DIGITAL CONTENT AND ENABLING 

TECHNOLOGY: SATISFYING THE 

21ST CENTURY CONSUMER 

HEARING 

BEFORE THE 

SUBCOMMITTEE ON COMMERCE, TRADE, 

AND CONSUMER PROTECTION 

OF THE 

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED NINTH CONGRESS 

SECOND SESSION 

MARCH 29 AND MAY 3, 2006 

Serial No. 109-90 

Printed for the use of the Committee on Energy and Commerce 

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

U.S. GOVERNMENT PRINTING OFFICE 

WASHINGTON : 2006 

For sale by the Superintendent of Documents, U.S. Government Printing Office 

Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 

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29-352PDF 
COMMITTEE ON ENERGY AND COMMERCE 

JOE BARTON, Texas, Chairman 

RALPH M. HALL, Texas 

MICHAEL BILIRAKIS, Florida 

 Vice Chairman 

FRED UPTON, Michigan 

CLIFF STEARNS, Florida 

PAUL E. GILLMOR, Ohio 

NATHAN DEAL, Georgia 

ED WHITFIELD, Kentucky 

CHARLIE NORWOOD, Georgia 

BARBARA CUBIN, Wyoming 

JOHN SHIMKUS, Illinois 

HEATHER WILSON, New Mexico 

JOHN B. SHADEGG, Arizona 

CHARLES W. “CHIP” PICKERING, Mississippi 

 Vice Chairman

VITO FOSSELLA, New York 

ROY BLUNT, Missouri

STEVE BUYER, Indiana 

GEORGE RADANOVICH, California 

CHARLES F. BASS, New Hampshire 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

C.L. “BUTCH” OTTER, Idaho 

SUE MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

JOHN D. DINGELL, Michigan 

 Ranking Member 

HENRY A. WAXMAN, California 

EDWARD J. MARKEY, Massachusetts 

RICK BOUCHER, Virginia 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

SHERROD BROWN, Ohio 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

ELIOT L. ENGEL, New York 

ALBERT R. WYNN, Maryland 

GENE GREEN, Texas 

TED STRICKLAND, Ohio 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MIKE DOYLE, Pennsylvania 

TOM ALLEN, Maine 

JIM DAVIS, Florida 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

BUD ALBRIGHT, Staff Director 

DAVID CAVICKE, General Counsel

REID P. F. STUNTZ, Minority Staff Director and Chief Counsel

SUBCOMMITTEE ON COMMERCE, TRADE, AND CONSUMER PROTECTION 

CLIFF STEARNS, Florida, Chairman 

FRED UPTON, Michigan 

NATHAN DEAL, Georgia 

BARBARA CUBIN, Wyoming 

GEORGE RADANOVICH, California 

CHARLES F. BASS, New Hampshire 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO, California 

LEE TERRY, Nebraska 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

C.L. “BUTCH” OTTER, Idaho 

SUE MYRICK, North Carolina 

TIM MURPHY, Pennsylvania 

MARSHA BLACKBURN, Tennessee 

JOE BARTON, Texas 

 (EX OFFICIO)

JAN SCHAKOWSKY, Illinois 

 Ranking Member 

MIKE ROSS, Arkansas 

EDWARD J. MARKEY, Massachusetts 

EDOLPHUS TOWNS, New York 

SHERROD BROWN, Ohio 

BOBBY L. RUSH, Illinois 

GENE GREEN, Texas 

TED STRICKLAND, Ohio 

DIANA DEGETTE, Colorado 

JIM DAVIS, Florida 

CHARLES A. GONZALEZ, Texas 

TAMMY BALDWIN, Wisconsin 

JOHN D. DINGELL, Michigan 

 (EX OFFICIO) 

(II)
CONTENTS 

Page 

Hearings held: 

March 29, 2006.................................................................................................................... 1 

May 3, 2006......................................................................................................................... 62 

Testimony of: 

Krikorian, Blake, Chief Executive Officer, Sling Media ................................................... 18 

Feehery, John, Executive Vice President, External Affairs, Motion Picture Association 

of America...................................................................................................................... 31 

Denney, Jim, Vice President for Product Marketing, TiVo, Inc. ....................................... 36 

Mitchell, Stevan, Vice President of Intellectual Property Policy, Entertainment 

Software Association ..................................................................................................... 43 

Parsons, Gary, Chairman of the Board, XM Satellite Radio.............................................. 67 

Ostroff, Michael, General Counsel and Executive Vice President, Business and Legal 

Affairs, Universal Music Group..................................................................................... 75 

Halyburton, Dan, Senior Vice President and General Manager, Group Operations, 

Susquehanna Radio, on behalf of the National Association of Broadcasters .............. 80 

Regan, Robert J., President of the Board, Nashville Songwriters Association 

International.................................................................................................................... 87 

Lawrence, Jeffery T., Director, Digital Home and Content Policy, Intel Corporation ..... 89 

Additional material submitted for the record: 

Parsons, Gary, Chairman of the Board, XM Satellite Radio, response for the record....... 116 

Ostroff, Michael, General Counsel and Executive Vice President, Business and Legal 

Affairs, Universal Music Group, response for the record ............................................. 118 

Halyburton, Dan, Senior Vice President and General Manager, Group Operations, 

Susquehanna Radio, on behalf of the National Association of Broadcasters, 

response for the record ................................................................................................... 119 

Lawrence, Jeffery T., Director, Digital Home and Content Policy, Intel Corporation, 

response for the record ................................................................................................... 121 

Parsons, Gary, Chairman of the Board, XM Satellite Radio, submission for the record... 122 

The American Society of Composers, Authors and Publishers, prepared statement of..... 131 

(III) 

(1) 

DIGITAL CONTENT AND ENABLING 

TECHNOLOGY: SATISFYING THE 21ST

CENTURY CONSUMER 

WEDNESDAY, MARCH 29, 2006 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON ENERGY AND COMMERCE, 

SUBCOMMITTEE ON COMMERCE, TRADE,

AND CONSUMER PROTECTION, 

Washington, DC. 

The subcommittee met, pursuant to notice, at 1:05 p.m., in Room 

2123 of the Rayburn House Office Building, Hon. Cliff Stearns 

[chairman] presiding. 

 Members present: Representatives Stearns, Radanovich, Bass, Terry, 

Ferguson, Otter, Barton [ex officio], Schakowsky, Towns, DeGette, 

Gonzalez, and Baldwin. 

 Staff present: David Cavicke, General Counsel; Chris Leahy, Policy 

Coordinator; Will Carty, Professional Staff Member; Billy Harvard, 

Legislative Clerk; Jonathon Cordone, Minority Counsel; David Vogel, 

Minority Research Assistant; and Chris Treanor, Minority Staff 

Assistant. 

MR. STEARNS. Good afternoon. In today’s digital world, movies, 

music, and software travels at light speed to any user in any corner of the 

world with the technology to receive and utilize digital material, whether 

it is web-based, satellite, or an old-fashioned DVD. The law, however, 

clearly does not move at the speed of light and historically has struggled 

to keep up with the constant evolution of technology. Creative digital 

content and the slick, innovative enabling technology that makes it 

accessible for the consumer has begun an incredible evolution over the 

past few years. Powered by better electronics, faster chips, and the 

widespread deployment of broadband, today’s digital technology 

hardware amazes us with its ability to quickly provide consumers with 

exactly what they want, when they want it, wherever they may be. It 

seems like almost any type of digital content--movies, music, games--is 

available via download or through some new and ingenious means of 

distribution that makes it more accessible, convenient, and portable for 

the consumer. 

 The other side of the slick and virtually seamless distribution of 

digital material is the content itself. A $300 iPod is a $300 piece of shiny 
2

plastic and metal without the music and video content that makes it 

worth the investment. In addition, these new means of distribution and 

digital technology push the creativity of those desiring compensation for 

their creative endeavors and investment. Maintaining the incentives to 

produce creative works in a market teeming with seamless technology 

and inexpensive ways to distribute copies of digital content continues to 

be an issue for the content community and is one that is at the heart of 

the ongoing struggle between these two great American industries. 

Content is obviously the major driver for many of these slick gizmos, but 

the consumer electronics industry also believes its slick gizmos are 

opening up consumers to new forms of content, just look at Pod-casting 

and streaming. 

 I don’t think a chicken or the egg analysis about what drives what 

will get us very far in this case, but is clear that the American content and 

consumer electronics industries are indeed interdependent, and therefore, 

have a stake in each other’s success. The key issue to put it in base terms 

is to ensure that everyone is getting paid and getting paid fairly. My 

colleagues, more specifically the challenge is to ensure the legal 

framework that bounds the market, including over-the-air, web-based, 

and satellite programs, allows the consumer electronics industry the 

freedom to engineer even more innovative distribution devices and 

methods while maintaining incentives for the content industry to create 

material consumers want to watch and listen to with all their fancy 

hardware. 

 Today’s hearing is the first part of a two-part series on the future of 

digital content and the consumer electronics industry and what lies in 

store for the consumer. I think taking a look at some of the more 

innovative content and device stakeholders to better understand where 

they see their industry moving in the future will help us, as legislators, 

here in the committee. It will give us some perspective on how we can 

help these industries remain the best in the world and a very important 

engine for the American economy and for American jobs. Todays panel 

represents the video side to the content and consumer electronics 

industry. Our second part of this hearing series will be focused on the 

audio and software side of this sector. The basic question I have for all 

the witnesses is how they see the way content delivery via devices that 

can run on several platforms, like cable, Internet, and satellite, affecting 

the distribution of audio, video and software media to the ultimate judge 

with the wallet, the consumer. In addition, I would like to hear more 

about the challenges, both in the domestic market and internationally, 

that both industries face as they work to serve and satisfy their 

consumers. 
3

 As all of you know, the subcommittee has held a number of hearings 

focused on the issue of fair use and digital rights management, DRM, 

technology and we continue to be engaged on these issues. My 

colleagues, this subcommittee also remains concerned that both 

counterfeiting and piracy remain critical problems for both the consumer 

electronics and content industries, and believes that strong enforcement 

of intellectual property rights in our trade agreements is critical to 

fighting those problems. This series of hearings will be very helpful in 

getting us a broader understanding of the business of entertaining 

consumers from the supply and distribution side so that, in the end, the 

demand component of the equation, the American consumer, will 

continue to benefit and fuel the tremendous growth and innovation in 

these two great American industries. 

 Obviously, I would like to welcome the panel today and I look 

forward to the testimony, and with that, the Ranking Member, Ms. 

Schakowsky, is welcomed. 

 [The prepared statement of Hon. Cliff Stearns follows:] 

PREPARED STATEMENT OF THE HON. CLIFF STEARNS, CHAIRMAN, SUBCOMMITTEE ON 

COMMERCE, TRADE, AND CONSUMER PROTECTION

Good afternoon. In today’s digital world, movies, music, and software travels at 

light speed to any user in any corner of the world with the technology to receive and 

utilize digital material, whether it is web-based, satellite, or an old-fashioned DVD. The 

law, however, clearly does not move at speed of light and historically has struggled to 

keep up with the constant evolution of technology. Creative digital content and the slick, 

innovative enabling technology that makes it accessible for the consumer has begun an 

incredible evolution over the past few years. Powered by better electronics, faster chips, 

and the widespread deployment of broadband, today’s digital technology hardware 

amazes us with its ability to quickly provide consumers exactly what they want, when 

they want it, wherever they may be. It seems like almost any type digital content - 

movies, music, games - is available via download or through some new and ingenious 

means of distribution that makes it more accessible, convenient, and portable for the 

consumer. 

The other side of the slick and virtually seamless distribution of digital material is 

the content itself. A three hundred dollar iPod is a three hundred dollar piece of shinny 

plastic and metal without the music and video content that makes it worth the investment. 

In addition, these new means of distribution and digital technology push the creativity of 

those desiring compensation for their creative endeavors and investment. Maintaining 

the incentives to produce creative works in a market teeming with seamless technology 

and inexpensive ways to distribute copies of digital content continues to be an issue for 

the content community and is one that is at the heart of the ongoing struggle between 

these two great American industries. Content is obviously the major driver for many 

these slick gizmos but the consumer electronics industry also believes its slick gizmos are 

opening up consumers to new forms of content, just look at “Pod-casting” and 

“streaming.” 

I don’t think a chicken or the egg analysis about what drives what will get us very 

far, but it is clear that the great American content and consumer electronics industries are 

indeed interdependent, and therefore have a stake in each other’s success. The key issue, 
4

to put it in base terms, is to ensure that everyone is getting paid - and getting paid fairly. 

 More specifically, the challenge is to ensure the legal framework that bounds the 

market - including over-the air, web-based, satellite platforms - allows the consumer 

electronics industry the freedom to engineer even more innovative distribution devices 

and methods while maintaining incentives for the content industries to create material 

consumers want to watch and listen to with all that fancy hardware. 

Today’s hearing is the first part of a two part series on the future of the digital 

content and consumer electronics industries and what lies in store for the consumer. I 

think taking a look at some of the more innovative content and device stakeholders to 

better understand where they see their industries moving in the future will help give the 

Committee some perspective on how we can help these industries remain the best in the 

world and a very important engine of the American economy. Today’s panel represents 

the video side of the content and consumer electronics industries. Our second part of this 

hearing series will be focused on the audio and software side of this sector. The basic 

question I have for all the witnesses is how they see the way content delivery - via 

devices that can run on several platforms (like cable, Internet, and satellite) - affecting the 

distribution of audio, video and software media to the ultimate judge with the wallet – the 

consumer. In addition, I would like to hear more about the challenges, both in the 

domestic market and internationally, that both industries face as they work to serve and 

satisfy their customers. 

As you all know, the Subcommittee has held a number of hearings focused on the 

issue of “fair use” and digital rights management (DRM) technology and we continue to 

be engaged in these issues. The Subcommittee also remains concerned that both 

counterfeiting and piracy remain critical problems for both the consumer electronics and 

content industries and believes that stronger enforcement of intellectual property rights in 

our trade agreements is critical to fighting those problems. This series of hearings will be 

very helpful in giving us a broader understanding of the business of entertaining 

consumers from the supply and distribution side so that, in the end, the demand 

component of the equation - the American consumer - will continue to benefit and fuel 

the tremendous growth and innovation in these two great American industries. 

