If only one supplier-run 
program is used as the benchmark for retail and parental use, the 
incentive for other companies to offer alternatives would disappear. 
Retailers who disagree with decisions made by record labels over 
applying the Parental Advisory would be reluctant to challenge them for 
fear of reprisals. In fact, it would be in the retailer's self interest 
never to impose more restrictive policies, even if more suitable to a 
given community or more in keeping with the retailer's own standards, 
so as to avoid being subject to sanctions.

    Question 10d. The antitrust exemption would place competing 
independent rating systems at a competitive disadvantage.
    Answer. The formal advisory programs already in place by the 
different segments of the entertainment industry can now be 
supplemented by the additional information which can be obtained 
through alternative sources now available in newspapers, magazines, 
online, and through various private organizations. However, if only the 
formal programs run by the respective industry trade associations can 
be used by retailers, the economic underpinnings of these competing 
programs will be at risk. If parents desire or require additional 
information about a specific recording, they will be limited to what is 
made available by the formal industry sources.

    Question 10e. The antitrust exemption would place at risk the 
current parental control over whose guidance to follow.
    Answer. The antitrust exemption will essentially mandate that the 
views of a small group of industry insiders regarding a product's level 
of appropriateness for children be applied to every child in the 
country. In a free enterprise society, these views inevitably come in 
conflict with the dictate to maximize profits and audience. Therefore, 
one must question the wisdom of placing such decisions in the hands of 
a few executives, who, no matter how well intentioned they may be, 
cannot be expected to meet the needs of all children. Because each 
child's needs and rate of maturity differ, parents are best positioned 
to make decisions relating to the type of entertainment they will 
permit for each child.

    Question 10f. The antitrust exemption would expand the power of 
copyright owners over the distribution of their products, even after 
the transfer of title of such products, to an extent that may undermine 
the First Sale doctrine.
    Answer. NARM shares the concern of the Video Software Dealers 
Association (VSDA) about the impact this exemption would have on the 
first sale doctrine, and joins in the response to this question by 
Crossan ``Bo'' Andersen, VSDA's NARM's President. The two associations 
have filed Joint Comments in response to a Request for Public Comment 
by the Copyright Office and the National Telecommunications and 
Information Administration of the Department of Commerce concerning the 
effect of the Digital Millennium Copyright Act and electronic commerce 
on Section 109 of the Copyright Act (the codification of the first sale 
doctrine).

    Question 10g. The Antitrust exemption would empower manufacturers 
of entertainment products to preclude retailers from offering unrated 
products or adult videos or videogames.
    Answer. In the music industry, the vast majority of sound 
recordings are ``unrated,'' in the sense that only a relatively few 
sound recordings have been determined to warrant the Parental Advisory 
label. Thus, NARM does not believe that an antitrust exemption would 
place unrated sound recordings at risk. Nevertheless, NARM is concerned 
that such an exemption would empower manufacturers to preclude 
retailers from facilitating the dissemination of competing product 
reviews or the implementation of a given retailer's own policies based 
on different criteria.

    Question 10h. The antitrust exemption would empower manufacturers 
of entertainment products to adopt a certain product mix or buy 
specific genres or titles.
    Answer. Yes. The proposed antitrust exemption places no limit on 
the creativity of manufacturers to use the ratings enforcement power to 
achieve all manner of market controls.
                                 ______
                                 

    Responses of Pamela Horovitz to Questions From Senator Thurmond

    Question 1. Do I think that advisory labels on music generally 
prevent young people from getting access to restricted music?
    Answer. The FTC report indicates that 71 percent of American 
parents either purchase music for their children or are with their 
children when music purchases are being made. Since the advisory labels 
were created for the purpose of informing parents and retailers about 
the nature of the content in a recording, and since 74 percent of 
American parents indicate that they are satisfied with RIAA's Parental 
Advisory program, we believe that it's appropriate to assume that 
parents who wish to restrict access by their children to certain titles 
are doing so. The FTC findings did not include any indication that 
parents are demanding that all retailers restrict sales of Parental 
Advisory recordings to all people below the age of 17.
    Additionally, the FTC report included the findings of the 1999 
Roper Youth Report and the Media In the Home 2000 Study, both of which 
indicated that while parents have different ``styles'', one aspect of 
parenting which is consistent is the fact that parents are more 
restrictive with their children's use of media below the age of 12, and 
are more permissive with their older children. (The exception was the 
Internet). In this context, it is interesting to note that the results 
of the FTC ``Mystery Shopper'' tests show that it was harder for 13 and 
14 year olds to purchase music at retail than it was for 15 and 16 year 
olds. This finding is consistent with NARM's understanding of the 
various restrictive sales programs of our members, many of which are 
designed to be consistent with the prevailing parental norms of their 
communities. The FTC report states that ``Parents give older children 
greater freedom in selecting and purchasing entertainment products than 
they do to younger children, and are less likely to restrict older 
children.'' (p. 7, Appendix F).

    Question 2. If industry guidelines for retailers on the sale of 
products to young people are entirely voluntary, what incentive do 
music or game retailers have to restrict children's purchases.?
    Answer. Retailers must be responsive to the individual communities 
in which they operate in order to be successful. Therefore, the fact 
that a variety of restrictive sales programs already exist in the 
marketplace confirms that sufficient incentives exist without 
government involvement. The fact that not every retailer has the same 
program is a reflection of the fact that parents differ in terms of how 
intrusive they wish retailers to be in their parenting decisions 
regarding entertainment products. We believe that the variety of 
policies and programs now in place is the best reflection of the degree 
to which parent's needs are already being met. This belief is confirmed 
by a lack of a finding in the FTC report that parents are asking for 
more restrictive sales policies from retailers for music.
                                 ______
                                 

     Responses of Pamela Horovitz to a Question From Senator DeWine

    Question 1. Ms. Horovitz, in your written testimony you state that 
access to products with explicit content should not be withheld from 
children under the age of 17, partly because allowing sales to kids 
encourages parents and their children to address what type of content 
is appropriate. It seems to me that your argument supports a policy of 
limiting the sale of explicit labeled products to children under the 
age of 17. Wouldn't such a policy, which in effect, requires a child to 
go to a parent before a purchase can be made, both encourage parental 
involvement and allow the parent to assess whether the child is mature 
enough for the product.
    Answer. The excellent question posed by Senator DeWine is one which 
has been debated within the retail community since the inception of the 
RIAA Parental Advisory program. Let me preface my answer by noting that 
the question misstates my characterization of the interface between 
parents and children on this topic. My written testimony noted that 
there were a variety of responses from parents in those situations 
where they found music with the Parental Advisory designation in the 
hands of their children. Not all parents simply concluded that the 
content was inappropriate for their children. For some parents a 
discussion with their kids resulted in a restriction of playing the 
content through a device with headphones so that an older child could 
still be permitted to listen, but a younger sibling would not have 
access. For other parents, the interface presented an opportunity to 
learn why a son or daughter was interested in certain lyrics, and to 
discuss the family's values against the values reflected in the lyrics. 
Some of the most poignant responses from parents involved situations in 
which violent lyrics related to the topic of suicide and provided and 
opportunity to explore death and dying with a teenager.
    The FTC reports that ``When asked how they should respond if their 
child came to them to ask about buying an explicit-content album, one 
third (33 percent) of parents indicated they would not allow their 
child to purchase that music.'' (p. 16, Appendix F). This means two-
thirds of parents would still allow the purchase. If these figures had 
been broken down further, we believe they would likely have reflected 
the higher levels of permissiveness parents have for older children as 
opposed to younger children.
    We think it's also important to note the finding in the FTC report 
regarding the fact that parents regard music differently than they do 
television, movies or videogames.

     ``Parents report placing greater restrictions on the 
viewing of movies than on the playing of games or the listening of 
music.'' (p. 6, Appendix F)
     ``By comparison, children have greater autonomy to both 
select and purchase music than to select and purchase movies or 
electronic games.'' (p. 14, Appendix F)
     ``Parents mentioned profanity (28 percent of the overall 
sample) and sexual content (9 percent of the sample) as the principal 
content concerns for the restriction. Violence was also mentioned as a 
concern by some respondents (6 percent of the sample) but was not as 
salient in parents' minds as profanity.'' (p. 14, Appendix F)

    All of the FTC findings are consistent with what retailers 
experience in the day-to-day selling of music. Retailing companies have 
different programs for handling Parental Advisory products because they 
occupy different niches in the marketplace which meet different needs 
for different families. If there were a great hue and cry from parents 
for different programs, certainly retailers would already be hearing it 
from their customers. We think the FTC report indicates that parents 
are calling on the industry to provide more information about why a 
title carries the Parental Advisory. This is a request which NARM has 
previously passed on to the RIAA. We did not find any data supporting a 
conclusion that parents are looking for all music retailers to restrict 
the access of all children to Parental Advisory titles.
                               __________

