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THE EMERGENCE OF ONLINE VIDEO: 

IS IT THE FUTURE? 

HEARING 

BEFORE THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

APRIL 24, 2012 

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

( 

(II) 

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

JOHN D. ROCKEFELLER IV, West Virginia, Chairman 

DANIEL K. INOUYE, Hawaii 

JOHN F. KERRY, Massachusetts 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

FRANK R. LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas 

CLAIRE MCCASKILL, Missouri 

AMY KLOBUCHAR, Minnesota 

TOM UDALL, New Mexico 

MARK WARNER, Virginia 

MARK BEGICH, Alaska 

KAY BAILEY HUTCHISON, Texas, Ranking 

OLYMPIA J. SNOWE, Maine 

JIM DEMINT, South Carolina 

JOHN THUNE, South Dakota 

ROGER F. WICKER, Mississippi 

JOHNNY ISAKSON, Georgia 

ROY BLUNT, Missouri 

JOHN BOOZMAN, Arkansas 

PATRICK J. TOOMEY, Pennsylvania 

MARCO RUBIO, Florida 

KELLY AYOTTE, New Hampshire 

DEAN HELLER, Nevada 

ELLEN L. DONESKI, Staff Director 

JAMES REID, Deputy Staff Director 

JOHN WILLIAMS, General Counsel 

RICHARD M. RUSSELL, Republican Staff Director 

DAVID QUINALTY, Republican Deputy Staff Director 

REBECCA SEIDEL, Republican General Counsel and Chief Investigator 

(III) 

C O N T E N T S 

Page 

Hearing held on April 24, 2012 .............................................................................. 1 

Statement of Senator Rockefeller ........................................................................... 1 

Statement of Senator DeMint ................................................................................. 2 

Statement of Senator Cantwell .............................................................................. 32 

Statement of Senator Thune ................................................................................... 34 

Statement of Senator Warner ................................................................................. 36 

Statement of Senator Klobuchar ............................................................................ 37 

Statement of Senator Heller ................................................................................... 39 

Prepared statement .......................................................................................... 40 

Statement of Senator Kerry .................................................................................... 42 

Statement of Senator Pryor .................................................................................... 45 

Statement of Senator Nelson .................................................................................. 47 

WITNESSES

Barry Diller, Chairman and Senior Executive, IAC ............................................. 3 

Prepared statement .......................................................................................... 5 

Susan D. Whiting, Vice Chair, Nielsen .................................................................. 8 

Prepared statement .......................................................................................... 9 

Paul Misener, Vice President for Global Public Policy, Amazon.com .................. 19 

Prepared statement .......................................................................................... 21 

Blair Westlake, Corporate Vice President, Media and Entertainment Group, 

Microsoft Corporation .......................................................................................... 23 

Prepared statement .......................................................................................... 25 

APPENDIX

Letter to Hon. John D. Rockefeller IV from Jack Perry, Founder and CEO, 

Syncbak ................................................................................................................. 55 

Response to written questions submitted by Hon. Kay Bailey Hutchison to: ....

Barry Diller ....................................................................................................... 57 

Susan D. Whiting ............................................................................................. 59 

Response to written questions submitted to Paul Misener by: 

Hon. Olympia J. Snowe .................................................................................... 59 

Hon. Jim DeMint .............................................................................................. 61 

Response to written questions submitted by Hon. Olympia J. Snowe to Blair 

Westlake ............................................................................................................... 61 

(1) 

THE EMERGENCE OF ONLINE VIDEO: 

IS IT THE FUTURE? 

TUESDAY, APRIL 24, 2012 

U.S. SENATE, COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, Washington, DC. 

The Committee met, pursuant to notice, at 10:07 a.m. in room 

SR–253, Russell Senate Office Building, Hon. John D. Rockefeller 

IV, Chairman of the Committee, presiding. 

OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 

U.S. SENATOR FROM WEST VIRGINIA 

The CHAIRMAN. Good morning, everybody. We have a very distinguished panel this morning, not that we don’t always, but this is 

particularly so, and we welcome you, all of us. 

There will be, hopefully, thousands of Senators coming to surround this dais to ask you the most penetrating questions about 

the impenetrable future. 

But, anyway, this hearing is about the emergence of online video 

and the power of broadband to change the way in which we watch. 

And who knows what that’s going to be 5 or 10 years from now? 

This is the start of an exciting and a timely conversation. It’s the 

first hearing that has been held on this subject which is not sort 

of attacking each other, but looking out into the future and trying 

to figure out what’s coming at us, can we handle it. 

Now, why are we doing this? Because television is just an overpowering force in our life. Television, meaning what a lot of people 

still watch. At its best, it can do more than entertain, it can educate. 

But not all television programming is enlightening, nor is it all 

fit for children’s viewing. It’s a global age, and I’m concerned the 

video content that we produce does not represent the best face that 

America has to the nation. 

So my first question is how will this disruptive technology, and 

when I say that, that’s not a negative connotation, that’s just the 

fact that things are changing so fast in such mammothly important 

ways that it is disruptive, in hopefully a positive sense, but definitively disruptive, is how will the disruptive technology that online 

viewing will provide lead to better content and to more consumer 

choice? 

But more than content is at issue here, because year in and year 

out consumers face rate increases for pay television that are rising 

faster than the rate of inflation. We’re paying for so many channels, though we usually only watch a few. 

2 

I, for example, have 500 channels, and if I watch, in the course 

of a month, more than 10, I would be amazed. So why am I paying 

for 490? I have no idea. Does it give me a warm, fuzzy feeling? Not 

particularly. But, on the other hand, it’s all there if I want to go 

get it. So who’s to know about human nature? 

So I want to know if the emergence of online video will do more 

than improve content and expand choice. I want to know if it’s 

going to bring a halt or a slowdown, at least, to escalating bills. 

One other point I want to make. I’ve said forcefully in the past 

that too much television programming is crude and a poor reflection of our society. Although this hearing is not focused on that 

topic, and I want to make it clear, I just also want to make it clear 

that this is something which I really care about very deeply, as all 

of my suffering colleagues on this committee know. And I’m going 

to keep at it until it gets better or until I get to be my great-grandfather’s age, whichever comes first. 

So, right now, the question is how do we harness this change for 

power, for consumers, so we can get a higher quality program at 

lower rates? 

But really more important, what’s going to happen? What’s going 

to happen? The stats of people who are cutting off landline for telephones can also be—I think I read that in the last month that 

Nielsen had said that all broadcast news was down in the last 

month. Now, I guess, if it’s down over the course of a year it would 

be down over the past month, but it sort of grabbed me putting it 

that succinctly. 

To our witnesses, I look forward to your thoughts on this subject 

and I thank you for joining us today. And I want this to be a lively 

and forward-looking hearing. 

So Senator DeMint is the Ranking Member of the Subcommittee 

on this subject. Senator Kerry is not here for the moment. And, 

Senator DeMint, we look forward to your comments. 

STATEMENT OF HON. JIM DEMINT, 

U.S. SENATOR FROM SOUTH CAROLINA 

Senator DEMINT. Thank you, Mr. Chairman, and I do thank all 

the witnesses for being here, and thanks for holding the hearing. 

The communications sector continues to be one of the most dynamic and innovative in our economy. And I hope this is just the 

first of many hearings this year that allow an opportunity to learn 

about and discuss the marketplace and update the Committee’s 

record. 

Mr. Chairman, the obstacles between consumers and the video 

content they seek continues to disappear. In the video market, tremendous advancements in technology and massive capital investments in distribution networks now empower consumers to craft 

their own viewing experiences more than ever. 

At the root of this increasing consumer power and choice is a 

complex and overlapping mix of content creators, distributors, and 

electronics manufacturers racing to serve the marketplace better. A 

few such companies from this mix are with us today. 

With innovation and empowered individuals, however, comes disruption to established models and incumbent powers. Unfortunately, many of our current video laws and policies were sought 

3 

and achieved decades ago by established interests seeking government-granted protection from market forces. They were written for 

a time and a market that no longer exists, and they need to be repealed. 

Our video laws simply do not reflect the current realities of the 

marketplace, and I’m afraid they actually foreclose innovative service offerings and consumer benefits. Our laws should not promote 

or protect one technology over another or one competitor over another. 

Last year, I introduced the Next Generation Television Marketplace Act to comprehensively withdraw government meddling from 

the video industry. There are two primary interventions the government has made over the years in the video market, which my 

bill repeals: the compulsory copyright license and retransmission 

consent. 

These laws impose mandates on individual consumers and businesses, they violate the property rights of content creators, and 

they treat similar services differently. While I know these legacy 

issues are not the focus of today’s hearing, Mr. Chairman, I look 

forward to discussing them at a future hearing here in this committee. 

In his prepared remarks, Mr. Diller states that consumer demand is a powerful force and those who give consumers what they 

want will be rewarded in the marketplace. I couldn’t agree more, 

which is why I believe we should be creating deregulatory parity 

in the video market, so investment and innovation, not lawyers and 

lobbyists, is rewarded in a free economy to the ultimate benefit of 

all consumers. 

Finally, Mr. Chairman, I want to express my sincere interest in 

working together with you to seek ways to improve our laws and 

regulations to better serve competition, innovation, the national 

economy, and, most importantly, the American consumer. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you very much, and thank you for those 

comments, which obviously I share about working together. We 

have not sat together before, but we will sit together in the future. 

Our witnesses are sublime. Barry Diller, who I’ve known for 

many years, my wife says hi, is Chairman of IAC, former Chairman of Paramount Pictures, Fox Broadcasting, and USA Broadcasting. And you’re an investor in Aereo. 

You’re very knowledgeable about the history of video, and you 

have spoken previously about how the disruptive change presented 

by online video may change the nature of pay television. So we welcome your testimony, sir. 

STATEMENT OF BARRY DILLER, CHAIRMAN 

AND SENIOR EXECUTIVE, IAC 

Mr. DILLER. Thank you. I’m glad to appear before you today. 

I have a long, some say too long, career in entertainment and 

media. I’ve been chairman of three major studios, broadcast stations, broadcast network, cable channels and now Internet companies with more than 50 brands. So I’ve been both a practitioner 

and a student in the evolution of media over the last 45 years. 

4 

With ubiquitous broadband Internet access, an unlimited pipe of 

options will increasingly be available for all audiences. And together with the advances in consumer devices like the iPad, it’ll 

allow consumers to access the content they want directly from producers without middlemen, without toll takers, wherever and however they want. 

This is the great future of consumer choice and competition, and, 

I think, the realization of generations of public policy aspirations, 

that is, if we protect and encourage the miracle of the Internet, 

which allows anyone to press a send button and publish to the 

world without having to go through the closed systems that have 

so dominated media since its very beginning. 

Contrast that future with the past world of less than a handful 

of broadcast television stations. This evolved in the 1970s and 

1980s with the advent of cable television and satellite video distribution, but its development was encircled by rules and regulations designed primarily to preserve the incumbent broadcasters. 

Hardly surprising that given any technological development that 

threatens the hegemony of the existing players is going to be opposed by them. 

Then along came video recorders when Sony introduced the 

Betamax video cassette recorder. This was opposed in a suit by 

Universal and Disney, at the time, two of the largest producers of 

programming. They contended that no one should have the right to 

make a copy of their material. Courts disagreed and the VCR industry boomed. 

It made way for private, on-demand consumer consumption 

through the sale or rental of prerecorded video cassette tapes. 

Cable and satellite then offered all manner of services enabled by 

the technology of the video recorder. 

Now, along comes the great revolution of the Internet, affecting 

every pocket of commerce, except, oddly, the way most people receive the most popular video programming. 

But even with the restrictive TV everywhere concept that demand a cable or satellite subscription, broadband Internet has enabled a few online video-on-demand services to begin a transition 

to the online environment. 

This great Internet revolution is ready now to provide a new 

platform for competition that will, in turn, lead to video packages 

and a` la carte offerings driven by consumer choice and device innovation, rather than dictated by the financial interests of a handful 

of programmers and distribution companies. How can that not be 

in the public interest? 

There are no barriers to entry on the Internet. Creators have the 

opportunity to make and distribute whatever is their fancy. If 

intermediaries have less control over the TV ecosystem, creators 

would be able to reach viewers more directly and will not have to 

sign over so many rights to distributors. Viewers would benefit 

from being able to watch vastly more programming in the way they 

want to watch it and from having an alternative to subsidizing the 

current unwieldy marketplace. 

New technology can allow a more modern approach to receiving 

local broadcast programming. Right now, roughly 15 percent of 

Americans rely solely on over-the-air television because it’s difficult 

5 

to install home antennas or because of problems with reception. 

This ought to be of concern to Congress which appropriated $650 

million to ensure that households could actually receive the signals 

when digital replaced analog broadcasting. 

Aereo, a company in which I have invested, has invented technologies that allow consumers to get a clear, perfect picture over 

the Internet and watch live local broadcast television on any connected device, an iPad, an iPhone or an Internet-ready television 

set. 

It provides its members with their own antenna capable of receiving high-definition local broadcasts. Properly understood, Aereo 

allows a consumer to outsource or locate remotely an antenna and 

DVR and to use that equipment to access the over-the-air content 

to which they are all entitled. It’s DVR and the cloud technology 

as a breakthrough as the consumer needs no extra wires or set top 

boxes or fangled remote controls that no one understands. 

By making over-the-air digital broadcast signals actually useful 

to consumers, Aereo is bringing forth the very reality that Congress 

sought, that Congress invested close to $1 billion in, and at no additional cost to taxpayers. 

Aereo is but one example of how the Internet can inject competition into the video marketplace. Online video is just beginning. It’ll 

take all kinds of new products—a lot of failures that will move 

these systems from a closed to an open environment. It will take 

vigilance to make certain that net neutrality continues to be safeguarded, that no roadblocks or toll bridges can be inserted between 

the producer and the consumer. 

My hope is that Congress keeps the most watchful eye as these 

marketplaces develop. I know at some point soon the Communications Act of 1996 will have to be rewritten to take into account the 

Internet which didn’t exist when the Act became law. 

Incumbents have natural incentives to limit competitive threats. 

Congress should be vigilant that the rule of the game favor entry, 

innovation and competition. In the end, there’s no stopping technical innovation, but I would hope that a wise and engaged Congress will make certain that we have the levelest playing field, 

most encouraging environment for new media over the next crucial 

years of its development. 

Thank you for listening. And I’ll be happy to answer any questions I can. 

[The prepared statement of Mr. Diller follows:] 

PREPARED STATEMENT OF BARRY DILLER, CHAIRMAN AND SENIOR EXECUTIVE, IAC 

Mr. Chairman, and Members of the Committee, I welcome the invitation and opportunity to appear before you today to discuss the ‘‘The Emergence of Online Video: 

Is It The Future?’’ IAC is a leading Internet company with more than 50 brands, 

including Ask.com, Match.com, Citysearch, Electus, and Vimeo. I also serve as the 

Chairman and Senior Executive of Expedia, Inc., the world’s leading online travel 

company. Prior to my work at IAC and Expedia, I’ve enjoyed a long career in broadcast and cable television, and in the motion picture industry. 

Let me start with perhaps an obvious point, which is: The future of video is here. 

The confluence of ubiquitous broadband Internet access with incredible advances in 

consumer devices like the iPad increasingly allows consumers to access the content 

they want, when they want it, and how they want it. These innovations exponentially increase consumer choice and competition and are consistent with public-polVerDate Nov 24 2008 07:09 Jan 30, 2014 Jkt 075679 PO 00000 Frm 00009 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\86418.TXT JACKIE
6 

1 In December 1988, Blockbuster became the top video retailer in the U.S., with $200 million 

in revenue. It had more than 500 stores by the end of that year and replaced Erol’s as the top 

purveyor of prerecorded videocassettes. EMAfyi newsletter, http://www.entmerch.org/pressroom/industry-history.html. 2 464 U.S. 417 (1984). 

3 Id., citing Reaching Online Video Viewers with Long-Form Content, eMarketer.com (July 26, 

2010), http://www3.emarketer.com/Article.aspx?R=1007830. 

icy aspirations for a dynamic, consumer-driven marketplace for video programming, 

as well as preserving the essential consumer right to broadcast television access. 

1. The evolution of video distribution 

Contrast today’s opportunities with the world of old media. Not so long ago, video 

content was distributed through a handful of broadcast television stations. In this 

world, viewers passively consumed a fixed, pre-scheduled menu of content provided 

by three or four national commercial television networks and one channel of public 

broadcast programming. And all of this consumption took place on a single device— 

the humble television. 

This world began to evolve in the seventies and eighties. With the advent of cable 

television and satellite video distribution, consumers were given viewing options beyond those offered by over-the-air broadcasters. Today, there are an estimated 600 

national cable programming networks, plus another 100 regional networks. 

Alongside the growth of the cable platform, a key technological development took 

place in 1975 when Sony introduced the Betamax videocassette recorder. Betamax— 

and soon after VHS—gave consumers the ability to ‘‘time-shift’’ video programming. 

This time shifting ability gave consumers the freedom to record a video program in 

advance and watch it later, expanding consumer choice by untethering them from 

schedules determined by broadcasters. 

The VCR also made possible private, ‘‘on-demand’’ consumer consumption of feature films through the sale or rental of prerecorded videocassette tapes.1 Interestingly, the motion picture studios sought to block the VCR. The case was ultimately 

decided in favor of Sony by the Supreme Court in Sony Corporation v. Universal 

Studios 2 (also known as the ‘‘Betamax’’ case). Despite the studios’ fears, the new 

market that VCRs made available proved to be one of the most lucrative for those 

very same studios. Innovation can yield extraordinary benefits that are not always 

readily and immediately apparent. Later, cable companies began offering Video-OnDemand (‘‘VOD’’) services that enable viewers to watch broadcast or cable network 

programming or movies on demand at the consumer’s convenience for a limited 

time. Again, technology progressed and enhanced consumer choice, which benefitted 

every participant in the video-programming ecosystem. 

2. The rise of online video and the exponential growth in available content 

Recently, the widespread availability of broadband Internet has, in a short time, 

transformed video content access and delivery. For example, it has enabled videoon-demand services to migrate to the online environment. Online video distributors 

are available to any consumer with a broadband Internet connection and provide 

consumers with even more choices for high-quality (and low-quality) video programming. This marketplace has burst on to the scene and is expected to grow significantly. The number of viewers who watch full-length television shows online grew 

from 41.1 million in 2008 to 72.2 million in 2011.3

When the distribution of full-length video programming is added to user-generated video content and other non-full length video, the number of Americans that 

watch video online is staggering. In April 2011, U.S. Internet users engaged in over 

5.1 billion viewing sessions and 172 million users watched online video content. 

Cisco forecasts that video traffic is poised to grow to over 60 percent of Internet traffic by 2015, with an annual growth rate of 48 percent for consumer Internet video 

consumption between 2010 and 2015. 

Today, consumers access video programming through a variety of platforms, including over-the-air broadcasting, traditional Title VI ‘‘cable service’’ (e.g., Comcast’s 

XFINITY), Internet protocol television (‘‘IPTV’’) (e.g., Verizon’s FiOS and AT&T’s Uverse), video ‘‘broadcasting’’ over the public Internet (e.g., MLB.tv), Internet-delivered video-on-demand (‘‘VOD’’) (e.g., Netflix, iTunes, Amazon.com), and user-generated video providers (e.g., YouTube, Vimeo). 

The Internet enables new and varied platforms for viewing options that compete 

with the traditional media companies. That genuine, robust marketplace competition will in turn lead to different types of consumer offerings including different 

types of video packages, unbundled content and a la carte pricing. These changes 

are driven by innovation and consumer choice. Content distribution is in the hands 

of the many rather than the few. 