Again, I would like to welcome the panel before us today. We look forward to your 

testimony 

Thank you. 

 MS. SCHAKOWSKY. Thank you, Mr. Chairman, and let me apologize 

for being a bit late. I was caught in a motorcade coming back from lunch 

honoring Ranking Member Dingell. So I thank you for holding today’s 

hearing on how digitized content has affected copyright and the 

consumer experience. 

 Technological innovations open the door to novel means of hearing 

your favorite singer, in my case, Aretha Franklin, or watching a movie 

on a portable device. However, the digitization of books, music, and 

movies, in tandem with the ability to transmit that information over the 

Internet, has also necessitated the updating of laws that have either been 

rendered ineffective or become too stifling because of technological 

advances. I look forward to today’s witnesses about how the new 

platforms for distributing content in digital formats affect artists, 

consumers, researchers, libraries, and the creative industries, including 

technology developers. 
5

 With the passage of the DMCA in 1998, which was before I came to 

Congress, my colleagues made a significant attempt to contend with the 

new challenges that digital capabilities introduced to copyright law. The 

DMCA was meant to stop copyright infringement on new digital 

mediums. Unfortunately, by trying to predict where the technology 

would take us, the DMCA was drafted with broad strokes that many 

argue went too far concerning the fair use provisions of the copyright 

law. DMCA has been abused by those who want to squelch competition 

in areas wholly unrelated to copyright. For example, manufacturers of 

garage door openers have used the DMCA to try and prevent their 

competitors from developing alternative and cheaper models. 

Remember, these competitors are not infringing on copyrights or 

violating any patents. They are simply trying to provide a better product 

at a better price. 

 There is no denying that copyrights need to be protected and artists 

need to be compensated for their work. However, I am concerned when 

a law makes consumers and artists enemies, when fans and innovators 

are considered criminals, when companies can use the DMCA to prevent 

new products from coming to the market, and when libraries may have to 

limit or charge for services they traditionally have provided for free. 

 Since we began these hearings two years ago, I have been talking 

with artists’ groups, consumer groups, technology developers, and I truly 

believe that we can work together to craft a remedy to the problems at 

hand. We need to find a balance between the rights of the consumers 

and the rights of the artists and we need to do that without hurting other 

industries. 

 I am hoping that today’s hearing will help us understand better how 

consumers and technological developers have been able to work with 

artists and content providers in innovating within the DMCA. I believe 

we are in the midst of a paradigm shift on how we think about 

commerce, art distribution, and traditional consumer protections. It is 

our responsibility as lawmakers to make sure that all voices are here in 

this debate and that the proper regulations are put in place. I am glad we 

are here today with so many people who are affected by the DMCA and 

are interested in fair use. I look forward to your testimony and 

demonstrations. Thank you, Mr. Chairman. 

 [The prepared statement of Hon. Jan Schakowsky follows:] 

PREPARED STATEMENT OF THE HON. JAN SCHAKOWSKY, A REPRESENTATIVE IN CONGRESS 

FROM THE STATE OF ILLINOIS

Thank you, Chairman Stearns, for holding today’s hearing on how the digitized 

content has affected copyright and the consumer experience. Technological innovations 

opened the door to novel means of hearing your favorite singer, like Aretha Franklin in 

my case, or watching a movie on a portable device. However, the digitization of books, 
6

music, and movies, in tandem with the ability to transmit that information over the 

Internet, has also necessitated the updating of laws that have either been rendered 

ineffective or become too stifling because of technological advances. I look forward to 

hearing from today’s witnesses about how the new platforms for distributing content in 

digital formats affect artists, consumers, researchers, libraries, and the creative industries, 

including technology developers. 

With the passage of the DMCA in 1998, (before I came to Congress), my colleagues 

made a significant attempt to contend with the new challenges that digital capabilities 

introduced to copyright law. The DMCA was meant to stop copyright infringement on 

new digital mediums. Unfortunately, by trying to predict where the technology would 

take us, the DMCA was drafted with broad strokes that many argue went too far 

concerning the Fair Use provisions of the copyright law. DMCA has been abused by 

those who want to squelch competition in areas wholly unrelated to copyright. For 

example, manufacturers of garage door openers have used the DMCA to try to prevent 

their competitors from developing alternative and cheaper models. Remember, these 

competitors are not infringing on copyrights or violating any patents; they are simply 

trying to provide a better product at a better price. 

There is no denying that copyrights need to be protected and artists need to be 

compensated for their work. However, I am concerned when a law makes consumers and 

artists enemies, when fans and innovators are considered criminals, when companies can 

use the DMCA to prevent new products from coming to the market, and when libraries 

may have to limit or charge for services they traditionally have provided for free. 

Since we began these hearings two years ago, I have been talking with artists’ 

groups, consumer groups, and technology developers, and I truly believe that we can 

work together to craft a remedy to the problems at hand. We need to find a balance 

between the rights of the consumers and the rights of the artists. And we need to do that 

without hurting other industries. 

I am hoping that today’s hearing will help us understand better how consumers and 

technological developers have been able to work with artists and content providers in 

innovating within the DMCA. 

I believe we are in the midst of a paradigm shift on how we think about commerce, 

art distribution, and traditional consumer protections. It is our responsibility as 

lawmakers to make sure that all voices are heard in this debate and that the proper 

regulations are put in place. I am glad we are here today with so many people who are 

affected by the DMCA and are interested in fair use. I look forward to your testimony 

and demonstrations. 

 MR. STEARNS. Mr. Ferguson? 

 MR. FERGUSON. Thank you, Mr. Chairman. Let me first express my 

appreciation to you and the Ranking Member for putting this hearing 

together. This subcommittee can serve an important role in this 

particular area, shining a light on exciting new technologies and 

examining how to effectively protect digital content and ultimately 

ensure that consumers get access to new products in a quick and reliable 

and a responsible fashion. The pace at which digital content is reaching 

our constituents is at an all time high. With each passing day, it seems 

there is something new for consumers to enjoy on devices that are 

becoming more and more user friendly. 

 We have the ubiquitous and wildly popular iPods, its video version 

allowing consumers to download their favorite shows and watch them on 
7

a metro on the way home. Our cell phones are increasingly becoming a 

favorite device for watching and listening to content, and more legal 

downloads of motion pictures, TV shows, and music are available on our 

home computers than ever before. Why do consumers have so many 

options? What facilitated such a rich market of content available on 

demand? I will tell you one thing: it wasn’t through piracy; it wasn’t 

through Grokster; it wasn’t through Kazaa; and it was certainly not 

through the circumvention of copy protection technology. It was through 

industry and technology companies working together, entering into 

licensing agreements for legal distribution of content, creative products 

that owners not only should, but must be compensated for. 

 By protecting creative content, you encourage innovation and in turn, 

increase options for the consumer. The theory that loosening protections 

for digital content is somehow pro-consumer is not only seriously 

flawed, it is misguided, and it is one that I roundly reject. The 

proliferation of piracy and the ease with which digital content can be 

misappropriated has made it more difficult than ever to protect 

copyrights against massive infringement. To ensure that these exciting 

products continue to flow to consumers, intellectual property needs to be 

protected. There must be a balance. The content and tech industries 

must continue to work together to achieve these goals. It is not only in 

their best interest, more importantly, it is in the consumers, our 

constituents’, best interest as well. I look forward to hearing from our 

witnesses and I thank you, Mr. Chairman. I yield back. 

 [The prepared statement of Hon. Mike Ferguson follows:] 

PREPARED STATEMENT OF THE HON. MIKE FERGUSON, A REPRESENTATIVE IN CONGRESS 

FROM THE STATE OF NEW JERSEY

Let me first express my appreciation to Chairman Stearns for holding this hearing. 

This subcommittee can serve an important role in this area, shining a light on exciting 

new technologies, examining how to effectively protect digital content , and ultimately, 

ensuring that consumers get access to new products in a quick, reliable – and responsible 

– fashion. 

The pace at which digital content is reaching our constituents is at an all time high. 

With each passing day, it seems there’s something new for consumers to enjoy, on 

devices that are becoming more and more user friendly. 

We have the ubiquitous and wildly popular Ipod, its video version allowing 

consumers to download their favorite shows and watch them on the metro on the way 

home. Our cell phones are increasingly becoming a favored device for watching and 

listening to content. And more legal downloads of motion pictures, tv shows, and music 

are available on our home computers than ever before. 

Why do consumers have so many options? What facilitated such a rich market of 

content available on demand? I’ll tell you one thing, is wasn’t through piracy. It wasn’t 

though Grokster, it wasn’t through Kazaa, and it was certainly not through the 

circumvention of copy protection technology. 
8

It was through industry and technology companies working together, entering into 

licensing agreements for legal distribution of content, creative product that owners not 

only should, but must be compensated for. By protecting creative content, you encourage 

innovation and in turn increase options for the consumer. The theory that loosening 

protections for digital content is somehow pro-consumer is not only seriously-flawed, it’s 

misguided, and its one I roundly reject. 

The proliferation of piracy and the ease with which digital content can be 

misappropriated has made it more difficult than ever before to protect copyrights against 

massive infringement. To ensure that these exciting products continue to flow to 

consumers, intellectual property needs be protected. There must be a balance. 

The content and tech industries must continue to work together to achieve these 

goals. It’s not only in their best interest. more importantly, it’s in the consumers – our 

constituents’ – best interest. I look forward to hearing our witnesses. Thank you Mr. 

Chairman. 

 MR. STEARNS. Ms. Baldwin. 

 MS. BALDWIN. Thank you, Mr. Chairman. I am delighted that we 

are having this hearing today to continue the ongoing dialogue regarding 

the need to balance digital rights management technology with the 

concept of fair use. As we know, the analog to digital transition in the 

telecommunications arena has presented great opportunities, but also 

challenges to the U.S. copyright industry. Specifically, the capabilities 

of digital technology have in some instances facilitated copyright 

infringements, such as elicit peer-to-peer traffic in movies and music. It 

is therefore crucial for the copyright industries to invest and develop 

secure content delivery systems through advancements in digital rights 

management technologies. It would benefit not only consumers, but also 

rights owners. 

 I am delighted to see the participation of both TiVo and Sling Media 

in this panel. TiVo’s digital video recorder allows a consumer to timeshift entertainment programs through the recording of a broadcast TV 

program; while Sling Media’s Slingbox place-shifts television programs 

from television sets at the home to just about any location on any device 

with a broadband Internet connection. We are living in an exciting age 

where rapid advancements in digital technology have led to a 

proliferation of innovative entertainment products, and both TiVo and 

Sling Media perfectly illustrate that. 

 I look forward to hearing their testimony and learning more about 

their efforts to balance the delivery of content and the protection of 

intellectual property rights. Finally, as we move ahead to a broader 

system of legal but competing digital rights management technologies 

for different products by different companies, we should pay close 

attention to how rival DRM standards could stifle innovation and 

economic growth, as well as create inconveniences for consumers. 

 While I am confident that market forces will eventually resolve 

interoperability issues caused by DRM licensing, I hope technology 
9

companies and content providers will work together to expeditiously 

create more uniform ways of protecting copyrighted digital content. I 

look forward to all of your testimony. Thank you for being here. Thank 

you, Mr. Chairman. 

 [The prepared statement of Hon. Tammy Baldwin follows:] 

PREPARED STATEMENT OF THE HON. TAMMY BALDWIN, A REPRESENTATIVE IN CONGRESS 

FROM THE STATE OF WISCONSIN

Thank you Mr. Chairman. I am glad that we are having this hearing today to 

continue our ongoing dialogue regarding the need to balance digital rights management 

(DRM) technology with the concept of fair use. 

As we know the analog-to-digital transition in the telecommunications arena has 

presented great opportunities but also challenges to the U.S. copyright industry. 

Specifically, the capabilities of digital technology have in some instances facilitated 

copyright infringements, such as illicit peer-to-peer traffic in movies and music. It is 

therefore crucial for the copyright industries to invest and develop secure content delivery 

systems through advancements in DRM technology that would benefit not only 

consumers, but also rights owners. 

I am delighted to see the participation of both TiVo and Sling Media in this panel. 

TiVo’s digital video recorder allows a consumer to “timeshift” entertainment programs 

through the recording of a broadcast TV program, which Sling Media’s Sling Box 

“placeshifts” television programs from television sets at home to just about any location 

on any device with a broadband internet connection. We are living in an exciting age 

where rapid advancements in digital technology has led to a proliferation of innovative 

entertainment products, and both TiVo and Sling Media perfectly illustrate that. I look 

forward to their testimonies and learning more about their efforts at balancing the 

delivery of content and the protection of intellectual property rights. 

Finally, as we move ahead to a broader system of legal, but competing DRMs for 

different products by different companies, we should pay close attention to how rival 

DRM standards could stifle innovation and economic growth, as well as create 

inconveniences for consumers. While I am confident market forces will eventually 

resolve inter-operability issues caused by DRM licensing, I hope technology companies 

and content providers will work together to expeditiously create more uniform ways of 

protecting copyrighted digital content. 

I look forward to the testimonies and thank you Mr. Chairman. 

 MR. STEARNS. Mr. Gonzalez. 

 MR. GONZALEZ. Thank you very much, Mr. Chairman, and I 

appreciate your calling this hearing and hearing from the witnesses 

today, and I apologize if I have to leave a little early. I am going to be 

really brief. I am one that really believes that certain legal precepts and 

principles have served this republic well for time immemorial, and I 

believe that they can be adjusted to accommodate modern technology. I 

don’t see that technology is the problem, but it really should be part of 

the solution. When we say proprietary rights, I was part of a panel last 

week or the week before, South by Southwest in Austin, regarding 

content and regarding the writers, the artists, and the producers being 

rewarded justly and fairly for their creations and such, and yet we 
10

understand that technology moves forward, and it makes things easier. 