    Responses of Douglas Lowenstein to Questions From Senator Hatch

               RESPONSE TO QUESTION 1 FROM SENATOR HATCH
    Our members cannot rely on an exemption unless it offers 
unmistakable protection. This means protection from federal actions for 
alleged boycotts and from actions under state laws. Any actions to 
enforce codes of conduct present a legal risk under state antitrust 
laws, which parallel federal laws and thus raise precisely the same 
need for an antitrust exemption that exists under federal antitrust 
laws. An exemption from the federal antitrust laws, even if well 
crafted to give industry the protection it needs, will be meaningless 
if a company against which the rules are enforced can bring the same 
lawsuit under state antitrust law instead of the federal one.
    Similarly, the most effective action that an industry group could 
take against a retailer who routinely sells inappropriate material to 
children is to refuse to deal with such a retailer. Such an action 
against retailers could be characterized as a boycott that would 
subject a supplier to the risk of antitrust litigation. We understand 
that there may be some confusion as to whether the bill would protect 
actions against retailers from federal antitrust lawsuits. The FTC's 
Chairman, for example, believed that the legislation offers no such 
protection. Our members cannot rely on an exemption unless it offers 
unmistakable protection. Further, any actions to enforce codes of 
conduct would also present a legal risk under state antitrust laws, 
which parallel federal laws and thus raise precisely the same need for 
an antitrust exemption that exists under federal antitrust laws. An 
exemption from the federal antitrust laws, even if well crafted to give 
industry the protection it needs, will be meaningless if a company 
against which the rules are enforced can bring the same lawsuit under 
state antitrust law instead of the federal one.
               RESPONSE TO QUESTION 2 FROM SENATOR HATCH
    The alternative suggested by Mr. Kendall to ``augment collaborative 
efforts among the media industries'' is not entirely clear to us. 
Nevertheless, as I stated in my written testimony, the video and PC 
game industry has been committed to effective self-regulation since the 
formation of the IDSA in 1994. We have consistently and continuously 
sought to respond to concerns about the small number of our products 
that contain significant violence, balancing our absolute commitment to 
creative freedom with our commitment to empowering consumers to make 
informed choices.
    In the last year alone the IDSA has launched several initiatives on 
rating enforcement, rating awareness, and game marketing. The IDSA is 
proud of the efforts it has taken voluntarily with respect to 
advertising initiatives as well as efforts to encourage voluntary 
retailer enforcement of the rating system. We believe that voluntary 
industry efforts have been effective, especially as evidenced by the 
recent announcements from Toys R Us, K Mart, WalMart, and Target that 
they will enforce the M rating. We will continue to work to ensure that 
the self-regulatory regime meet the needs of industry and consumers 
alike.
    In our view, the antitrust exemption you have proposed is 
unnecessary in order for us to continue the steps described above and 
outlined in more detail in my written statement. Where the exemption 
potentially could be helpful is if we need to work collectively on 
strengthening retailer enforcement, but in this regard the exemption 
does not provide the legal protection we need, as explained elsewhere.
               RESPONSE TO QUESTION 3 FROM SENATOR HATCH
    The imposition of antitrust liability arising when industry 
standards are established is a serious concern for all industries. 
While the IDSA has not objected to an antitrust exemption, in theory, 
any such exemption that fails to provide adequate protection to 
participating industries will not have the desired impact of 
encouraging the development and enforcement of industry codes. 
Moreover, as we note in our testimony, with or without an exemption, we 
do not think it is feasible for our industry to develop any codes 
governing game content. That is, and will remain, a matter for 
individual software developers and publishers and consumers.
                                 ______
                                 

    Responses of Douglas Lowenstein to Questions From Senator Leahy

               RESPONSE TO QUESTION 1 FROM SENATOR LEAHY
    IDSA has not found antitrust liability to be an impediment to 
establishing and enforcing our ratings system and compliance with most 
of our ratings and advertising guidelines and standards has been very 
high. On the other hand, taking collective industry action against 
retailers, in the absence of broad antitrust immunity against state and 
federal antitrust, raises significant concerns.
    As FTC Chairman Pitofsky stated at your hearing and in his written 
testimony, enforcement of industry codes that discipline retailers that 
fail to observe restrictions on selling or renting certain products to 
minors could be potentially unlawful. For example, the most effective 
action that an industry group can take against a retailer who routinely 
sells inappropriate material to children is to refuse to deal with the 
retailer.
    In his testimony Chairman Pitofsky explicitly stated that the 
legislation would provide no protection for claims that the industry 
had engaged in such a boycott. He also stated that industry actions to 
discipline members for failure to comply with the advertising or 
marketing restrictions could violate antitrust laws where ``the 
withdrawal of membership or of membership privileges would 
substantially impair the disciplined member's ability to complete.'' 
Since the denial of a rating may substantially impair a company's 
ability to compete, the FTC's analysis would suggest that such an 
action would entail serious risks.
               RESPONSE TO QUESTION 2 FROM SENATOR LEAHY
    To the extent that Congress is pressing the industry to take action 
that affects the marketing of products, it is important that a broad 
antitrust exemption is granted. Without a broad antitrust exemption 
that applies to actions under federal and state antitrust laws, 
publishers will hesitate before taking joint actions that affect market 
access and could subject them to liability.
               RESPONSE TO QUESTION 3 FROM SENATOR LEAHY
    IDSA believes that there is too much legal uncertainty for 
manufacturers to restrict inappropriate retail sales without risking 
being sued under the antitrust laws.
    IDSA is concerned that enforcement actions taken by manufacturers 
against retailers will expose the IDSA to claims that it engaged in a 
group boycott. Absent a clear provision that protects IDSA members 
against both federal and state lawsuits, IDSA members who attempt to 
enforce the ESRB ratings by refusing to supply retailers who do not 
adhere to its guidelines could face antitrust lawsuits from retailers 
at the state and federal level alleging that they were impermissibly 
denied access to product. Moreover, even with such a broad exemption, 
our testimony makes it clear that from a business standpoint, 
withholding of product from market would be extremely difficult and 
potentially disastrous for individual software companies and thus is 
not a viable course of action.
               RESPONSE TO QUESTION 4 FROM SENATOR LEAHY
    (a). We are concerned that developing an enforcement mechanism to 
discipline retailers who violate rating enforcement policies would be 
quite challenging and would bring with it some practical and legal 
risks, notwithstanding the antitrust exemption that is being proposed.
    For example, suppose retailers and publishers agree on a policy 
barring all retailers from selling M rated games to persons under 17. 
In effect, this policy means that a company with an M rated game cannot 
sell it to persons under 17, even though the product is legal and the 
actual rating itself does not actually bar that person's use of the 
product (remember, ESRB ratings are advisory--an ``M'' rating says 
``content may be suitable for persons ages 17 and older''; it does not 
say content is unsuitable for persons 17 and under). By denying a 
retailer access to software if they violate codes of conduct, the 
industry could be exposed to legal liability. Even if the legislation 
cleared up all ambiguities by providing ironclad protection against 
federal antitrust lawsuits for such actions, the industry would likely 
face lawsuits under state antitrust laws or the numerous state laws 
that regulate commercial conduct.
    (b). Yes, we share this concern. Please see our response to 
Question 4a above.
               RESPONSE TO QUESTION 5 FROM SENATOR LEAHY
    IDSA agrees with those members of the Committee, the Chairman of 
the FTC, the Department of Justice, and others who urge that any 
granting of an antitrust exemption be done only after the exercise of 
great caution and consideration. We share the concern that even the 
most well-meaning antitrust exemption could be used inappropriately. We 
are pleased at the tremendous progress made to date by our industry and 
we believe industry self-regulation is the best and most effective 
means of strengthening retailer enforcement. We also note that one 
unintended consequence of such exemptions may be a weakening of self-
regulation, not a strengthening of it.
               RESPONSE TO QUESTION 6 FROM SENATOR LEAHY
    Yes, IDSA agrees that our products should only be marketed to those 
people for whom they are appropriate, as determined by the industry's 
independent ratings body, the Entertainment Software Ratings Board 
(ESRB). IDSA and its member companies have taken a number of voluntary, 
proactive steps to address concerns over advertising and marketing 
which are detailed in my written statement. However, it's important to 
note that an ``M'' rating on a game is an advisory to the purchaser, 85 
percent of whom, according to the FTC, are parents. An ``M'' rating 
indicates that the ``content may be suitable for persons ages 17 and 
older'', which does not necessarily mean that the content is unsuitable 
for all persons 17 and under. Our ratings system is aimed at providing 
parents the information they need to help make purchasing decisions.
               RESPONSE TO QUESTION 7 FROM SENATOR LEAHY
    While currently our industry's advertising guidelines do not 
specifically address the issue of including children in market research 
testing, we will include this topic among the agenda items when our 
Board meets to discuss issues stemming from the FTC report, and we will 
recommend that the guidelines explicitly address this issue.
               RESPONSE TO QUESTION 8 FROM SENATOR LEAHY
    In thinking about enforcement mechanisms, the only effective one we 
know to control retailers would be some concentrated group effort to 
withhold product (if such action is even practical from a business 
standpoint.) As we have noted elsewhere in our responses, as well as in 
my written testimony, taking collective industry action against 
retailers, in the absence of broad antitrust immunity against state and 
federal liability, raises serious concerns.
    With respect to enforcing codes of conduct, if they could even be 
devised (which we note elsewhere is problematic) we also doubt there 
are any industry sanctions that could force compliance. For example, it 
has been suggested that non-compliant companies be expelled from 
association membership and the names of non-compliant companies be 
published so consumers would have access to that information. This is 
certainly possible but we doubt its efficacy. Moreover, we submit such 
``enforcement'' systems would be no more effective than leaving it to 
the press, Members of Congress, and consumers to condemn or not buy 
offensive content.
    Also, please see our response to Question 1 by Senator Leahy.
               RESPONSE TO QUESTION 9 FROM SENATOR LEAHY
    Yes, we share the concern expressed by some that unreasonably high 
expectations may be created if our industries were exempted from 
antitrust laws and encouraged to collaborate on content codes of 
conduct and ratings enforcement mechanisms, and my written testimony 
addresses our First Amendment concerns.
               RESPONSE TO QUESTION 10 FROM SENATOR LEAHY
    Yes, IDSA shares in some of these observations and concerns, a few 
of which have been outlined above.
    For example, suppose retailers and publishers agree on a policy 
barring all retailers from selling M rated games to persons under 17. 
In effect, this policy means that a company with an M rated game cannot 
sell it to persons under 17, even though the product is legal and the 
actual rating itself does not actually bar that person's use of the 
product. By denying this company access to under-17 consumers with a 
legal product, IDSA could be open to civil lawsuits under state 
antitrust laws or the numerous state laws that regulate commercial 
conduct. For example, a publisher could claim that the standards were 
applied in a discriminatory manner to exclude its kind of business and 
favor large competitors. Or an excluded retailer could claim that 
publishers tortiously interfered with its contractual relationships.
    Beyond this, while the amendment gives antitrust protection to 
those who seek to enforce the system, we are also concerned about a 
series of practical issues that make development of a sanctions policy 
difficult, and I address a number of these in my written testimony.
                                 ______
                                 