7 

4Fourth Further Notice of Proposed Rulemaking and Declaratory Order, Carriage of Digital 

Television Broadcast Signals: Amendment to Part 76 of the Commission’s Rules, DS Docket 98– 

120 at 4. (rel. Feb 10, 2012). 5 Competitive Impact Statement, DOJ, January 19, 2011, citing SNL Kagan, Economics of 

Basic Cable Networks 43 (2009); The Nielson Company, Snapshot of Television Use in the U.S. 

2 (Sept. 2010), http://blog.nielsen.com/nielsenwire/wp-content/uploads/2010/09/Nielsen-Stateof-TV–09232010.pdf. 6Turner Broad. Sys. v. FCC, 512 U.S. 622, 663 (1994). 

One of the biggest benefits of this trend is the proliferation and diversification of 

content. On the Internet, low barriers to entry have provided virtually everyone 

with the opportunity to create and distribute original video content. Google’s 

YouTube today sees an average of 48 hours of video uploaded per minute. Companies like Netflix are investing in original programming, competing with traditional 

cable channels like HBO. 

These options not only provide more choices for consumers, they can provide more 

value. A small but growing number of cable customers are ‘‘cutting the cable cord’’ 

completely in favor of Internet-distributed video. According to one report, 72 percent 

of adults who go online at least once a week say the Internet is a better value for 

the dollar than cable television. 

3. Local programming in the online environment 

While innovation and competition can and should flourish in the online environment, it is important to protect and preserve the consumer’s right to access free 

over-the-air broadcast television. Right now, roughly 15 percent of Americans rely 

solely on over-the-air television.4

Even with the rise of cable channels and networks, the most popular television 

programming remains that which is distributed by the major broadcast networks. 

The four largest broadcast networks attract 8 to 12 million viewers each, whereas 

the most popular cable networks typically attract approximately 2 million viewers 

each.5

Sometimes, in the face of the ubiquity of cable and satellite, consumers forget that 

they can access broadcast television with an antenna. In addition, there are sometimes technical challenges to receiving broadcast television signals, whether it is the 

difficulty of installing a rooftop antenna or problems with reception due to signal 

interference. 

This is a challenge for policy makers on several fronts. As Congress and the Supreme Court have recognized, ‘‘the importance of local broadcasting outlets ‘can 

scarcely be exaggerated, for broadcasting is demonstrably a principal source of information and entertainment for a great part of the Nation’s population.’. . .Likewise, 

assuring that the public has access to a multiplicity of information sources is a governmental purpose of the highest order, for it promotes values central to the First 

Amendment.’’ 6

The U.S. taxpayer, moreover, has made a significant investment to ensure that 

these interests are protected in the digital age. Congress appropriated $650 million 

to ensure that households could receive local broadcast signals after the transition 

to digital television. 

4. Aereo furthers important governmental purposes 

Aereo, a company in which I have invested, furthers government interests and 

does so at no cost to the Federal taxpayer by letting consumers watch live, local 

broadcast television over the Internet. The Aereo system lets consumers watch 

Internet-delivered live, local broadcast television on an Internet-connected device. 

Aereo, which launched just last month, provides its members with use of individual antennae capable of receiving high-definition local broadcasts. Aereo enables 

consumers to watch that programming on the Internet-connected device of their 

choice and at the time of their choice. Essentially, it allows a consumer to outsource 

or locate remotely an antenna and DVR and to use that equipment to access the 

over-the-air content to which they are entitled on an Internet-connected device. 

Aereo reminds consumers that they have a right to access over-the-air broadcasts 

using an antenna. And Aereo provides a technology solution that brings together the 

simplicity of the antenna and the convenience of locating equipment remotely. 

5. The future of competition in the online environment 

Aereo is but one example of how the Internet is injecting some much needed competition into the video marketplace. While all of this competition is good and 

healthy, the online video marketplace is still in its very early stages of development. 

Netflix’ online video streaming service—the largest in the world—is only five years 

old. 

8 

Incumbents have the means and incentive to engage in economic and/or technical 

discrimination against online video distributors. The FCC has sought to protect consumers against some of the technical means of discrimination in its Open Internet 

rules; but those rules may not survive judicial scrutiny. Even if they do, cable and 

telecom companies are experimenting with forms of economic discrimination at the 

margins of current law. For example, broadband providers that also provide video 

programming could implement broadband caps in a way that favors their own content. Congress should fully explore these issues and prevent cable and telecommunication companies from leveraging their dominance in existing markets for video delivery to control emerging markets. 

6. Ensuring that the future of online video happens 

I’m extremely bullish on the emerging world of Internet-enabled video distribution. If properly nurtured, the marketplace will develop multiple forms of distribution and many new competitors. This will in turn stimulate new sources of content 

and creativity that will give a multitude of options to consumers, while enriching 

our culture and advancing our economy. 

At this time, Congress need only to keep a careful watch as the marketplace develops. We know that incumbents have incentives to limit competitive threats, and 

Congress must be vigilant that the rules of the game favor entry and innovation. 

But consumer demand is a powerful force, and those who give consumers what they 

want will be rewarded in the marketplace. 

The future of online video is simply ‘‘more.’’ More content, more innovation, more 

competition. For consumers, the future of online video is more choice and more control. Consumers have the lawful right to watch the content they want, when the 

want it, and how they want it. The Internet has spurred technological innovation 

that now makes the exercise of that right possible. And that possibility holds great 

promise and potential benefit for everyone in the online video ecosystem. 

Thank you. 

The CHAIRMAN. Thank you, Mr. Diller. 

Our next witness is Ms. Susan Whiting, who is Vice Chairman 

of the Nielsen Company. And I think you’re going to talk about 

how American viewing patterns are changing, which is for sure, 

and that more households are watching online video than ever before. 

Your company has been at this for decades and decades and produced data about American television, which is very helpful, and 

particularly helpful as we go into this disruptive period where nobody is quite sure where it’s all going to end up. So we welcome 

you. 

STATEMENT OF SUSAN D. WHITING, VICE CHAIR, NIELSEN 

Ms. WHITING. Thank you, thank you, Chairman Rockefeller, and 

other members of the Committee. 

As you said, I’m Susan Whiting, Vice Chair of the Nielsen Company. You are, I think, familiar with Nielsen’s role in television 

ratings in the U.S., but you may not know we’re also a global information and measurement company measuring what people watch 

on TV, on the Internet, on mobile devices, but also what they buy 

in retail stores all over the world. So I appreciate this opportunity. 

Based on our latest research, the average American watches 

nearly 5 hours of video each day, 91 percent of which is done 

watching traditional TV sets in real time or live, meaning they’re 

not recording on a DVR, using video-on-demand or even watching 

a DVD. 

But what has emerged in the last 4 or 5 years is a simple message: Consumers watch their favorite content on the best screen 

available at that moment, and they watch from more locations and 

on more devices than ever before. 

9 

The availability of digital technology, digital access and the explosion of laptop computers, mobile devices and tablet computers in 

American life has really enabled this change. These devices, along 

with, at the same time, a record number of TVs in homes, have 

provided more screens. 

Our latest State of the Media: U.S. Digital Consumer Report provides a comprehensive overview of these trends. My testimony 

today is based on the findings in that report, and the report has 

been provided to the Committee. 

Today, more than 274 million Americans have Internet access 

through their computers, which has doubled since 2000. In October 

2011, nearly 166 million Americans watched video online and more 

than 117 million Americans accessed the Internet through a mobile 

device. 

Nearly half of all the mobile devices used in the U.S. today are 

smart phones, which makes it possible to access the video. 

Broadly speaking, each month, the average American spends 146 

hours and 45 minutes watching TV, 4 hours and 31 minutes watching Internet videos on a PC and 4 hours and 20 minutes watching 

video on a mobile device. So the use of video and PCs continues to 

increase. It’s up 80 percent in the last 4 years. 

So who is using video this way? Our research shows that women 

are 6 percent more likely to view video online than men. Eighteen 

to 34 year olds match 35 to 49 year olds as the largest demographic 

watching videos online. 

Sites like YouTube and Netflix together most recently represented 56 percent of the streaming time, which, for the average 

American, is 4 hours and about 31 minutes each month. 

But along with that increase in video consumption online, it’s 

worth noting that 331⁄2 million mobile-phone users now watch video 

on their phones, which has increased almost 36 percent since last 

year, and consumers with this access spent 4 hours and 20 minutes 

doing this. 

Consumers are increasingly becoming media multitaskers, meaning that they’ll use more than one form of media at the same time. 

For example, recent Nielsen data shows that 57 percent of smart 

phone and tablet users in the U.S. checked their e-mail and 44 percent visited a social network site while watching TV. Consumers 

are finding and accessing their favorite content on more and more 

devices, more screens. Consumers are saying, unequivocally, that 

online video will continue to play an increasingly larger role in 

their media choices. 

Thank you, again, Senator Rockefeller, for the opportunity to join 

you today. 

[The prepared statement of Ms. Whiting follows:] 

PREPARED STATEMENT OF SUSAN D. WHITING, VICE CHAIR, NIELSEN

Good morning Chairman Rockefeller, Senator Hutchison and members of the 

Committee. I am Susan Whiting, Vice Chair of Nielsen. You may be familiar with 

Nielsen’s television ratings in the U.S., but we are also a global information and 

measurement company, measuring what people watch on television, the Internet 

and mobile devices and what they buy in retail stores and on line. I appreciate the 

opportunity to join you at today’s hearing to share our insights about consumers 

watching video. 

10 

Based on our latest research, the average American watches nearly five hours of 

video each day, 91 percent of which is done watching traditional television sets in 

real time, or ‘‘live’’ (meaning they are not recording on a DVR, using Video on Demand, or even watching a DVD.) 

What has emerged in the last four to five years is a simple message: consumers 

watch their favorite content on the best screen available at that moment. And, they 

watch from more locations and on more devices than ever before. 

The availability of digital technology, digital access and the explosion of laptop 

computers, mobile devices and tablet computers in American life has enabled this 

change. These devices along with a record number of TVs in homes have provided 

more ‘‘screens.’’ Our latest ‘‘State of the Media: U.S. Digital Consumer Report’’ provides a comprehensive overview of trends in video consumption. My testimony today 

is based on the findings in that report and the report has been provided to the Committee. 

Today, more than 274 million Americans have Internet access through their computers, double those with Internet access in 2000. 

In October 2011, nearly 166 million Americans watched video online. And, more 

than 117 million Americans accessed the Internet through mobile devices. Nearly 

half of all mobile devices used in the United States today are smart phones, which 

makes it possible to access the video. 

Broadly speaking, each month, the average American spends 146 hours and 45 

minutes watching traditional television, 4 hours and 31 minutes watching Internet 

videos on a personal computer and 4 hours and 20 minutes watching video on a mobile device. 

The use of video on PCs continues to increase—up 80 percent in the last 4 years. 

Who is using video this way? Our research shows that women are six percent more 

likely to view videos online than males. 

Eighteen to 34 year olds match 35 to 49 year olds as the largest demographic 

viewing videos online. 

Sites like YouTube and Netflix most recently represented 56 percent of the 

streaming time, which for the average American is 4 hours and 31 minutes each 

month. 

Along with the increase in online video consumption, it is worth noting that 33.5 

million mobile phones users now watch video on their phones, a 35.7 percent increase since last year, and the consumers with this access spent 4 hours and 20 

minutes each month watching video on a mobile device. 

Consumers are increasingly becoming ‘‘media multi-taskers’’, meaning that they 

will use more than one form of media at the same time. 

For example, recent Nielsen data shows 57 percent of smart phone and tablet 

users in the U.S. checked e-mail and 44 percent visited a social networking site 

while watching television. Consumers are finding and accessing their favorite content on more and more devices, or ‘‘screens.’’ Consumers are saying unequivocally, 

that online video will continue to play an increasingly larger role in their media 

choices. Thank you again Senator Rockefeller for the opportunity to join you today. 

11 


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Chairman ROCKEFELLER. Thank you, Ms. Whiting. 

Mr. Paul Misener, you’re the Vice President of Amazon.com, and 

I believe that you will speak about Amazon’s entry into the online 

streaming video business, following on the heels of its efforts to 

digitize books and make them more widely available through its 

Kindle service. 

I’m going out on a limb here, but I think you’re going to stress 

the need for an open Internet, called ‘‘network neutrality,’’ which 

is controversial around here, but which I support and which my 

colleague to my left does not, in order for Amazon to compete 

against incumbent video service providers. We welcome you. 

Mr. MISENER. Thank you very much, Chairman Rockefeller. 

The CHAIRMAN. Did I get it about right? 

Mr. MISENER. Pardon me? 

The CHAIRMAN. Did I get it about right? 

Mr. MISENER. Yes, sir. Absolutely right. 

The CHAIRMAN. Thank you. 

STATEMENT OF PAUL MISENER, VICE PRESIDENT FOR 

GLOBAL PUBLIC POLICY, AMAZON.COM 

Mr. MISENER. My mom will be proud. 

But thank you, Mr. Chairman, Members of the Committee. 

Exactly a quarter century ago, the FCC set out to establish rules 

for so-called advanced television, which was the very first significant update to consumer video quality since the introduction of 

color TV in the early 1950s. 

The commission established a private sector advisory committee 

to evaluate the technology, and I had the honor of assisting that 


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20 

committee’s chairman, Richard Wiley. His committee can be 

thanked for the beautiful theater-quality video that we now take 

for granted when we watch a movie or football game on HDTV. 

But much more emerged from Chairman Wiley’s committee than 

pretty pictures. Already in the mid-1980s digital video capture and 

compression had come of age, but in the early 1990s, the Committee also oversaw the emergence of digital transmission of digital 

video data bits. The future of video was to be digital all the way 

from the camera to display. 

Two other crucial developments occurred at the same time. First, 

the World Wide Web was invented, forever transforming the Internet into a graphic-rich, easily accessible medium. 

Second, Congress overhauled U.S. communications law, and although the 1996 Act maintained some legacy distinctions among 

broadcasting, cable, satellite, telephone and mobile services, it also 

presciently codified the concept of an information service. 

It was into this era that Amazon.com was born. Amazon opened 

on the World Wide Web in July 1995 as an online bookstore and 

quickly grew to offer other media products, including music CDs, 

VHS tapes—if we remember those—and DVDs, all of which require 

physical delivery. 

But, today, the Amazon Instant Video service offers customers 

throughout the United States—whether in populace or in rural 

areas—the ability to buy, rent or subscribe to a huge catalogue of 

videos delivered instantly, 24 hours a day. Amazon Instant Video 

is available on PCs and Macs and other Internet-capable devices. 

Amazon Instant Video currently offers more than 120,000 movies 

and commercial-free television episodes for purchase or rental and 

about 25,000 of those are available in high definition. 

In February 2011, Amazon introduced Prime Instant Video as a 

subscription service, through which Amazon Prime Members can 

watch instantly, and for no additional costs, more than 17,000 

video titles selected from the Amazon Instant Video library. This 

gives our customers an easy opportunity to explore new video content. 

Now, although we recognize that our customers want to watch 

video content from the comfort of their homes, we also recognize 

that they are on the move, and thus they want access to digital 

video, not just any time, but also anywhere. 

To support that demand, last September, Amazon introduced the 

Kindle Fire—this device—which is a fully-functioning tablet that 

allows customers to access the Internet, read books, play games 

and, importantly, watch high-quality video. 

And if our customers have any questions about our online video 

services and the Kindle Fire, our customer service team, including 

specialists in our Huntington, West Virginia, facility are standing 

by to help. 

And so, Mr. Chairman, to answer the question posed in today’s 

title hearing, online video has emerged, and, undoubtedly, will be 

a key medium of future video delivery. 

With continued growth of broadband Internet-access service, we 

believe the consumer demand and choice will cause continued 

growth of online video services for an even brighter future. 

21 

This assumes, of course, that the Internet will remain a non-discriminatory, open platform. The open Internet encourages innovation and allows consumers to decide whether a particular product 

or service succeeds or fails, and this openness is particularly crucial 

in rural areas of the country where other choices are more limited 

than elsewhere. 

The FCC has pledged to monitor the potential for any competitive or otherwise harmful effects from specialized services, but I 

ask that your committee remain vigilant on this and other issues 

of Internet openness. For example, consumer data caps instituted 

by some network operators merit such vigilance. Consumer choice, 

without impairment, must be preserved. 

Amazon would be happy to assist the Committee in any way we 

can be helpful, including if the Committee were to undertake a review of the 1996 Act. As the testimony delivered in this morning’s 

hearing indicates, the lines between the communications services 

separately addressed in that legislation continue to blur, and how 

consumers, especially young people, now think of television does 

not match longstanding legal and regulatory conventions. The 

hearing today already has drawn important attention to that fact. 

And so, in conclusion, Mr. Chairman, Amazon.com believes that 

the future of online video is very bright for consumers, and we look 

forward to working with the Committee to preserve consumer 

choice. 

Thank you again for the opportunity to testify and I look forward 

to your questions. 

[The prepared statement of Mr. Misener follows:] 

PREPARED STATEMENT OF PAUL MISENER, VICE PRESIDENT FOR GLOBAL PUBLIC

POLICY, AMAZON.COM

Good morning, Chairman Rockefeller, Ranking Member Hutchison, and members 

of the Committee. My name is Paul Misener, and I am Amazon.com’s Vice President 

for Global Public Policy. On behalf of our company and customers, thank you for 

inviting me to testify about the emergence and future of online video. 

Exactly a quarter century ago this year, the FCC set out to establish rules for 

so-called ‘‘advanced television,’’ the first significant update to consumer video quality since the introduction of color TV in the early 1950s. The Commission established a private sector advisory committee to evaluate the technology, and I had the 

honor of assisting that committee’s chairman, Richard Wiley. He and his committee 

can be thanked for the beautiful, theater-quality video that we now take for granted 

when we watch a movie or football game on an HDTV. 

But much more emerged from Chairman Wiley’s committee than pretty pictures. 

Already in the mid-1980s, digital video capture and compression had come of age; 

but in the early 1990s, his committee also oversaw the emergence of digital transmission of digital video data bits. The future of video was to be digital—all the way 

from camera to display. 

Two other crucial developments occurred at the same time. First, the World Wide 

Web was invented, forever transforming the Internet into a graphic-rich, easily accessible medium. In stark contrast to previous media, such as newspapers, magazines, radio, and television, the Web is a ‘‘pull’’—not ‘‘push’’—medium, in which consumers choose what content they want, and when. ‘‘On demand’’ is essentially baked 

into the Web. 

The second crucial development was that Congress overhauled U.S. communications law. Although the 1996 Act maintained some legacy distinctions among broadcasting, cable, satellite, telephone, and mobile services, it also presciently codified 

the concept of information service. 

It was into this era that Amazon.com was born. Amazon opened on the World 

Wide Web in July 1995 as an online bookstore and quickly grew to offer other media 

products, including music CDs, VHS video tapes, and DVDs—all of which require 

physical delivery. One day back in 2005, when my eldest son, Jay, was three years 

22 

old, he sat on my lap as we ordered him a DVD from Amazon. When I clicked to 

place the order, he hopped off my lap and ran to the front door to wait for ‘‘the 

brown truck.’’ Amazon endeavors to provide excellent service to our customers, but 

this particular customer really wanted instant delivery, which wasn’t yet available, 

but is now. 

Today, the ‘‘Amazon Instant Video’’ service offers customers throughout the 

United States, whether in populous or rural areas, the ability to buy, rent, or subscribe to a huge catalog of videos, delivered instantly, 24 hours a day. Amazon Instant Video is available on PCs and Macs and other Internet-capable devices, including PlayStation3 consoles, and connected TVs and other living room-based consumer 

electronics components such as Blu-ray players and Roku boxes. 

Amazon Instant Video currently offers more than 120,000 movies and commercialfree television episodes for purchase or rental, including the latest hit movies like 

The Descendants, Girl with the Dragon Tattoo, and War Horse, and popular television series like Mad Men, Vampire Diaries, and Justified. Many TV episodes are 

available to rent or buy within 24 hours after the episode first airs on broadcast 

or cable television. And about 25,000 titles are available in high definition. 