There are easier ways to infringe and such. But I really believe that we 

can get in here and recognize all of the stakeholders’ interests in this. 

But again, the guiding light for all of us should be what has allowed this 

country and its free enterprise system and its capital system to thrive, and 

it has been the regulatory system, rich in principles, in legal principles of 

proprietary rights, and somehow we do need to reconcile that. So I look 

forward to your testimony today. Thank you, Mr. Chairman. 

 MR. STEARNS. Mr. Towns. 

 MR. TOWNS. Thank you very much, Mr. Chairman, and of course 

Ranking Member Schakowsky for having this hearing today. I am 

pleased to see the video game industry represented here today, as it 

continues to provide consumers with innovative technology and 

products. With that said, I would like to stress that the protections in the 

DMCA have helped companies bring their products and intellectual 

property to the market, and we should do our best to preserve the stream 

of commerce. 

 America’s content companies continue to entertain and amaze all of 

us, and the movie industry at large has aggressively and innovatively 

embraced the digital marketplace. Movie and television studios are not 

holding back their content, as some would have you to believe, but rather 

are exercising due diligence and caution and not licensing a business 

model that exacerbates piracy. Consumers want new products and recent 

movies in their hands as quickly as possible. We must be extremely 

careful when reviewing the protections and guidelines that govern the 

distribution of content. I feel that the entertainment industry has made 

great strides, and I cite Mr. Feehery’s testimony in that regard. He looks 

at a number of recent digital content deals cut by motion picture 

companies to distribute their work online on IPTV Services for the iPod 

and peer-to-peer services. And through innovative uses of the airwaves, 

these efforts, I believe, are steps in the right direction. 

 I was intrigued by Denney’s testimony, in which he cites century old 

examples of one or another content industry’s opposing various new 

technologies. However, it appears to me that a look at more recent 

history shows the movie industry has embraced and driven the adoption 

of the DVD player and other consumer electronic devices. Therefore, I 

look forward to Mr. Denney’s comments here today and hearing his 

rationale. 

 Finally, I would like to quickly mention that the video industry is not 

alone in fighting piracy and in need of protection. We must be just as 

diligent in coming to the aid of those who operate the audio realm, as our 

music artists are also under siege from rampant piracy and improper file 

sharing. I look forward to the second session of this two-part hearing, 
11

Mr. Chairman, where we will concentrate on audio protections in greater 

detail. So on that note, I yield back and again, thank you and the 

Ranking Member for holding this hearing today. Thank you. 

 [The prepared statement of Hon. Edolphus Towns:] 

PREPARED STATEMENT OF THE HON. EDOLPHUS TOWNS, A REPRESENTATIVE IN CONGRESS 

FROM THE STATE OF NEW YORK

Thank you, Mr. Chairman for holding this timely hearing. I’m again pleased to 

see the video game industry represented here today, as it continues to provide consumers 

with innovative technology and products. That said, I’d like to stress that the protections 

in the DMCA have helped companies bring their products and intellectual property to 

market, and we should do our best to preserve their stream of commerce. America’s 

content companies continue to entertain and amaze all of us, and the movie industry at 

large has aggressively and innovatively embraced the digital marketplace. Movie and 

television studios are not “holding back” their content, as some would have you believe,

but rather are exercising due diligence and caution in not licensing a business model that 

exacerbates piracy.

In an age when consumers want new products and recent movies in their hands as 

quickly as possible, we must be extremely careful when reviewing the protections and 

guidelines that govern the distribution of content. I feel that the entertainment industry 

has made great strides, and I cite Mr. Feehery’s (“FEARIE”) testimony in that regard. He 

lists a number of recent digital content deals cut by motion picture companies to 

distribute their works online, on IPTV services, for the i-Pod, on peer-to-peer services, 

and through innovative uses of the air waves. These efforts, I believe, are steps in the 

right direction. I was intrigued by Mr. Denney’s testimony, in which he cites century-old 

examples of one or another content industry opposing various new technologies. 

However, it appears to me that a look at more recent history shows the movie industry 

has embraced and driven the adoption of the DVD player and other consumer electronic 

devices. Therefore, I look forward to Mr. Denney’s comments here today and hearing his 

rationale.

Finally, I would like to quickly mention that the video industry is not alone in 

fighting piracy and in need of protection. We must be just as diligent in coming to the 

aid of those who operate in the audio realm, as our music artists are also under siege from 

rampant piracy and improper file sharing. I look forward to the second session of this 

two-part hearing, when we will concentrate on audio protections in greater detail.

Thank you, Mr. Chairman. I yield back the balance of my time. 

[Additional statements submitted for the record follow:]

PREPARED STATEMENT OF THE HON. JOE BARTON, CHAIRMAN, COMMITTEE ON ENERGY 

AND COMMERCE

Good afternoon. Thank you, Chairman Stearns, for holding this hearing. I 

understand that this is the first day of a two-part hearing, and I am glad that we are 

exploring the issues surrounding digital media and its distribution; specifically the 

intersection of the content and the consumer electronics industries. 

Some have said that the content industries have been slow to adapt to the “anytime, 

anywhere” world of entertainment. At the same time, the consumer electronics industry 

has exploded with new devices and new platforms to distribute digital entertainment. 

The content creators are afraid of widespread piracy in the digital world, and 

understandably so. The digital world has made the transfer of large files fairly easy. At 
12

its worst, the digital age offers a thieves market where the products are stolen and both 

the sellers and the buyers are crooks. The sellers always know what they’re doing, but 

the buyers rarely do. Accordingly, the industry has worked hard to educate consumers 

about illegal conduct, and has indeed prosecuted many bad actors. But in their 

enthusiasm for protecting their copyrights, some have said that consumers’ long-standing 

and legal rights of fair use actually promote illegal behavior. 

Consumers have reacted strongly to new limitations on their rights imposed by 

technological constraints. While some of this technology has been largely benign, some 

has obstructed consumers’ legitimate use and enjoyment. And shockingly, in one 

instance, software that was supposed to help protect copyrighted material actually ended 

up actually spying on the people who bought it. This is absolutely unacceptable. 

Although the history of this debate may suggest otherwise, my hope is that these 

groups can work together to determine the appropriate technological protection for 

content without curtailing consumers’ rights. It remains illegal to circumvent 

technological content protections, even if you are not ultimately infringing on a 

copyright. That’s not right. People are liable for infringement, but should not be called 

criminals for exercising their recognized rights, for making legal use of their legally 

acquired music or movies. I hope to hear today about the future of digital rights 

management in that context. 

The content and consumer electronics businesses are two of the great American 

success stories. In this new world of media distribution, they not only can benefit each 

other, but depend on one another. The device makers can sell more new and innovative 

machines as long as there is an abundance of easily acquired content. And similarly, the 

content creators can sell more original movies, music, and other media as long as there 

are new tools with which to enjoy them—new tools that consumers want and expect. 

These tools and the content created for them must work together in a way that does 

limit consumers’ rights. 

I want to thank Mr. Boucher for attending this hearing today. He has done 

important work on these issues. While he is not on the subcommittee, I want to welcome 

him and commend him for his leadership. This is not a hearing on Congressman 

Boucher’s “fair use bill”, which I support. Later, this subcommittee may start talking 

about legislation, but today’s hearing is intended to give us a fresh look at the 

environment. I hope we learn some things today and in the second day of hearings that 

will help us come up with a new way to address the dilemmas before us. 

Thank you, Mr. Chairman. I am anxious to continue the Committee’s involvement 

on these important issues, and I look forward to the second day of this hearing as well. 

I yield back the balance of my time. 

PREPARED STATEMENT OF THE HON. MARY BONO, A REPRESENTATIVE IN CONGRESS FROM 

THE STATE OF CALIFORNIA

Mr. Chairman, thank you for holding this hearing today. 

We live in one of the most exciting times in history when it comes to the 

advancement of technology for personal use. The challenge is how to continue to nurture 

new technology while at the same time, protecting the very content these devices deliver 

to us. 

We have learned what can happen when industry is slow to adapt to the new 

environment. At first, the music industry didn’t know what to make of these new 

technologies and how best to use them to deliver their content. This was their burden, not 

the government’s. But after struggling, this industry has found a way to embrace these 

advances in technology. Apple’s iTunes and other online music stores deliver high 

quality music to consumers while protecting intellectual property rights. I have always 

maintained that the “enter” key is the entertainment sector’s best asset. 
13

In fact, recently Universal Pictures announced that like Warner Brothers, it would 

start a pilot project in Europe to debut digitally downloaded movies. Universal’s first 

“download to own” movie service will include a DVD as well as two digital downloads 

for the PC or laptop. If the U.S. ensures strong content protection, I am certain we will 

see this service in our own country soon. 

Now that the entertainment industry has met its burden to adapt and embrace new 

technologies, Congress must be careful to not only undermine the rights of copyright 

holders, but also those who depend on the industry – from grips to caterers to sound 

technicians and thousands of others. We need to protect the content if we are to hope for 

advancement in technology or otherwise, technology will not have anything to deliver. 

Mr. Chairman, I am a great proponent of technology. I own several iPods, a DVR 

and most recently a Slingbox, to mention only a few devices. But as an advocate for 

copyright holders, I believe the U.S. must take the lead in protecting intellectual property 

rights if we are to realize the full potential of the marriage between entertainment and 

technology. 

Again, thank you Mr. Chairman for holding this hearing. I look forward to hearing 

from the witnesses today. 

PREPARED STATEMENT OF THE HON. C.L. “BUTCH” OTTER, A REPRESENTATIVE IN 

CONGRESS FROM THE STATE OF IDAHO

Thank you for holding this hearing today, Mr. Chairman. We spend a lot of time 

debating fair use, and most people in this room know how strongly I feel about this issue 

and the larger issue of protecting property rights. However, if we are ever going to get 

this right we must continually go back to the industry and take a look at what they are 

doing. Today’s hearing offers us the chance to do that. 

I have had the opportunity to take a look at some of the stuff that the consumer 

electronics industry has created over the past few years, and I am continually astounded 

by what they come up with and how they allow us to enjoy the creative genius of 

musicians, movie makers, and others. And the more I see of these products, the more 

convinced I am that the industry, on both sides of the issue, is far more capable of 

responding to the growing concern with fair use and copyright protection than is the 

government. 

Both the past and the present make it clear to me that government involvement in 

this issue only impedes innovation for both sides of this issue. For example, about 

twenty years ago we had a similar debate when a new technology called the VCR hit the 

market. At first the implications of this new technology seemed devastating for the 

industry. But then a marvelous thing happened: rather than allow government 

regulations to harm both industry and consumer, the industry responded to consumers’ 

desire to see films at home and became innovative, thus building an economic empire in 

the video rental and retail industry as a result. Everybody won. 

While there are certainly differences in today’s debate over fair use, I believe one 

principle is the same: Consumer demand, not governmental regulation should lead 

industry response. 

It seems to me that the entertainment industry again has an opportunity to work with 

the software and device manufacturers to develop and sell products that meet consumer 

demand. Protecting intellectual property investments is the key element in achieving 

cooperation. Without these protections, all of these industries will ultimately suffer. 

Today’s hearing is an important part of ensuring that we promote good policies that 

do not stifle investment and innovation. I look forward to hearing from the witnesses and 

again thank the Chairman for the opportunity to step back and hear from the industry on 

this issue. 
14

PREPARED STATEMENT OF THE HON. JOSEPH R. PITTS, A REPRESENTATIVE IN CONGRESS 

FROM THE STATE OF PENNSYLVANIA

Mr. Chairman, I would like to thank you for convening this hearing today on this 

timely issue. 

As we all know, for the last several years, we have witnessed significant growth in 

the Internet. In fact, the Internet connects more than 407 million host computers in 214 

countries. 

Through the World Wide Web, one can view pictures, listen to music, or see 

movies. Users communicate and exchange information freely without burdensome 

regulations and fees. 

Aside from the Internet, innovations in other enabling technology continue at a rapid 

pace, as does consumer demand for this technology and for the content that can be played 

and stored on devices. iPod and TiVo are perfect examples of enabling technology that 

have taken the consumer world by storm, and have allowed consumers to enjoy 

unprecedented access to their favorite music, movies, and TV shows. 

iPod and TiVo decision-makers have struck the proper balance in respecting 

copyrights, discouraging piracy, and providing consumers with a variety of choices at 

affordable prices. 

It is my hope that this hearing is a step toward ensuring that content and consumer 

electronics businesses will continue to work together to provide a legitimate marketplace 

that will encourage innovation and advances in technology, respect copyrights, foster 

creativity among artists, and provide increased choices and greater convenience for 

consumers. 

Thank you, Mr. Chairman, and I yield back my time. 

 MR. STEARNS. I thank my colleague. We welcome the panel, Mr. 

Blake Krikorian, Chief Executive Officer of Sling Media in San Mateo, 

California; Mr. John Feehery, Executive VP, External Affairs, Motion 

Picture Association of America; Mr. Jim Denney, Vice President for 

Product Marketing, TiVo; and Mr. Stevan Mitchell, Vice President of IP 

Policy, Entertainment Software Association. We welcome your opening 

statements. Mr. Krikorian, you are first. And just put the mike closer to 

you and turn it on. It has an on/off switch. 

 MR. KRIKORIAN. Yes, I am a techie, so-- 

 MR. STEARNS. Okay. All right. 

 MR. KRIKORIAN. --this is a little too complicated for me, but I got it, 

I got it. 