     Responses of Douglas Lowenstein to Questions From Senator Kohl

                RESPONSE TO QUESTION 1 FROM SENATOR KOHL
    First, it should be noted that the FTC data on GamePro refers to 
60% of readers as 17 and under. As you know, by including 17-year-olds, 
it skews the data since an ``M'' rating indicates content that may be 
suitable for persons who are 17 and older. Thus, the key data point 
would be how many GamePro readers are under 17.
    With respect to what percentage represents targeting, a general 
standard would be if a magazine or TV show's primary target audience is 
persons under 17, such as Sports Illustrated for Kids, I would regard 
this outlet as off limits to mature product. As to what an appropriate 
across the board percentage cutoff would be, I think this is a fair 
question to ask, and it is an issue we will be discussing within the 
IDSA in the coming weeks. I will be happy to report back to you when 
these discussions are complete.
                RESPONSE TO QUESTION 2 FROM SENATOR KOHL
    No, no companies have been found in violation of the code for 
advertising to children. It is important to understand, though, that 
IDSA does not have access to marketing plans and can only make its 
findings based on actual ad placements. When IDSA was responsible for 
enforcing the ad code through February 2000 (as you know this 
responsibility has been transferred to the new Ad Review Council of the 
ESRB) we interpreted violations of the ad code's targeting provision to 
require ads to be placed in outlets primarily targeted at kids. We 
rarely found such instances. Moreover, we did not regard ads for M 
rated titles in game enthusiast magazines--all of which routinely 
review Mature rated games as part of their editorial sections--to 
constitute a violation of the anti-targeting provision so omission 
would not have acted in such cases. We understand that the FTC and 
others believe that ads for M rated games in outlets where 35 percent 
or more of readers are under 17 (an M rating is for persons 17 and 
older so this is the standard which should be applied) could be 
construed as targeting to minors and, as noted, this is an issue we 
will be discussing internally in the coming weeks.
                RESPONSE TO QUESTION 3 FROM SENATOR KOHL
    No, we have not considered doing so to date. However, as the FTC 
itself noted, some companies have started to move voluntarily to 
require that the packaging for action figures based on Mature rated 
games (many of which are sold to collectors over the age of 17, by the 
way) carry information about the game's ratings. IDSA intends to 
actively encourage this as an industry practice.
    In addition, I understand the new Ad Review Council is examining 
this issue as well. As a footnote, it is important to understand that 
some of the action figures frequently offered as examples of target 
marketing by video game companies are actually products licensed by 
independent businesses and the publisher of the game associated with 
the character is not involved in any way.
                RESPONSE TO QUESTION 4 FROM SENATOR KOHL
    The ESRB, with the support of the IDSA, has and continues to engage 
in a series of steps to raise parental awareness of the rating system. 
Last Fall, ESRB launched an extraordinary campaign to raise awareness 
and use of its ratings, with the centerpiece being a PSA featuring 
Tiger Woods urging parents to ``Check the Rating'' of games they buy; 
we purchased advertising in major national publications with 
significant parent readership, such as Good Housekeeping, Parenting, 
and Newsweek, ESRB placed pull-out flyers in major parent-oriented 
publications, such as Child Magazine, it redesigned its consumer 
brochures, and distributed millions to leading retailers, and we 
reached out to leading national grassroots organizations with ties to 
schools and parents, such as Mothers Against Violence in America and 
the PTA seeking ways to partner with them to get the word out to 
consumers, especially parents, about ESRB ratings and how to use them. 
We were disappointed that some groups critical of the industry, such as 
the American Academy of Pediatrics (check if this is group we 
approached) who can reach millions of parents, declined to partner with 
ESRB to distribute its parent's guide to video game ratings.
    In addition to our grassroots efforts, the IDSA sent letters to 
major national retailers asking them to make a commitment to consumers 
to use their best efforts not to sell Mature rated games to persons 
under 17, a step we had also taken in October, 1998. As you know, Toys 
`R' Us was the first retailer to adopt this policy and in the last week 
K-Mart, Wal-Mart and Target have as well. IDSA supports those efforts. 
We believe other retailers will soon follow suit.
    This past July, the industry renewed its commitment to another paid 
media campaign this holiday season to promote the ESRB. Further, IDSA 
has offered to fund 50 percent of the cost of producing in-store 
educational materials for retailers on the ESRB. To that end, we met 
individually with every major retail chain and presented a series of 
in-store promotional options for them to consider based on what is best 
for them. We are currently working closely with several major chains to 
implement this co-op program.
    We're proud that Sen. Lieberman continues to call the ESRB the best 
rating system in the country and we've appreciated your supportive 
remarks about ESRB over the years as well. We are committed to raising 
awareness of the ESRB. We would welcome your support and help in 
working with other groups to get the word out about the ESRB ratings 
and hope we can find common ground on some initiatives in this area. 
Finally, one must note that the FTC report found that 49 percent of 
parents who are familiar with the rating system do not use it. No 
amount of industry promotional efforts can force parents to use the 
tools we provide. The control is ultimately in their hands.
                                 ______
                                 

   Responses of Douglas Lowenstein to Questions From Senator Grassley

              RESPONSE TO QUESTION 1 FROM SENATOR GRASSLEY
    In fact, ``adult'' games do not sell more quickly than other games, 
nor are they more popular. In 1999, Mature rated games represented five 
percent of all computer and video games sold in the United States; none 
of the top 20 best selling computer and video games in 1999 were rated 
M and so far in 2000, only 1 of the top 20 best sellers are M rated 
titles. Finally, only about 10% of the 1,800 games released in the year 
carried an M rating.
              RESPONSE TO QUESTION 2 FROM SENATOR GRASSLEY
    Yes. In the period when IDSA itself was handling ad code 
enforcement, we sent out scores of letters over the years to companies 
in connection with potential or actual violations of the advertising 
code. In some cases, the violations were minor and inadvertent, 
especially in the early years of the rating system when companies were 
adjusting to its existence. In some cases, companies were required to 
take corrective action to remedy more serious ad code violations at 
their own expense. As we explain in the testimony, earlier this year, 
we strengthened our commitment to self-regulation by asking the ESRB 
ratings body to create a new unit solely responsible for monitoring and 
enforcing the ad code, shifting this mission from the trade association 
to the autonomous ratings unit. The new ESRB Ad Review Council unit has 
more resources devoted to this process and considerable teeth. Under 
its rules, companies that violate ad guidelines face a range of 
sanctions, from loss of the rating (which would be commercially 
disastrous) to taking corrective steps, to referrals to the FTC or 
other agencies.

                 Additional Submissions for the Record

                              ----------                              

                           September 21, 2000

Prepared Statement of Douglas Lowenstein, on Behalf of the Interactive 
                      Digital Software Association

    Good morning, and thank you for inviting me to testify today on 
proposals to provide antitrust immunity for the entertainment 
industries to develop codes of conduct and retailer enforcement 
policies. I am testifying today on behalf of the Interactive Digital 
Software Association,\1\ the trade body representing U.S. video and 
computer game software companies. Our members publish games for use in 
the home. In 1999, the industry generated $6.1 billion in retail 
software sales. IDSA's 32 members account for 90 percent of the 
edutainment and entertainment software sold in the US. While IDSA's 
member companies publish much of the software sold in the US and 
elsewhere in the world, it is important to note that many titles are 
developed by independent small business development teams from 
literally all over the world. A group called the Computer Game 
Developers Association represents the industry's creative community and 
thus has a direct interest in any legislation that would regulate the 
type of content they can produce and market.
---------------------------------------------------------------------------
    \1\ IDSA's members only publish software for the home. The arcade 
game business is a different sector with its own representatives.
---------------------------------------------------------------------------
    I would like to divide my testimony into three sections: first, a 
discussion offering some critical and important background about our 
industry, our markets, and our products; second, a review of self 
regulatory initiatives we have taken over the years to ensure the 
responsible labeling and marketing of video and computer games to 
consumers; and third, comments on the antitrust issues before this 
hearing.
                          INDUSTRY BACKGROUND
Majority of game players are adults, not kids
    First, let me address two of the great myths about the video game 
industry, to wit: (1) video games are played predominantly by teenage 
boys; and (2) most video games are rated Mature and have significant 
levels of violence. Both are wrong.
    In fact, the primary audience for video games is NOT adolescent 
boys. According to research by Peter Hart earlier this year, the 
average age of computer and video game players is 28 years old, and 61 
percent of all game players are age 18 and over. A remarkable 35 
percent of game players are over 35 years old, and 13 percent are over 
50; 43 percent of the 145 million Americans who play computer and video 
games are women. IDSA's own consumer research reveals that 70 percent 
of the most frequent users of computer games and 57 percent of the most 
frequent users of video games are also over 18.
    Unlike other entertainment products, most newly released video 
games cost anywhere from $40-60. Thus, it's not surprising, when you 
add this to the fact that a majority of consumers are adults, that IDSA 
research finds that nine out of every ten video games are actually 
purchased by someone over 18. Furthermore, 84 percent of the kids who 
do buy games say they have the permission of their parents to do so. 
Similarly, in a survey completed by Peter Hart last fall, 83 percent of 
parents said they ``try to watch or play at least once every game that 
their child plays to determine whether it is appropriate.''
    Notably, the FTC's own survey confirms these findings. ``It is 
clear that most parents are able to play a watchdog role when they 
choose to do so. . . . According to parents' responses even more 
parents (83 percent) are involved in the actual purchase transaction; 
38 percent report that they usually purchase or rent the games, and 
another 45 percent of parents do so together with the child.''
    So any discussion of how our industry's products are marketed or 
sold must take into account the fact that a majority of those who buy 
and use our products are adults, not kids. While it may be accurate to 
say that a child can still buy an M rated game, the data from both the 
FTC and IDSA clearly confirm that in the vast majority of cases, a 
parent is involved in buying the game for the child. Thus, if a 12 year 
old has a Mature rated game, chances are he or she got it from the 
parents who either ignored or were not bothered by the game rating 
information and the quite obvious packaging information establishing 
the game's theme and content. As the FTC said,

          This level of parental involvement, either at the point of 
        selection or purchase, means that most parents have the 
        opportunity to review rating information or to check the 
        product packaging to determine whether they approve of the 
        game's content.