In February 2011 Amazon introduced ‘‘Prime Instant Video’’ as a subscription 

service. As many of you know, ‘‘Amazon Prime’’ is a membership program where, 

for $79 a year, you can receive unlimited free two-day shipping on millions of physical products. But there are other benefits to Prime membership, including access 

to Prime Instant Video, through which Amazon Prime members can watch instantly—and for no additional cost—more than 17,000 video titles selected from the 

Amazon Instant Video library. This gives our customers an easy opportunity to explore new video content. 

Although we recognize that our customers want to watch a variety of high quality 

video content at affordable prices from the comfort of their homes, we also realize 

that they are on the move, and thus they want access to digital video not just anytime, but also anywhere. To support that demand, last September Amazon introduced the ‘‘Kindle Fire,’’ which is a fully functioning tablet that allows customers 

to access the Internet, read books, play games and, importantly, watch high quality 

video. In addition to being fully integrated with Amazon’s content offerings, Kindle 

Fire users have a wide range of popular applications available for download, including apps that enable access to content from Netflix, Hulu Plus, Pandora, and more. 

Kindle Fire includes ‘‘Whispersync’’ technology to remember for you the point at 

which you pause any video you are watching. This means that if you pause a movie 

or television episode on your Kindle Fire, you can easily pick up where you left off 

on another device such as your laptop computer or your Internet-connected television at home. Device memory is not a constraint because Amazon digital content 

is always accessible from ‘‘Your Video Library,’’ where digital content owned or 

rented by customers is stored and accessed via the Internet. And, if our customers 

have any questions about our online video services, our customer service team—including specialists at our Huntington, WV, facility—are standing by to help. 

So, Mr. Chairman, to answer the question posed in this hearing’s title, online 

video has emerged, and undoubtedly will be a key medium of future video delivery. 

Consumers already have a wide array of opportunities to stream, rent, or buy online 

video programming, including from Amazon. With continued growth of broadband 

Internet access service, we believe consumer demand and choice will cause continued growth of online video services for an even brighter future. 

This assumes, of course, that the Internet will remain a non-discriminatory, open 

platform. The open Internet encourages innovation and allows consumers to decide 

whether a particular product or service succeeds or fails. Any specialized services 

offered by network operators should not harm the delivery of content via broadband 

Internet access service, nor impede its growth, nor be offered on unequal terms (that 

is, bits are bits). And this openness is particularly crucial in rural areas of the country, where other choices are more limited than elsewhere. 

The online video services we offer today are only the latest examples of benefits 

to consumers resulting from the open Internet functioning as a platform for rapid 

innovation and vigorous competition. The FCC has pledged to monitor the potential 

for anticompetitive or otherwise harmful effects from specialized services, but I ask 

that your Committee remain vigilant on this and other issues of Internet openness. 

For example, consumer data caps instituted by some network operators merit such 

vigilance. Although Internet subscribers should pay for the bandwidth they use, immutable or unrealistically priced data caps could hinder or prevent competitive 

products and services made possible by online video. Consumer choice, without impairment, must be preserved. 

Amazon would be happy to assist the Committee in any way we can be helpful, 

including if the Committee were to undertake a review of the 1996 Act. As the testiVerDate Nov 24 2008 07:09 Jan 30, 2014 Jkt 075679 PO 00000 Frm 00026 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\86418.TXT JACKIE
23 

mony delivered this morning indicates, the lines between the communications services separately addressed in that legislation continue to blur, and how consumers— 

especially young people—now think of television does not match longstanding legal 

and regulatory conventions. Your hearing today already has drawn important attention to that fact. 

In conclusion, Mr. Chairman, Amazon.com believes that the future of online video 

is very bright for consumers, and we look forward to working with the Committee 

to preserve consumer choice. Thank you again for the opportunity to testify. I look 

forward to your questions. 

The CHAIRMAN. Thank you very much, Mr. Misener. 

And, finally, Blair Westlake, who is Corporate Vice President, 

Microsoft, and you’re responsible for the Xbox, not personally, but 

perhaps you are, at Microsoft. And that started as a video game, 

but it’s gone on to become an amazing instrument. We welcome 

your testimony. 

STATEMENT OF BLAIR WESTLAKE, CORPORATE VICE 

PRESIDENT, MEDIA AND ENTERTAINMENT GROUP, 

MICROSOFT CORPORATION 

Mr. WESTLAKE. Chairman Rockefeller, members of the Committee, thank you for the opportunity to testify on the emergence 

of online video today. 

I oversee the Media and Entertainment Group out of Microsoft. 

That’s my core scope and responsibility. 

Microsoft engages with video in several ways, including through 

our various releases of the Windows Operating System and Windows Phone products, but I am also here to discuss how the market 

is delivering consumers greater choice and control over their viewing with online video through our Xbox Video Service. 

I have three ideas for you to consider today. First, we are in the 

early stages of the transition to the future of video. A few years 

from now, current online video offerings will look like a mere bucket in the proverbial ocean of content. 

Second, while the current online video distribution marketplace 

is dynamic and vibrant, the Committee is right to keep a watchful 

eye as content and Internet service providers adapt to these 

changes. 

Third, the video marketplace is on the edge of even greater 

change that will feature new forms of content, greater interactivity, 

access and payment choices for the consumers. 

Let’s first consider the present online video market. Even 5 years 

ago, it was not possible for consumers to access high-definition, 

high-quality video content delivered over the Internet. The witnesses at today’s hearing represent just a few of the businesses creating an abundance of viewing options for consumers. 

As you may know, Xbox did, in fact, start just as a video-gaming 

console. When Netflix chose to make its online video service available beyond the PC, so that it could be viewed on a TV set, Netflix 

did so through our platform. That was a pivotal moment in TV history that has helped revolutionize consumers’ viewing habits. 

Today, Microsoft’s Xbox LIVE service has more than 40 million 

subscribers worldwide watching 300 million hours of video per 

month. Internet-delivered video enables consumers to access a 

broad array of video content at various price points, whenever and 

whatever broadband-enabled device they want. 

24 

These choices from Xbox and others complement traditional 

cable, satellite and telco services, but to emphasize, we are not a 

substitute for traditional video offerings. 

For example, we have also seen consumers choose smaller discounted programming packages offered by many of the MVPDs and 

who may then opt to supplement their basic tier cable service with 

online video offerings, such as Netflix, a practice that is referred 

to as cord shaving. 

All this demonstrates a current online video market that is vibrant and dynamic. The future will bring even more change. In my 

view, the TV landscape will likely experience more change in the 

next 18 months than the past five years. 

TV will increasingly become a two-way, interactive experience. 

To give just one example, Sesame Street programming that Microsoft will release in a few months, will be completely interactive for 

children and leverage the power of gesture and voice control. 

Children will be able to interact directly with Elmo and Cookie 

Monster on their TV screen to learn counting and the alphabet and 

to actually see themselves on the TV in the program, thereby 

stretching their imaginations like never before. 

TV also will be increasingly a multi-device experience. Soon, consumers will be able to watch all the content they want and pay for 

on any and all of their devices. We are already seeing production 

companies create content with mobile screen specifically in mind. 

Innovation also will be introduced into other aspects of the television viewing experience. 

For example, the integration of Bing Search functionality and 

voice-recognition technology enables some consumers to find an episode of Mad Men by using just their voice. These are just some of 

the exciting changes on the horizon and they highlight a key lesson, the vital importance of broadband access. 

Microsoft is committed to digital inclusion and affordable access 

to wired and wireless broadband. As we move forward, policies that 

promote access to universal high speed broadband are critical to 

health and vibrancy of a market that enables innovation and benefits consumers. 

Finally, the future of video also depends on companies adapting 

to sustainable, innovative business models and broadband management policies that do not discourage or impede consumer consumption of the vast and innovative online video offerings that are possible in the future and consumers have come to expect. 

Today, companies are experimenting with transactional video-ondemand, subscription-based distribution and electronic sell-through 

models. All these options enhance choice and are good for consumers in so many ways. 

As content owners and distributors develop new ways to monetize their products and their services, I fully expect that innovative, 

alternative business models will come into view. Out with the old 

and in with the new. 

In conclusion, Microsoft is pleased to be a part of this vibrant 

and competitive video marketplace that is rapidly evolving to a future that will give consumers more choice, more control and better 

offerings. 

Thank you, and I welcome your questions. 

25 

1 Xbox LIVE has two services: a free service known as Xbox Live Free and a paid service known as Xbox LIVE Gold. ‘‘Gold’’—a $5 per month subscription service—enables subscribers 

to access social media services, such as Facebook and Twitter, compete in multiplayer games 

with up to eight gamers in other locations, stream music from services such as iHeart radio, 

Continued 

[The prepared statement of Mr. Westlake follows:] 

PREPARED STATEMENT OF BLAIR WESTLAKE, CORPORATE VICE PRESIDENT, MEDIA

AND ENTERTAINMENT GROUP, MICROSOFT CORPORATION

Chairman Rockefeller, Ranking Member Hutchison, Members of the Committee, 

thank you for the opportunity to testify today on the emergence of online video. 

I am Blair Westlake, and I serve as the Corporate Vice President of Media and 

Entertainment in Microsoft’s Interactive Entertainment Business group. Microsoft 

engages with video in several different ways, including through our Mediaroom 

IPTV product which we license to various telephone operators around the world, 

through MSN, and through our Windows operating system and Windows Phone 

product, but I am here to discuss video from the perspective of Microsoft’s Xbox and 

Xbox LIVE service. 

As you may know, Xbox is a video game console that Microsoft first introduced 

in 2001. Xbox quickly developed into a leading gaming platform which, coupled with 

the Xbox LIVE service, offers users the ability to engage online in multi-player 

games. 

Over the past several years, Xbox, Xbox LIVE, and, more recently, the Xbox Apps 

Marketplace, which launched in December 2011, have transformed Xbox from a 

leading gaming platform to a revolutionary entertainment hub, increasingly used by 

Microsoft’s Xbox users to view movies and television shows. With more than 40 million Xbox LIVE users across the globe, Microsoft is very much part of the video 

present, coupling online gaming with digital content delivery, and we are pleased 

to share our perspective on what we think the video future will look like. 

I. The Video Marketplace Today 

Before we look to the future, it is important to understand the market today, and 

how that market has evolved in a relatively short period of time. 

In 1992, when this Committee looked closely at the video marketplace, the Committee found that the sole cable company providing service in a community offered 

consumers about 60 channels, and typically required the consumer to rent a set-top 

box. Ten years later, that picture had changed, but only a little. Satellite providers 

had entered the business, but consumers still had few choices for video programming providers and devices to use to access that programming. 

The past few years, by contrast, have produced a huge wave of innovation and 

change, making available to consumers new ‘‘over the top’’ (‘‘OTT’’) video offerings. 

Today, Microsoft’s Xbox LIVE is one of several services that delivers OTT high-definition, high-quality video content to consumers for viewing on televisions or monitors, something that was not possible ten years ago, and was still considered a future goal five years ago. Consumers access OTT services, such as Xbox LIVE, using 

broadband connectivity they obtain from an Internet service provider (‘‘ISP’’), such 

as their cable or telephone operator, and so the expansion of broadband has made 

OTT services possible. 

In the past two years, these phenomenal changes have migrated to new mobile 

platforms as smartphones, slates, and tablets and have forever changed when, how 

and where consumers enjoy video content. From the perspective of 1992, or 2002, 

or even just five years ago, the increase in the number of consumers watching longform video content, such as movies and TV shows, online and on mobile devices is 

staggering, and the increase in the number of video hours viewed online each day 

is amazing. 

Although it is difficult to pinpoint a specific event, I believe that the ‘‘tipping 

point’’ of the video ecosystem revolution took place in November 2008, when Netflix 

made its streaming service widely available to televisions via Microsoft’s Xbox. Since 

that time, innovation and change have moved at least twice as fast as the pace during the prior five years. Xbox, for example, initially was a gaming device that might 

have been found in the den, a child’s bedroom, or in the basement. As streaming 

video on Xbox LIVE was rolled out several years ago and as Xbox video apps, described below, were introduced, the Xbox device gradually moved out of areas of the 

home dedicated to individual family members and into the proverbial ‘‘family room.’’ 

Today, Xbox truly has become a household entertainment hub. In December 2011 

alone, more than 60 percent of U.S. Xbox LIVE Gold 1 members used Xbox LIVE 

26 

video chat using the Kinect accessory, and watch video content such as Netflix, Hulu and 

Comcast’s video-on-demand cable service. 2 Netflix Members Enjoy More Than Two Billion Hours of Movies and TV Shows in Fourth 

Quarter, (Jan. 4, 2012), http://www.prnewswire.com/news-releases/netflix-members-enjoy-morethan-two-billion-hours-of-movies-and-tv-shows-in-fourth-quarter-136652138.html. 3 Interview of John Skipper, CEO of ESPN (January 31, 2012) available at http://all 

thingsd.com/video/?videolid=E672BBB4-F22F-4258-9FF5-0CEE39461E36 (taking place at the 

All Thing Digital’s ‘‘Dive Into Media’’ conference). 4 NPD Group, January 2012 (noting that 59 percent of cable/satellite TV subscribers prefer 

having one single provider for their pay video services, and that many consumers continue to 

entertainment video apps, such as Hulu Plus, ESPN3, and HBO GO, for an average 

of an hour each day. 

To underscore how much OTT video viewing is occurring today, consider the following numbers: Netflix recently announced that during the fourth quarter of 2011, 

its subscribers consumed 2 billion hours of video.2 Xbox LIVE subscribers are fast 

approaching 300 million hours per month in viewing video apps, and viewing hours 

are increasing by the day. Indeed, the hours of video consumed by Xbox LIVE members increased 140 percent from 2010 to 2011. 

The entry by Microsoft and others into the video aggregation and online delivery 

market has contributed to consumer choice. The Xbox device gives consumers access 

to a platform which enables them to view a broad array of video content whenever 

they want it, including content directly from premium programmers such as Major 

League Baseball, ESPN, HBO, and MSNBC; from MVPDs such as Verizon FiOS and 

Comcast; and from other OTT providers such as Netflix and Hulu. The Xbox platform also provides enhanced experiences for consumers, such as our soon-to-be-released interactive Sesame Street game. And today, rather than scrolling through 200 

channels on your traditional MVPD service, you can use Bing to perform voice-enabled searches for content and then stream selections through your Xbox. 

John Skipper, CEO of ESPN, summed it well when he characterized ESPN’s distribution through Xbox LIVE as ‘‘phenomenal, the usage on that platform has been 

terrific, the quality of what our networks look like on that platform is terrific, there 

is a lot of capability and other things you can do around the live games on that platform.’’ 3

II. Today’s Over-The-Top Video Marketplace Is Dynamic and Vibrant 

Some of us before the Committee today are evidence of the vibrancy of the overthe-top video distribution marketplace in 2012. It bears emphasis that a hearing on 

video competition held only five years ago would have included almost no one on 

this panel. The OTT providers here have afforded consumers new options and created a new dynamic in the video marketplace. 

The revolutionary change brought about by online video providers is reflected in 

the new level of choice and control in the hands of consumers—choice that goes far 

beyond DVR time-shifting. Rather than having their viewing experiences tied to a 

network’s schedule of programs, consumers now can be the master of their own TV 

viewing schedule. Today, consumers can access a vast library of the programming 

they want, when they want it. Xbox LIVE, Amazon Instant Video, Hulu, Apple’s 

iTunes, and other OTT providers offer consumers movies and TV content at the click 

of a mouse, the touch of a remote, a wave of their hand, or a voice command. And 

consumers are not limited to just paying for a month’s-worth of programming, but 

in some instances may select and pay to watch a single program they wish to view. 

These choices complement traditional cable, satellite and telco services, and enhance consumer control. For example, with Verizon’s FiOS apps, FiOS subscribers 

who also subscribe to Xbox LIVE, may access an array of TV programming through 

Microsoft’s Xbox platform. Most of the familiar channel-branded apps, such as HBO 

GO and ESPN, use ‘‘TV Everywhere’’ authentication to verify that the user has a 

subscription with an MVPD. 

Xbox LIVE and the other companies represented here are part of a video ecosystem that gives consumers access to third-party options that were not readily 

available until just two or three years ago. Using these new tools, consumers can 

design the mix of programming options that is right for their household’s tastes, 

time and wallets, augmenting the content and experience available from their 

monthly MVPD subscription with those enhancements offered by Xbox or other OTT 

services. For example, consumers may elect to drop premium movie channels and 

supplement their basic service with OTT services such as Netflix. Industry observers refer to this as ‘‘cord shaving.’’ 

While consumers are likely to continue to consume video primarily from traditional cable, satellite, and telco services,4 the choices in the market today give all 

27 

prefer convenience over cherry-picking a variety of lower priced subscription video-on-demand 

services. 5 As Bill Gates observed, ‘‘We always overestimate the change that will occur in the next two 

years and underestimate the change that will occur in the next ten.’’ Bill Gates, The Road 

Ahead (1997). 

consumers more control over their viewing habits, so they are less tied to linear programming that has been the norm in the television business for several decades. 

Consumer demand for high-quality video over multiple devices and platforms is 

today’s reality and defines expectations and a marketplace that are here to stay. To 

meet and satisfy consumer demand, content owners and key stakeholders must look 

to exciting new and evolving technologies and rethink traditional business models 

and distribution strategies. 

Today, we are witnessing many companies experimenting with and evaluating different business models, including new approaches to transactional video-on-demand, 

subscription-based distribution, and electronic sell-thru models. Xbox, for example, 

currently provides access to content directly from more than a dozen programming 

services in the U.S., including video apps from Major League Baseball, MSNBC, 

HBO and ESPN, and the number of video apps we offer is expanding by the month. 

All these new options enhance choice, and are compelling options for consumers. 

The challenge remains for content owners and distributors to develop new ways to 

monetize their products and services. 

While many see the old models as under pressure in the long term, the new alternative business models have not yet come into view. The future of video is as 

much—or even more—dependent upon companies devising sustainable and innovative business models that reflect the possibilities of this exciting time than technology deployment. 

At Microsoft, our vision for Xbox LIVE is to deliver all the entertainment consumers want, while making the enjoyment of that content easy. The expansion of 

Xbox LIVE to Windows Phones and our soon to be released Windows 8 operating 

system, all with a consistent ‘‘Metro style’’ user interface and the ability for consumers to enjoy, control and consume content across their various Microsoft software-enabled devices, are examples of the progress being made in bringing new 

choices for accessing content to consumers. 

This hearing gives the Committee an opportunity to consider the future of video. 

We have set out our picture of the current online video marketplace. The single 

most important issue shaping the future of video is the availability of universal, 

high-speed broadband access. We think the Committee is right to keep an eye on 

this market as it unfolds and as Internet service providers and content providers 

adapt to the new market. 

While we are not at an ‘‘end of history’’ moment when it comes to the video marketplace, the changes that have taken place, and are underway, in the video ecosystem are truly remarkable and transformative. As we move forward, however, the 

availability of universal, high-speed broadband will continue to be critical to the 

health and vibrancy of a market that supports and enables innovation and competition. 

III. The Future Video Marketplace: New Forms of Content, Interactivity, 

Access, and Consumer Choices 

Consumers have benefited from significant changes in the past five years. In the 

next five, change will be even greater. The early 2000s saw predictions for how the 

Internet, growth of broadband, and IT infrastructure investments (including those 

further enabling access to the web) were going to change the video marketplace. As 

we now know, that change did not occur in the first half of the decade, but rather 

in the second half, and the change has been exponential. 