STATEMENTS OF MR. BLAKE KRIKORIAN, CHIEF 

EXECUTIVE OFFICER, SLING MEDIA; JOHN FEEHERY, 

EXECUTIVE VICE PRESIDENT, EXTERNAL AFFAIRS, 

MOTION PICTURE ASSOCIATION OF AMERICA; JIM 

DENNEY, VICE PRESIDENT FOR PRODUCT 

MARKETING, TIVO, INC.; AND STEVAN MITCHELL, 

VICE PRESIDENT OF IP POLICY, ENTERTAINMENT 

SOFTWARE ASSOCIATION 
15

MR. KRIKORIAN. Thank you. Thanks for the opportunity, 

subcommittee. This is really an exciting thing for me. In fact, it is really 

interesting, but I have been in the digital convergence world for, oh, 

about 15 years, for lack of a better term. We don’t know what we call 

ourselves. And about two years ago, I was spending some time with one 

of the co-founders of Excite, Joe Krause, who has been pretty passionate 

about some of these issues. He saw some of the products that we had 

been incubating in our previous company and he was urging us to get our 

rear ends out here to D.C. to start to show you all some of the things that 

we are working on to try to bring some of this in real context instead of 

us always sitting around in these rooms talking about it from a theoretical 

perspective. Because it is very, very difficult to understand how certain 

legislation could affect products that don’t yet exist. And so it is funny, 

two and a half years later, I am sitting here today. 

 So what I wanted to do is a couple things here. I am going to 

actually throw up a live demonstration to give you an idea of the product. 

But let me first start by saying, one thing that is very exciting for us in 

the United States is I believe that we are on the verge of a renaissance for 

consumer electronics companies that were based and founded in the 

United States to actually thrive again. With the exception of a company 

like Palmer or a company like a TiVo, it is really about once a decade we 

see consumer electronics companies come to life in the United States and 

we stand here today as a company who has been around now for about 

two years. Hopefully, we still have a long runway ahead of it. When we 

started this company, Sling Media, we viewed ourselves as a new kind of 

consumer products company, and most investors looked at us as really 

insane, thinking that we can’t possibly sell a product that is a hardware 

product at retail. That is for the mega corporations and for the Chinese 

and the Japanese. And yet, what we believed was that these new types of 

products are a very tight blending of hardware and software and services 

and user interface and content, and that is where the U.S. is strong. And 

so we are able to apply quite a bit of our software expertise and know 

how, which, again, the U.S. still leads in actually creating these new 

products that are really software. It is not in a box of cardboard, but 

software that is in a box of silicon. So I am pretty excited about that and 

hopefully there will be more and more startups like us that come about. 

 So one of the things I want to introduce to you is this notion of 

placeshifting as we go into the demo. If we can switch over to the PC. I 

know it is highly unusual for people to throw up a PowerPoint on here, 

but I will keep it very, very brief. One of the things, just to set the 

context, is I talked from a consumer, because this is how the product and 

the company actually was born, but most of you already know this, but 

from a calibration perspective, I will just spend a minute on it. People 
16

love their television, but more and more, as we know, they want it on 

their terms. And the product that the DVR and TiVo popularized, really 

delivered on, this notion that the VCR had promised early on, which is 

the ability to time-shift, the ability to watch my TV when I want it. But 

now, us as consumers, we are finding ourselves more and more spending 

time in front of displays other than the living room television. We are 

spending time in front of our laptops, our desktops at work, our mobile 

phones, and so forth, and in fact, if you look to the television industry, 

this has actually started to hurt them, in terms of ratings that have 

continually plummeted. But as consumers, we are spending more time in 

front of these other displays and more time outside of that living room. 

 And so what we believe is this notion of placeshifting is the next 

major evolution in television viewing. And what does it do? It greatly 

increases the number of displays, that I can watch my familiar television, 

which is the key word here, but also greatly increases the number of 

places that I can watch my familiar television as well. And in some ways 

you can actually say that overnight we have doubled or tripled the 

number of television sets on the planet by turning every single display 

into a living room television. So quite simply, the Slingbox, which is 

this small box that you can buy now at Best Buy, CompUSA, over 3,000 

stores nationwide, is $200, $249 retail. Basically take your television 

signal, put this in your home, take your basic cable, take your TiVo, take 

your satellite box, really over 5,000 different devices, plug your TV 

signal in, connect it to your home network, and then wherever you 

happen to be, you can watch and control your living room TV just like 

you were sitting on the couch. 

 Now the way this came about was actually out of sheer consumer 

frustration. My brother and I had a firm before we started Sling, and we 

were born in the Bay area. We are big San Francisco Giants fans, 

unfortunately, and the Boston Red Sox. Now they have one so they can’t 

gripe as much as us now. We are moving up the totem pole. But it was 

the summer of 2002 when the Giants were heading to the playoffs and 

my brother and I, as entrepreneurs, found ourselves working like dogs, 

sitting in the office, late at night, and also traveling quite a bit, and we 

just wanted to watch our home team. And we looked around and we 

couldn’t find a way to do it, even though there was an offering on the 

Internet that promised to deliver me all my games. You know, albeit, it 

was another monthly fee. I was willing to pay that extra monthly fee. 

But then I went to watch my Giants, and I am sitting in San Mateo, 

literally two miles from my house, and the Giants didn’t come on. 

 I thought to myself, well, what is going on here? And I went down 

and I read the legal fine print at the very bottom of the screen and it says, 

oh, I am sorry, you get all the games except for your local team, which 
17

they black out. And I am scratching my head and kind of wondering, 

well, wait a second. What is going on here? I have been traveling and 

there was some of that happening back home and I wanted to understand 

what was going on, and I was thinking to myself, you know what? If I 

could only watch my television back in my house, I have all these 

channels, all this programming that I love and know. I have a broadband 

connection in and out of my home. I am spending more time in front of 

all these other displays. Why can’t I just basically create these big 

binoculars so I can look into my house and watch my TV and control it? 

And that is really how the Slingbox was born. So really, it is about your 

living room TV wherever you want. 

 Now one thing that probably hasn’t happened in one of these 

subcommittees, at least I would imagine, is I am showing you a few 

goofy videos of just how I use it as a consumer. 

[Video.] 

 MR. KRIKORIAN. One of the ways that I end up using the Slingbox, I 

am sitting here at home. I never thought I would use it in the living 

room. But I am sitting here babysitting my daughter who is watching 

this Barbie Rapunzel thing for 50 times, and I start singing the songs at 

work, and I am about to go crazy. So that is her hogging the whole 

couch and everything. And so I was able to watch my football game at 

the same time while she was watching her DVD. 

[Video.] 

 MR. KRIKORIAN. You know, another goofy one, of course, is I am 

sitting in my house, in the hot tub doing a little bit of work, and I have 

my dog looking at me and wondering what the heck is going on and I am 

watching in the corner. While I am going, I am watching a little bit of 

sports. Then, of course for most of you have traveled, the boundaries for 

this are limitless anywhere I have a broadband connection. 

[Video.] 

 MR. KRIKORIAN. And then the last one, and this is a horrendous one, 

but some of the dads might understand. I had to go to a Beauty and the 

Beast play and well, fortunately, we had just worked on our mobile 

client. 

[Video.] 

 MR. KRIKORIAN. So I was able to watch the football game while I 

am sitting in the play. I did it only for a little bit. So the one problem 

was my daughter was elbowing me because daddy’s face was-- 

 MS. SCHAKOWSKY. I draw the line. Come on. 

 MR. KRIKORIAN. I know. I am sorry. This is not about good 

parenting today. So one of the things that I wanted to just give you is a 

very quick demo of how this works. I have a laptop that was provided to 

me from some members of the staff here and I just loaded on a little 
18

client, the little SlingPlayer, and what I did is then I added, and I will 

actually even show you here in a second. Each Slingbox has a unique 

identifier, and it is this gosh awful ID that you can never memorize, and 

a password. And what I do is I enter my ID and my password and then 

anywhere I am in the world, I can connect and watch my living room 

TV. So, here I am just going to go ahead and say watch, and what is 

going to happen, without even knowing my IP address or anything else, I 

am going to connect back into my home in San Mateo. 

[Video.] 

 MR. KRIKORIAN. So this is my television right now live at home, so 

I can go ahead and do anything that I could normally. And if you notice, 

here is a Comcast remote. Before, you saw on the video I had a TiVo 

remote. What our goal is, is to take this and turn this into your familiar 

experience, right down to the remote control. So if I want to go to 

Channel 5 as an example, I have some favorites I can add, I can go 

ahead and I can change the channel to five, watch a little Price is Right. I 

can go to CNN. Whatever it is that I can do from my living room couch, 

I could be in China right now. What we see quite a bit is people not just 

using it at home, but people using it at work as well, where here, people 

have CNN or CSPAN or CNBC going on in the day and they dock it 

over on the side so they can be working on their documents. 

 So one of the things that I wanted to highlight here, and I can show 

you after, if we have time, is I can actually watch it on my phone now, as 

well. But to summarize, the one thing I wanted to point is that this is not 

a mass piracy machine. We have actually taken voluntary steps to ensure 

that this is not P to P, but this is actually me to me. And so right now, if 

my wife, for example, tried to connect to my Slingbox back home, she 

would not be able to do so because I am watching it. It only allows one 

stream at a time, as an example. So I would like to conclude that, but 

again, thank you very much. I just want to watch my living room TV 

wherever I happen to be. Thank you. 

 [The prepared statement of Mr. Krikorian follows:] 

PREPARED STATEMENT OF BLAKE KRIKORIAN, CHIEF EXECUTIVE OFFICER, SLING MEDIA

Chairman Stearns, Ranking Member Schakowsky, and other members of the 

Subcommittee, thank you for the opportunity to appear today. My name is Blake 

Krikorian, and I am co-founder and CEO of Sling Media, a privately held company based 

in San Mateo, CA. 

I am here to speak to you both as a consumer and as an entrepreneur. My brother 

Jason and I started prototyping our first product, the “Slingbox”, in the summer of 2002. 

We poured much of our life’s savings into this idea, and fortunately, in October 2004 we 

were able to raise our first round of venture financing. 

Since then, our company closed a subsequent round of financing in January 2006. 

Our investors include a number of America’s top companies and capital firms, such as 

Allen & Company, Doll Capital Management, EchoStar Communications, Goldman 
19

Sachs, Hearst Corporation, Liberty Media, Mobius Venture Capital, and Texas 

Instruments. 

The initial launch of the Slingbox was in July 2005. It was available on day one 

nationwide at Best Buy and CompUSA. This nationwide launch was an unprecedented 

feat for a new product coming from a new U.S.-based consumer electronics company. 

The Slingbox is currently available at over 3,000 stores throughout the US. It retails 

at $249 and does not require any additional monthly fees or subscriptions. Needless to 

say, after years of development, we are thrilled to bring our product to the American 

public. 

Sling was inspired by our love of the San Francisco Giants. Back in 2002, Giants 

were poised to make the playoffs for the first time in years. My brother Jason and I are 

diehard fans, and the Giants playoff run had us simultaneously thrilled and very 

frustrated. As young entrepreneurs we spent our lives in the office, on airplanes, and in 

hotel rooms – in short, everywhere but in front of our living room TVs watching our 

favorite team. 

In desperation, we tried various commercial products, but quickly realized that there 

was no way we could do want we wanted – simply watch our own TV while in another 

location. Our frustration led us to develop the Slingbox. 

While the VCR and digital video recorder, such as a TiVo, allows a consumer to 

“timeshift” – record a TV program for viewing at a more convenient time – the Slingbox 

adds a new dimension to TV viewing, which we call “placeshifting”. 

Quite simply, the Slingbox placeshifts your living room TV, thereby empowering 

you to watch your TV from virtually any location and on any device. For a real life 

scenario, I am actually sitting in my kitchen as I type this testimony on my wireless 

laptop and at the same time, watching my living room TV in a small window on my 

laptop display. In this case, the Slingbox in my living room is placeshifting my local 

news from my cable box to my laptop in the kitchen. 

We have found that consumers use the Slingbox to placeshift their living room TV 

to other rooms in their home, to their desktop computer at the office, and even to their 

laptop computers and mobile phones while on the road or anywhere in the world they 

have broadband Internet connection. 

Personally, I have been as far away as a hotel room in China and watching my 

favorite TV shows back home. I have even been on a WiFi-equipped commercial airliner 

at 40,000 feet above the Atlantic and able to placeshift the baseball playoffs from my 

living room to my seat in 37C! 

Most of the time, however; I find myself using my Slingbox on my desktop PC at 

the office, typically tuned into the local or national news throughout the day. 

To respect the rights of content holders, we have taken voluntary steps to ensure the 

Slingbox is a personal-use system. The Slingbox will only placeshift to one device at a 

time, meaning that multiple parties cannot consume the content simultaneously. 

Moreover, each Slingbox has a 32-bit unique ID, password protection, and encrypted 

messaging between the Slingbox and the client device. 

The Slingbox does not make a copy, or allow indiscriminate redistribution over the 

internet. It simply takes the TV programming that you have already bought and paid for, 

and “slings” it somewhere else. Rather than “P to P”, the Slingbox enables “me to me”. 

Beyond the applications that I have described, I am delighted that Americans are 

developing new and unanticipated ways to use the Slingbox’s placeshifting technology. 

For example, Disney is using Slingboxes in their movie post-production process by 

enabling workers to remotely view daily filming from virtually anywhere. A Dairy Queen 

franchisee has installed Slingboxes in several of his restaurants for remote security and 

surveillance purposes. Comcast has deployed dozens (if not hundreds) of Slingboxes 

around the country to monitor remote ad servers. 
20

Even our local firefighters are exploring ways to use the Slingbox to placeshift the 

local news helicopter video feed from the fire station to a mobile phone at the scene of 

the fire, thereby providing the firefighting crew with an overhead view. 

And of course, our technology allows members of Congress to set up their Slingbox 

in their district office, and watch their local news live from their computer in the Rayburn 

Building. 

We are pleased that the Slingbox has been eagerly embraced by consumers. In 

addition to empowering tens of thousands of Americans to enjoy their local TV 

programming beyond the confines of the living room, the Slingbox has been recognized 

by many leading popular publications. TIME Magazine named the Slingbox one of the 

Best Inventions of 2005. Popular Mechanics acknowledged the Slingbox as one of its 

Breakthrough products for 2005. Fortune Magazine named Sling Media one of the 25 

Breakout Companies of 2005. In addition, Business Week named the Slingbox one of the 

Best Products of 2005. 

Thank you for allowing me to introduce the Slingbox and the notion of 

placeshifting. I look forward to giving the Committee a personal demonstration of 

Slingbox technology. 