    This does not mean our industry does not have an obligation to 
market products responsibly and to label them accurately. But it does 
mean that parents are the first, last, and best line of defense against 
products that are not appropriate for their children.
70 percent of games appropriate for everyone; only 9 percent are rated 
        mature
    With the demographics of the industry changing rapidly, so too has 
the type and mix of products published by game companies. Contrary to 
popular perceptions, most games do not contain significant levels of 
violence. In fact, the video game rating system the industry 
voluntarily set up six years ago, and which Sen. Joe Lieberman has 
repeatedly praised, has rated over 7,000 titles of which only 9 percent 
carry a Mature rating. Seventy percent are rated for Everyone over six. 
In 1999, only 100 out of 1,500 titles released were Mature games, and 
these representedjust 5% of total sales.
    Not only are most games appropriate for everyone, but also most of 
the best sellers are not violent. For example, in the last six months, 
the top selling games have been Pokemon, Who Wants to be a Millionaire, 
SimCity 3000, and racing and skateboarding games. So far in 2000, only 
two of the top selling PC and video games are rated M, and 16 are rated 
Everyone. What this reflects is the fact that video games are now mass 
market entertainment and the range and diversity of products has 
widened, resulting in a substantial market for casual games like 
puzzle, board, and card games, and hunting and fishing titles, in 
addition to staples like racing, football, and action games.
    In short, this industry has seen its sales double since 1995 and 
the bulk of that growth has been fueled by consumers over the age of 18 
and by games whose content has broad appeal.
                COMMITMENT TO EFFECTIVE SELF-REGULATION
    The video and PC game industry has been committed to effective 
self-regulation since the formation of the IDSA in 1994. We have 
consistently and continuously sought to respond to concerns about the 
small number of our products that contain significant violence, 
balancing our absolute commitment of creative freedom with our 
commitment to empowering consumers to make informed choices. We are 
guided by our belief that the ultimate responsibility for controlling 
the games that come into the home lies with parents--not industry, not 
Congress, and not federal or state governments. According to the FTC, 
45 percent of parents who are aware of the video game rating system say 
they do not use it. I submit to you that no one has yet conceived of a 
law that can mandate sound parenting.
Initiatives on game ratings
    In 1995, the IDSA created the Entertainment Software Rating Board, 
or ESRB, which uses teams of independent, demographically diverse 
raters to review each and every video game. ESRB issues ratings 
suggesting--and that is a key word ``suggesting'' but not dictating--
the age appropriateness of a title. An M rating means ``the content of 
this game may be suitable for ages 17 and older.'' Importantly, and not 
by accident, it does not say it is unsuitable for those under 17. 
That's because ESRB felt it should not substitute itself for a parent 
and make choices for them; rather, it seems its role as providing 
information and guidance but empowering parents ultimately to decide 
what is appropriate for their kids. In addition, ESRB ratings provide 
simple but clear information about the content that influenced the 
rating, such as animated violence, strong language, or suggestive 
themes. This content information is unique and is one reason Sen. 
Joseph Lieberman and others have called ESRB ``the best entertainment 
rating system in the country.''
    At the same time the ESRB was created, IDSA voluntarily created an 
Advertising Code of Conduct requiring that the ratings and content 
information issued by ESRB be placed on packaging and in advertising. 
The Ad Code also contained a provision advising that ``companies must 
not specifically target advertising for entertainment software products 
rated for Teen, Mature, or Adults Only to consumers for whom the 
product is not rated as appropriate.''
    Starting in 1995, the ESRB maintained an active program to provide 
information on the ESRB to retailers and consumers. It established a 
toll free number which has logged millions of calls since its 
inception, created a multilingual web site where consumers can get 
information on the age and content rating of over 6,000 video games, 
and distributed millions of Parent Guides to ESRB Ratings to retailers 
and advocacy groups throughout the country, as well as to the Attorney 
General of Illinois.
    In 1997, recognizing the emergence of the Internet, the ESRB 
launched a new rating service called ESRB Interactive, or ESRBi. 
Through this service, ESRB offers companies the opportunity to rate 
their websites and video games distributed online. More and more 
companies are now rating online games and game websites with ESRBi.
    In May 1999, in the weeks after the Columbine tragedy, I appeared 
before a hearing of the Senate Commerce Committee and made a series of 
new commitments in response to renewed concerns about entertainment 
violence. Specifically, IDSA said:
          1. we would launch a stepped up campaign to educate consumers 
        about the rating system;
          2. we would reach out more aggressively to retailers to 
        encourage them both to increase the amount of rating 
        information available in stores and to enforce the ESRB 
        ratings; and
          3. we would examine industry advertising practices and 
        explore ways we could address concerns in this area, both as to 
        the content of ads and to the targeting of these ads.
    We have redeemed every commitment made that day.
Retailer Education and Enforcement
    We have always believed that it was critical to educate consumers 
about the rating system and encourage retailers to uphold the integrity 
of the ratings at the point of sale. We are pleased at the tremendous 
progress made to date and believe it suggests that this sector is 
moving on its own to put in place an effective retailer rating 
enforcement regime.
    Specificaly, we have been proactive on retailer enforcement even 
without the antitrust exemption offered in the pending bill.
    In late 1994, we asked major retailers to consider adopting 
policies pledging not to carry products that did not contain one of two 
ratings available from competing rating services; and many opted to 
implement such policies.
    Also, as early as 1994, the Video Software Dealers Association 
(VSDA) representing the video retail community added the enforcement of 
the ESRB's voluntary ratings to their ``Pledge to Parents'' in which 
video retailers pledge to uphold both the ESRB and MPAA's ratings at 
point of sale. The ESRB has continued to work closely with VSDA to 
encourage retailer support of the ESRB guidelines including attending 
the VSDA's yearly convention at which rating brochures, posters and 
information are distributed.
    In early October 1998, we sent a letter to all major retailers 
asking them to enforce the ratings at the point of sale.
    In the fall of 1999, the IDSA sent letters to major national 
retailers asking them to make a commitment to consumers to use their 
best efforts not to sell Mature rated games to persons under 17. We 
were pleased when Electronics Boutique, Babbage's, and Funcoland all 
signed the pledge. We were especially pleased when Toys 'R Us announced 
its new policy to seek IDs from people purchasing M rated games.
    In July, I met individually with every major retailer and urged 
them to adopt some form of control system. As you know, most recently, 
K-Mart, Wal-Mart, and Target have all adopted policies to prevent the 
sale of M rated games to persons under 17. IDSA supports those efforts 
and we believe other retailers will soon follow suit. (It's worth 
noting that while this is a legitimate issue for discussion, retailers 
universally report to us that they have never received a complaint from 
a parent about the purchase of an M rated game.)
    In addition to all these steps, the IDSA Board this past July 
renewed its commitment to another paid media campaign this holiday 
season to promote the ESRB, and offered to fund 50 percent of the cost 
of producing in-store educational materials for retailers on the ESRB.
Initiatives on Advertising and Marketing
    In September 1999, the IDSA Board took the extraordinary and far 
reaching step of asking the ESRB to create a new Advertising Review 
Council (ARC) within the ESRB. The ARC is empowered to ensure that all 
advertisements by those who use ESRB ratings adhere to strict content 
standards covering such areas as violence, sex, and language, and to 
enforce compliance with all other provisions of the industry ad code, 
including the anti-targeting provision. In addition, the IDSA shifted 
responsibility for the ad code and its enforcement from the association 
to the new ESRB ad council, and provided a major increase in resources 
to support expanded staffing and more aggressive monitoring and 
enforcement of advertising standards. This initiative was undertaken 
long before the FTC report was completed, and reflected our own 
judgment that our industry needed to revamp and step up our approach to 
monitoring and enforcing our advertising standards. The ARC unit began 
operations February 1--coincidentally the cutoff date by the FTC of its 
monitoring effort--and one of its first successes was convincing 
virtually all the top game enthusiast magazines--the primary 
advertising vehicles for our industry--to adopt the ARC principles and 
guidelines as their own. In addition, Ziff-Davis, IDG, and Imagine, the 
three top publishers of game magazines, sit on the ARC Board of 
Directors. Since February, ARC has been meeting extensively with IDSA 
members to educate them on the ad code and ensure compliance.
   ANTITRUST EXEMPTIONS FOR RETAIL ENFORCEMENT AND INDUSTRY CODES OF 
                                CONDUCT
    I'd like to comment here on the proposal to offer a limited 
antitrust exemption to various industries for the purposes of 
developing ways to enforce existing rating and labeling systems. We 
understand and sympathize with the motives behind this proposal. 
Undeniably, it would be helpful to find ways to ensure universal 
enforcement of ratings at the retail level, even if different 
enforcement methods are used. And it makes sense to seek ways to give 
those enforcement systems teeth. but as I said above, we believe the 
existing voluntary approach is working and no legislation is required.
    Nonetheless, if the Committee does proceed, we certainly welcome 
the concept of an antitrust exemption and were it to be enacted, we 
would take advantage of its protection to, at a minimum, discuss within 
our industry and with our retailers, whether there are reasonable and 
practical ways to accomplish the goals without creating secondary 
problems down the road.
    At the outset, it must be noted that we are talking about 
restrictions on the sale of a legal and constitutionally protected 
product. While there is considerable medical opinion that violent video 
games are harmful, there is also--though many choose to ignore it--a 
large body of independent scientific literature from all over the world 
that takes issue with these oft-stated claims. For example, the 
Government of Australia completed an exhaustive report last December 
examining all the research over a twenty-year period on video games and 
aggression, including that most recent research, to determine whether 
there is a basis for regulating such products. The conclusion was 
absolutely unambiguous:

          After examining several attempts to find effects of 
        aggressive content in either experimental studies or field 
        studies, at best only weak and ambiguous evidence has emerged. 
        Importantly, these studies have employed current games or 
        concerned contemporary young players who presumably have access 
        to the latest games. The accumulating evidence provided largely 
        by researchers keen to demonstrate the games, undesirable 
        effects does indicate that it is very hard to find such effects 
        and that they are unlikely to be substantial.