The weekend after this year’s Consumer Electronics Show, I shared some observations with my colleagues. I commented then, and I believe even more today, that 

we will experience more change in the next 18 months in the TV landscape than 

we did in the past five years.5 And I think we are only in the early innings of the 

beneficial changes that consumers have yet to see and experience. 

While I do not pretend to predict the future, I think the way people access and 

consume video will continue to evolve in these key categories: 

Search and discovery: As we have seen with the integration of Microsoft’s 

search engine, Bing, enabled by Xbox’s Kinect accessory, which provides a voice 

and gesture recognition offering, there is an increased focus on making consumers’ experience more intuitive. In only 18 months, Microsoft’s Kinect device 

has transformed experiencing games and entertainment to a level that was 

28 

6For example, surgeons are using Kinect to practice surgical moves before putting gloves on 

and researchers are exploring how Kinect can be used to help children with autism, stroke, and 

physical therapy patients. For more ‘‘Kinect Effect’’ examples, see http://www.xbox.com/en-US/ 

Kinect/Kinect-Effect. Microsoft is working with more than 200 innovation leaders around the 

world including United Health Group, Siemens, American Express, Boeing, Mattel, Houghton 

Mifflin Harcourt, Citi, Toyota and Unilever to utilize Kinect in revolutionary ways. 

‘‘science fiction’’ a few years ago, thanks to its natural user interface which recognizes gestures, voice and motions. 

We are making it easy for consumers to find and enjoy their favorite TV 

shows, movies and music across a variety of services. Search and discovery will 

allow the technology to fall into the background and enable the content to be 

the focal point of the experience. And Kinect for Windows development tools are 

now in the hands of thousands of creative designers who are building applications that go far beyond anything we could have imagined.6

TV will be a two-way interactive experience: Since the first devices were connected to the Internet, people have held out the promise of interactive television. With Xbox and Kinect, we are beginning to see TV experiences that are 

truly two-way experiences and go way beyond ordering pizza from your TV. To 

give one example, in the coming months, we will offer programming like our 

Sesame Street Kinect—we describe it as ‘‘playful learning’’—which will be completely interactive for children and will leverage the power of gesture and voice 

control. Recent innovation in Natural User Interface technology (‘‘NUI’’), will 

enable children to interact directly with Elmo and Cookie Monster, to advance 

the story line of an episode, to see themselves in the program (thanks to 

Kinect’s camera), and to learn the alphabet and many other educational offerings—all interactively versus through traditional, linear, one-way viewing. 

This may look like magic to children, but in fact it is hard work and takes 

considerable time and resources. Microsoft has commissioned the shooting of 50 

percent more footage of the linear version of Sesame Street so that children will 

be able to interact fully with the program. The difference between children 

watching the linear versus interactive versions of the program is simply amazing to see firsthand. 

Television will increasingly be a multi-device experience: In a next wave of 

evolution, we expect that consumers will be able to watch the content they pay 

for on any and all of their devices. It is envisioned that the second screen will 

receive increased attention from content owners, which will actively develop 

new shows with the smartphone and mobile devices in mind. 

Many in the creative community have recognized what the future holds. Production houses are already developing concepts for new shows that allow viewers to unlock extra content by following along on their second screens. Creating 

relevant, engaging second screen experiences will encourage fans to interact 

more deeply with their favorite TV shows. 

* * * 

In conclusion, Microsoft is pleased to be part of a vibrant and competitive video 

marketplace today that is rapidly evolving to a future that will give consumers more 

choice and more control to use the vast online resources for their education and entertainment. 

The CHAIRMAN. Thank you, Mr. Westlake. 

We’ll do five-minute rounds, and I’ve got about 100, but we’ll just 

keep going until you exhaust. 

This is to all of you, if you want. Ms. Whiting notes in her testimony the popularity of online video is growing. We agree with that, 

but traditional television also remains very popular. 

I want to understand better how online video will compete with 

pay television packages from cable and satellite companies, and, 

therefore, my questions. 

Do you believe online video will grow to become a full substitute 

for pay television? Will it compete directly with pay television packages that are so popular still today? 

29 

And, second, even if it does not become a full substitute, will it 

result in some downward pricing pressure on pay television service, 

which costs more for consumers each and every year? 

Please. 

Ms. WHITING. So we have a little bit of history to look at. In the 

digital transition that just occurred about three years ago, the full 

digital, many homes actually kept their pay cable television or satellite. So it’s, in some cases, a matter of switching the provider, but 

they were paying—what we see is, as I said before, a record number of televisions in the home, which may seem counter-intuitive, 

but people love large screen TVs, high-definition experiences. And 

I think it’s the ease of use that will matter. 

So while I won’t predict, what we do know is good content absolutely wins, whether it’s user generated or created in other ways. 

And so if people provide the right content and it has a business 

model, mainly it has been supported by advertising or by subscription that works, they’ll continue to produce the content. 

Consumers follow the content. The devices will multiply, and I 

think it’s the ease of use and the ability to watch whatever you 

want wherever you want it whenever you want it that we see has 

supported traditional television programming. It actually has 

grown. It’s the access that matters. 

And I think other members of this panel may have more insight 

into the pricing and other things, but if we look at consumer demand, people want the content, and as long as the content is there, 

it’s a matter of just making access easy, simple and different. 

Mr. DILLER. To answer directly, I don’t think it’s going to be a 

substitute. I think it’s a supplement. I do think that what online 

can offer is more a` la carte programming. 

You spoke earlier about having 500 channels and only watching 

10, but you essentially pay for the channels that you do not watch 

and therefore subsidize them, and that’s our current system. It’s a 

totally closed system. 

The Internet gives the ability to offer individual programs or discrete packages or the narrowest of narrow casting. And so as time 

goes on and we get more television sets naturally in big screen format connected to the Internet, you have this incredible optionality 

that can only come from the Internet. There is no closed pipe. 

So I think that its long-term effect is it’s not going to replace pay 

television, but it will certainly be up there in terms of consumption, 

if not exceeding the consumption of pay television over time. 

The CHAIRMAN. For now, it’s attitude. 

Mr. DILLER. Sorry, did you say attitude? 

The CHAIRMAN. Yes. 

Mr. DILLER. Yes. 

The CHAIRMAN. OK. Let me do one more very quick one, thus 

apologizing to you two. 

Obviously, television is incredibly powerful, and it informs us or 

doesn’t inform us and it in some way shapes who we are to be. 

So we’re talking about the advent of online video and how new 

technologies could change the nature of television. And, once again, 

we go back to, I believe, that disruptive technologies come along 

when there is something to disrupt and when what we have is not 

30 

working for us. So this leads me to ask, so what went wrong with 

television or is it just about technology? 

Mr. DILLER. It’s about technology. Sorry. Please. 

The CHAIRMAN. To anybody. 

Mr. MISENER. Well, Mr. Chairman, if I may, I think the medium 

of television was always about pushing information out to consumers with the hope that they would appreciate it and want it. 

The Internet, in contrast, by its very nature, is a pull medium, 

where consumers pull to themselves what they choose and what 

they want. Our whole business model is predicated on vast selection, convenience and value, providing low prices to customers. 

And nowhere is this more clear than with the provision of our 

video services. We want to give our customers the choice to watch 

what they want to watch, rather than have to watch what was 

pushed to them by someone in the traditional media. 

The CHAIRMAN. One more crack? 

Ms. WHITING. Yes. I think, stepping back, it’s about what you define television to be. So what we see happening is, you know, 

there’s live TV, you’re watching when it’s immediately broadcast. 

There’s so much now done with time shifting, with DVRs. Obviously, they’re distributed online video on your PC, on your tablet, 

on your phone. 

So I’m not sure that anything has gone wrong with TV so much 

as you’ve had this incredible technology change in how to access it, 

and that’s what we see happening, and it’s complicated. It’s complicated for everybody in the business to adapt to, but it’s really 

about the distribution. 

Mr. DILLER. Just one little fillip here. In 1960 or so, if the world 

had the Internet, the whole distribution system would have 

changed. We would not have wired the country. We would not have 

put up satellites. We would have simply done it over this wonderful 

Internet ubiquity. 

The CHAIRMAN. No, I agree. And one thing that occurs to me, 

and I’m coming right to you, Senator DeMint, is the marvel of how 

we push broadband and how, with the exception of some rural 

areas, which I care fiercely about, it has worked wonderfully, and 

also wireless. So it’s, in a sense, like public policy, and your innovation has created a perfect playing field. 

Senator DEMINT. Thank you, Mr. Chairman. 

Mr. Diller, I’m curious, if you were still in the broadcasting business, what would you think about Aereo? 

Mr. DILLER. Well, you know, if I was in the broadcast business, 

I would do what every broadcaster has done since the beginning of 

broadcasting, which is to protect their arena and do anything to 

prevent anyone else from getting into it. 

But I would also recognize that part of being a broadcaster was 

receiving a free license, and, in return, you programmed in the 

public interest and convenience. And core to that was that if you 

had a finger in the air or an antenna or whatever, you could receive a signal without anybody taking a toll or doing anything to 

prevent you from receiving that signal directly. 

That’s what Aereo does. Aereo is technology that simply allows 

a consumer to get what was the quid pro quo for a broadcaster receiving a free license. 

31 

Senator DEMINT. So do you see yourself as selling network subscriptions, in effect, or do you see yourself as reselling content? 

Mr. DILLER. We’re not reselling anything. What we’re doing, 

what we have is a technological platform. 

Senator DEMINT. But it’s a network, in effect. 

Mr. DILLER. No, it’s not a network. 

Senator DEMINT. People can subscribe to your network to receive 

content. 

Mr. DILLER. Well, it’s one to one. Essentially, you have an antenna that has your name on it. I mean, not literally, but figuratively, because it’s very tiny. Your name wouldn’t fit on it. Certainly, Senator Rockefeller’s wouldn’t. 

But you have this antenna and it’s one to one. It is not a network. It is a platform simply for you to receive over the Internet 

broadcast signals that are free and to record them and use them 

on any device you like. 

Senator DEMINT. Well, the broadcasters have licensed with the 

producers of the content to broadcast that, but you are going to, in 

effect, capture that and resell it without a license. 

Mr. DILLER. We’re not. Sorry, Senator. 

Senator DEMINT. You’re not? 

Mr. DILLER. We’re not reselling anything. 

Senator DEMINT. But you charge a subscription. 

Mr. DILLER. What we’re doing is we charge a consumer for the 

infrastructure that we’ve put together, for the little antenna and 

for our DVR cloud service. That’s what the consumer is paying for. 

The consumer doesn’t have to pay. We don’t charge for programming that is broadcast on this free direct—— 

Senator DEMINT. So you’re a distributor. 

Mr. DILLER. Pardon me? 

Senator DEMINT. You’re a distributor then. 

Mr. DILLER. No, we’re not. 

Senator DEMINT. You’re not a distributor. 

Mr. DILLER. Sorry. I mean, I would like to agree with you on 

something. 

Senator DEMINT. OK. Well—— 

Mr. DILLER. But we’re not a distributor at all. We’re not distributing, except if you say that what we are doing by—if you would 

call an antenna that RadioShack sells, charges a consumer for, a 

distributor, then it would be analogous. 

Senator DEMINT. So you would contend, then, if Amazon or 

Microsoft, as businesses, could intercept broadcast signals and sell 

them through what they have set up now, right over the—— 

Mr. DILLER. Well, the laws, the system for broadcasting is, I 

mean, Microsoft could do it, presuming in Redmond, where there 

is a TV signal, that they offered the same kind of platform that we 

would offer, because the system of broadcasting transmission is 

local. So it’s utterly one to one. A local broadcaster sends a signal 

out and we provide an antenna to receive it and put it over the 

Internet and allow people to record it. 

Senator DEMINT. OK. All right, Mr. Misener, do you plan to 

intercept broadcast signals and sell them over your network? Well, 

I guess, do you sell them as part of your content? Would you see 

that as a legitimate thing to do at this point? 

32 

Mr. MISENER. Senator, thank you for the question. We currently 

don’t offer live programming in our video service, and we don’t 

know what the future holds for our other businesses. We’re all 

about providing our customers vast selection and choice, and so the 

120,000 available movies and TV episodes that—— 

Senator DEMINT. But you license those. 

Mr. MISENER. Yes, sir. 

Senator DEMINT. Or deal with the copyrights with everyone who 

owns them, right? 

Mr. MISENER. That’s correct. 

Senator DEMINT. So you don’t necessarily see yourself as a competitor to traditional pay TV services like cable or satellite or—— 

Mr. MISENER. No, we’re close partners with the studios who 

produce the content. 

Senator DEMINT. Oh, OK. All right. Just as an aside question, 

do you think a Walgreens or a CVS has the right to charge a manufacturer more for an end-aisle display than they do a position on 

the shelf? 

Mr. MISENER. I’m sorry, Senator, I didn’t follow the question. 

Senator DEMINT. Have you ever seen an end-aisle display of 

products in a grocery store? 

Mr. MISENER. Sure. Sure. 

Senator DEMINT. Do you think that retailers should have a right 

to charge more for the end-aisle display than they do for a position 

on the shelf? 

Mr. MISENER. Goodness, Senator, I guess I feel that the products 

and services that accompany like an Amazon offer is—— 

Senator DEMINT. No, no, this is just a question about a grocery 

store. Do they have a right to charge differently for displays versus 

shelf space? 

Mr. MISENER. Well, they do. 

Senator DEMINT. OK. Well, that’s really all I want to know. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator DeMint. 

Senator Cantwell. 

STATEMENT OF HON. MARIA CANTWELL, 

U.S. SENATOR FROM WASHINGTON 

Senator CANTWELL. Thank you, Mr. Chairman, and thank you 

for this hearing. 

And I thank the witnesses. I think, combined at least, three of 

you employ about 100,000 people related to Washington State, so 

thank you very much for that, and thank you for continuing to innovate in the business models. 

And while we could have a lot of discussions here about a wide 

number of issues from net neutrality and bandwidth caps and online distribution rights and piracy and privacy and what the FCC 

is capable of doing and not capable of doing and simplicity, one of 

the things that I wanted to discuss or get your input on is just, as 

we’re talking about business models related to entertainment and 

the changes and what Congress needs to do, to me, there’s one incredible opportunity with the advent of online content and distribution of that content, and that’s in the area of education, and particularly when you talk about Kinect and two-way devices. 

33 

I’m curious about what you see, Mr. Westlake, as opportunities 

in the area of education. I could say healthcare is another application, but education where just about every university could put 

every bit of content online and change the dynamic and access to 

education, whether you’re going to give them a degree or not, to 

me, it’s almost irrelevant, the fact that you can make educational 

materials so available. 

And, Mr. Diller, you made a habit of staying ahead, you know, 

innovating and staying ahead of business, making sure you don’t 

fall subject to business models as they change or under competition. So what do you see as the opportunities for this content to be 

made more readily available to the American public, when we 

know one of our biggest, biggest challenges as a country is making 

sure we have a competitive workforce and driving down the cost of 

education? 

So, Mr. Westlake, anybody on the panel, but, Mr. Westlake, I 

want to know because Kinect, in my understanding, is two-way 

communications, too. So one of the things that people are now saying about online or interactive education is the limitations. But 

with Kinect, you’re obviously changing the dynamic to get more 

interactive going with individuals. 

Mr. WESTLAKE. Thank you, Senator. Yes, that’s correct. In fact, 

I look at the Sesame Street Playful Learning Program that we’ll be 

releasing in September as a catalyst for companies, producers to 

actually see what can be done. 

This is technology that, Kinect, that you mentioned, is, for those 

of you not familiar, it’s spelled with a K, K-I-N-E-C-T, as opposed 

to the word connect, is an accessory that attaches to the Xbox and 

has the capability of detecting voice and motion sensing as well as 

has a video camera. 

And what this program, what we’ve done is commissioned 50 percent more programming to be shot integrating it with the production of the Sesame Street program that’s produced each year. They 

produce about 40 hours of linear program, and taking the additional content and combining it with the linear, showed they’re able 

to interact, and, as I described, can throw a ball toward the television set and actually the ball magically appears on the television 

set as though this nonexistent ball, for example, just suddenly fell 

into their television set, something that was previously impossible 

to do. 

And what we’re doing is we look at this as a seed for showing 

others this is what we can do. This is what we’ve done in other 

areas, which is when we know the technology, what better way 

than to demonstrate it. 

So I think it’s the beginning of the stage of being able to have 

producers produce the content that is available for children to be 

used in this fashion. 

As you said, the same with healthcare. There are any number of 

ideas that could be used for this technology to bring healthcare content, et cetera. 

Senator CANTWELL. Mr. Diller, education. What do you—— 

Mr. DILLER. Well, I would say that if online technology does not 

transform education, it would be a crime. It is already beginning 

to do so. But have to remember we’ve only had broadband for just 

34 

a few years. So the ability to have rich video transmitted is a recent phenomenon. 

We have things like Khan Academy, which is a wonderful service 

for education. We have online Kaplan’s online university, which 

has, I think, 100,000 members, so to speak. Everything is eventually going to be online, and there are healthy potential business 

models that are going to support that, and they’ll have a profound 

effect, I think, profoundly positive effect, because you will finally 

get some competition, some really lively, creative competition in 

education, how it’s delivered, what its products are, et cetera. So 

I’m very, I would say, I can’t imagine that it won’t be transformed. 

Senator CANTWELL. Thank you. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Cantwell. 

Senator Thune. 

STATEMENT OF HON. JOHN THUNE, 

U.S. SENATOR FROM SOUTH DAKOTA 

Senator THUNE. Thank you, Mr. Chairman, and I want to thank 

the panel. The technology is remarkable. The innovation is amazing, and, you know, we here in Congress are just trying to keep up 

with what’s going on out there, as you can tell from listening to us 

this morning. 

But I’m curious to know, and this is for anybody on the panel, 

because there are some studies out there that suggest that streaming accounts for about 54 percent of Internet traffic in North America during peak times. 

Netflix and YouTube account for 37.6 percent of North America’s 

daily Internet consumption, which leads to a question, and that is 

do we, as a nation, have sufficient infrastructure and bandwidth to 

support the increased demand for high-quality, online streaming 

services? 

And what are the foreseeable issues that arise for our Internet 

infrastructure in terms of this exploding demand and availability 

of online video, and what should Congress be watching for in this 

area, if anybody would like to take a stab at that? 

Mr. MISENER. Well, Senator Thune, thank you very much. I 

think the core characteristic of the Internet is that consumers are 

allowed to pull to them the information that they seek. So it’s all 

about consumer choice. The information doesn’t get into the wire, 

as it were, unless the consumer asks for it. 

And so consumers are driving that growth of online video. Consumers are demanding devices like the Kindle Fire. They’re demanding the broadband delivery of video services. 

And so long as consumers are able to make that choice in the future, so long as the networks remain open to that consumer choice, 

it will be a bright future for consumers, because they will decide 

what they want to receive through the Internet. 

Senator THUNE. But in terms of capacity, just the infrastructure 

to handle all this, I mean, does anybody see that as a problem? 

Does that impose any kind of a constraint on the future growth of 

the industry? 

Mr. DILLER. Of course it’s a problem. It is going to be a problem. 

We do not have a first-rate broadband infrastructure in this counVerDate Nov 24 2008 07:09 Jan 30, 2014 Jkt 075679 PO 00000 Frm 00038 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\86418.TXT JACKIE
35 

try. We are slower and less deployed than, I think, 15 or 18 countries. 

We also are beginning to strain at capacity. And so I think that 

all the efforts to free up spectrum, the efforts that I think should 

be mandated for the widest broadband coverage, is mandatory. 

One way or the other, it will get solved. It would be nice if, in 

fact, enough spectrum is offered and enough bidders bid it up to 

whatever they think is a fair going rate, and then they bash each 

other in competition, for which there is relatively little right now. 

And the potential then is for transmission rates to be lowered, 

which would be a good thing. 