APPENDIX 

Recent Press Coverage 

Video: 

CSPAN interview (aired March 25, 2006) (RealPlayer required): 

rtsp://video.c-span.org/project/de/com032506_krikorian.rm 

Print: 

Select articles attached below. 

Please see www.slingmedia.com/news for a more complete set of coverage. 

Slingbox Video Streaming Not Perfect, but Remarkable

Washington Post 

By Rob Pegoraro  Thursday, March 23, 2006; D05 

I watched television while I walked to the Metro on Tuesday morning -- and during 

my trip through the subway, then at my desk at the office. My TV set was a Treo 700w 

“smart phone,” my antenna was the phone’s wireless data connection, and the broadcast 

came from a small silver rectangle parked next to the TV in my living room. 

This experience had a lot in common with the first days of video on the Internet, 

complete with irritating dropouts. But getting a full spread of satellite-TV channels on the 

screen of a phone was a sufficiently remarkable feat that I could overlook those flaws. 

The technology behind this feat came from Sling Media Inc., a San Mateo, Calif., 

start-up. Its $250 Slingbox debuted last year, allowing users to stream any video source -- 

over-the-air TV, cable, satellite, DVD, whatever -- to a broadband-connected computer 

running Sling’s software. 

The Slingbox did that reasonably well and generated an impressive level of hype in 

the process, but it also required some finicky configuration and hit one nagging relevancy 

issue: How often are you within reach of broadband Internet but not TV? 

Since then, Sling has fine-tuned its setup software, and today it’s introducing the 

ability to stream video to a Windows Mobile handheld organizer with a broadband 

Internet connection -- either WiFi or the wireless carriers’ data services. 
21

This new feature both extends the reach and utility of Sling’s product and helpfully 

expands the ongoing debate over television’s future. 

Installing a Slingbox took far less work than last year. I didn’t have to turn off my 

computer’s firewall (Sling’s software requires Windows 2000 or XP, with a Mac OS X 

version due by midyear) or restart the candy-bar-shaped Slingbox over and over. The 

only real hassle was the wiring: audio and video cables to a satellite-TV receiver, an “IR 

emitter” to send commands to that box’s remote-control sensor, and an Ethernet cable to 

link the Slingbox to a wireless router. 

(A WiFi receiver and digital-television tuner built into Slingbox could immensely 

simplify things.) 

After identifying the satellite receiver in the Sling program and adjusting a security 

setting on my wireless network with the help of clear directions on Sling’s Web site, the 

setup concluded with my installing SlingPlayer Mobile -- a beta release that will cost $30 

for people who buy a Slingbox after April 26 -- on the Treo. 

And so I found myself watching a spring-training baseball game on the Metro. Later 

on, I watched a handful of other live programs, plus a couple of recorded shows stored on 

the satellite box’s hard drive. 

Sling’s mobile software can function even on such slow data links as the 50 to 70 

kilobits per second of Verizon’s NationalAccess, at the cost of awful image quality 

(players in that baseball game looked like the faceless characters of an early-1990s video 

game) and frequent dropouts. 

But with the 200 to 300 kbps of Verizon’s BroadbandAccess, Sling-relayed TV 

looked a lot more like TV, aside from hard-to-read text in news tickers. 

Like its desktop counterpart, Sling’s mobile software lets you control the video by 

selecting buttons in an onscreen remote control; the lag between selecting a command 

and seeing its effects seemed longer on the Treo, however. 

With all of its trying moments -- say, when the Verizon broadband would 

mysteriously shrivel away to 30 or 40 kbps -- Sling video also looks pretty good 

compared with other options for on-the-go TV watching. 

Unlike Apple’s iTunes downloads or the mobile-video services of wireless carriers, 

Sling doesn’t require you to pay for each show or cough up a subscription fee. Unlike 

video recordings transferred from a Media Center PC, it doesn’t require running 

complicated software before syncing large files over to your handheld. 

On the other hand, networks, broadcasters and cable or satellite operators don’t 

make anything extra off the Slingbox either. Some people in those businesses seem 

uneasy about the way the Slingbox gives customers so much more control over their TV 

viewing. 

Like that’s a bad thing. 

Living with technology, or trying to? E-mail Rob Pegoraro atrob@twp.com.

© 2006 The Washington Post Company 

TV Here, There, Everywhere 

New York Times 

By David Pogue, March 23, 2006

IN the olden days, Americans gathered in front of the television sets in their living 

rooms to watch designated shows at designated times. You had a choice of three 

channels, and if you missed the broadcast, you’d feel like an idiot at the water cooler the 

next day. Quaint, huh? 

Then came the VCR, which spared you the requirement of being there on time. Then 

cable TV, which blew open your channel choices. Then TiVo, which eliminated the 
22

necessity of even knowing when or where a show was to be broadcast. What’s next — 

eliminating the TV altogether? 

Well, sure. Last year, a strange-looking gadget called the Slingbox ($250) began 

offering that possibility. It’s designed to let you, a traveler on the road, watch what’s on 

TV back at your house, or what’s been recorded by a video recorder like a TiVo. The 

requirements are high-speed Internet connections at both ends, a home network and a 

Windows computer — usually a laptop — to watch on. (A Mac version is due by 

midyear.) 

Today is another milestone in society’s great march toward anytime, anywhere TV. 

Starting today, Slingbox owners can install new player software on Windows Mobile 

palmtops and cellphones, thereby eliminating even the laptop requirement. 

On cellphones with high-speed Internet connections, the requirement of a wireless 

Internet hot spot goes away, too. Now you can watch your home TV anywhere you can 

make phone calls — a statement that’s never appeared in print before today (at least not 

accurately). 

Now, if you don’t travel much, and even if you do, your reaction to this statement 

may well be, “So?” 

Sure enough, the Slingbox has always been intended to fill certain niches. It’s for 

people with a fancy satellite receiver downstairs in the living room, but who want to 

watch upstairs in bed before retiring. It’s for the hotel-room prisoner who wants to watch 

a movie on a TiVo at home, having realized that it’s cheaper to pay $10 for a night of 

high-speed Internet than $13.95 for an in-room movie. It’s for the traveler who wants to 

keep up with his hometown news while away. 

And if you have friends who can’t see the big game because of a local broadcast 

blackout — really, really good friends — you could even let them download the free 

Slingbox player software and watch your local broadcast, though the Slingbox folks don’t 

endorse this last use. 

Now that all of this is available for cellphone viewing — with no monthly fee — 

well, the mind boggles. 

THE Slingbox itself is truly eccentric-looking. Picture three squares of chocolate 

broken off a Nestlé bar, cast in silver and blown up to 10.6 by 1.6 by 4 inches. (“It’s 

supposed to be an ingot,” a spokesman corrected me.) 

For most people, setting it up is a 15-minute prospect, according to the company. An 

Ethernet cable connects the Slingbox to the router on your home network. (Wireless 

networks aren’t fast enough to handle the Slingbox’s video reliably. If there’s no Ethernet 

jack handy, Sling will sell you a $100 Powerline adapter, which you plug into an 

electrical socket; it makes the electrical wiring of your house part of your network.) 

Another cable connects a spare video recorder or TV output to the Slingbox itself. It 

has inputs for RCA and S-video cables; you can switch between sources from the road. A 

third cable is designed to control the channel-changing and other functions of your 

recorder or cable box; it terminates with two so-called infrared blasters, which are meant 

to be taped in front of the infrared “eyes” of your TV equipment. 

But suppose you’re not most people. Suppose you’re a newspaper reviewer with bad 

karma and a router that Slingbox doesn’t recognize. In that case, setting up a Slingbox 

can be a more time-consuming ordeal. Anyone still puzzling over the phrase “the router 

on your home network” might be in trouble, too. 

Once the setup is done, though, and once you’ve installed the necessary software, 

your PC’s speakers burst to life — and there, on your computer screen, is whatever’s on 

TV right now. By clicking a photographic on-screen representation of your actual remote 

control, you can change channels, see what’s available to play on your TiVo, pause or 

rewind, or even tell the TiVo to record something. All of this works equally well at home 

(across the network) and on the road (across the Internet), although your components at 

home take a couple of seconds to respond. 
23

(Unless you’ve bought a cable splitter, changing what’s on the TV screen from the 

road also changes it at home, which could alarm anyone who happens to be watching TV 

in person at the time.) 

The sound is excellent — and at home, viewed across your home network, so is the 

standard-definition video. Viewed away from home, the video is only O.K. There are 

blotchy patches here and there, not to mention periodic temporary freeze-ups; all of it 

depends on the Internet connection speeds at both ends. The video resembles a VCR 

recording, which is still perfectly fine for talk shows, reality shows, game shows and 

movies where sweeping visuals and special effects aren’t the main attractions. 

Once that’s all running, you can embark on the next adventure: tuning into your 

Slingbox from a palmtop or cellphone. This task involves downloading and running 

another installer from slingmedia.com — free to Slingbox owners until April 26, and a 

one-time $30 payment thereafter. 

At that point, you can use tiny tappable on-screen controls to tune in to your home 

TV and video recorder, and control all their functions, just as you can with a laptop. The 

Slingbox can direct its video to only one gizmo at a time, however; you can’t watch on 

your cellphone while someone else is using a laptop. 

Once again, all you need is high-speed Internet access. For PocketPC palmtops (like 

the HP iPAQ and Dell Axim), that usually means finding a Wi-Fi hot spot in a hotel, 

airport or coffee shop. Life is even easier if you have a cellphone with a $60-a-month 

high-speed cellular data plan like Verizon’s EV-DO network (Palm Treo 700w, Samsung 

i730, and so on); in that case, you can tune in from anywhere in the 100 major cities with 

coverage. You can kill time watching your own TV while in cabs, friends’ houses and the 

line at the Department of Motor Vehicles. 

The mobile Slingbox player also works over Bluetooth or U.S.B. connections to the 

Internet, meaning that you could watch on your palmtop over an Internet signal provided 

by a nearby laptop. But that’s sort of pointless — if you have a laptop, why not watch 

your TV on it and enjoy the much bigger screen? 

On the small screen, the video once again has perfectly adequate VHS quality. If the 

Internet connection is very slow — for example, if your cellphone is outside those 100 

cities covered by EV-DO — you can opt for “slide-show mode” (one frame of video a 

second, accompanied by full audio). 

On the pocket player, Sling Media has yet to fashion photographic remote-control 

replicas for all 5,000 different TV components offered by the laptop version. Still, the 

most important buttons are all available as generic rectangles; they appear when you tap 

the right “soft key” on your palmtop or phone. Keyboard shortcuts are available for most 

functions, too: to control a TiVo from the Treo’s thumb keyboard, for example, you can 

press R for record, P for play, F for fast-forward. 

The Slingbox isn’t the only video-to-go option, of course. TiVoToGo, the iPod TV 

store and Archos pocket players all let you carry TV shows and movies on your travels 

— but only if you record material and transfer it before the trip. Orb (orb.com) is free and 

also works with some cellphones, but gets its video from a PC with a TV tuner card, not 

from your actual TV and video recorder. And, of course, your cellphone company will be 

happy to sell you short TV shows — a canned selection of their choosing, not yours — if 

you’re willing to pay a monthly fee and watch exclusively on your phone (not your 

laptop). 

The Slingbox and its simple, satisfying new cellphone/palmtop player join those 

portable personal-video options. It seems clear that along with traditional TV schedules 

and traditional TV channels, the next victim of high-tech progress may be the traditional 

TV couch. 
24

Take Your Cable Channels With You on the Road 

New York Times 

By KEN BELSON, December 21, 2005 

In 2002, Blake Krikorian and his brother Jason were beside themselves. Their 

beloved San Francisco Giants were in a pennant race, yet Blake and Jason, two Silicon 

Valley engineers, were traveling so much that they missed many of the games on 

television. 

Desperate, they signed up for a service that offered live audio and video of the 

games over the Internet, only to find that subscribers from San Francisco could not watch 

Giants games because of blackout restrictions. 

The idea for Slingbox was born. The Krikorians decided to find a way to let cable 

and satellite television customers watch what was on their home televisions while they 

were on the road. After several years developing the product, their company, Sling 

Media, released its first boxes in July. 

“I was paying $80 a month to Comcast, and I have a broadband pipe in my house 

and all these other displays,” Blake Krikorian said. “So why can’t I just watch the TV 

coming into our house?” 

Just as TiVo and other digital video recorders ushered in the concept of “time 

shifting” a few years ago, the Slingbox promises to make “place shifting” a reality for 

households. By letting consumers connect with their cable or satellite hookups when they 

travel, Slingbox has the potential to splinter further the way television is watched. 

For instance, even people living far from their hometowns could get a Slingbox, 

allowing them to watch their local television in another city or even country. Sling Media 

does not endorse this use of its device for fear of antagonizing cable and satellite 

companies, which may see it as illicit sharing. 

As with music, where many younger consumers are forgoing CD’s in favor of 

downloadable songs, television viewers - with the help of devices like Slingbox - are 

expected to download more and more of their programming when and where they want it. 

“The trend over the past 30 years is towards fragmentation,” said John Mansell, a 

cable industry analyst at Kagan Research. “It makes life a little more complicated” for 

cable and satellite operators and programmers. 

For consumers, however, Slingbox could not be simpler. The size of a shoe, it sells 

for $250 and unlike TiVo does not require a monthly subscription. The box can be 

hooked to a cable set-top box or a digital video recorder, and must be linked to a 

broadband line so the video can be “streamed” to a laptop or other device. Faster 

connection speeds provide better video quality. 

Users install software on laptops that communicates with the Slingbox over a highspeed Internet connection at a hotel or other remote location. (Again, faster connection 

speeds make for better viewing.) Users can watch what is playing live on the cable or 

satellite service at home, or anything stored on a digital video recorder. A virtual remote 

control that appears on the laptop allows users to change channels or play, pause or 

rewind a recorded program. 

For all its convenience, few people are all that interested in watching programming 

intended for full-screen televisions on laptops, especially if connection speeds are slow 

and the picture is jerky. But Mr. Krikorian, who has worked as an engineer in Silicon 

Valley for 15 years, says he has developed a solution called stream-optimization 

technology. 