    So while we support voluntarily efforts by retailers to adopt 
policies appropriate for their stores to enforce the ESRB ratings, we 
are very wary of more formalized approaches that are based on claims 
that games themselves are harmful to the tens of millions of children 
who play them routinely without any adverse reactions.
    In thinking about retailer enforcement issues, we see two 
challenges: first, how to develop a uniform system which works for all 
retailers. Each retailer is different in terms of its relationships to 
its customers, the products it carries, the systems it uses at check 
out, its computer technology, the layout of its store, the number and 
experience of people it hires, etc. Seeking to impose a uniform 
approach on all retailers, regardless of their many differences, will 
be difficult and quite costly to many of them. What might work for a 
mass merchant might not work in a smaller, mall-based store. For 
example, I am advised that it could literally cost a million dollars or 
more to install a register prompt system to trigger clerks to ask for 
IDs. Developing a sanctioning system for retailers who violate rating 
enforcement policies would be quite challenging as well, and would 
bring with it some practical and legal risks, notwithstanding the 
antitrust protection in place.
    For example, suppose retailers and publishers agree on a policy 
barring all retailers from selling M rated games to persons under 17. 
In effect, this policy means that a company with an M rated game cannot 
sell it to persons under 17, even though the product is legal and the 
actual rating itself does not actually bar that person's use of the 
product (remember, ESRB ratings are advisory--an ``M'' rating says 
``content may be suitable for persons ages 17 and older''; it does not 
say content is unsuitable for persons 17 and under). By denying this 
company access to under-17 consumers with a legal product, IDSA could 
be open to civil lawsuits under state antitrust laws or the numerous 
state laws that regulate commercial conduct. For example, a publisher 
could claim that the standards were applied in a discriminatory manner 
to exclude its kind of business and favor large competitors. Or an 
excluded retailer could claim that publishers tortiously interfered 
with its contractual relationships.
    Beyond this, while the amendment gives antitrust protection to 
those who seek to enforce the system, we are also concerned about a 
series of practical issues that make development of a sanctions policy 
difficult.
    For example, Wal-Mart has over 3,000 stores across the country. How 
does industry actually monitor compliance with Wal-Mart's policy not to 
sell to underage users? Does industry have to hire its own cadre of 
expensive agents to conduct regular sting operations of its own 
retailers? How often would we have to do so?
    Another problem is what triggers a violation of the enforcement 
standard? A single incident? Ten incidents a week? 100 incidents over a 
year? If Wal-Mart sells one million M rated video games and in the 
course of a year 100 are sold to minors, that's a pretty low violation 
rate. Does it trigger sanctions? When do sanctions get imposed, how, 
and by whom? Let's assume that we learn of violations at some Wal-Mart 
stores. Do you punish only those stores or the entire chain? Do we 
strip product off the shelf immediately? Do we withhold future M rated 
product or all titles, thus potentially putting a speciality software 
retailer out of business? Who does that? How long does the sanction 
last? What does Wal-Mart have to do to return to good grace and who 
judges that? None of these questions lend themselves to simple answers.
    In discussions with staff, and reading the FTC report, the notion 
has been floated that companies individually or collectively could 
withhold product from offending retailers as a punishment for violating 
the rating enforcement guidelines, and as a way to incentivize good 
conduct by retailers.
    Let me address this briefly. It takes software companies two years 
or more to develop a single game, and the average development cost is 
about $4-5 million, and continues to skyrocket as new technology and 
computing power permits creators to do even more than they could even 
six months earlier. The development process is so intense that many 
products literally go to final code days before shipping. An entire 
company's future might well ride on sales of its product. In the weeks 
and months leading up to release, it has likely been heavily reviewed 
in the game enthusiast publications; a website has probably been up to 
preview the game to potential consumers; demand is building; and 
release dates have been widely published.
    Given these realities, it is highly unlikely and perhaps even a 
breach of fiduciary responsibility that a company, given the enormous 
investment and stakes in a product's timely release, would voluntarily 
withhold product from the retail channel when it's ready to ship 
because a retailer failed to enforce an ESRB rating at some point. 
Understand that most products have about a 30-day window to take off in 
the market and the loss of a single day of potential sales could be 
devastating.
    While it may be seen that publishers have the clout in the retail 
relationship, bear in mind that for many retailers game sales are a 
tiny portion of their overall product mix. They sell everything from 
lawnmowers and barbeque grills to clothes and software, and the 
possible loss of a few games, many of which don't generate significant 
revenue, may be a blip on their balance sheets. But for a publisher, 
loss of access could literally wipe out the business and an investment 
of $5 million or more, not to mention 24 months of work.
    Finally, it must be said that there may be a point where self-
regulation becomes so onerous that the regulated themselves question 
its value. In the case of retailers, we'd be very concerned that 
excessive self-regulation could lead many to reconsider their interest 
in carrying all or certain titles, endangering the continued growth of 
the industry. In the case of publishers, perhaps we'd reach a point 
where some would question the very essence of a rating system which, in 
its original form was meant to be an advisory to empower consumers, and 
has evolved into a hard and fast standard with the force of law behind 
it, controlling the sale of an entirely legal and constitutionally 
protected product.
                                SUMMARY
    In the end we believe the voluntary efforts already underway are 
delivering the results many seek and they remain the preferable way to 
reach the goal of effective enforcement of video game rating systems. 
We know from the FTC's own report, and IDSA's own data, that 83 percent 
of parents are involved in buying the games their kids play. There is, 
in fact, no evidence of an epidemic of 12 year olds buying Mature rated 
video games without their parents' knowledge. We submit that a 
combination of continuing to strengthen existing efforts at retail 
enforcement, coupled with continued stepped up consumer education, is a 
combination that will reach the shared goal of enhance retailer 
enforcement of rating labels without government involvement.
                            CODES OF CONDUCT
    Proposals to give our industry antitrust immunity to develop 
voluntary codes of conduct are well meaning. They are an appealing way 
to try to rid the market of content some find objectionable. But 
proposals for content codes, voluntary or otherwise, suffer from one 
major and overriding defect: they inevitably represent the collective 
views of a self-appointed few who would censor and even chill the 
creative expressions of others. Whether that censorship is coming from 
the government, or whether it is coming from within an industry, it is 
equally troublesome. In the case of the electronic entertainment 
industry, we depend on the First Amendment, and creative freedom. 
Sometimes this freedom takes authors to places we with they hadn't 
gone, and perhaps even to places some of us would even agree are 
lacking in artistic merit. But many others soar to extraordinary 
creative heights. In either event, I do not believe anyone in this 
industry believes we can impose the collective views of an elite group 
of what is art and what is not, on the development and publishing 
community we serve.
    This Committee is well aware of some of the difficulties. How do 
you define too much violence? How can you write standards that are so 
specific and bright that creators know in advance what is and is not 
permissible since failure to be precise is clearly chilling? Whose 
standards will inform these guidelines? The standards of people in New 
York, in Utah, or in Kansas, for it's clear that people in different 
regions and of different backgrounds are willing to accept different 
types of content? Then there is the question of definition: how many 
limbs must be severed in Saving Private Ryan before it becomes 
excessive and gratuitous? Who can say? How many Germans must die in a 
video game based on liberating a concentration camp before it is 
excessive and gratuitous? How much blood and gore in a civil war 
computer game is too much blood and crosses the line? Some may be 
comfortable answering these questions. We are not.
    Part of the problem, of course, is in the eye of the beholder, and 
the morals, values, and sense of art he or she brings to the 
discussion. I can say with all candor that if you put three groups of 
20 game developers, designers, and publishers in a room, none would 
reach any agreement on an industry standard for content. This is not 
because they wouldn't try, but because they simply won't be able to 
mesh conflicting views and perceptions into a common standard 
acceptable to people of varying tastes. We also struggle with the 
constitutional issue of developing a code which could have the effect, 
if enforced, of denying adults access to material they are 
constitutionally entitled to view. For the fact remains that the 
average age of game players is 28 years old; many are adults with 
varied tastes. Content codes raise the risk of homogenizing games, 
forcing people to write to a single standard, and striking at the very 
creativity and originality which has helped spur this industry's 
growth.
    Further, one struggles to find an effective enforcement mechanism. 
There arehundreds of developers and dozens of publishers, and many are 
not in the IDSA. It seems highly doubtful that effective sanctions 
exist to force people to conform to industry content standards. More to 
the point, it strikes us as clear and wholly inappropriate to seek to 
impose such standards.
    Finally, while it takes two years or longer to develop computer and 
video games, the technology changes almost monthly. Things not possible 
during the initial game design phase suddenly become possible along the 
development curve. Any content code for this industry would literally 
have to be revisited annually to keep it current with technological 
change. This raises the awkward prospect of a company starting a 
product while one code is in place and finishing while another is in 
place, adding a layer of uncertainty and confusion to an already 
difficult process.
                     A BRIEF WORD ON THE FTC REPORT
    We were pleased that the recent FTC report described our industry's 
overall self-regulatory program as ``the most comprehensive of the 
three industry systems studied by the Commission'' and that it 
recognized that ``it is widely used by industry members and has been 
revised repeatedly to address new challenges, developments, and 
concerns regarding the practices of our members.'' The FTC also pointed 
out that quite the opposite of standing by idly, we have been 
aggressive in seeking compliance with our standards. As it put it, ``to 
its credit, the IDSA has taken several steps to encourage industry 
members to comply with'' the industry's various ratings and advertising 
requirement. Also perhaps lost in the hubbub over the report is the 
recognition by the FTC that the independent rating system used by the 
video game industry ``appears to be helpful to those parents who 
actually use it'' and that a majority of these parents say it does an 
excellent or good job in advising them on the levels of violence in our 
products.
    In this regard, Peter D Hart Research Associates completed a new 
survey this past July seeking to gauge whether consumers themselves 
believe that ESRB ratings are accurate. The research involved mall-
intercept interviews with 410 adults nationwide, including 246 parents 
who were shown videotapes of game clips and asked to rate them based on 
the ESRB standards. The survey found that ``in 84% of all instances, 
games are rated equal to or less strictly than the official ESRB 
rating.'' Hart found that the ESRB is ``twice as likely to be more 
conservative than the public'' in rating decisions. With respect to the 
content descriptors, the survey found ``participants are generally in 
agreement with the ESRB on violence descriptors, and in instances in 
which there is disagreement, they are usually less strict than the 
ratings board.'' In short, the ESRB ratings are reliable and effective.
    It is clear, though, that the FTC uncovered individual marketing 
plans that indicate that some of our members, in violation of long 
standing industry guidelines, planned to, and may have, marketed games 
rated for Mature users to young people. Let me make it clear to this 
Committee that the IDSA does not condone or excuse the marketing of 
Mature rated products to persons under 17 and, indeed, we condemn it. 
As I noted, six years ago and long before the recent outcry over media 
violence, we ourselves voluntarily created an advertising code of 
conduct, which contained an anti-targeting provision.
    But it also must be pointed out that we have some legitimate 
business disagreements with the FTC's analysis of industry practices 
and the impression the report conveys of our industry's markets and 
marketing. Thus, let me take a moment to address several facts ignored 
by the FTC.
    According to statistics collected by the ESRB's new Advertising 
Review Council, since February 1, 2000, the 16 leading game enthusiast 
magazines, noted by the FTC as the primary vehicle for industry 
marketing, ran a total of 1,830 ads for games. Of these, only 188, or 
about 10 percent, were for Mature rated product. The most M rated ads 
in a single issue was 7, and typically, each issue contains only 3 or 4 
ads for mature rated product. This relative paucity of ads for M rated 
product reflects the fact, as I pointed out earlier, that M rated games 
are actually a small portion of the overall game market both in total 
releases and retail sales. The question of whether those ads should or 
should not appear in these publications is a fair point of discussion, 
but let's all understand that any suggestion that companies are 
flooding consumers with ads for Mature rated product is simply not 
accurate.
    One of our major quarrels with the FTC report is the apparent 
assumption that magazines with what it calls ``a majority under-17 
readership'' are not appropriate outlets for advertising of Mature 
rated games, and that websites or TV shows that are ``popular'' with 
kids are similarly inappropriate outlets for advertising Mature 
product. We agree that placing an ad for a Mature rated product in a 
publication which is clearly and squarely aimed at young readers, such 
as Nickelodeon or SI for Kids, is a violation of our standards. But we 
reject the FTC's operating assumption that ads in publications that 
happen to have some noteworthy percentage of young readers, but a 
substantial and perhaps even dominant share of older readers and users, 
is inappropriate.
    In the same vein, FTC's use of a ``popularity'' test to rule out 
other advertising outlets is restrictive and commercially impractical. 
``Popularity'' is not much of a bright line standard. Using this 
guidepost, virtually every game website and sites like mtv.com would be 
off limits to advertisers of Mature products even though a majority of 
viewers may be in the target demographic. This is unreasonably 
restrictive.
                               CONCLUSION
    We are committed to continuing our efforts to educate consumers 
about ESRB ratings and to work with retailers to enforce those ratings. 
We have put in place procedures to address legitimate criticisms of 
occasional companies in our industry improperly marketing Mature rated 
products to children. We will continue to do our part. But we note in 
closing that in the final analysis, government and industry can only do 
so much. While the FTC noted that 83 percent of parents are involved in 
buying video games for their kids, and while research also shows that 
73 percent of those familiar with the ESRB ratings find them helpful, 
the fact remains that the FTC found that 45 percent of parents who do 
know about the ratings don't use them. Congress has yet to come up with 
a way to mandate sound parenting. That means we all have an extremely 
important obligation to continue to take all reasonable steps to raise 
awareness among parents of the existing tools available to them and to 
get them to use them.
                               __________