Senator THUNE. Yes. And you mentioned, Mr. Diller, in your testimony to your prepared statement anyway, you talked about 

broadband being ubiquitous. And as somebody who represents a 

rural area, there are places in the country where that’s not true. 

And I think of the reservations, for example, in South Dakota, and 

thinking about, you know, what efforts we need to make to make 

sure that we’re including rural Americans in these video business 

models of the future, because there clearly is a—I know it seems 

like it’s ubiquitous to many of us who live in places where you have 

access to it, but there are a lot of places that don’t. 

I had a question having to do with this issue of cord shaving. Mr. 

Westlake, you mentioned that in your prepared testimony, where 

consumers elect to just have basic cable service and supplement 

their service with a subscription to Netflix. It seems like there are 

a lot of content providers that are going to have an opportunity to 

sell their content directly to the consumer, which would allow them 

to bypass cable subscriptions. 

And yet many, if not all, of the current online streaming models 

require you to have a cable subscription. For example, you can’t 

watch ESPN or HBO on your iPad, unless you’ve got a cable subscription. Your cable provider has acquired the licensing rights to 

stream it. What is stopping ESPN from simply selling their content 

directly to the consumer or the NFL, for that matter, to sell directly to the consumer? 

Mr. WESTLAKE. You mean—— 

Senator THUNE. You mentioned it. 

Mr. WESTLAKE. Yes, in terms of each of these companies of 

course, can make a decision whether they choose to sell directly to 

the consumer. If what you mean is do I know of any impediment, 

there are no impediments. It’s more a business decision that they 

make. 

Some of these services are, in fact, selling directly as well as on 

an authenticated basis. So it’s really purely a business decision on 

their part. Some have and some haven’t. And I would expect, over 

the course of time, there will be more services that are offered directly to the consumer. 

Mr. DILLER. Simply, Senator, it would be insane for ESPN to sell 

itself directly to consumers, because, right now, it’s selling itself to 

me. I don’t watch ESPN. I pay God knows what for cable transmission, and I am, therefore, paying for ESPN, because 100 percent 

of subscribers have to pay for it. So to sell it individually would be 

something they would avoid. 

Senator THUNE. All right. Thank you. 

36 

Mr. Chairman, my time has expired. Thank you all. 

The CHAIRMAN. Thank you very much. 

Senator Warner. 

STATEMENT OF HON. MARK WARNER, 

U.S. SENATOR FROM VIRGINIA 

Senator WARNER. Thank you, Mr. Chairman, and thank you for 

holding this hearing. 

I missed part of Mr. Diller’s testimony, but I understand he said 

that incumbents always want to protect themselves and we need 

more disruption, and I agree. My background’s on the telecom side. 

But I’m trying to get my head around this whole new model 

where we’ve got, on one hand, we have the content generators. In 

the traditional model, we had, you know, broadcasters and/or cable, 

others, which then had some level of public obligation, because they 

either got that free license or they negotiated with the local community. 

So we’ve got this kind of how you do a distribution through either cable, over the air or broadband network providers. And we’ve 

kind of got this new entity, not so much Ms. Whiting, from Nielsen, 

but everyone else, of you all kind of being, in many ways, in between the content creator and the distribution system. 

And I guess the question I have for you all is we have placed in 

the past either kind of program access rules or other responsibilities on the network providers, some restrictions or rules around 

the content entities. 

What should be kind of the policy ramifications for you all? What 

set of rules? And should we get to the notion of how do we define— 

what Senator DeMint was getting at you was whether a distribution network or trying to put you in a traditional box, but what 

should your obligation be and what policy restrictions framework 

should we put around you all? I’m not sure that’s a very clear question, but let me have you take a crack at it. 

Mr. MISENER. Well, Senator, if I may, I think vigilance is due 

most in the areas where there’s the least competition, and so, at 

present, there are a plethora of content creators, of content distributors and certainly consumers. 

But there also are not many conduits by which the content can 

get from producer and provider to consumer, and so that’s the area 

I believe requires the most vigilance. And, in this context, maintaining an open Internet is crucial to the provision of these competitive services and the consumer choice that I believe we all 

agree is the right policy. 

Mr. DILLER. Senator, I think that, not to be presumptuous, but 

I think you’ve got to rewrite the communications act of 1996. It’s 

overdue, given the Internet, which—and it needs revision because 

the rules started with broadcasting 80 years ago, but the rules that 

essentially protected broadcasters and then the rules that enabled 

cable television, there is a new entrant. That new entrant, and it’s 

a healthy entrant, is the Internet. 

And so I think the rules now need to reflect that there is a potential positive competitor to what has become, as you stated earlier, 

a very closed system of program content makers, people who organize networks, whether they be pay networks or whether they are 

37 

advertising-supported networks and subscriber-supported networks, rather than, quote, you know, pay-per-view. 

But these players actually are in a system where there’s no air, 

and there’s no air because it’s completely closed, dominated by relatively few companies, less than a handful, and I don’t think those 

companies are going away. My goal in life is not to make them disappear, but I think the Internet allows for competition. 

Senator WARNER. But let me just ask you this, because my time’s 

going to run out. 

Mr. DILLER. Sorry. 

Senator WARNER. No, I just feel like I agree with Senator Thune. 

We’ve got to push more access. We’ve got to push more conduits. 

But, then, what obligation should you have as the intermediary 

between the content creator and the distribution system? What obligation should you have in terms of providing equal access, paying 

for the amount of content you push through these pipes? And 

should we be distinguishing between traditional sources, cable, 

broadcast, wired, wireless through all these, should we kind of 

have a total level playing field? And my time’s up. 

Mr. DILLER. Well, I would just simply say a level playing field 

is mandatory, and that means that the rights and obligations that 

people have are across all of these arenas. Absolutely. But, by the 

way, right now, the profit margins on data transmission are in the 

90s. So it’s not exactly as if these systems are not going to be built 

out. They are being, and they’re being added to every hour. So I 

don’t think you have any worries about that. 

Mr. WESTLAKE. Senator, I would just add, the greatest innovation we’ve seen in the last couple of years has been from those that 

are utilizing broadband online video delivery, bar none. 

Access to the broadband and the reach of broadband is the essential part. I don’t find that we have an issue of getting access to the 

content. In fact, the most profoundly different content is coming 

from those who are utilizing that means. 

Wide access to it, essential. That is essential, but the creation of 

the content is growing exponentially, both the volume of it as well 

as the innovation behind it. 

The CHAIRMAN. Senator Klobuchar, to be followed by Senator 

Heller and Senator Kerry. 

STATEMENT OF HON. AMY KLOBUCHAR, 

U.S. SENATOR FROM MINNESOTA 

Senator KLOBUCHAR. Thank you very much. Thank you, Mr. 

Chairman, for holding this hearing. 

I wanted to follow up just quickly first with what Senator Thune 

had referred to, rural America, and I think you all know the FCC 

National Broadband Plan talks about getting broadband, including 

web pages, photos, video, to everyone. Yet, often, the speeds aren’t 

as fast in the rural areas. And could you talk, maybe one of the 

three of you that provide these services, about how you’re working 

to make your deliver systems more available to rural America? 

Mr. WESTLAKE. Senator, well, we are a platform company. We 

don’t actually deliver broadband to the end point. We’re dependent 

upon that essentially as the consumer is. 

Senator KLOBUCHAR. I understand. 

38 

Mr. WESTLAKE. We are certainly, as I said in my opening remarks, encouraging wider access to that at the FCC for meggeddown minimum threshold, because, at that point, we feel, in terms 

of both what we can deliver in terms of high-quality video, highdef quality video, that suits the needs that we have as far as giving 

those consumers what they need. 

But as far as actually being able to facilitate that pipe out to the 

home, that’s not a business we’re in. 

Mr. MISENER. Senator. 

Senator KLOBUCHAR. Mr. Misener. 

Mr. MISENER. Thank you very much, Senator. We believe we’re 

helping to provide the value proposition for the buildout of that 

broadband. The very fact that 120,000 movies and TV episodes already are available from a service like Amazon Instant Video 

makes it more valuable for consumers. And so the consumer demand will drive the buildout of broadband. 

Certainly, that’s an area of important policy oversight from this 

committee and from the commission. I’m a big believer in that, but 

rural areas especially will benefit from Internet video. 

Senator KLOBUCHAR. And there’s an article today in the Washington Post pointing out the 1934 Telecom Act was ensuring programming for rich and poor alike. How about the disparity issue 

in terms of equal access to low-income households? How do you 

think that fits into this, as more and more people are going to be 

getting their news in other ways? 

Mr. DILLER. Well, I would say that access is going to be increasingly available as the broadband infrastructure not only becomes 

completely ubiquitous, but also has enough price competition to 

allow it to be available. 

I think that what the FCC is doing is, I mean, in terms of using 

the old telecom funds to finance buildouts in rural areas, et cetera, 

for broadband is great. But I think we do need a national policy 

for broadband, because everyone is going to be affected by it and 

we’re going to need to have as good a system as there is in the 

world, and right now, we don’t. 

Senator KLOBUCHAR. And what do you see as the role for local 

news? In our state, the local news is provided through, you know, 

getting people through tornados, to the flooding in Fargo-Moorhead, literally daily reports of where people should go, what’s happening. What’s the role of local news as you see the video marketplace maturing? 

Mr. DILLER. I’ve always thought, as people said that local broadcasting, local television stations were going to be outmoded and 

were probably, in all of these new development areas, are going to 

be antiquity, and I’ve always felt otherwise, because the strongest 

local television stations are the ones that provide the most news 

and information and community programming, and so I think that 

continues to be very vibrant. 

And, clearly, if you look at the success of any television station 

in any market, they are more dependent upon their ability to deliver news than they are having to hit a television program of the 

moment. 

Mr. WESTLAKE. Senator, I find that, based on just viewing in the 

greater Seattle area where two of us live, or, actually, I guess you 

39 

work for one. I live in Seattle, the local stations are utilizing online 

now for a depth of local news that isn’t practical on air. So there 

is barely 10 minutes that goes by in a broadcast of a local independent or affiliate station that does not refer to their website for 

more in-depth video footage, et cetera. 

So, actually, I agree, local content remains, for most consumers, 

first and foremost where they go as opposed to just a broader national feed. And the local stations, on the whole, I think we’re seeing just the beginning of it. I think you will see those local stations 

actually adapt to these video apps that others are doing and it will 

only proliferate. 

Senator KLOBUCHAR. Ms. Whiting, I just had one last quick question. I was just looking at your gender breakdown, always a good 

topic to end on, on the digital consumer. So you have the TV viewers, 51 men to 49 women watch more TV. Is this right? I didn’t 

know that. 

And that online women beat out men 53–47 for videos, 54–46 for 

social networks, 50–50 for smart phones, and the tablet owners are 

the only categories where the men are ahead, 53–47. So do you see 

that changing as well, or where do you see that going? 

Ms. WHITING. No, I don’t see that changing. 

Senator KLOBUCHAR. Why is that? 

Ms. WHITING. Because, well, actually, we see very broad distribution of video in the usage on every device. If you mean do I think 

the tablet disparity—— 

Senator KLOBUCHAR. Yes, I was just curious where that’s the one 

where the men are—— 

Ms. WHITING. Oh, no. Yes, I think that’s just been, yes, he’s got 

an example of—— 

Senator KLOBUCHAR. Yes, I know, there’s a man up there with 

a tablet. 

[Laughter.] 

Ms. WHITING. No, I think that is mainly because it’s a newer device, yes. 

[Laughter.] 

Senator KLOBUCHAR. And the women are just like they wait 

more to make sure they work—— 

Ms. WHITING. Well, I was going to start, actually, my testimony 

with my iPad and my BlackBerry and my iPhone and my PC, but 

I didn’t do that. But I do think that’s just a timing issue of the distribution of the devices. 

Senator KLOBUCHAR. It’s interesting. All right. Thank you very 

much. 

The CHAIRMAN. Thank you, Senator Klobuchar. 

Senator Heller. 

STATEMENT OF HON. DEAN HELLER, 

U.S. SENATOR FROM NEVADA 

Senator HELLER. Thank you, Mr. Chairman. Thanks for holding 

this hearing today. 

And I want to thank the panel for being here. It’s enlightening 

to hear your comments. I know we ask a lot of questions. We just 

do it in a different way. It’s usually the same question, just asked 

40 

a little bit different, and I assure you that my question probably 

runs right down that line. 

But I would hope that we have more hearings like this, Mr. 

Chairman. In fact, I would hope that we talk about the communications act a little bit more and the cable act and some of these 

issues. 

In fact, I would respectfully ask in the near future that we hold 

an oversight hearing on the FCC and discuss some reforms that 

I’ve introduced. So that would be my request. 

I would also like to submit a statement for the record, if that’s 

OK, Mr. Chairman. 

The CHAIRMAN. It is included. 

Senator HELLER. Thank you. 

[The prepared statement of Senator Heller follows:] 

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

Thank you, Mr. Chairman, for holding this hearing today. I am appreciative of 

the time we are spending to listen to our panel on the future of content distribution. 

I hope that we have more hearings on this issue going forward and I would also 

like to respectfully ask that in the near future we can hold an oversight hearing 

on the FCC and discuss some reforms that I have introduced. 

I believe that today is the start of a conversation on content viewership in America. I would like to thank our panelists here and I look forward to studying your 

comments. 

Like all of you, I have marveled at the technological advancements and innovations that have taken place over the last fifteen years. An unregulated Internet 

market has been a dynamic force for our economy, creating many sustainable wellpaying jobs in America. 

With these advancements have come faster video streaming technology that allows multiple family members to sit in the same room and watch four different 

shows on different devices while checking their Facebook status and reading The 

Hunger Games online. And, if you don’t believe me, you are welcome to stop by my 

house at Christmas. 

These advancements also beg the question of whether the laws passed in the 20th 

century are outdated in relation to today’s changing landscape. 

That is why Congress should look at the laws regulating content distributors that 

are on the books and determine what makes sense and what does not for a world 

with a participant who is unregulated. 

They should do this while remembering that content should be protected and compensated accordingly. 

But, focusing on the laws on the books is also a discussion for another day. Today 

I am hopeful that our panelists can provide us with an outlook of where we may 

be headed with content distribution and perhaps what consumers may expect 

around the corner. 

Thank you again, Mr. Chairman. 

Senator HELLER. Like all of you, I marvel at the technological advancements and innovations that have taken place over the last 15 

years. An unregulated Internet market has been a dynamic force 

and it’s created many substantial and well-paying jobs abroad and, 

of course, in the state of Nevada. These advancements beg the 

question of whether the laws passed in the twentieth century are 

outdated in relation to today’s changing landscape. 

That’s why Congress should look at the laws regulating content 

distributors that are on the books and determine what makes sense 

and what does not for a world with a participant who is unregulated. They should do this while remembering that content should 

be protected and compensated accordingly. But focusing on the 

laws on the books is also a discussion for another day. 

41 

Today, I’m hopeful that our panelists can provide us with an outlook of where we may be headed with content distribution and perhaps what consumers may expect around the corner. 

I’ll tell you one of the great benefits of being a Senator from Nevada is to tout the conventions that come to my state, such as the 

Consumer Electronics Show and a recent convention held by the 

National Association of Broadcasters. 

These gatherings are always informative because they showcase 

what’s coming down the pike from innovators for consumers. Knowing where we’re going is helpful to me because the last thing that 

I want to do as a lawmaker is to stifle that innovation. 

So with that in mind, I’d like to ask the panel a kind of an open 

question to all of you in regards to viewing content. Where do you 

think we’re going? And do the laws in existence help or hurt us 

from getting there? Mr. Diller, I’ll start with you. 

Mr. DILLER. Well, I said it earlier—— 

Senator HELLER. I said we were going to ask questions. 

Mr. DILLER. Oh, no, no. I expect that, Senator, but I think that 

where we’re going is obvious. We have a new, radical revolution in 

communications called the Internet. And so more is going to transfer, not completely, but more is going to utilize the capacity of the 

Internet to provide more information, more services, more programming. And the laws we have, that 1996 communication act, do not 

address the reality of this new force that has only been really going 

on since 1995. 

Ms. WHITING. Senator, I would probably add a couple of things. 

We see a trend of people using multiple media multiple devices simultaneously. So, one, more people watch television while they’re 

using their tablet or their PC or their phone, which only leads to 

the need for more, as we were talking about, broadband, because 

many of those applications are like that. 

So we see more multitasking. We see people wanting access to 

their favorite programs, their favorite content, their news and information wherever they are, and, again, on the best device possible, wherever that is. 

But as phones, in particular, smart phones also have wider and 

wider penetration, you know, that device really is a video device for 

any of the different kinds of content we’re talking about. So I think 

that increases as well. 

So they complement each other. People are using multiple media 

at the same time, and that will grow. So those are the big trends 

we see in the next couple of years. 

All the innovation everyone else is talking about I leave to the 

experts about that. 

Senator HELLER. Sounds like you’re an expert. 

Mr. MISENER. She is. 

Senator, the distinctions drawn among different communications 

services in the 1996 Act, in the 1934 Act before, the 1992 Cable 

Act, those distinctions have blurred significantly over the past decade or so. 

And I’d be happy to work closely with the Committee to address 

that blurring and to see if perhaps there are ways we ought to update the law to reflect the business models in technology that exist 

today. 

42 

Senator HELLER. Thank you. My time has run out, Mr. Chairman. Apologize, Mr. Westlake. 

The CHAIRMAN. You do not have to apologize ever for 29 seconds 

in this committee. 

Senator Kerry, then Senator Pryor. 

STATEMENT OF HON. JOHN F. KERRY, 

U.S. SENATOR FROM MASSACHUSETTS 

Senator KERRY. Thank you, Mr. Chairman. 

Indeed, the lines are blurred. In fact, it’s pretty unclear right 

now where a lot of jurisdictions begin and where they end, and I 

think we’re way behind the curve. 

Ironically, and I’ve said this before with the Chairman here, and 

as Chairman of the Subcommittee, I’ve said that we were really behind the curve within 6 months of the 1996 bill being signed, because we didn’t really think very hard about data transmission. 

So a hearing like this is pretty important as we think about 

what’s the role of government in the market going forward. And, 

hopefully, it’ll help us understand how free Americans are to really 

engage in the creation and consumption of video in fair terms at 

fair prices, as well as the role that competition is going to play in 

those choices. And I don’t think we’ve tapped the answer to that 

yet, to be honest with you. 

I mean, you mentioned it a moment ago, Ms. Whiting, that the 

four-apparatus experience you live, and some people may even 

have more, it’s pretty normal, actually, for people to be doing that 

nowadays. 

And there’s nobody here who doesn’t understand the ways in 

which the digital technologies have shaped the video landscape, 

from YouTube, Amazon Instant Video, Facebook, Netflix, and many 

others, have now made it possible for Hollywood to distribute television and movies over the Internet, for the rest of us to produce 

and distribute our own video, from the sort of innocuous and silly 

and personal, family oriented, kid-oriented kinds of things to the 

Joseph Kony video, which had profound impact and a stunning 

over 80-million-plus whatever hits in a short period of time. 

And, now, the smartphone and the tablet folks who make it possible for people to capture video, not just on your television or your 

computer, but anytime, anywhere. So it’s a brave new world. It’s 

a whole new deal. 

And most of these services are riding on either the wired or the 

wireless investments of a group of companies—the satellite, cable, 

telephone folks. And, now, they’re using their broadband capabilities to put content out in new ways, such as the Comcast, Microsoft 

Xbox setup. 

So a lot of us are sitting here trying to figure out, OK, what are 

the principles that ought to guide us going forward. And, Mr. 

Chairman, I think it’s critical that whatever we do we help to grow 

and empower and enable this innovation. 

That means, on the wireless side, that we have to do a better job 

of managing and releasing the spectrum, because video takes up a 

heck of a lot more bandwidth. 