Through a sophisticated software program, it automatically adjusts the video stream 

to match the quality of the broadband connection. Mr. Krikorian named the technology 

“Lebowski” after his favorite movie, “The Big Lebowski.” 
25

“Our product allows the video to abide by the network conditions at any time,” Mr. 

Krikorian said, paraphrasing the line “the dude abides,” delivered by the film’s star, Jeff 

Bridges. 

The technology is one reason Slingbox already has a cult following among travelers 

like David Garrison who crave a touch of home while on the road. 

Mr. Garrison, the chief executive of iBahn, a company that sells technology to 

hotels, travels to Asia once every three months and is in Europe every six weeks. He 

loves to ski at home in Salt Lake City and can make plans to hit the slopes by watching 

the local news to check the weather conditions in Utah. He also watches University of 

Utah sports teams and programs from the Golf Channel that he records on his TiVo. 

Mr. Garrison says he watches just as much television in hotels as he did before. But 

now he is more likely to watch what interests him rather than flip through the channels on 

the hotel television in search of something appealing. 

“Before I had the Slingbox, I would turn on the TV and do the guy thing and spend 

two seconds on each channel before turning it off,” said Mr. Garrison, who uses a laptop 

with a 12-inch screen, connected to headphones. “Now, I feel like the time is better spent 

than just zoning out in front of the TV.” 

Mr. Garrison said the picture quality on his laptop was adequate and the sound 

quality superb. Laptops that have an S-video output jack can connect to a television for 

better viewing. 

Slingbox is already stocked in almost 4,000 stores, including Best Buy, CompUSA 

and Circuit City. Mr. Krikorian said unit sales were nearing “six figures.” The company 

has lined up financing from Doll Capital Management, Mobius Venture Capital, Hearst 

and Lenovo, the Chinese computer manufacturer. 

There are drawbacks, though. In addition to having to watch programs on a small 

computer screen, Slingbox users may also interfere with their family’s viewing back 

home; in some cases when channels are changed remotely, the television at home moves 

with it, and vice versa. 

For now, video streamed from a Slingbox cannot be viewed on an Apple Macintosh 

computer, though Mr. Krikorian says his company will announce a solution to that 

problem in January. 

And as with TiVo, which has lost market share because cable and satellite set-top 

box makers have developed their own DVR’s, imitators are catching on. Sony, for 

instance, sells LocationFree, a $350 device that connects to a home entertainment system 

and beams television signals to a PC or hand-held device anywhere in the world. Others 

are sure to follow. 

Down the road, programmers, particularly sports teams, may object to Slingbox’s 

ability to sidestep their blackout restrictions. Cable and satellite operators could also 

oppose attempts by their subscribers to use Slingbox to give others free access to their 

programming. 

But Mr. Krikorian sees opportunity in these potential conflicts. He is talking to cable 

companies that could lease Slingboxes to their subscribers, he said, giving them fewer 

reasons to switch to a rival provider and more reasons to buy a faster broadband 

connection. Down the road, Web content, including advertisements, could be linked to 

shows beamed from the Slingbox. 

For now, though, Mr. Krikorian is optimistic that the Slingbox will do for travelers 

what TiVo did for couch potatoes. 

“You should always be concerned about competition,” he said. “But I think we’re in 

a good spot because no one has the technology we have. We’ve got a head start.” 
26

Gadget of the Year – 2005

Jupiter Research 

Michael Gartenberg , December 28, 2005

This one was another really hard category. Lots of interesting things that came to 

market this year. I was looking for something new, different and ground breaking for this 

category. There’s still lots of choices but it came down to one for me. The Slingbox from 

the folks at Slingmedia. 

What’s Good – The Slingbox is amazing. From the unique design and the wonderful 

setup experience, the Slingbox does one thing and does it really well. (For fun, try 

accessing your music and pictures too using the TiVo home media option.) Like all 

groundbreaking devices, it doesn’t fit into some neat category, it creates a whole new one 

(and a new buzzword, place-shifting). For the weary road warrior killing time in an 

airport or sitting in a hotel room in a place far away, the Slingbox brings some of the 

comforts of home to your laptop and soon to other devices. If you travel a lot (or just like 

the idea of accessing your content from anywhere in the world) and you have a good 

broadband connection, you need to get one of these things. At $249, it’s one of the best 

bargains in consumer electronics. 

What’s Missing – Setup is excellent but if you’re working in a slightly funky 

network setup, you’re going to stumble. Sling’s challenge is going to be to keep updated 

with all the new stuff coming to market while increasing support for legacy stuff. It will 

also be nice to see support for more platforms beyond Windows. Smartphone, PocketPC, 

Mac OS and the like are all in the works and hopefully we’ll see them soon. 

Slingbox lets your TV travel with you 

Clever design lets you watch, control your home TV from a PC screen 

MSNBC 

By Gary Krakow, Updated: 1:11 p.m. ET Dec. 21, 2005 

You know a device is ground-breaking when it doesn’t fit into any particular 

category. 

Slingbox might be called a personal video broadcast box. Or a cable TV-overcomputer box. Or a junction box that lets you access your cable, satellite, DVD, or VCR 

from anywhere on the planet. 

This very clever device works by letting you “broadcast” an audio/video signal — 

via your high-speed Internet connection — and watch the result on a PC or laptop. You 

can watch that feed on any computer running the Slingbox software, anywhere in the 

world. 

Slingbox is pretty sophisticated and needs your PC and home computer network to 

be sophisticated as well. Aside from that high-speed Net connection, minimum 

requirements include a PC running Windows XP or 2000 SP4 and an Ethernet connection 

to your router. You can get the full list on the company’s Web site. 

At approximately 10.5 by 4 by 1.5 inches, the Slingbox is nice and compact. You 

can place it anywhere; in my case it rested perfectly on top of the cable TV control box. 

First, you need to connect your Slingbox to your video source, which can be a cable 

TV box, a satellite service, a DVR such as TiVo, a DVD player or even a VCR. Slingbox 

has antenna (good), composite video (better) or S-video (best) inputs for the incoming 

signal. 

Next, you hook Slingbox to your computer network via its Ethernet port. That can 

be tricky if, as in my case, your high-speed networking hub is nowhere near your living 

room TV setup. It would have meant more than 100 feet of Ethernet cable running 

through the living room. You try explaining that to the spouse. 
27

Slingbox has thought of that, fortunately, and there is an easier way. You can 

purchase a separate Netgear 802.11 wireless game adapter and configure it to your home 

network’s wireless settings while it is attached to your computer. Then you unplug it 

from the PC and plug it into the Slingbox. 

The last step is to install the Slingbox control software onto your computer and 

follow the step-by-step, on-screen instructions. During that process, the software assigns 

a 32-digit, alpha-numeric identification tag to your Slingbox. That ID allows any PC 

running the Slingbox software to search for — and find — that box via any Internet 

connection. 

What that means is once you install and configure the software you can control and 

watch your Slingbox anywhere you can access a high-speed Internet connection. That’s 

very cool. The system also allows you to use and choose from multiple Slingboxes 

installed in your home. 

I particularly like the on-screen remote controller. As part of the set-up process, you 

tell the Slingbox software which cable or satellite service you’re using. When you’re 

finished, the Slingbox remote control window on your computer screen acts like the 

actual TV remote control — right down to button placement. 

I have to admit that I was skeptical about Slingbox’s worth until I actually started 

using the system. Now it’s difficult to stop. I find myself keeping a Slingbox screen open 

on my computer desktop all the time — sometimes with the sound muted — and then 

taking advantage of the latest news bulletins, weather, traffic reports and the occasional 

football game or two. (You thought you weren’t getting any work done as it was.) 

One interesting note, regular TV channels produce a larger computer image than 

their high-definition equivalents. That’s because Slingbox lets you watch a 4:3 image on 

your computer, but the 16:9 HD images just look cut-off. 

The bottom line is that Slingbox works exactly as described and is addictive. It 

allows you to watch and listen to TV wherever you are. Video quality is very good 

whether you watch inside or outside your home. I haven’t yet tried it overseas but I plan 

to in the very near future. 

Slingbox is available online and retails for $249.99. They’re currently offering $50 

online discounts as well. It’s a good deal. 

Looking toward the future, it would be great if the Slingbox gurus could extend this 

remote control TV service to mobile phones. I know I would be near the front of the line 

for the software when they accomplish that. 

© 2006 MSNBC Interactive 

© 2006 MSNBC.com 

URL: http://www.msnbc.msn.com/id/10546353/ 

Remote Control 

Never miss a game again while traveling. The new Slingbox sends your home’s TV 

channels to a laptop 

October 3, 2005 

If you’re a traveling sports fan who hates to miss your home team’s games, 

technology has just thrown you a lifeline. The Slingbox, from Sling Media Inc., a tech 

firm in San Mateo, Calif., plugs you into your own living room, enabling you to use your 
28

laptop to watch every television channel that you get on your home TV. Fred from 

Philadelphia can sit in a Tokyo hotel room and watch the Phillies on his computer screen, 

and Harry Kalas’s calls will lose nothing in translation. 

Blake and Jason Krikorian, who along with Bhupen Shah cofounded Sling Media, 

say they were inspired to invent the Slingbox in 2002 when they were traveling often for 

work and had a hard time following the San Francisco Giants, who were in a pennant 

race. They thought, What if it were possible to tap into your home TV signal through the 

Internet? Three years later they’ve made it happen. On a trip to Singapore in May, Blake 

was able to watch the UCLA women’s water polo team -- coached by his brother Adam -

- win an NCAA title because the game was broadcast on CSTV, part of his cable package 

back in California. “I was lying in bed watching it in my hotel room just like I was back 

home,” he says. 

The Slingbox, which costs $250 (no subscription fees), is a brick-sized piece of 

hardware that connects to your home cable or satellite box and works with software that 

you load onto your PC laptop. (A Mac version is in the works.) True, you need to have 

both feet firmly planted in the 21st century to use this device -- your home must have 

broadband and a router, and when accessing your programming, you must also have a 

broadband connection at your remote location. Installation takes between 15 minutes and 

an hour. While the tech-savvy should be able to do it, you can pay someone at CompUSA 

or BestBuy (currently the only brick-and-mortar retail outlets for Slingbox, though more 

are expected) an extra $100 or so to handle the installation. 

Once you get Slingbox installed, it’s easy to operate. You change channels by 

clicking on a remote-control interface on your computer screen. Your home TV need not 

be on. The video quality is not as clear as a TV’s, but it’s not bad. I watched a MetsPhillies game on a public wireless connection in New York City’s Bryant Park, and I 

could make out Tom Glavine’s pitches O.K. But when the Phillies’ David Bell stroked a 

ball into rightfield and the broadcast switched to a wide-angle shot, I could no longer 

follow the ball and had to read the body language of rightfielder Victor Diaz to see that it 

was dropping in for a hit. Text on the screen was clear; I could read the ESPN news crawl 

just fine. 

Improving the picture quality is a big part of the company’s mission. Since the 

commercial release of Slingbox on June 30 it has issued three free software patches to 

make the picture better. But such quibbles aside, it’s a wonder that you can flip through 

the channels on your home TV from anywhere in the wired world. And you can watch 

any programming, not just sports. You can even access your TiVo and watch those stored 

episodes of The Sopranos. Your TV can be as portable as a laptop. 

One potential complication: You are not just watching TV, you are watching your

TV, so if you’re tuning in while on the road and someone at home wants to watch a 

different program, you may be in for a long-distance tug-of-war over the remote. 
29

 MR. STEARNS. Thank you. Mr. Feehery. 

MR. FEEHERY. Thank you, Mr. Chairman. I am the guy that is 

following him. I am John Feehery and I represent the Motion Picture 

Association of America. Our members companies are made up of the 

seven major studios, Fox, Disney, Paramount, Warner Brothers, 

NBC/Universal, Sony Pictures, and MGM. As you can see, these are 

very interesting times in the movie business. Since the Supreme Court 

declared unambiguously, in the Grokster v. MGM decision, that Internet 

business models based on the principle of theft were not legitimate and 

should cease operations, we have seen an incredible burst of creative and 

legal business activity. 

 The market for visual distribution of motion pictures is still very 

young, yet we have already seen the following very important 

developments: feature films are now available for download from all the 

major studios through online services that include Movielink and 

CinemaNow. Disney is offering legal downloads of some of its most 

popular television shows, including Lost and Desperate Housewives for 

the video iPod. NBC/Universal and Viacom followed suit. You can see 

Dora the Explorer, Spongebob Squarepants, and the Daily Show on your 

video iPod. 

 Apple hit the one million download mark within three weeks, and 

today there have been more than 12 million video downloads through 

iTunes and more than 50 TV shows are available. Fox, NBC/Universal, 

Disney, and Viacom have all entered into agreements with Verizon to 

distribute TV and video content through its new FiOS network. Disney 

and Verizon struck a deal to provide episodes of Lost, created 
30

specifically for the V-Cast network. Warner Brothers is partnering with 

AOL to launch the first broadband television network, In2TV. This 

network offers the largest collection of free on-demand TV shows on the 

web, including Welcome Back Cotter, Chico and the Man, Kung Fu, 

Lois and Clark, and Maverick, my personal favorite. NBC/Universal has 

announced the licensed peer-to-peer distribution of some of their films 

and TV shows through Wurldmedia. It also announced an agreement 

with Aeon Digital to make similar content available on demand over the 

Internet. 

 Disney has spun out MovieBeam, a video-on-demand movie service, 

with the help of Cisco, Intel, and others. This service offers the first 

wireless distribution and on-demand access to high definition films in the 

U.S. And Sony released the Universal Media Disc format for its Play 

Station Portable. This specialized format has led to over 350 titles being 

licensed by our movie studios. This explosion in activity, legal activity, 

has happened for a very simple reason: what is bad for the black market 

is very good for the legitimate marketplace. And, Mr. Chairman, what is 

good for the legitimate marketplace is very good for the consumer. It is 

also good for policymakers such as yourselves. It means more tax 

revenues for Federal, State, and local government. It creates jobs. For 

example, the U.S. motion picture industry employs nearly 750,000 

people nationwide. These jobs are not just in California. Increasingly, 

major motion picture productions are created all across the United States, 

including Florida, Mr. Chairman, Texas, Louisiana, New York, and, Ms. 