Prepared Statement of Cass R. Sunstein, Karl N. Llewellyn Distinguished 
  Service Professor of Jurisprudence, University of Chicago Law School

    I am pleased to appear before the subcommittee to testify on the 
constitutional issues raised by the proposed Children's Protection Act. 
For constitutional purposes, the key provisions of the bill are 
sections 404 and 405. Section 404 would exempt from the antitrust laws 
agreements by ``persons in the entertainment industry for the purpose 
of developing and disseminating voluntary guidelines designed--(1) to 
alleviate the negative impact of telecast material, video games, 
Internet content, and music lyrics containing violence, sexual conduct, 
criminal behavior, or other subjects that are not appropriate for 
children; or (2) to promote telecast material that is educational, 
informational, or otherwise beneficial to the development of 
children.'' Section 405 would create a similar exemption for 
discussions designed to create ``ratings and labeling systems to 
identify and limit dissemination of sexual, violent, or other indecent 
material to children.''
    I believe that sections 404 and 405 are constitutional, and that if 
enacted, they would and should be upheld by the United States Supreme 
Court. In these remarks, I will restrict myself to the first amendment 
issues raised by the bill. I will deal only briefly with the question 
whether the bill is desirable as a matter of policy. (Because I served 
on the President's Advisory Committee on the Public Service Obligations 
of Digital Television Broadcasters, I would be happy to respond to 
questions about policy issues as well.) I will also venture some brisk 
remarks on related constitutional questions that have been raised as a 
result of recent discussions of the entertainment industry. The basic 
conclusion here is that direct regulation is more doubtful than 
labeling requirements, which are in turn more doubtful than exemptions 
from the antitrust law. But it is important to see that the law is not 
yet defined in this area, and narrow measures designed to protect 
children might well be acceptable, at least if they involve violence, 
even if they take the form of direct labeling requirements and direct 
regulation.
    Briefly, the reasons for my principal conclusion is as follows. 
Sections 404 and 405 do not regulate or prohibit speech. Their only 
effect is to authorize voluntary action within the entertainment 
industry. In this particular respect, they increase rather than 
decrease the freedom of the relevant companies, by reducing the 
pressures of the marketplace with respect to educational programming, 
violence, sexually explicit materials and related issues. The most 
powerful attack on the bill would be that the selective exemption it 
creates is based on the content of speech, and that content-based 
regulation is subject to careful judicial scrutiny, which the bill 
could not survive. This attack is, however, unpersuasive in light of 
the fact that sections 404 and 405 (a) do not require or prohibit 
speech at all, and (b) do not discriminate on the basis of point of 
view, but are instead a legitimate effort to combine genuine harms. To 
the extent that the bill is directed at the television industry, 
Congress has particular room to maneuver. The safest conclusion is that 
a facial attack on the bill would fail.
    My testimony is divided into three parts. The first deals briefly 
with general considerations bearing on legislative efforts to improve 
the performance of the entertainment industry, and with the connection 
of those considerations to the proposed legislation. The second part 
outlines the principal constitutional objections to the bill, and 
argues that they are unpersuasive. The third ventures some more general 
remarks about the constitutional issues in this domain. The basic 
conclusions here are that (a) exemptions from the antitrust law are 
least controversial from the constitutional standpoint, (b) direct 
regulation is most troublesome from that point of view, though there 
are uncharted constitutional waters here, and (c) labeling requirements 
are somewhere between antitrust exemptions and direct regulation, with 
the best guess being that such requirements, giving flexibility to the 
private sector and narrowly drawn to protect children, are 
constitutionally acceptable.
                                   I
    It will be useful to begin the discussions with some general points 
relating the proposal here to constitutional doctrine in this area.
    1. The proposed bill would not directly regulate speech; it is 
entirely noncoercive. See Denver Area Educational Telecommunications 
Consortium v. FCC, 116 S. Ct. 2374 (1996), emphasizing this point in 
upholding a content-based, permissive law. In an important sense, the 
bill enhances the freedom of speech of members of the entertainment 
industry, by removing a governmental constraint (the antitrust laws) 
that prohibits people from acting as they wish, and from speaking among 
each other about their action. If the bill does in fact have the 
intended effects, by (for example) increasing educational programming 
and reducing the amount of violence seen by children, it will be 
largely because the bill eliminates the competitive pressures that 
force members of the industry to produce violent and other 
inappropriate materials even though (and this is the key point) they 
would in a sense prefer not to produce such products. The creation of 
an antitrust exemption would merely free companies from competitive 
pressures in this context. (1) The old ``code'' of the National 
Association of Broadcasters was designed precisely to promote the 
public service role of television broadcasters, and to do so by 
diminishing some of the harmful effects of the marketplace.
    In this respect, the proposal belongs in the same category as other 
antitrust exemptions, most notably the labor exemption, which is 
designed to ensure that workers do not have to compete with each other 
to their collective harm. Because of its entirely noncoercive 
character, the bill does not raise questions akin to those in Bantam 
Books v. Sullivan, 372 U.S. 58 (1963), in which the Court invalidated a 
state commission embarking on a range of censorial activities.
    2. The Court has offered some indication that regulation designed 
to produce more and better information, for children and in general, is 
not unconstitutional for that reason, andindeed that this goal is 
consistent with the first amendment. See Turner Broadcasting System v. 
FCC, 117 S. Ct. 1174 (1997). In upholding the ``must-carry'' rules, 
which require cable operators to carry local broadcast stations, the 
Court emphasized the value of promoting the widespread dissemination of 
information. In his concurring opinion, Justice Breyer was especially 
emphatic on the point, stressing the roots of the first amendment in 
democratic self-government. See id. at 1204. Insofar as the bill is 
designed to promote more in the way of educational programming for 
children, it rests on an especially secure constitutional foundations. 
See Denver Area Educational Telecommunications Consortium, supra.
    3. As a matter of history, the Supreme Court has traditionally 
applied more lenient standards to government regulation of broadcasting 
than to regulation of other media, even when such regulation is based 
on content. See Red Lion Broadcasting Co. v. FCC, 395 U.S. 367 (1969); 
FCC v. League of Women Voters, 144 SCt. 3106 (1948); FCC v. Pacifica 
Foundation, 438 U.S. 726 (1978). It is unclear, however, whether and to 
what extent the Court's understanding has been based on the now-
obsolete ``scarcity'' rationale, and whether the legal standards will 
change as a result of the changing nature and increased diversity of 
the broadcasting industry. See Turner Broadcasting System, supra; 
Turner Broadcasting System v. FCC, 512 U.S. 622 (1994). There is some 
evidence that the standards for broadcasting are converging toward the 
standards for everything else. See Turner Broadcasting Sys. v. FCC, 512 
U.S. 622, 634 (1994). This may well be the coming view. But it is 
notable in this regard that in Pacifica, supra, a plurality of the 
Court emphasized not scarcity, but the pervasive and intrusive 
character of broadcasting, and its possibly adverse and not always 
avoidable impact on children and other unwilling viewers. If the Court 
is prepared to accept this view, broadcasting will, along one 
dimension, continue to be subject to special standards no matter how 
numerous the relevant stations.
    Of course the bill extends beyond broadcasters, to areas where the 
ordinary first amendment standards are likely to apply. Here the 
constitutional analysis will be somewhat more complicated.
    4. It is currently unclear to what extent, and upon what findings, 
government may directly regulate violence or sexually explicit speech. 
Such regulations raise questions of (a) vagueness, (b) overbreadth, and 
(c) content discrimination. See Reno v. ACLU, 117 S. Ct. (1977), 
striking down the Communications Decency Act on vagueness grounds.
    Any governmental controls--if they amount to controls--would have 
to be closely tailored to harms that government has a right to prevent. 
An open-ended prohibition of ``violence'' would certainly be 
unconstitutional. Compare Reno v. ACLU, supra (striking down the 
prohibition of ``indecent'' speech in the Communications Decency Act). 
On the other hand, a narrowly-drawn restriction might be upheld on a 
sufficient record, whether or not the Court continues to treat 
broadcasting differently from other media. See Pacifica, supra.
    5. It is generally agreed that the antitrust laws are not 
constitutionally compelled. Whether the government must ensure 
competition, by banning monopolistic practices, in the particular 
context of media products is an unsettled question. The Supreme Court 
has never indicated that the government is under an affirmative 
obligation to ensure a ``free market'' in speech by banning collusive 
practices.
    On the other hand, it is quite possible that a governmental 
decision to permit collusion and monopoly in some parts of the 
entertainment industry would raise serious constitutional questions. 
Under current law, the matter is not free from doubt. In Red Lion 
Broadcasting Co. v. FCC, 395 U.S. 367 (1969), the Supreme Court upheld 
the fairness doctrine in part on the ground that ``It is the right of 
the viewers and listeners, not the right of broadcasters, which is 
paramount .  .  .  . There is no sanctuary in the First Amendment for 
unlimited private censorship, operating in a medium not open to all.'' 