On the wired side, we need to be pushing out broadband networks to underserved regions. Still a problem here. And, Mr. 

43 

Chairman, you and I have talked about this, and the Committee 

has had hearings before on it. We’ve had policies put in place. 

I think President Bush, way back in 2003 or so, said we’re going 

to have a policy that had everybody in America wired, and, as we 

all know, we’re just light years behind that, in fact, dropping behind other countries, which we really ought to take note of. 

I mean, if you want to talk about American competition and preeminence in the marketplace, it’s going to be dictated, largely, by 

some of this, and we’re not doing what we need to do, by any sense 

of the imagination. 

Finally, I’d just say, and these are sort of part of the opening 

comments I wanted to make earlier, Mr. Chairman, but we have 

to protect net neutrality, I believe, and that’s critical as we approach this, and we fought back against one effort here in the Senate to undo that. 

So I remain very committed, as the Chair of the Subcommittee, 

working with my full Chair to make sure that we enhance this 

marketplace as we go forward, and, frankly, make a little sense out 

of it, because I think consumers are bouncing off the walls right 

now, in some ways. In other ways, they’re benefiting just enormously through the increased access and different appliances, and 

we have to be careful not to nip that because of its power in the 

marketplace. 

So let me ask you a couple of questions, if I can. One, I might 

ask Mr. Diller, given your success in the marketplace in a number 

of different venues and the knowledge you have of this, what would 

prevent you from, say, going out and creating now your own sort 

of Fox Network or some network, any other name you could attribute to it, but exclusively—— 

Mr. DILLER. I think I would pick a new name. 

Senator KERRY. Well, pick a new name. But your own network. 

Mr. DILLER. Yes. 

Senator KERRY. Your own individual network outside of the 

broadcast or the cable world and just distribute it purely on the 

Internet? 

Mr. DILLER. Absolutely nothing. 

Senator KERRY. Doable. 

Mr. DILLER. Yes. The wonderful thing about this miracle of the 

Internet is you literally get to make up whatever you want, press 

a send button and publish to the world without anybody between 

your effort and the consumer. So it gives you an absolutely open 

possibility to create anything. 

Now, we’re at a very early stage. We’ve only had video for a few 

years, the ability to transmit rich pictures over the Internet. And 

there’s no question in my mind that as time goes on and systems 

for consumers get used to, to the same degree that they’re used to 

the one click on Amazon, so that if you have something you can 

offer it to someone in a payment system that they’ll understand 

and easily be able to access, and so this will happen over time. It 

is the promise of a` la carte programming that I think is probably 

the greatest opportunity that there is. 

Senator KERRY. And in that context, we don’t have a cable or 

broadcast representation to answer this, but do they have an incentive, therefore, to try to limit the growth of online alternatives? 

44 

Mr. Misener. 

Mr. MISENER. Thank you, Senator. I can’t speak for them, obviously, but we’ve seen indications that they may wish to restrict the 

availability of competing content, and that has to be monitored 

vigilantly, I believe, by the Commission and this committee. 

Senator KERRY. And Congress should probably look pretty carefully at that playing field, shouldn’t it? 

Mr. MISENER. Yes, sir. 

Senator KERRY. To make sure there’s fair access and competition. 

Mr. MISENER. Yes, sir. And if I may suggest, at Amazon, we start 

with our customers and work backward and try to figure out what 

they would want. And so, in this context, in Congress’ role, to look 

at the citizen consumer and then work backward from that, what 

would they want. 

I believe that they would want as much choice, as much selection, the greatest value and the greatest convenience possible. And 

as we look at the telecommunications laws as they exist today, try 

to put ourselves in the shoes of the citizen consumer and see what 

they would want, rather than what the industries do. 

Senator KERRY. I want to ask this of both Mr. Diller and Mr. 

Misener, how critical is net neutrality to this ability to distribute 

and to develop in this sort of way that you’ve described? 

Mr. DILLER. I would say it’s at parity with the need for national 

broadband policy that gets us to be, if not number one, I wouldn’t 

settle for less than number two. We are now number 18, I think. 

Senator KERRY. Something like that, 16, 18. 

Mr. DILLER. Net neutrality is mandatory, because there is no 

question that without it you will see the absolute crushing of any 

competitive force. It’s just not going to be possible if you say that 

distributors can put tin cans and anchors around anyone that 

wants to deliver programming that they don’t own, those distributors. And since we have a universe today where there are very few 

distributors, that’s not a good thing. 

Senator KERRY. Mr. Misener, do you agree with that? You don’t 

have to get a line in. 

Mr. MISENER. I’m confident that I could not have said it better. 

Senator KERRY. OK. Final question, if I may. As we all know, 

hundreds of thousands of movies are illegally downloaded every 

day. One could block that by preventing people from getting to sites 

that stream the video, but I don’t think anybody, obviously, wants 

to impede the freedom to go where you want to go. 

So, then, the question is asked or begged is there, in the current 

copyright and proposed copyright law both civil and criminal, too 

little protection for traditional video creation and too much constraint on innovation or is the balance right, and should we simply 

enforce the protection in this new era? Where do we come out on 

that? 

Mr. MISENER. We’re in the business of selling legitimate product, 

and thus we fundamentally abhor piracy. And so we’re concerned, 

of course, about the prevalence of piracy in some places around the 

world. And so if there are ways to get at those kinds of copyright 

protection issues more effectively, we certainly would support that, 

Senator. 

45 

Mr. DILLER. I think copyright protection works pretty well right 

now. I do think some strengthening, particularly outside the 

United States, would be very helpful. I did not think that SOPA 

was good legislation, because I thought it was a ridiculous overreach. But current law is fine, hopefully enhanced somewhat. 

Senator KERRY. Well, this is something we obviously need to follow up on. There are a whole lot of sidebar issues to each of the 

questions I asked, and we look forward to working with you all 

closely as we work through this, and, hopefully, can make sense 

out of it, Mr. Chairman. Thank you. 

The CHAIRMAN. Thank you, Senator Kerry. 

Senator Pryor. 

STATEMENT OF HON. MARK PRYOR, 

U.S. SENATOR FROM ARKANSAS 

Senator PRYOR. Thank you, Mr. Chairman, and thank you for 

having this hearing. It has been great. 

Mr. Diller, if I can start with you. I know that when Senator 

Kerry, a few moments ago, asked you about what is there to prevent you to start your own thing on the Internet is absolutely nothing. You’ve obviously excited about that, and it is exciting. 

But I also have a question about regulation and what regulatory 

environment you think there should be out there. For example, we 

recently passed, I guess it was last year, the Twenty-First Century 

Communications Video Accessibility Act, which makes sure that 

certain devices that aren’t covered by previous law, the handicapped could have access to those. 

And, you know, one of those examples that we gave was when 

folks were watching a movie, say, like the Wizard of Oz online, it 

doesn’t have to be closed captioned, but, obviously, on television, it 

is. 

So those are regulations that don’t necessarily infringe much, but 

they do make this access available to everybody. 

So if you look at something like today like an Xbox 360, I don’t 

think it is covered under our new Act. As far as I know, it’s not. 

Maybe it should be, but I think that technology has changed so 

rapidly we’ve not been able to keep up. 

So what’s the balance there in this—I would call it legacy regulation? You’re very comfortable with all kinds of regulations, given 

your background. What’s the balance there as we move forward 

and as we’re doing more and more online? How much regulation 

should there be and how equal should those playing fields be? 

Mr. DILLER. Well, I think that regulation should be relatively 

light touch, but I think that given this very powerful mass communications, the engines of such, there has got to be, first of all, the 

levelest playing field that can be legislated. 

At the same time, there are all sorts of legacy obligations that 

broadcasters took on, that cable companies took on and satellite 

companies took on that should now be covered and included with 

the Internet and the issues of the Internet. 

I don’t think it’s that hard to do. I mean, the last time around, 

the 1996 Act took a lot of plot and preparation and endless noises 

heard from. Not that that’s not going to happen again, but I actually think this time around it’s easier. 

46 

And the reason it’s easier is because the Internet and its ubiquity and its adoption has changed so many things naturally that 

amending the act for the future that includes the Internet, the reality of the Internet, I don’t think is going to be that problematic. 

Senator PRYOR. Did the other panelists have any comments on 

that, any response? 

Mr. WESTLAKE. Senator, you mentioned the Xbox. I’ll respond on 

that. We are working toward the implementation of closed captioning. It’s a complex undertaking. The volume of content that is 

flowing and the amount of metadata that’s associated with the 

closed captioning is no small task, but that is certainly our goal 

and one that we treat very seriously. 

Senator PRYOR. Good. Anybody else? 

Let me ask this question about something that Senator Kerry alluded to a minute ago and that’s intellectual property, and it does 

seem to me that given the ubiquity of the Internet, as you said, it 

just becomes harder and harder and harder for folks who own that 

intellectual property to enforce that. 

And do the same old rules apply or should the Congress, should 

specifically the Commerce Committee be considering other approaches to make sure that folks get their intellectual property protected both domestically and abroad? Anybody? 

Mr. MISENER. Senator, if I may. Thank you. At Amazon, we’ve 

been working with rights holders, since our inception, to ensure 

that their legitimate product is made available to the widest range 

of consumers, and, likewise, for our customers that we provide 

them the legitimate product. 

And so the 120,000 videos that I’ve referred to, available in Amazon Instant Video and on Kindle Fire, those were all obtained by 

working with the rights holders. So we’re very comfortable continuing to work with them to respect their intellectual property 

rights. 

Senator PRYOR. Good. And one last question, if I may, for Ms. 

Whiting from Nielsen, I know you look at all this data all the time. 

You see what people are doing and see how they’re behaving out 

there. 

One of the things that this committee has been working on is 

trying to get high quality broadband to every American that wants 

it and it’s particularly challenging in rural areas. Do you think that 

as more and more content is available online that it will actually 

incentivize people to get broadband, especially in the rural areas? 

Ms. WHITING. I think it just seems like a logical conclusion because so much of what you could talk about and experience every 

day, the applications that are useful, you know, the way you can 

communicate, the way you can learn and get your entertainment 

being available, particularly on a phone, as I said before, I think 

will lead to more people asking for broadband and requiring that 

access. So that usually leads to a commercial discussion about 

making it available. 

Senator PRYOR. And then that’s going to lead to the issue of affordability for broadband and trying to get it deployed. But one of 

the concerns I think this committee has expressed over and over 

is, we don’t want two Americas. We don’t want urban to have all 

47 

the latest and greatest and high-tech stuff, and then rural just be 

left behind. 

So all right. Well, thank you very much. 

Mr. WESTLAKE. Senator, I would add that the offering of all this 

additional video, which really requires that broadband capability, 

which I mentioned before as far as the four-meg threshold that the 

FCC has stipulated, my impression in dealing with these various 

ISP, Internet service providers, is they are looking for new ways to 

be able to offer broadband to more households and to be able to sell 

it. 

It is, frankly, a good margin business, and as people see more 

and more of this content, the demand goes up. And, as typically occurs with most businesses, when demand rises, businesses typically 

see that void and try to fill it. 

So I actually think that this increase in video content may well 

be a catalyst for many to build more. We hope so. 

Senator PRYOR. Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Pryor. 

Senator Nelson. 

STATEMENT OF HON. BILL NELSON, 

U.S. SENATOR FROM FLORIDA 

Senator NELSON. Thank you, Mr. Chairman. 

Of course, Senator Pryor, you’ve been such a champion for rural 

America, and, as you know, the fruits of your labors in getting 

broadband, the fruits of the Chairman’s labors in getting 

broadband out into the rural areas have helped my state enormously as well, as a lot of people don’t think of Florida as being 

rural, but there are vast portions of Florida that are rural. 

And I might say, having done a number of town hall meetings 

in the rural parts of the state, now that, as a result of the stimulus 

bill having put money into expanding broadband into the rural 

areas, which is now just occurring, that is being greeted with exceptional excitement and approval among the rural areas, so that, 

basically, as you say, that we don’t have two Americas, that the 

children in rural America have the same access to the information 

that children in urban America do. 

I wanted to ask a question of Ms. Whiting, because I was fascinated the other day when a senior member of our staff said to 

me that she does not watch television anymore, that she gets all 

of her information, basically, from either her computer or from her 

iPad. 

So how in the world is Nielsen, which has now refined the technique so well in determining how many eyeballs are watching a TV 

set with your boxes, your electronic boxes, now that measure it exactly, how in the world is Nielsen adapting to determine how many 

eyeballs are watching content on the Internet? 

Ms. WHITING. Thank you for the question, Senator Nelson. We’ve 

obviously had to adapt, because, as we just talked about, if we 

want to follow the audience of a program across any screen, the 

TV, the PC, the phone, the iPad soon, any websites, we have to 

measure that, and we do that for both the programmers and adverVerDate Nov 24 2008 07:09 Jan 30, 2014 Jkt 075679 PO 00000 Frm 00051 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\86418.TXT JACKIE
48 

tisers, and so we use technology to do that. We recruit samples of 

consumers who let us measure that. 

There are a growing number of people who do not own—there 

are contradictions going on. There is a small, younger, generally, 

group of people who do not own a TV set. They tend to have a 

smartphone, not a landline, and they’re getting their content and 

their information that way. And you balance that with households 

that now have four TV sets and their PCs and every other device. 

And our task, because programmers and advertisers really require it, is to measure the programming across that. And so technology is our friend here. Without giving a long explanation, we 

use technology to help us measure, with permission, the behavior 

on all those screens in samples of people. 

So it’s possible and we’re doing it, and I expect we’ll have to continue to innovate, because there’ll just be more screens. 

Senator NELSON. Well, technology refined your technique with 

regard to television screens, because you could put a box on a representative sample and then determine who was watching what 

program. How do you do that with a handheld computer device? 

Ms. WHITING. So very specifically, it’s usually a software application that we basically recruit someone to participate. We download 

either a software application or we’re measuring a commercial or 

a program and there’s a code in the commercial and program and 

we pick it up if you’re part—basically, it’s code recognition. So it’s 

technology that’s residing on whatever the equipment is. Whether 

it’s a phone or a PC or, soon, your iPad, we use software. So it’s 

not a separate box that’s connected. It’s a way of understanding behavior, with your permission. 

Senator NELSON. How do advertisers understand that they are 

being charged appropriately on the Internet as compared to the 

satisfaction and confidence that they have in the number of eyeballs that are watching a TV program because of you? 

How are they being satisfied that they’re being accurately 

charged a fee for their advertising on the Internet or any way that 

it’s distributed through an Internet-type program? 

Ms. WHITING. So the really simple measures advertisers are looking for, you know, how many people or what exposure did my ad 

have. They have estimates for television. There are a number of 

different ways they can get those estimates for online display ads. 

Search advertising they get feedback, and we provide it, other companies do. 

The number one question we’re getting now from major advertisers is to understand, across the screens, how an ad campaign 

can be effective, how to balance the money they put in. 

And so that’s, again, done recruiting panels, using technology to 

measure, same kind of way we do in television, exposure to an ad, 

and then there’s the effectiveness. But there are many ways, because you have website information, you have other technology, 

that people can do that. 

So we have similar methods to television, similar answers for advertisers, and the big question that’s happening is trying to understand how they complement each other, an ad on TV and an ad on 

the Internet. 

49 

Senator NELSON. If I use myself as an example, a TV program 

goes dark, and an ad comes up. Now, maybe my mind is watching 

it or not, but that’s what’s filling the space. Not so with an Internet 

screen. I may be looking at content on the screen on an iPad and 

there’s an adjacent ad, but I’m not paying any attention to that. 

How do you go about measuring the effectiveness of that compared 

to a TV program? 

Ms. WHITING. So we actually use a method that involves both understanding that a panel we’ve recruited has that ad up and on the 

screen, and then recall, after the fact, and certain measures we create for recall and impact for that advertising for major advertisers. 

So it’s a combination of things along with demographic information we have. So we can say this ad was viewed by an estimate of, 

you know, men 18 to 49, and then, additionally, would look at the 

impact of the ad in the recall. And we do that for a number of 

major advertisers, many of them, in fact. 

Senator NELSON. Do you find that the recall for Internet ads is 

much lower than the recall for TV ads? 

Ms. WHITING. It depends on the creative. It depends on the placement, in other words, the actual ad, the placement. 

What we do find is that ads that are shown on both television 

and the Internet have much higher recall and much higher effectiveness when they’re combined. So that’s something that many advertisers are studying with interest. They complement each other. 

Mr. WESTLAKE. Senator, I would add also that, to the point I 

made in my remarks about innovative business models and new offerings, that various content companies, which obviously use advertising as, in part, a way to fund the programming, are experimenting with ways of a lighter ad load, for example, shorter ads. 

So, again, to my comment, out with the old, in some respect, the 

new way that online video is being delivered, it’s not just the 

means by which the content is being delivered, but the way in 

which it’s offered up as far as the price point for the access to the 

content, how the ads are delivered up, pre-rolls, it’s called, where 

you watch an ad before. 

So there are a number of things that are being done, putting 

aside the actual measurement, which is a separate discussion and 

not my expertise, that’s being utilized, and some refining it, from 

what we hear, extremely effective. 

Senator NELSON. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Nelson. 

I’m going to ask the final question, there being nobody left, and 

so I’ll have to roll several into it. 

Ms. Whiting, the way you answered Senator Pryor’s question was 

very interesting, because you really hesitated when you talked 

about the effect of technology leading to rural coverage. You had 

an answer, but it was a while in coming, and I thought that was 

honest, and I happen to agree with that. 

The business of when rural state senators talk about rural people 

or poor people in far-off places and people say, ‘‘Oh, well, they’re 

just, you know, pandering to their constituency,’’ is really not at all 

the case. 

This is a basic American precept, and Mr. Diller has said that 

a number of times. You’ve all said it, everything has to go to everyVerDate Nov 24 2008 07:09 Jan 30, 2014 Jkt 075679 PO 00000 Frm 00053 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\86418.TXT JACKIE
50 

body. And that’s such a fundamentally American concept, and it’s 

also a concept which is so probable, can be probable, with this proliferation of platforms and delivery areas. 

However, I think this committee has done a very good job in 

three areas of all this, and that is we started the E-Rate. Houston 

went wireless the second day and every classroom was done on the 

third day. Others didn’t do that, and so it was a much longer process, but, now, E-Rate has worked. Connectivity is always a starting 

point. 

I think we’ve pushed real hard on, as Senator Nelson said, 

broadband, and through the stimulus package, which some people 

say, ‘‘I never want to see the likes of that again.’’ And therein lies 

a problem, because what we have done in broadband, as a matter 

of public policy, may have reached its point of no return. 

Then, I think we’ve done also a very good job in wireless, put a 

lot of money into wireless. On the other hand, we haven’t done that 

by ourselves. Obviously, others have done it. 

But with all of these things going on, all I can think of when I 

hear about rural America, and I’m going to think about the rural 

part of Florida, not the rural part of West Virginia, just for the moment, so that I appear to be more honest in my questioning, and 

that is that, for the most part, it has been the business of the telecommunications companies up until now. 

And there’s always this wonderful thing, because there are lots 

of mergers, and so there are lots of conditions, and the conditions 

always include precisely that, you’ve got to go everywhere, cover 

everybody. 

And all of the telephone companies that have ruled over West 

Virginia over the years, they’ve all promised it and then none of 

them have done anything about it. 

Yes, they’ve incrementally moved things further, but if you talk 

about mine disasters, if you talk about driving down any interstate 

in West Virginia, you have to kind of memorize the places where 

the interstate rises high enough so that you have cell service, 

which is absolutely humiliating and embarrassing in a modern 

world. That’s our world. That’s our world. That’s rural America’s 

world. 