Ranking Member Schakowsky, my home State of Illinois. And a 

legitimate marketplace encourages even faster digital developments in 

the long run. That in turn means more choices and more convenience to 

consumers. 

 The Grokster decision has provided us with commonsense rules of 

the road that inspire the legitimate marketplace to move forward. The 

Congress should continue down that road by ensuring that content is 

adequately protected as we move ever further into the digital age. Both 

broadcast flag and analog hole legislation will help spur the transition to 

digital television and a robust digital marketplace, rich with more choices 

for consumers. But by weakening copyrights and promoting freeloading, 

we will hurt the legitimate marketplace. Piracy devices that circumvent 

content protection should not be protected in law. The so-called analog 

hole shouldn’t be allowed to persist and slow down the transition to a 

vibrant digital marketplace for audiovisual content. And a mistaken 

understanding of the fair use doctrine that will lead to greater piracy 

shouldn’t be codified in law. 

 All too often, the content industries and the consumer electronics 

industries have been pitted against one another in legislative battles. But 
31

choosing between technology and content, and the content it carries, is 

like choosing between Florida and the sunshine. It doesn’t make any 

sense and it is a false choice. The content and technology industries are 

working together, as I show with the different examples, to provide 

consumers the best and the most entertaining value. 

 Mr. Chairman, it is impossible to predict with any accuracy what is 

going to happen in the future. You can see all of these new 

developments that we knew nothing about three or four years ago. That 

is the nature of a vibrant marketplace. But it is possible to predict that if 

commonsense rules of the road that respect copyrights are established, if 

freeloading is discouraged, and if the marketplace is allowed to work to 

provide consumers the most choices at the best prices, at the end of the 

day, the consumer will win and that is how it should be. Thank you. 

 [The prepared statement of Mr. Feehery follows:] 

PREPARED STATEMENT OF JOHN FEEHERY, EXECUTIVE VICE PRESIDENT, EXTERNAL 

AFFAIRS, MOTION PICTURE ASSOCIATION OF AMERICA

Mr. Chairman, 

Thank you for this opportunity to testify before your Committee today. 

My name is John Feehery, and I am Executive Vice President for External Affairs 

for the Motion Picture Association of America. 

Our member companies are made up of the seven major studios: Fox, Disney, 

Paramount, Warner Bros., NBC/Universal, Sony Pictures and MGM. 

These are interesting times in the movie business. 

Box office receipts were down about eight percent last year. 

No one knows exactly what caused this decline. Perhaps it was the movies 

themselves. Perhaps it was piracy. Perhaps it was the prevalence of home theaters. 

But while the box office may be disappointing, the movie business itself is adapting 

in many exciting and unpredictable ways. 

Since the Supreme Court declared unambiguously in the Grokster v. MGM decision 

that internet business models based on the principle of theft were not legitimate and 

should cease operations, we have seen an incredible burst of creative business activity. 

The market for digital distribution of motion pictures is still very young, yet already 

we have seen: 

 Feature films now available for download from all of the major studios through 

online services that include Movielink and CinemaNow. 

 The video iPod together with the announcement from Disney that it was 

offering legal downloads of some of its most popular television shows, 

including Lost and Desperate Housewives. 

 NBC-Universal and Viacom followed closely thereafter. You can now see 

episodes of popular shows like Dora the Explorer, Spongebob Sqaurepants and 

The Daily Show on your video Ipod. 

 Apple hit the 1 million download mark within three weeks, and today there 

have been more than 12 million video downloads through iTunes and more 

than 50 TV shows are available. 

 Fox, NBC-Universal Disney and Viacom are all entering agreements with 

Verizon to distribute TV and video content through its new FiOS network. 
32

 Reports that Disney has struck a deal with Verizon to provide so called 

episodes of the popular television series “Lost” created specifically for 

distribution to telephones through Verizon’s V-Cast network. 

 Jon Stewart lovers can also get The Daily Show on their Verizon V-Cast 

phones. 

 Warner Bros. partnered with AOL to launch earlier this month the first 

broadband television network—In2TV—that offers the largest collection of 

free on-demand TV shows on the Web, including such Warner Bros. classics as 

“Welcome Back, Kotter”; “Chico and the Man”; “Kung Fu”; “Lois and Clark”; 

and “Maverick.” 

 NBC Universal announcing the licensed peer-to-peer distribution of some of 

their films and TV shows through the Wurldmedia network, as well as an 

agreement with Aeon Digital to make similar content available on-demand over 

the Internet. 

 The announcement of MovieBeam, a video-on-demand movie service spun out 

of Walt Disney Co. with the help of Cisco, Intel and others, which offers the 

first wireless distribution and on-demand access to high-definition films in the 

U.S. 

 Sony’s release of the Universal Media Disc format for its Play Station Portable, 

with movie releases being supported in this specialized format by many of the 

major studios which together have licensed over 350 titles. 

 Announcements by each of the major studios in support of next-generation, 

high-definition DVD formats. 

 MTVNetworks, a division of Viacom, has already launched 4 Internet 

broadband channels—Comedy Central’s The Motherload, Nickelodeon’s 

TurboNick, MTV’s Overdrive, and VH1’s V-Spot, all of which offer 

consumers a rich array of on-demand, interactive content. 

This explosion in activity has happened for a very simple reason: what is bad for the 

black market is very good for legitimate market place. 

And what is good for the legitimate marketplace is good for policy makers such as 

you. 

A legitimate market place means more tax revenues for federal, state and local 

government. 

A legitimate marketplace creates jobs and is good for America’s economy. For 

example, the US Motion Picture Industry employs nearly 750,000 people nation-wide. 

The average motion picture employs 350-500 people (listed in the film’s credits) and 

with larger special effects driven films that number can be in the thousands. 

In short, the motion picture industry means jobs for middle class Americans who 

make, on average, $47,000 per year. 

These jobs are not just in California either. Increasingly, major motion picture 

productions are created all across the United States, including in Florida, Texas, 

Louisiana, New York, and my home state of Illinois. 

When Hollywood goes on location, it not only benefits the people working on the 

movie, but the entire community as well. 

A major motion picture on location contributes up to $200,000 per day to the local 

economy, with people filling gas tanks, using the local dry cleaners, caterers, stores, 

hotels, etc. 

Finally, by encouraging the legitimate marketplace, our entertainment products drive 

demand for improved technologies and broadband services. 

In turn, that means more choices and more convenience for consumers. 

As we move into the digital future, the Congress faces a simple choice. 

It can take steps to help foster a more robust, more creative and more exciting 

marketplace for consumers, content providers and tech manufacturers. 
33

It can enact and enforce laws that respect copyrights, inspire cooperation between 

tech and content, and crack down on freeloaders and pirates. 

The Grokster decision was a good start, by providing us common sense rules of the 

road that inspired the legitimate market place to move forward. 

The Congress should continue down that road by ensuring content is adequately 

protected as we move ever further into the digital age. 

Both broadcast flag and analog hole legislation will help spur the transition to digital 

television and a robust digital marketplace, rich with more choices for consumers. 

But by ignoring copyrights and promoting freeloading, we will hurt the legitimate 

marketplace. 

You shouldn’t protect in law piracy devices that circumvent content protection. 

You shouldn’t permit the so-called analog hole to persist and slow down the 

transition to a vibrant digital marketplace for audiovisual content where DRM 

technologies can function properly. 

You shouldn’t codify in law a mistaken understanding of the fair use doctrine that 

will lead to greater piracy. 

Fair use does not mean that our content is fair game for anyone who wants to take it 

and consume it without paying. 

All too often, the content industries and the consumer electronics industries have 

been pitted against one another in different legislative battles. 

But trying to choose between technology and the content it carries is like trying to 

choose between Florida and Sunshine. 

It is a false choice. The content and technology industries must work together to 

provide customers the best and most entertaining value. 

Mr. Chairman, it is impossible to predict with any accuracy what the future holds. 

That is the nature of a vibrant market place. 

But it is possible to predict that if common sense rules of the road that respect 

copyrights are established, if freeloading is stopped, and the market place is allowed to 

work to provide consumers the most choices at the best prices, at the end of the day, the 

customer will win. 

And that is how it should be. 

Thank you, Mr. Chairman. 

 MR. STEARNS. I thank the gentleman. Mr. Denney. I just need you 

to put the mike on. 

 MR. DENNEY. There we go. 

 MR. STEARNS. Yes. 

MR. DENNEY. Thank you, Mr. Chairman and Ranking Member 

Schakowsky and all the members of the subcommittee. Thanks for 

having me here today. Before I get going, I just want to say, Blake, I feel 

bad for you as a Giants fan, but you should try being a Cubs fan some 

day. That will be even better. 

 TiVo was founded in 1997. We have been working since then to 

bring innovative and compelling new consumer experiences, television 

experiences to consumers. Currently, we have a little above four million 

subscribers. New innovations often challenge existing business interests. 

Live performers resisted the player piano. The recording music industry 

resisted radio. The broadcast industry didn’t like the idea of cable 

television. It was feared that the VCR was going to destroy the movie 
34

and television industries when it first debuted. Innovation, while 

sometimes threatening, is ultimately good for the consumer, the 

innovator, and the content industry. To address what the point is here, 

we are not critiquing current efforts that the industry has, just raising the 

fact that sometimes technology can be threatening. 

 Current law provides a solid base for innovation. It has provided a 

balance between the copyright holders’ rights and innovation that can 

delight consumers and give birth to new markets. The key to this success 

is providing flexibility in allowing the market and the court system to 

determine the reasonable balance between copyright holders’ rights and 

the consumer’s right to enjoy legally acquired content on their own 

terms. The dynamic balancing act has allowed the cycle of innovation to 

continue. 

 A longstanding interpretation of the Copyright Act makes it clear 

that the act was intended to punish bad behavior rather than stifle 

innovation itself. Innovators like TiVo must be free to concentrate on 

developing compelling new ways to enjoy legitimately acquired media. 

Innovation can create business opportunity and benefit the consumer at 

the same time. The TiVo DVR has given users unprecedented flexibility 

in finding and watching television. TiVo provides the ability to pause 

live TV, record each episode of your favorite TV show, find shows that 

are of interest to you. Online scheduling capability ensures that you 

won’t miss your favorite show, even if you forget to record it after you 

left the house. Our new KidZone feature allows parents to create what 

they deem to be a safe environment for their children based on their own 

personal values and interests. 

 None of these innovations would have been possible without the fair 

use provision of the Copyright Act. Consumers must be allowed to make 

personal copies of shows that they want to watch in order to watch them 

when they want to watch them. Much of the innovation of fair use has 

enabled increased consumption of media by consumers and new 

opportunities for content providers. At the time TiVo debuted in the 

market, many in the television industry predicted the demise of adsupported television. The actual result has been that TiVo subscribers 

often watch more television than they did before. Broader audiences are 

able to watch shows that they otherwise would not have watched. 

Educational and informational programming for children is not always 

available when it is convenient for parents or the children. TiVo is 

always working on innovative tools for advertising on the DVR 

environment as well, and working on tools that are attractive to both the 

consumer and the ad and content industry at the same time. 

 Finally, TiVo is a strong supporter of protecting content against 

piracy. We condemn piracy and take strong measures to protect content 
35

stored on the TiVo DVR. There is no room for piracy in striking the 

reasonable balance between innovation and the content owners’ interest 

and consumers’ needs. However, we don’t believe the right approach is 

to legislate the need for particular technology, but instead believe the 

marketplace and industry should be left to determine the right approach. 

Indeed, TiVo has recently been criticized by some members of the open 

source community for implementing certain content and system 

protection schemes. We believe that the fact that our direction causes 

tension on both sides of the issue probably indicates that we are on the 

right path to balance. 

 The balance provided in our Copyright Act by the fair use doctrine 

has served our Nation well. It is fostering an environment that has 

propelled the United States into the current leadership position in 

technology and innovation. It has served consumers by enabling them to 

lawfully acquire content in new and compelling ways. And it has 

benefited the content providers by providing unforeseen markets and 

demand for new content. We urge this committee and Congress to 

preserve fair use and ensure that it is not undermined or weakened. I 

would be happy to answer questions that you may have, and I have an 

opportunity for a short demonstration of TiVo capabilities. 

 MR. STEARNS. Sure. Go ahead. Hold on just one second. You 

can’t hear? We need you to use the mike so that it is being recorded. 

 MR. DENNEY. Is that okay? 

 MR. STEARNS. Yes. 

 MR. DENNEY. Okay, I will try to make that work. So one of the key 

capabilities of TiVo is controlling live television, so we don’t have a live 

television signal, but it basically works this way. 

[Video.] 

 MR. DENNEY. I am watching television. If the doorbell rings, I can 

now hit pause. The television signal that is coming in my house is now 

paused. It is constantly being buffered--every half-hour of live 

television. So I can basically be interrupted from the television and be 

able to walk away. I can also record television, so as I record television, 

it creates what we call a now-playing list. So a now-playing list is a list 

of recordings that exist on my TiVo DVR. So this is a list of all the 

shows that I have recorded. These are things that I have deemed that I 

am interested in. We can also help people find interesting content or 

content that are of interest to them. So in this case, I know that I want to 

watch 24, but I don’t remember exactly when it is on or I know that there 

are different reruns that might be on. I can use tools like search by title, 

which allows me to enter a program show, and it will list all the airings 

of the show coming up. In this case, you see 24 is on quite a bit on 

satellite. I can set to record this episode. I can get a season pass. If I get 
36

a season pass to this, I can record every episode of 24 that comes on. I 

can say only record new episodes. Don’t record reruns. So I can hone in 

on what I want to watch. 

 Another thing I can do is set up what is called a wish list. So if I 

have a particular interest that I want to find content about, in this case, I 

might be interested in cooking or I might be interested in chocolate in 

particular. I can set a wish list and then this will go off and find shows 

that fulfill that particular interest. So in this case, this is cooking and 

chocolate and I can look at the shows that are coming up and I can shop 

through the shows coming up to find the things that might be of interest 

to me. 