This language suggests that congressional license for collusive 
behavior might interfere with the rights of viewers and listeners. But 
in CBS v. DNC, 412 U.S. 94 (1973), the Court said that the first 
amendment did not require broadcast licensees to sell advertising time 
to groups or individuals wishing to express their views on issues of 
public importance. Three justices suggested that there was no ``state 
action'' subject to first amendment challenge.
    In my view, a general grant of permission, by the Congress, for 
broadcasters to engage in collusive behavior would probably be 
unconstitutional--at least if the consequence of the grant was sharply 
to reduce diversity over the airwaves. But this conclusion is not 
compelled by existing law, and in any case it would depend on a 
judgment that, in practice, legislative authorization for concerted 
action had serious consequences in limiting diversity for the viewing 
public. A statute that allowed collusive and monopolistic activity 
would of course count as state action.
    6. Content-based regulations or laws involving speech are subject 
to substantial first amendment scrutiny. See, e.g., Denver Area 
Educational Telecommunications Consortium, supra; FCC v. Pacifica 
Foundation, 438 U.S. 726 (1978). This means that a selective exemption 
from the antitrust laws could run afoul of constitutional restraints. 
Thus, for example, a law that exempted from the antitrust laws 
voluntary efforts by broadcasters ``to alleviate the negative impact 
of'' criticism of the President would be state action, and it would in 
all likelihood be unconstitutional on its face.
    7. The discussion thus far suggests that a simple conclusion: It is 
inadequate, although tempting, to say that because the proposal allows 
for voluntary guidelines, and is not mandatory, and because the 
antitrust laws are not constitutionally compelled, the bill raises no 
serious constitutional question. A voluntary exemption might be 
unconstitutional either because it eliminates diversity in 
broadcasting, because its selectivity amounts to impermissible 
discrimination on the basis of content, or because it amounts to a kind 
of threat. It is to these issues that I now turn.
                                   II
    I now deal with the principal objections to the proposed bill.
    A. The diversity objection. The first constitutional objection to 
the proposed legislation is that the government may not reduce 
diversity in the mass media by authorizing collusive behavior. See Red 
Lion, supra, which indicates that the rights of listeners and viewers 
are the central first amendment concern in this context.
    The first problem with this objection, referred to above, is that 
the bill might well increase diversity, and operate against marketplace 
pressures that produce not only poor quality, and harms to children, 
but also a kind of uniformity. If Congress believes that this is true, 
it might add a finding to this general effect, saying, for example, 
that marketplace pressures are sometimes stifling creativity and 
diversity, and that in this unusual context, collusive behavior is 
likely to create more quality and in some ways more diversity.
    The second and more fundamental problem with this objection is that 
even if governmental authorization of collusive behavior here might 
sometimes be constitutionally objectionable, it is probably not 
plausible to say that the mere possibility of collusion and of 
factually reduced ``diversity'' create a successful constitutional 
challenge to the bill on its face. Much remains to be seen as the bill 
is implemented. If, for example, broadcasters--acting voluntarily and 
in concert--entered into ``voluntary agreements'' to alleviate ``the 
negative impact'' of television violence, any reduction in diversity 
may well be too minor, too difficult to attribute to government, and 
too connected to legitimate public and private goals to permit a 
successful constitutional challenge. Such agreements would not, in 
short, violate the first amendment rights of listeners and viewers. It 
is conceivable that the bill could be implemented in such a way as to 
decrease diversity in a constitutionally troublesome way, but this 
possibility would not mean that the bill is unconstitutional on its 
face.
    Consider an analogy. Suppose that during wartime, members of the 
media decided, on their own, not to publish certain materials deemed by 
them to be dangerous to national security; or that during a period of 
racial strife, members of the media voluntarily agreed not to publish 
or broadcast inflammatory material. Behavior of this general sort has 
of course occurred throughout our history. Whether or not such behavior 
is commendable, one could not plausibly argue that such behavior 
violates the first amendment.
    All this suggests that the most that one can say for this objection 
to the bill is that if the voluntary agreements that resulted were very 
broad in their intrusiveness on diversity, and also in the number of 
outlets that they covered, the bill might conceivably be 
unconstitutional as applied. But I do not believe that this objection 
could provide a plausible basis for saying that the bill is 
unconstitutional on its face.
    B. Coercive in practice and implied threat. A second possible 
objection is that the bill is less permissive and innocuous than it 
seems, because it is undergirded by an implied threat on government's 
part: to regulate if voluntary measures are not taken. In these 
circumstances, any voluntary measures do not really qualify as such; 
they are a product of the coercive force of government.
    The strongest precedent in this regard is Bantam Books, supra, 
where the Court struck down a New Jersey law creating a Commission 
whose purpose was ``to encourage morality in youth'' by educating the 
public about certain publications ``tending to the corruption of'' 
young people. The Commission did not engage in coercion, but it did 
notify distributors, on official stationery, that it found certain 
books objectionable for sale or display to youths under 18 years of 
age. The Court said that the Rhode Island practice was 
unconstitutional, notwithstanding Rhode Island's argument that no 
coercion was involved--merely information and exhortation. On the 
Court's view, the Commission ``deliberately set about to achieve the 
suppression of publications deemed `objectionable' and succeeded in its 
aim.'' Id. at 67. The Court thought it important to look beyond the 
mere forms, and here it found ``informal censorship.'' Id.
    It would be possible to urge that the bill is also a form of 
informal censorship, especially in light of its background. But the 
bill is a far cry from the system struck down in Bantam Books. No 
Commission is given authority to pressure distributors to remove 
particular items that it dislikes. Indeed, the FCC has no role to play 
here. A full factual record showed that the Rhode Island system had 
coercive effects. There is only speculation, and no such record here. 
Under the Simon bill that served as predecessor to the bill, there is 
no evidence of government pressure, and little or no evidence of 
serious adverse effects on the broadcasting market. At this stage, the 
facts in Bantam Books presented a far stronger case for invalidation 
than this bill.
    C. Content regulation. The third and probably most substantial 
objection to the bill is that it amounts to impermissible content 
regulation. The basic argument here would be that government cannot 
enact selective exemptions from the antitrust laws in order to 
encourage speech that it prefers, or discourage speech that it 
dislikes. For example, it would be impermissible to manipulate the 
antitrust exemption to allow cooperative behavior to ensure against 
criticism of governmental policy, of Republicans, or of the Supreme 
Court.
    In my view, this objection is unpersuasive. The most general point 
to make in response is that the Supreme Court has never held that 
content regulation is subject to a per se ban, and frequently held the 
opposite. The ``question whether speech is, or is not, protected by the 
First Amendment often depends on the content of the speech.'' Young v. 
American Mini-Theatres, supra. See also Denver Area Educational 
Telecommunications Consortium, supra. The Court's decisions reveal that 
content regulation is likely to be upheld when (a) it does not 
suppress, and is not intended to suppress, a particular point of view, 
and (b) it is a legitimate effort to prevent serious social harms. See 
id.; Pacifica, supra.
    These considerations, together with recent Supreme Court decisions 
and several other factors distinctive to the bill, strongly suggest 
that the bill is constitutional, certainly insofar as it attempts to 
promote educational programming, and almost certainly insofar as it 
attempts to reduce violence. Indeed, the constitutional arguments for 
the bill are, on balance, significantly stronger than arguments in 
favor of content-based regulation thatthe Supreme Court has accepted in 
other contexts. It is important to add, however, my conclusion depends 
on an assumption (on which I take no position here) that the evidence 
about the harmful effects of violence in the entertainment industry is 
in fact substantial. My analysis comes in four basic steps.
    1. Strictly speaking, the bill is not content ``regulation'' at 
all. It bans no speech; it requires no speech. This fact is not 
decisive in its favor. But it makes the case for its constitutionality 
significantly stronger. The Court would be likely to accept at least 
plausible claims of legitimate justifications if those justifications 
are made in favor of authorization of voluntary agreements. The Court 
would require a greater showing of harm to support direct regulation.
    The strongest precedent in this regard--and it is a strong one 
indeed--is Denver Area Educational Telecommunications Consortium, 
supra. In that case, the Court upheld a provisions by which Congress 
granted cable operators ``permission'' to exclude indecent programming 
from the airwaves. Justice Thomas offered a simple analysis: because 
the relevant First Amendment rights are those of the operators, of 
course Congress could do this; Congress was merely giving operators 
permission that they would have had without governmental restriction. 
This argument appears to support the bill, for this bill too enables 
broadcasters to do something that they would be permitted to do without 
the restrictions of the antitrust laws. But the key opinion came from 
Justice Breyer. Instead of adopting any simple rule, Justice Breyer's 