And so I am on fire on the business of whether we are going to 

have this explosion of technologies, which I welcome, I totally welcome, and I welcome for several reasons. One is that I think this 

explosion of technology and capacity to see, learn, listen, and watch 

may be the salvation of the older generation, because you read so 

much about people being alone and they don’t have friends and 

they can’t communicate. Well, all of a sudden, they have all the 

friends in the entire world. They can make 25 friends every single 

hour if they want to. 

But the problem is they sort of have to have children in their 

household, but most of them don’t. So that whole problem of how 

is it that they come to the marvels of this new way of watching, 

learning, going back to twelfth century British history and finding 

out marvels of how people actually built cathedrals back then—the 

stonemason process—how could they do it. I mean, it’s all interesting stuff. It’s exactly the kind of thing which keep them company, keep them motivated. 

51 

And then the whole news factor, when they get to the news factor, I also have a big problem and question because news outlets 

are diminishing. I think there’s one AP person left in Charleston, 

West Virginia, which is our largest city, and capital. 

And newspapers are getting smaller. The Post is getting easier 

and faster to read, as is the Times. That is slightly less, the Times, 

a little bit less quickly. And television increases, and news is now 

gotcha, and local news is a little bit less than CNN and MSNBC 

and Fox, et cetera, but it’s still that nature, and then local broadcast has some of the same. So I worry about those things greatly. 

But what I worry most about is access to this, that we’re talking 

here an exciting, marvelous, technologically proficient, slick, but 

profoundly important and right development. 

I’m a true believer in net neutrality. I want everything to go out 

to everybody. I don’t want anybody stopping anything. We haven’t 

really dealt with caps here, because, at some point, you can’t create 

spectrum, and you can buy it back or give it back and then the 

FCC can sell you some. But, you know, the streaming, as Bill Nelson pointed out, eats up a lot of megabits really, really fast. 

So my question to you is, having neatly wrapped all my complaints into that, what’s going to happen in this new revolution, 

which is going to force not just the telecommunications companies, 

but others who are in the game now to get it out to people who 

are not asking for it? 

They’re not asking for it. I don’t believe they are. I think when 

they knew they could have it and then overcame their fear of doing 

it, and had access to getting it, we might start with connectivity 

at that. They can’t go down to their local public library to do all 

of this stuff. There’s a connection down there, connectivity, but I 

think that’s going to be a really tough slot, but it is the classic 

American requirement of this new explosion of possibilities. 

And I have absolutely no idea who I asked that question to, so 

I’ll just ask it to Barry Diller. 

Mr. DILLER. Thank you so much. 

I think, just like long ago, phone companies were forced, that in 

return for their monopoly, that they had to connect to everyplace 

that existed. 

The CHAIRMAN. But they didn’t do it. None of them. 

Mr. DILLER. Well, I don’t know. They didn’t—— 

The CHAIRMAN. No, they focused mostly on the interstates and 

went to the cities and where the business was and where the prosperity was, and they got all of that. So Fairmont and Morgantown, 

all those places are happy, but out where people mine coal, whatever you think of that, and in the rural parts where I live, where 

our farm is, you can’t get anything. 

Mr. DILLER. Well, I had thought phone coverage was pretty much 

everywhere. However, if it wasn’t and it isn’t, then it’s replacement, to a large degree, which is wireless. 

The CHAIRMAN. Right. 

Mr. DILLER. And broadband, it should be the policy, I think, of 

this country that every place must have the ability to receive both 

wireless and broadband connectivity. And that ought to be our law. 

We cannot compete in the world with the sixteenth or eighteenth 

best communications infrastructure. 

52 

The CHAIRMAN. Now, you’re talking more broadband than you 

are wireless. 

Mr. DILLER. No, wireless as well. But by the way, you know, you 

speak about if you go too low in parts of West Virginia, I promise 

you if you drive around Los Angeles or New York City or Seattle, 

you’re going to find lots of dropped calls. You’re going to find lots 

of places where there’s spotty coverage. 

And I think that, again, we haven’t had enough competition. We 

haven’t had enough national policy that—— 

The CHAIRMAN. How does national policy do this? I mean, I’m 

meant to be in love with national policy, and I’ve seen these national policies, but it’s always the people who have to make the 

money who decline to get it out there, because it’s at the margins. 

Mr. DILLER. We built a highway system in this country, which 

we did in the 1950s, I believe. 

The CHAIRMAN. Right. 

Mr. DILLER. That got done. Why is this so impossible for us to 

organize a system where it does get done? 

The CHAIRMAN. Because that was an executive decision approved 

by the Congress in a much simpler time, and this is an explosion 

of technologies, which so many people are just barely holding onto 

by fingertips, particularly the more rural you get. 

And inner city is the same thing. If it’s not going to the inner 

city, that’s the same complaint I would have. 

Mr. DILLER. Sure. 

The CHAIRMAN. So who’s going to push this? 

Mr. DILLER. I’m sitting here pushing it. My colleagues will push 

it. Most of the people in this room, I think, would push it. 

I think you ask anybody, they’ll say, Yes, we want competition 

in communication infrastructure. We want it to be universal. We 

want it to be the best in the world, and we’ll support it. 

The CHAIRMAN. But, Mr. Diller, do you understand what it feels 

like when you go to a place called Upper Big Branch somewhere 

in Raleigh County, and they’ve just had a big explosion at a 

Massey mine and 29 miners have been killed, but nobody’s really 

quite sure of that yet. 

So everybody’s gathered around the portals, as close as they’re 

allowed to get, and everybody is trying to dial their mother, their 

son, their grandmothers, et cetera, in Detroit and around West Virginia, and they cannot do it. 

And charging up the road comes boatload after boatload of wireless poles from Verizon, because they’re going to set them up. But 

you see what I mean? In other words, and any kind of a rural mishap. 

Now, IT and healthcare are helping a lot on this, on that particular aspect, but the general availability and the accessibility remains very much on my mind and I worry about it. 

Mr. DILLER. I sympathize. 

The CHAIRMAN. Any concluding Aristotelian comments? 

Mr. WESTLAKE. Mr. Chairman, I guess what I would weigh in 

with is that a balance is required because it is a combination of factors, like anything. 

Certainly, most of these companies sitting at the table are benefited from the very notion of having wide distribution of broadband 

53 

on many levels, everything from the very basic, for us, of pushing 

out updates to our operating systems to the delivery of entertainment. So they’re all essential. And the reason we supported the 

FCC position on net neutrality was because it was a balanced approach. 

And I think, as you evaluate it, since we’re down to the last, I 

don’t know that I’ll have the last word, but the last one of the closing thoughts is to balance those interests, because the companies 

that actually build, implement this, are in a better position than 

certainly I am or we are to address what all is involved, but it is 

really looking at that. It is a balancing act. And I think as we evaluated that, we realized just that, that you have to take into account the innovation opportunities, the delivery of content. 

As I said before, I believe that as more high-speed content is delivered, I’d like to believe that there will be an incentive for the investment made to deliver that broadband, and it is essential for 

this country. And certainly agree with Mr. Diller and the rest of 

you that whether we’re eighteenth, I know we’re way down on the 

list and that is certainly something that, whether it’s delivery of 

education, which is fundamental, all the way to the more mundane 

in relation to education, entertainment, it’s essential, because this 

is where we are headed. 

The CHAIRMAN. Right. Right. All right. 

Senator NELSON. Mr. Chairman, may I make a corroborating 

comment? 

The CHAIRMAN. Well, is there a possibility that you won’t make 

a corroborating comment? 

[Laughter.] 

Senator NELSON. But you will be very happy if I do. 

The CHAIRMAN. Of course I will. Of course I will. 

Senator NELSON. I just want to say, if it’s any consolation, the 

highest point in Florida is 350 feet, so not a lot of hills and valleys, 

and very spotty coverage. 

But, as Mr. Diller says, in any urban area, it has crossed every 

one of our thoughts, you’re in the middle of a very important cellphone conversation and you lose it, and you wonder why don’t they 

have this problem in Third World countries on this planet. 

And I would just like to throw out a final thought that we need 

to consult with folks like this on what Congress should do in the 

updating of our video and communications laws, given the fact of 

the subject of this panel today. 

Thank you. 

The CHAIRMAN. You have been a superb panel, and many ideas 

have been thrown out, frustrations have been thrown out, and the 

opportunities are endless. 

And so it really is the most exciting period in telecommunications 

and all of this since I came here, by definition, and so I congratulate you all for being a part of it and for being warriors in the War 

of the Roses. 

This hearing is adjourned. 

[Whereupon, at 12:08 p.m., the hearing was adjourned.] 

(55) 

A P P E N D I X 

SYNCBAK

Marion, IA 

Hon. JOHN D. ROCKEFELLER IV, 

Chairman, 

U.S. Senate Committee on Commerce, Science, and Transportation, 

Washington, DC. 

Dear Chairman Rockefeller: 

Thank you for the opportunity to contribute to the Committee’s important work 

in examining how disruptive technologies will affect the future of online video. I 

have a keen interest in the subject of this hearing. I have spent most of my career 

figuring out how we can use technology to make it easier for consumers to receive 

local broadcast television on new television distribution platforms. 

I hold 19 patents related to distribution of broadcast content. The services I created in 1999, Geneva and AntennaWeb, are still used today, in all 50 states, by television stations, satellite television providers, and consumers. Neither of these attracted headlines when they were created. But they each deployed new technology 

that has helped tens of millions of people get local television over new platforms. 

Today I run Syncbak, a media technology company I founded in 2009 to help consumers legally access live, local broadcast television over the Internet. Syncbak’s 

Internet broadcast platform with underlying authentication technologies enable 

broadcasters and studios to distribute in real time live and on-demand content over 

the Internet to consumers in their homes and on mobile devices. We do this with 

inexpensive hardware that is installed in broadcast stations. The hardware inserts 

a special token inside a station’s over-the-air signal. This hardware communicates 

with mobile and in-home technologies to authenticate viewers for broadcast content 

distributed over-the-top of the Internet. This guarantees that viewers can receive 

over the Internet only the content they can receive over-the-air. Let me explain why 

this step—authenticating viewers to receive broadcast content via the Internet—is 

so important. 

As many Internet media companies know, collecting live television signals and retransmitting them on the Internet is a relatively simple, inexpensive task that has 

been readily available for many years. However, very little live local television content is available on the Internet at present due to the complexities around distribution of broadcast TV. Simply put, the Internet is global and broadcast television is 

local. This means that local TV stations (who are, by and large, affiliated with a 

major broadcast network) can only distribute programming to households that can 

be reached by their over-the-air broadcast signal. To distribute live broadcast programming over the Internet, the same territorial exclusivity must be replicated to 

ensure appropriate compensation and protection of content owners (e.g., the NFL 

and Disney Studios). Otherwise, content owners, and advertisers who underwrite 

distribution of content, cannot be assured that only viewers with the ‘‘rights’’ to receive or who have purchased the rights to receive their content in a particular market are viewing it. Syncbak’s proprietary technologies and Internet TV platform protect these rights and enable viewers to watch television over the Internet on mobile 

phones and connected devices. 

For example, in my hometown of Marion, Iowa (Cedar Rapids-Waterloo-Dubuque 

television market 89), KGAN is the local CBS affiliate. It has produced local news 

and been a CBS affiliate since before I was born. KGAN pays the CBS network for 

the right to carry live CBS programming in my market and it pays syndicators for 

the right to carry Judge Judy and other popular syndicated programs in my market. 

These exclusive rights are limited to a 65 mile radius, or as far as the KGAN broadcast signal can reliably reach. 

The Cedar Rapids market is one of ten smaller local television markets surrounded by the much larger markets of St. Louis, Kansas City, Minneapolis and 

Chicago. In each one of those ten small markets and the four large ones, a different 

56 

station has the exclusive rights to live CBS programming and popular syndicated 

programs. Those exclusive rights allow stations to invest in and be responsive to 

their local communities. This model—a mix of local news and other local programming with exclusive local market rights to network and syndicated programming— 

has been the foundation of local television broadcasting for decades. Congress and 

the FCC have acknowledged many times how important territorial exclusivity of 

programming is to our system of local broadcasting. Without exclusive rights to network and syndicated programming, KGAN wouldn’t be able to support the high cost 

of producing local news. I would have to get my ‘‘local’’ news from a much larger 

market, like Kansas City or even Chicago. Without market exclusivity, local news 

and other local television programming would disappear from all but the very largest television markets. 

Respecting market exclusivity has presented technical obstacles in the past, as 

new systems of television distribution have developed. As cable and satellite television services developed it became possible for a station’s signal to be carried outside of the areas in which that station had the rights to that programming. The 

technical challenge was not retransmitting the local broadcast signal on a cable or 

satellite system; it was making sure consumers got the signals of the stations that 

held the program rights in their local market. 

This turned out to be a particularly thorny problem when DIRECTV and DISH 

launched ‘‘local in local’’ services starting about 12 years ago. As the CEO of the 

company that was then called Decisionmark, I created a technology that allowed 

DIRECTV and DISH to determine which households should receive which local signals. The Geneva technology I created then is still used today by satellite television 

providers, all major networks, and every local ABC, CBS, FOX and NBC affiliate. 

In 1999, when Congress enacted SHVIA, satellite television was the frontier. 

Today, as the subject of this hearing recognizes, the frontier is Internet distribution. 

But in many ways the real technical challenges are the same. It’s not streaming television content on the Internet; it is protecting television content on the Internet. 

The challenge lies in legally providing consumers with the live broadcast content 

they want on mobile and connected devices without undermining the foundation of 

broadcast localism and all of the public interest benefits and good jobs that come 

along with the package. That is the challenge that Syncbak overcomes. 

It is inevitable and desirable that local broadcast television will be widely available via the Internet on connected devices. It is good for consumers and the entire 

television industry, from content owners and studios to broadcasters. However, content owners (including local broadcasters, networks and studios) must be protected 

with technology that can effectively limit Internet distribution of live TV content to 

local geographic areas. Syncbak, which is already operating in 38 markets on 54 TV 

stations, reaching nearly 25 million households, has solved this problem. We give 

content owners the confidence that they can control where their content is distributed. With that confidence, we have reached agreements that allow local broadcasters to distribute their programs on Syncbak’s Internet broadcast platform via 

the Internet. The Syncbak platform is available to any television station that installs our server. Once the hardware is in place, stations can stream any content 

they own or negotiate the rights to distribute to viewers in their market. This simple and elegant solution is been supported by the two most powerful associations 

in TV and consumer electronics, the National Association of Broadcasters and the 

Consumer Electronics Associations, which are both strategic investors in the company. The NAB and CEA recognize that Syncbak seeks to collaborate with broadcasters rather than trying to make an end-run around content owners. 

In the three years Syncbak has been building a legitimate Internet broadcast platform, several other companies have formed to sell broadcast content on the Internet. 

Most have taken a very different approach. Instead of developing technology that 

legally ports broadcast TV to a broadband platform, they have relied on creative 

legal theories. Although the theories have varied a bit, all have argued, in effect, 

that they are legally permitted to pick up broadcast signals, process, re-code and 

degrade them, and retransmit them on the Internet—all without getting consent 

from the stations, respecting market boundaries and the rights of content owners. 

So far the courts have disagreed. Carriage of broadcast television over the Internet, without the consent of local stations and without respecting local broadcast 

markets, is not a solution. A contrived apparatus for Internet rebroadcasting that 

relies on copyright infringement, illegal carriage without consent or theft of service 

cannot be brushed aside with strained legal theories or cloaked by superficial technical innovation. Legal and technical contrivances do not provide a firm foundation 

on which to build the future of television distribution. Fortunately, real technical 

innovation exists. Syncbak’s solution extends the reach of local broadcasting to the 

57 

1 National Association of Broadcasters, ‘‘Innovation in Television,’’ available at http:// 

www.nab.org/television/innovation.asp. 

Internet with the support of broadcasters and content owners, without infringing on 

intellectual property rights and without undermining localism. 

Thank you, Mr. Chairman, for your consideration of these important issues. As 

you continue to examine both the business and legal implications of the migration 

of viewing from traditional television to the Internet, I hope you will keep in mind 

how important it is that localism is maintained via collaboration with local broadcast stations. I look forward to serving as a resource for you and the Committee as 

you delve further into these issues. 

Sincerely, 

JACK PERRY, 

Founder and CEO, 

Syncbak. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. KAY BAILEY HUTCHISON TO

BARRY DILLER

Question 1. If Aereo prevails in court and is able to offer its service with ongoing 

certainty in New York City (and possibly expand into other markets), what effects— 

both immediate and longterm—do you think it may have on: 

a. transmission consent negotiations between MVPDs and television broadcasters? 

b. the type of content broadcast over the air? 

Answer. If Aereo prevails in Court and is permitted to continue offering a remote 

antenna and DVR system to consumers, I am convinced it will have a thoroughly 

positive effect on broadcast content, broadcast revenue, and, most importantly, consumer choice and satisfaction. 

From the Radio Act of 1927 through to the present, Congress has declared that 

television airwaves belong to the public, and that broadcasters must operate in the 

public interest, convenience, and necessity. Indeed, broadcasters have been provided 

with very valuable spectrum conditioned on the specific attendant obligation to provide consumers with convenient access to terrestrial broadcast channels using antennas. Throughout the 1950s and 1960s and much of the 1970s and 1980s, consumers primarily relied on rooftop and rabbit-ear antennas as their gateway to 

broadcast television. 

In recent decades, cable and satellite services have increased their penetration 

and popularity, such that today only approximately 17 percent of American consumers use antennas to watch television. Consumers still, of course, have the right 

to use an antenna to watch broadcast television, and the advent of digital television 

is reinvigorating that right. The FCC informs consumers that antennas are just as 

valuable for reception of digital broadcasting as for past analog television services. 

http://www.fcc.gov/guides/antennas-and-digital-television. The National Association of Broadcasters website agrees that, following the DTV transition, ‘‘[m]illions 

of households are now enjoying dramatically better pictures and sound and free 

high-definition broadcasts are available in every market in the country with just an 

antenna and an HDTV set, proving that free TV is better than ever.’’ 1 And the Wall 

Street Journal recently observed that ‘‘[i]t’s cool to have rabbit ears again.’’ Christopher S. Stewart, ‘‘Over-the-Air TV Catches Second Wind, Aided by Web,’’ Wall 

Street Journal, February 21, 2012. But still, given the ubiquity of cable and satellite, many consumers are not taking full advantage of their right to access broadcast television via an antenna, and the reality in many metropolitan areas remains 

that tall buildings and other obstructions can interfere with broadcast reception 

using conventional antennas. To address such barriers to consumer choice, Aereo’s 

technology is designed to empower consumers to access broadcast television effectively and efficiently. 

Particularly as MVPD monthly fees continue to significantly outpace the cost of 

inflation, consumers deserve actual, functioning alternatives to cable or satellite 

services, including enhanced ability to watch broadcast television using antennas. 

The effect, if any, that such alternatives might have on negotiations between 

MVPDs and television broadcasters is difficult to predict at this very early stage. 

In this regard, the existing retransmission consent regime applies only to services 

that retransmit broadcast content, such as cable and satellite MVPDs. No retransVerDate Nov 24 2008 07:09 Jan 30, 2014 Jkt 075679 PO 00000 Frm 00061 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\86418.TXT JACKIE
58 

mission consent is required where consumers access television broadcasts over the 

air, regardless of whether they use antennas from Aereo or Radio Shack. 

At its core, Aereo is about giving consumers greater choice about and control over 

their television viewing experience. Aereo provides no greater access to broadcast 

television than consumers already are entitled to using home equipment, but it provides it in a convenient, innovative, easy-to-use way that maximizes their right of 

access. They can get the broadcast content they want and watch it at their convenience and on the device of their choosing. There is no law requiring consumers to 

watch television only on television sets, and for good reason. Today’s consumer 

watches video everywhere there is a screen—on home computers, tablets, laptops, 

and mobile phones. In giving broadcast television that same flexibility, Aereo has 

the potential to increase significantly the broadcast television audience. When consumers watch television more, the broadcast industry wins. The industry can garner 

greater advertising revenue, which ultimately will translate into the creation of 

more and better programming. And the integration of social networking features 

into the Aereo platform will benefit the broadcast industry, at no cost to the broadcasters, by giving fans of even the most obscure television programs an easy way 

to spread the word about their favorite shows. 