opinion emphasized several factors. First, the regulation was based on 
content but not on viewpoint. Second, it was designed to protect 
children, a distinctly important interest. Third, it was in some ways 
reminiscent of the regulation upheld in Pacifica. Fourth, it was 
permissive rather than mandatory.
    All of these factors are present here. Justice Breyer's opinion 
also emphasized the fact that without a regulatory system, programmers 
with indecent programming would have no guaranteed access to the 
operators' systems, a factor not present here. On the other hand, there 
is a parallel in the fact that without an antitrust law companies would 
be free to produce voluntary guidelines for children.
    We should distinguish here between the two different components of 
the bill. Promoting educational and informational programming for 
children is unquestionably legitimate. If the goal was to be maximally 
cautious, this section might be clarified by deleting ``otherwise 
beneficial''; permission for broadcasters to get together to ensure 
more and better educational programming is certainly constitutional, 
and the ``otherwise beneficial'' language raises some of the concerns 
of vagueness and overbreadth found decisive in the coercive context in 
Reno v. ACLU, supra. Promoting guidelines that would control violence, 
sexual content, criminal behavior, and other material with a negative 
impact does raise some concerns about vagueness, overbreadth, and 
perhaps viewpoint discrimination. It would be safest, from the legal 
point of view, to limit this provision to violence, as indeed Senator 
Simon's predecessor provision did. I return to this point below. But I 
should say that the provision is very probably constitutional in its 
current form.
    2. To the extent that the bill applies to the broadcasting 
industry, the government has traditionally had greater flexibility, and 
insofar it is attempting to protect children from material with a kind 
of ``immediacy,'' the traditional view may well continue to hold.
    3. The bill discriminates on the basis of content, but it is not 
best understood a form of viewpoint discrimination. Like the statute 
upheld in American Mini-Theatres, it draws a line ``on the basis of 
content without violating the government's paramount obligation of 
neutrality in its regulation of protected expression.'' Its line ``is 
unaffected by whatever social, political, or philosophical message a 
(broadcast) may be intended to communicate.'' Certainly this is true 
for most of the bill. Insofar it is directed against violent material, 
it stands on secure ground. The reference to ``criminal behavior'' may 
raise a few questions of viewpoint discrimination, but even that 
provision is probably safe.
    This conclusion draws considerable support from Denver Area, supra, 
where the Court similarly upheld a content-based but viewpoint-neutral 
grant of permission to those who provide programming. It draws some 
support as well from the Court's decision in City of Renton v. Playtime 
Theatres, 475 U.S. 41 (1986). There the Court upheld a zoning ordinance 
restricting sexually explicit materials on the ground that ordinance 
was directed at `'secondary effects'' on the community rather than at a 
point of view. Indeed, the Court concluded that a measure directed at 
such secondary effects was ``content neutral.''
    Secondary effects are of course the reason for the authorization in 
the bill. Indeed, the argument for the bill seems in most respects 
significantly stronger than that for the direct regulation upheld in 
Renton. (I might add that whether the Renton regulation was ``content-
neutral'' because of ``secondary effects'' is highly questionable; 
secondary effects are frequently invoked in favor of content-based 
laws.)
    I have only looked briefly at the evidence on which the bill is 
based, and take no position on it here. But if that evidence is 
substantial, the bill is based on a legitimate effort to control 
serious social harms. At least this is true insofar as the bill is 
focussed on educational programming and on television violence. See 
Hamilton, Channeling Violence (1999); Minow and LeMay, Abandoned in the 
Wasteland (1995). Protection of the public from violence is of course a 
principal responsibility of government. Protection of children from 
unwilling exposure--a principal purpose of the bill--is also a 
legitimate and perhaps especially strong interest. See Denver Area, 
supra; Pacifica, supra. (Frequently, the violence on television is 
sexual in nature--a particularly troublesome problem for viewers who 
are children and indeed for adults as well.) The argument for the 
constitutionality of the bill is exceedingly powerful if the evidence 
in its support is convincing; if it is weak or thin, the argument 
against the bill is considerably stronger. But in light of the peculiar 
characteristics of the bill--its noncoercive quality and its viewpoint-
neutrality--even a plausible showing of harm would probably provide a 
sufficient evidentiary basis to survive first amendment scrutiny. In 
particular, invalidation of the bill on its face--in advance of 
concrete experience with any ``voluntary guidelines''--is exceptionally 
unlikely.
    I must close, however, with a qualification, signalled by part of 
the discussion above. Some of the bill covers materials on which (so 
far as I am aware) there is little factual record. With respect to 
television violence, the record is sufficiently clear, or so Congress 
could constitutionally find. Things are more complicated with respect 
to sexual content, criminal behavior, and other materials. With its 
current breadth, the current language is more vulnerable to the 
argument that Congress is not combating actual or demonstrated harms, 
but instead seeking to create an exemption so as to reduce that form of 
programming of whose content it disapproves. But I do not believe that 
the bill is and would be found unconstitutional.
                                  III
    Thus far I have suggested that the bill is constitutional, because 
it amounts to a noncoercive exemption from the antitrust laws, an 
exemption that is based on content, but not on point of view. Of 
various possible responses to inappropriate material for children, this 
bill takes the least intrusive of approaches. But there are two obvious 
alternatives that have received considerable discussion in the recent 
past, and it will be worthwhile to venture some brief remarks about 
those alternatives.
    If Congress is concerned about material that is violent or 
otherwise inappropriate for children, it might consider, as a last 
resort, express regulation. Such regulation could take the form of 
time, place, and manner restrictions (forbidding certain material 
during hours when children will be watching television) or more across-
the-board bans (forbidding children from attending movies with certain 
ratings). Of the various possibilities, this is the most troublesome 
from the constitutional standpoint. There is a risk of unacceptable 
vagueness, see ACLU v. Reno, supra. There is a risk of overbreadth. 
There is also a risk of unacceptable content regulation. See Denver 
Area, supra. Of course a time, place, and manner restriction would be 
more likely to be acceptable than a flat ban. See ACT v. FCC, 59 F.3d 
1249 (DC Cir 1995) (upholding restrictions on times when ``indecent'' 
materials may be broadcast on television).
    These are general propositions on which there is a broad consensus. 
But notably, Congress has not generally regulated violent materials, 
and the law is far more developed with respect to sexually explicit 
materials. It is possible that courts will allow Congress to build on 
the law of obscenity to have some control over violent material. 
Current law allows Congress to ban ``obscene'' materials and to 
regulate ``indecent'' materials. It is possible that Congress could 
create similar categories for violent material. The problems of 
definition are formidable here, of course.
    Labeling requirements, building on the ``v-chip'' legislation and 
recently proposed by Senator McCain, should be understood as falling 
somewhere between exemptions from the antitrust law and direct 
regulation. (See S. 1228, the proposed Media Violence Labeling Act of 
1999.) In fact there is surprisingly little law on the extent of 
Congress' power to require labels. In the context of commercial 
advertising, it seems well-settled that labeling requirements are 
permissible, as in the context of cigarette warnings. But things are 
less clear with respect to labeling requirements. Clearly it would be 
impermissible for Congress to require ``politically controversial'' or 
``out of the mainstream views'' to be labeled as such. In cases of that 
kind, labeling would be a form of viewpoint regulation. The question 
here is whether labeling requirements can be justified as legitimate 
content regulation. That question will in turn depend on whether the 
requirements are narrowly tailed to harms that government has a right 
to prevent. In the context of disclosure mandates for dangerous or 
potentially dangerous products, such as cigarettes or certain 
children's toys, the legal test is clearly met. With respect to violent 
material, there is a good chance that the test is met as well. See 
Note, Don't Touch That V-Chip, 8 Geo. L. J. 823 (1999); Cass R. 
Sunstein, One Case At A Time (1999). The safest course, however, would 
build on the approach used in the ``v-chip'' legislation, in which 
government does not mandate a labeling system on its own, but instead 
authorizes private efforts in this direction.
                               CONCLUSION
    In all likelihood, the bill would not be subject to a successful 
first amendment challenge, certainly insofar as it is designed to 
promote educational programming and to reduce exposure to violent 
programming. Exemptions from the antitrust law are constitutionally 
permissible if they do not discriminate on the basis of viewpoint, are 
unlikely to decrease diversity in a constitutionally troublesome way, 
and have as their purpose and effect the reduction of harms that 
Congress has a right to prevent.
                                 NOTES
    1. See generally Robert Frank and Philip Cook, The Winner-Take-All 
Society 207-09, 228 (1995), for an illuminating discussion, from the 
economic point of view, of how marketplace pressures can produce an 
outcome that people generally do not like, and how regulatory 
provisions can increase freedom by removing those pressures.
    2. See Frank and Cook, supra note 1, for some theoretical and 
empirical support.
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