Question 2. Do you believe there is a solution that would provide the positive benefits of cable encryption to cable operators while also allowing for IP-based devices 

and other innovative products that more consumers are purchasing to have the opportunity for success in the marketplace? Are there any risks to consumers of allowing innovative devices the ability to decrypt the basic cable signals so they can access those channels unencumbered by additional equipment or reduced 

functionality? 

Answer. I would urge Congress to ensure that if basic tier encryption is to be permitted, any impact does not affect innovative services and products that benefit consumers and does not limit in any respect the existing rights of consumers to access 

over the air broadcast television. 

Question 3. Do you believe more should be done to reform spectrum policy in order 

to freeing up spectrum to meet the growing demand for wireless broadband and mobile and nomadic viewing of online video? If so, what specific recommendations do 

you have to making more spectrum available? 

Answer. Expanding the availability of spectrum dedicated to wireless broadband 

is an urgent priority and Congress should establish a date-certain for the Federal 

Communications Commission to act. New spectrum licenses should likewise contain 

rigorous build-out requirements that ensure prompt deployment. And finally, new 

spectrum should be allocated in a manner that, as best as practicable, brings new 

competitors into the marketplace. 

Question 4. How important is unlicensed spectrum to users that watch online 

video via their smartphone or tablet? 

Answer. There is a clear role for unlicensed spectrum. The ability to use unlicensed spectrum for online video delivery, particularly by making available white 

spaces between existing licensed video broadcast spectrum, will support opportunities that we cannot now anticipate, but that we will regrettably lose if sufficient unlicensed spectrum is not made available. However, unlicensed spectrum alone may 

not be a panacea for the needs of many online services, including Internet video, 

and Congress and the FCC should consider also how to make available more licensed spectrum as well. 

Question 5. Do you have concerns about the growing problem of piracy, primarily 

with online video? In the wake of PIPA & SOPA protests, how can the government 

properly balance its efforts to protect intellectual property but do so in a way that 

doesn’t hinder innovation or free speech? 

Answer. Intellectual property enforcement, innovation and free speech can and 

should co-exist. The Copyright Act generally works well. The private sector increasingly has taken steps to work collaberatively to make lawful content more accessible 

while assisting rightsholders with efforts to combat unlawfully distributed content. 

SOPA and PIPA were overly broad attempts to tackle the problem of foreign 

websites that engage in unlawful activity. This is a complicated issue. I am not convinced that a legislative response is needed, but if so, Congress should proceed carefully to develop a narrowly-tailored remedy that avoids chilling innovation or free 

speech. 

59 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. KAY BAILEY HUTCHISON TO

SUSAN D. WHITING

Question 1. Do you believe there is a solution that would provide the positive benefits of cable encryption to cable operators while also allowing for IP-based devices 

and other innovative products that more consumers are purchasing to have the opportunity for success in the marketplace? Are there any risks to consumers of allowing innovative devices the ability to decrypt the basic cable signals so they can access those channels unencumbered by additional equipment or reduced 

functionality? 

Answer. As you know from my testimony at the hearing, Nielsen’s primary business is measuring what consumers watch on various media platforms what consumer package goods they purchase. The question is beyond the scope of our primary business activities, so I feel it would be inappropriate for me to provide a specific response. 

Question 2. Do you believe more should be done to reform spectrum policy in order 

to freeing up spectrum to meet the growing demand for wireless broadband and mobile and nomadic viewing of online video. If so, what specific recommendations do 

you have to making more spectrum available? 

Answer. Nielsen is committed to providing its wide variety of clients the best possible measurement of media use regardless of the platform where it originates. We 

believe it is best for those who have a direct interest in spectrum allocation, including our clients, to offer suggestions on spectrum policy. 

Question 3. How important is unlicensed spectrum to users that watch online 

video via their smartphone or tablet? 

Answer. In our role as a measurement service for online video, we do not have 

a position on the importance of unlicensed spectrum. 

Question 4. Do you have concerns about the growing problem of piracy, primarily 

with online video? In the wake of PIPA & SOPA protests, how can the government 

properly balance its efforts to protect intellectual property but do so in a way that 

doesn’t hinder innovation or free speech? 

Answer. Nielsen is a privacy observant and compliant company that believes in 

the value of consumer opt in as essential to good research. Where external databases may be utilized, aggregated and made anonymous, data is the preferred pathway whereby modeling can be employed to determine likely audiences. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. OLYMPIA J. SNOWE TO

PAUL MISENER

Video Innovation and User Experience 

As consumer prices for fuel, food and health care continue to increase, Americans 

are struggling to stretch every dollar. Unlike our government, many consumers have 

chosen to cut back on spending, including opting for basic-tier cable packages that 

are more affordable. Some consumers are even ‘‘cord-shaving’’—choosing to access 

free over-the-air television in combination with cheaper alternatives for their entertainment, including innovative products such as Apple TV, Xbox 360, Roku and 

Boxee that allow them to stream online content, including Netflix, Hulu, TED talks 

and YouTube. These products allow consumers to stream online content, including 

videos from their friends and family and also fit their family budget by utilizing free 

other the air broadcasts or basic cable service. 

The Commission is considering an order that would allow for the encryption of 

basic cable signals. While there are benefits to encrypting basic cable service, some 

parties have expressed concerns that innovative devices allowing users to combine 

online content with basic cable service may no longer be compatible without additional hardware or software or reduced functionality of the device. Additionally, consumers will be required to add yet another electronic device, a cable box, to their 

home and may face additional monthly fees for it. 

As you probably know, Congress specifically addresses this issue in Section 624A 

of the statute, which requires the FCC to assure compatibility between consumer 

electronics equipment and cable systems so cable customers can enjoy the full benefits of both. 

Question 1. Do you believe there is a solution that would provide the positive benefits of cable encryption to cable operators while also allowing for IP-based devices 

and other innovative products that more consumers are purchasing to have the opportunity for success in the marketplace? Are there any risks to consumers of allowing innovative devices the ability to decrypt the basic cable signals so they can acVerDate Nov 24 2008 07:09 Jan 30, 2014 Jkt 075679 PO 00000 Frm 00063 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\86418.TXT JACKIE
60 

cess those channels unencumbered by additional equipment or reduced 

functionality? 

Answer. Amazon currently has no position on cable encryption. Amazon Instant 

Videos are available via broadband Internet access for instant streaming on the Kindle Fire, as well as Xbox 360, PlayStation 3, PC, Mac, Roku, and hundreds of TVs 

and Blu-ray players. 

Wireless Broadband 

The wireless industry has seen explosive growth and amazing innovation over the 

past decade. Currently, there are more than 330 million wireless subscribers in the 

U.S. and more consumers are viewing online video via their mobile devices. According to Cisco, approximately seventy percent of all global mobile data traffic will be 

video by 2016. 

While Congress has taken an incremental step to make more spectrum available, 

I believe more can and must be done to meet the future needs of all spectrum users 

and properly address existing spectrum challenges. For example, for over three 

years now, I have been calling for a comprehensive inventory of both Federal and 

non-federal spectrum usage yet such essential exercise has not been done. We also 

still lack a national strategic spectrum plan, which would provide a long-term vision 

for domestic spectrum use and strategies to meet those needs. 

We should also take additional steps to modernize our Nation’s radio spectrum 

planning, management, and coordination activities through better collaboration between the FCC and NTIA, fostering greater technical innovation, as well as promoting more investment in infrastructure. Such multi-faceted approach will ensure 

the long-term health of the spectrum ecosystem, that innovation can continue to 

flourish, and consumers will be able to continue to reap the amazing benefit of all 

types of wireless communications. 

Question 2. Do you believe more should be done to reform spectrum policy in order 

to freeing up spectrum to meet the growing demand for wireless broadband and mobile and nomadic viewing of online video? If so, what specific recommendations do 

you have to making more spectrum available? 

Answer. Increasing the availability and performance of broadband Internet access 

is an important policy goal for the benefit of consumers. Of course, wireless 

broadband access is crucially important, but we do not have specific recommendations for how to make additional spectrum available. 

Question 3. How important is unlicensed spectrum to users that watch online 

video via their smartphone or tablet? 

Answer. Unlicensed spectrum is an important component of broadband Internet 

Access. For example, Wi-Fi allows consumers more flexibility in how and where they 

can obtain broadband access to the Internet. 

Online Piracy 

While the increase in broadband speeds has brought significant benefit to users, 

it has also made it easier to distribute illegal content. A movie that once took hours 

to download can now be uploaded and transmitted across the Internet in mere seconds. In addition, consumers are increasingly lured to well-designed websites that 

are devoted almost exclusively to unauthorized downloading and streaming of copyrighted content such as music and movies. It is my understanding that more than 

167 million copies of the top 10 most pirated movies on the Internet have been illegally downloaded over the past five years. 

This illegal activity attributes to a significant economic loss to the intellectual 

property community through lost revenue and has an adverse impact on jobs in that 

industry. It can also create congestion on broadband networks and many of these 

illegitimate websites can compromise millions of personal computers through the 

distribution of malware that might be embedded in the illegal content—according 

to McAfee, 12 percent of all known sites that distribute unauthorized content are 

actively distributing malware to users who download content. 

Question 4. Do you have concerns about the growing problem of piracy, primarily 

with online video? In the wake of PIPA & SOPA protests, how can the government 

properly balance its efforts to protect intellectual property but do so in a way that 

doesn’t hinder innovation or free speech? 

Answer. We strongly oppose online video piracy. Although we did not support 

SOPA as it was drafted, we agree that piracy is a public policy challenge, and that 

public policy should strike the balance between the need to combat piracy without 

hindering innovation or free speech. 

61 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. JIM DEMINT TO

PAUL MISENER

Question 1. How many American households have access to Amazon’s video services? 

Answer. Anyone with a broadband Internet connection can rent or buy Amazon 

Instant Videos or access thousands of Prime Instant Video selections at no additional cost with a paid annual Amazon Prime membership. Amazon Instant Video 

is a digital video streaming and download service that offers Amazon customers the 

ability to rent, purchase or subscribe to a huge catalog of videos. Customers can 

choose from more than 120,000 titles to purchase or rent and content ranges from 

new release movies to classic favorites, major television shows, entire seasons, or 

even day after air TV. Prime Instant Video is Amazon’s video subscription offer— 

it includes more than 18,000 movies and TV episodes selected from the full assortment available at Amazon Instant Video. This subscription offer allows U.S. Prime 

customers to stream as many Prime Instant Videos as they like, at no additional 

cost. 

Question 2. How many Internet service providers does Amazon use to reach its 

American consumers? 

Answer. Amazon customers choose their own provider of Internet access service. 

Question 3. To the best of your knowledge, how many households with access to 

Amazon’s video services have more than one option for a high speed Internet service 

capable of delivering them Amazon’s video services? 

Answer. We do not have any independent data, but are aware that the Federal 

Communications Commission collects and reports this information. 

Question 4. Would you describe for the Committee the amount of capital and types 

of facilities Amazon has built to provide its video services to consumers? 

Answer. We do not report our investments or specific technologies, but we are constantly working on ways to increase selection and convenience for our Amazon Instant Video customers. Amazon Instant Video is a digital video streaming and 

download service that offers Amazon customers the ability to rent, purchase or subscribe to a huge catalog of videos. Customers can choose from more than 120,000 

titles to purchase or rent and content ranges from new release movies to classic favorites, major television shows, entire seasons, or even day after air TV. Prime Instant Video is Amazon’s video subscription offer—it includes more than 18,000 movies and TV episodes selected from the full assortment available at Amazon Instant 

Video. This subscription offer allows U.S. Prime customers to stream as many Prime 

Instant Videos as they like, at no additional cost. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. OLYMPIA J. SNOWE TO

BLAIR WESTLAKE

Video Innovation and User Experience 

As consumer prices for fuel, food and health care continue to increase, Americans 

are struggling to stretch every dollar. Unlike our government, many consumers have 

chosen to cut back on spending, including opting for basic-tier cable packages that 

are more affordable. Some consumers are even ‘‘cord-shaving’’—choosing to access 

free over-the-air television in combination with cheaper alternatives for their entertainment, including innovative products such as Apple TV, Xbox 360, Roku and 

Boxee that allow them to stream online content, including Netflix, Hulu, TED talks 

and YouTube. These products allow consumers to stream online content, including 

videos from their friends and family and also fit their family budget by utilizing free 

other the air broadcasts or basic cable service. 

The Commission is considering an order that would allow for the encryption of 

basic cable signals. While there are benefits to encrypting basic cable service, some 

parties have expressed concerns that innovative devices allowing users to combine 

online content with basic cable service may no longer be compatible without additional hardware or software or reduced functionality of the device. Additionally, consumers will be required to add yet another electronic device, a cable box, to their 

home and may face additional monthly fees for it. 

As you probably know, Congress specifically addresses this issue in Section 624A 

of the statute, which requires the FCC to assure compatibility between consumer 

electronics equipment and cable systems so cable customers can enjoy the full benefits of both. 

Question 1. Do you believe there is a solution that would provide the positive benefits of cable encryption to cable operators while also allowing for IP-based devices 

62 

and other innovative products that more consumers are purchasing to have the opportunity for success in the marketplace? Are there any risks to consumers of allowing innovative devices the ability to decrypt the basic cable signals so they can access those channels unencumbered by additional equipment or reduced 

functionality? 

Answer. Microsoft has not participated in the FCC’s proceedings regarding cable 

basic service tier encryption. (In the Matter of Basic Service Tier Encryption, MB 

Docket No. 11–169 and Compatibility Between Cable Systems and Consumer Electronics Equipment, PP Docket No. 00–67, FCC 11–53, rel. Oct. 14, 2011.) The docket 

raises complicated issues regarding whether the Commission’s basic service tier 

encryption prohibition remains necessary to promote compatibility between digital 

cable service and consumer electronics equipment in all circumstances. It appears 

as if there have been over 150 filings by cable operators, consumer groups, and the 

consumer electronics industry with a more direct stake in the outcome of the proceeding. Microsoft is monitoring the record as it develops and will participate as 

necessary to ensure that the interest of our consumers and business are considered 

by the Commission. 

Wireless Broadband 

The wireless industry has seen explosive growth and amazing innovation over the 

past decade. Currently, there are more than 330 million wireless subscribers in the 

U.S. and more consumers are viewing online video via their mobile devices. According to Cisco, approximately seventy percent of all global mobile data traffic will be 

video by 2016. 

While Congress has taken an incremental step to make more spectrum available, 

I believe more can and must be done to meet the future needs of all spectrum users 

and properly address existing spectrum challenges. For example, for over three 

years now, I have been calling for a comprehensive inventory of both Federal and 

non-federal spectrum usage yet such essential exercise has not been done. We also 

still lack a national strategic spectrum plan, which would provide a long-term vision 

for domestic spectrum use and strategies to meet those needs. 

We should also take additional steps to modernize our Nation’s radio spectrum 

planning, management, and coordination activities through better collaboration between the FCC and NTIA, fostering greater technical innovation, as well as promoting more investment in infrastructure. Such multi-faceted approach will ensure 

the long-term health of the spectrum ecosystem, that innovation can continue to 

flourish, and consumers will be able to continue to reap the amazing benefit of all 

types of wireless communications. 

Question 2. Do you believe more should be done to reform spectrum policy in order 

to freeing up spectrum to meet the growing demand for wireless broadband and mobile and nomadic viewing of online video? If so, what specific recommendations do 

you have to making more spectrum available? 

Answer. Given the growing demand for video and data applications over wireless 

connections more must be done to ensure that consumers are able to have meaningful wireless broadband connectivity. That means making sure more radio spectrum 

is made available for wireless broadband connectivity. It will be important for policymakers to ensure that (1) there are sufficient amounts of spectrum available in 

the TV bands for unlicensed use; and (2) underutilized spectrum, especially spectrum below 3 GHz, is made available for additional dynamic spectrum access. Making unlicensed spectrum available in the TV bands ensures that the first sharing 

technologies involving databases are able to emerge and are available to facilitate 

sharing in other bands. In addition, unlicensed TV band spectrum is expected to 

provide opportunities similar to that of Wi-Fi except those opportunities will be 

greatly enhanced given the propagation characteristics of the band. As NTIA and 

the FCC are doing in the 1755–1850 MHz band, it is important that both entities 

work together to identify additional sharing opportunities below 3 GHz leveraging 

dynamic access sharing techniques and cognitive radios as well as database and 

sensing technologies. Also, the Commission should continue promoting secondary 

markets use by licensees and other spectrum users. 

In order to better understand the potential sharing opportunities, Microsoft has 

established spectrum observatories in DC as well as in Redmond and Seattle. 

Through our observatory, we are recording the amount of spectrum used in a given 

spectrum band at those locations. More information on our observatory can be found 

at http://spectrum-observatory.cloudapp.net/ and anyone will be able to access and 

leverage our results. 

Question 3. How important is unlicensed spectrum to users that watch online 

video via their smartphone or tablet? 

63 

Answer. It is very important. We know that video traffic is increasing on mobile 

networks and that tablets increasingly leverage Wi-Fi networks as a means of 

broadband connectivity. This year, video traffic represented a half of all data traffic 

on mobile networks and NetworkWorld indicated that it represents as much as 69 

percent of the traffic on some mobile networks. Last year, Commscore found that 

in October 2011, more than 40 percent of U.S. digital traffic coming from mobile 

phones occurred over Wi-Fi connections and projections suggest that 90 percent of 

tablets in use are Wi-Fi only. These statistics demonstrate that Wi-Fi is particularly 

important to consumers seeking broadband connectivity when using a smartphone 

or tablet and consumers are increasingly accessing video content wirelessly. Having 

more unlicensed TV Band spectrum will help to meet this unfolding demand. 

Online Piracy 

While the increase in broadband speeds has brought significant benefit to users, 

it has also made it easier to distribute illegal content. A movie that once took hours 

to download can now be uploaded and transmitted across the Internet in mere seconds. In addition, consumers are increasingly lured to well-designed websites that 

are devoted almost exclusively to unauthorized downloading and streaming of copyrighted content such as music and movies. It is my understanding that more than 

167 million copies of the top 10 most pirated movies on the Internet have been illegally downloaded over the past five years. 

This illegal activity attributes to a significant economic loss to the intellectual 

property community through lost revenue and has an adverse impact on jobs in that 

industry. It can also create congestion on broadband networks and many of these 

illegitimate websites can compromise millions of personal computers through the 

distribution of malware that might be embedded in the illegal content—according 

to McAfee, 12 percent of all known sites that distribute unauthorized content are 

actively distributing malware to users who download content. 

Question 4. Do you have concerns about the growing problem of piracy, primarily 

with online video? In the wake of PIPA & SOPA protests, how can the government 

properly balance its efforts to protect intellectual property but do so in a way that 

doesn’t hinder innovation or free speech? 

Answer. Piracy is a serious issue which threatens jobs and innovation and needs 

to be addressed, but as we made clear in our opposition to the SOPA legislation as 

drafted, any solution must absolutely preserve an open Internet. This is a highly 

complex problem and any legislative solution must avoid unintended consequences. 

Any legislation must include a sufficiently high standard for determining whether 

a site is rogue, so as to truly target the worst of the worst. Moreover, to further 

ensure proper application of new remedies, rights holders should be required to 

produce sufficient evidence of a site’s wrongdoing so that decisions of the courts are 

well-founded and not based on mere notice pleading. Efforts to develop a robust solution to this real problem should continue so that legislation targeting the truly 

rogue sites without harm to the Internet can be achieved. 

Æ