 The last thing I wanted to show, recently we announced that we have 

an initiative called KidZone, and what KidZone allows you to do is take 

the shows that you have recorded and allow the parent to determine what 

is appropriate for their children. So we leverage both V-Chip-like 

ratings, allow the parent to set up their own criteria, identify shows that 

they want their children to be able to watch, and what it does is take that 

now-playing list and then filter it down to only the shows that are childappropriate. So now your children are within this environment and they 

have full control over what they watch, but it is what you, the parent, 

have determined. Without the ability to record, I wouldn’t be able to 

create this environment and set this up for my kids. We are also working 

with third parties like Common Sense Media, like other third parties for 

recommendations to leverage search tools that allow parents to find 

appropriate television, including taking the EI data, the educational and 

informational data, that comes in the broadcast signal and a lot of people 

do hone in on educational and informational programming. Thank you. 

 [The prepared statement of Mr. Denney follows:] 

PREPARED STATEMENT OF JIM DENNEY, VICE PRESIDENT FOR PRODUCT MARKETING, VIVO,

INC. 

Chairman Stearns, Ranking Member Schakowsky, and other members of the 

Subcommittee, my name is Jim Denney. I am Vice President for Product Development at 

TiVo. I want to thank the Subcommittee for inviting me to testify on the vitally important 

issue of fair use and its impact on innovators, consumers, and content providers. As an 

innovator, TiVo depends equally on the ability to continue innovating to create products 

consumer want and the continued creation of compelling content to be consumed on 

TiVo® devices. Accordingly, I applaud your willingness to examine the vital role of fair 

use that has contributed to our nation’s leadership in both innovation and content 

creation. 

Founded in 1997, and located in Alviso, California, TiVo pioneered a brand new 

category of products with the development of the first commercially available digital 

video recorder (DVR). Sold through leading consumer electronic retailers, TiVo has 

developed a brand which resonates boldly with consumers as providing a superior 

television experience. With a continued investment in its patented technologies, TiVo is 

revolutionizing the way consumers watch and access home entertainment. Rapidly 
37

becoming the focal point of the digital living room, TiVo’s DVR is at the center of 

experiencing new forms of content on the TV, such as broadband delivered video, music, 

and photos. 

Summary 

As an innovator TiVo depends upon strong intellectual property rights. Yet we also 

depend on the fair use doctrine to bring benefits to consumers and content creators. Fair 

use insures that innovators, content creators, and consumers reap significant benefits 

from a copyright system that promotes innovation, that guarantees consumers are able to 

enjoy content they legitimately acquire, and that provides incentives to content creators. 

Indeed, fair use has enabled the United States to maintain unparalleled leadership in both

innovative technology and content creation. 

The Challenge of Innovation 

New inventions have always challenged existing business interests. At the turn of 

the last century the copyright industry was challenged by the player piano. Later the radio 

was seen as the devil’s instrument, giving away music for free. Television was to be the 

death of movies. When that proved false, it was the VCR that would destroy both movies 

and television. Fortunately for innovators, consumers, and copyright owners, the content 

industry was saved from itself. Each time the content industry failed to eviscerate those 

technologies in court or before Congress. After failing to throttle the new technologies, 

the content industry successfully co-opted each new technology and turned such “threats” 

into significant profits. 

Fair use has maintained the balance between the copyright holder’s exclusive rights 

and the promotion of progress by innovators. The fair use doctrine ensures the balance 

our founding fathers put in the Constitution when it gave Congress the power “to promote 

the progress of science and the useful arts by securing for limited times to authors and 

inventors the exclusive right to their respective writings and discoveries....” The secret of 

our nation’s success is that Congress wisely codified judge-made fair use law in a special 

way. Rather than laying down rigid black and white rules, Congress continued fair use as 

a flexible test allowing judges to carefully examine the facts of each case to determine 

whether the use of the copyrighted material was appropriate. In Section 107 of the 

Copyright Act, Congress laid out four non-exclusive factors that allow courts to 

determine a reasonable balance between the content owner’s exclusive rights and the 

consumer’s right to enjoy the content, which in turn permits further innovation. It is fair 

use’s dynamic balancing act that has continued the cycle of innovation. 

Fair Use Benefits Innovators 

Both the fair use language and the Supreme Court’s interpretation of the Copyright 

Act make it clear that the law was intended to punish bad behavior rather than inventions 

that can be used for good or ill. It is the hallmark of our law and the secret of our world 

technical and content creation leadership that our nation looks to punish those that misuse 

inventions rather than throttle innovation itself. In the famous Sony Betamax case, the 

content industry sought to have the producers of the VCR held liable for making a device 

that could copy video content. Fortunately, after examining user conduct under the fair 

use provision, the Supreme Court held that the VCR had legitimate uses, such as time 

shifting scheduled TV programs; the Court found Sony not guilty of secondary copyright 

infringement. After the decision, the content industry leveraged the VCR’s popularity 

and, from zero at the time of the Court’s decision, developed a $23 billion home video 

market. 

Thus, innovators like TiVo are free to concentrate on developing new and 

innovative devices such as TiVo’s DVR. Innovators need merely ask themselves, will 

this device enable consumers to better enjoy their legitimately acquired content under the 
38

fair use doctrine. Indeed, often the innovator doesn’t even know all of the possible uses 

of the innovation. Thomas Edison, for example, did not invent the record for music. He 

believed his wax recording cylinder would be used to eliminate business letters – 

everyone would dictate and mail wax cylinders. It was a small company that licensed 

Edison’s invention – RCA – that thought people might wanted to listen to recorded music 

in their home. What if the sheet music publishers and live performers had been able to 

stop RCA in court? We wouldn’t have the over $13 billion recorded music industry 

today. 

The flexible fair use doctrine, honed over two hundred years of court decisions and 

Congressional action, benefits innovators and is a significant weapon in the battle for 

world leadership in technology. 

Fair Use Benefits Consumers 

Each new innovation in consumer technology has enabled consumers to better enjoy 

and consume more content. The player piano allowed listening (and singing along) to 

music in one’s own home without learning to play the piano. The radio brought all sorts 

of information and entertainment into the home that most consumers would never have 

experienced. TV added moving pictures. The VCR allowed consumers to watch shows 

they would have missed because they were not home. TiVo’s DVR has given consumers 

unprecedented flexibility and has revolutionized how people watch TV. 

TiVo gives consumers simple but powerful features such as pause so you won’t miss 

a single part of the program because the phone rings or the delivery person is at the front 

door, as well as advanced but easy to use features as: SeasonPass® which remembers to 

record your favorite series so you won’t miss an episode; WishList® that can record all 

the movies by a favorite director or actor or favorite team’s games, so that you won’t 

miss the program because you weren’t home; Online Scheduling which allows you to 

“phone home” and remotely program your TiVo DVR if you are stuck at work and will 

miss a special program you wanted to watch. These and many other features have 

brought unprecedented value to consumers. They can enjoy their TV programs when they 

want and not miss a single program because they had to work late or were tied up in 

traffic. Moreover, TiVo benefits consumers by allowing them to store and easily access 

their personal photographs, home videos, and their music collection. 

One of the most exciting consumer benefits is TiVo’s recently announced KidZone. 

In concert with leading family organizations, such as Parents’ Choice Foundation, 

Common Sense Media, and Parents Television Council, we have developed a safe place 

for parents to make decisions about what their kids can watch based on their personal 

interests and values. In 1990 Congress required TV broadcasters to air at least three hours 

of children’s educational and informational programming each week. Yet most of such 

programming is broadcast early in the mornings or weekends; not the ideal time for 

viewing. TiVo KidZone will help solve this problem. In addition to its other child 

friendly features, KidZone will make sure parents can automatically program their 

TiVo’s KidZone with a menu of children’s Educational and Informational programming, 

or select their favorites from it. I am extremely proud of the new KidZone service. I could 

not have summed it up better than Congressman Fred Upton, Chairman of the 

Subcommittee on Telecommunications and the Internet: 

“As a father of two teenagers, I understand that parents are the first line of defense - 

I commend TiVo for providing parents such a valuable and easy to use resource to 

determine what programming is best for their kids. This major breakthrough of 

technology through public and private cooperation directly addresses the goals that 

Congress and the FCC had in mind when they created the children’s Educational 

and Informational programming category.” 

Yet none of these consumer, family, and child friendly features would have been 

made available had it not been for the fair use provision of the Copyright Act. Clearly, 
39

consumers must be allowed to make “copies” of the programming in order to watch it 

when they want to watch. Parents must make copies of the educational and informational 

TV programs to create a kid-safe viewing experience for their children. It is the fair use 

doctrine’s wise balancing of rights that foster these consumer benefits. 

Fair Use Benefits Content Creators

As discussed above, much of the innovation that relies on fair use has sparked new 

and increased legitimate consumption of content. This is not surprising as one portion of 

the fair use balancing test is to insure that the use will not cause excessive economic harm 

to the copyright owner. It was obvious to the Supreme Court that allowing a person to 

watch a TV show at that person’s convenience would not harm the market for that 

content. Much like Edison’s wax cylinder, few could have predicted a $23 billion dollar 

home video market enable by the Betamax decision. That is the elegance of the fair use 

test. It is flexible enough to allow innovators to create new devices that allow users to use 

legitimately acquired content in new ways. The end result has almost invariably been 

increased legitimate consumption and, in the case of the VCR, creation of a new 

profitable market for the content creator. 

The same is true of TiVo. TiVo’s innovative technology has resulted in consumers 

watching more television. Yet at the time TiVo debuted in the market, many in the 

television industry predicted the demise of free over-the-air TV. Indeed one DVR 

manufacturer was sued into bankruptcy. But once again it turns out that the innovation 

has not only been a boon to consumers but to the content industry as well. Studies have 

found that TiVo users actually watch more television than before. Again, a new 

innovation has increased the demand for content. 

But equally as important, innovative devices such as TiVo are able to take advantage 

of recent innovations in broadband, wireless, and cellular technology to continue 

expanding the market for video content. TiVo recently announced a partnership with 

Verizon Wireless that lets TiVo subscribers schedule recordings on their TiVo device 

directly from their Verizon Wireless handset. Moreover, forward looking content 

distributors such as ABC and NBC are offering consumers the option of paying to 

download commercial free episodes of their TV programming over the Internet as an 

alternative to viewing the programming with advertisements without charge. Thus, once 

again, the innovation fostered by the fair use doctrine has expanded to market for content 

and not harmed it. 

Finally, TiVo is a strong supporter of copyright protection of content. We condemn 

piracy and take strong technical measures to protect content stored on TiVo DVRs. 

Indeed, when TiVo’s TiVoGuard protection system was scrutinized by the Federal 

Communications Commission, the Motion Picture Association of America said: 

“It appears to contain a strong level of security, including well vetted algorithms 

and a well designed multi-layer security architecture. It is upgradeable, so that it can 

be repaired in the event of a compromise, and it includes the capability for device 

revocation and system renewability.” 

TiVo believes that the reasonable balance between innovation, content, and 

consumers does not mean anyone should engage in piracy. Rather, commercial piracy 

can, has, and will continue to be fought while at the same time preserving fair use for 

consumers and innovators. Such a balance will continue to create incentives for content 

providers by expanding markets. 

Conclusion 

The balance provided in our copyright by the fair use doctrine has served this nation 

well. It has fostered innovation that has propelled the United States to its current 

leadership in technology and innovation. It has well served consumers by enabling them 

to use lawfully acquired copyrighted content in new and compelling ways. Finally, it has 
40

benefited content providers by opening new, often unimagined markets resulting in the 

demand for more content. We urge this Committee and Congress to preserve fair use and 

ensure that it is not weakened or undermined. 

 MR. STEARNS. Thank you. Mr. Mitchell? 

MR. MITCHELL. Thank you, Mr. Chairman, Ms. Ranking Member 

Schakowsky and members of the subcommittee. I thank you for the 

invitation to appear here today and to give you a glimpse of the 

entertainment software industry’s new technology. The Entertainment 

Software Association serves the business and public affairs needs of 

companies that publish video and computer games for dedicated game 

consoles, for personal computers, and the Internet. Our members 

collectively account for more than 90 percent of the $7 billion worth of 

entertainment software that was sold in the United States in 2005. 

 MR. STEARNS. Mr. Mitchell, is this part of your presentation? 

 MR. MITCHELL. Yes, it will be in just a moment. I will introduce-- 

 MR. STEARNS. Oh, sure. No, that is fine, that is fine, that is fine. 

 MR. MITCHELL. If I may take just a moment to set the stage for our 

presentation? 

 MR. STEARNS. Sure. 

 MR. MITCHELL. In the 34 years since the Magnavox Odyssey first 

emerged on the market, considered the first home console, our industry 

has grown tremendously. Estimates place the global video game 

industry at about $27 billion worth of sales of hardware and software 

each year, and perhaps even more remarkably, that figure is expected to 

double to $55 billion by 2009. Much of this growth is propelled by 

enthusiasm for an entirely new generation of video game consoles, the 

first example of which is already with us and has been for several 

months, and that is the Microsoft XBox 360, which we will be 

demonstrating for you today. The other new generation consoles which 

will be out later this year are Sony’s Playstation3 and the Nintendo 

Revolution. 

 More of the industry’s growth, too, will come from the increasing 

popularity of online games and mobile games, particularly in Asia. As I 

mentioned, the first of the new generation of consoles has arrived and I 

would like to ask ESA’s anti-piracy investigator, Tim Tire, to take you 

through the play of an extremely popular racing game called Project 

Gotham Racing. It is a game that is now in its third generation. Tim is 

controlling the black car that you see there and the other cars that you see 

on the road are actually being controlled by the Project Gotham software 

program. However, if we were to take this console live online through 

the XBox Live service, then it would give other players the opportunity 

to join in the game, actually up to seven other players, and they would 
41

control the cars that Tim is racing against. Tim, would you like to give 

us a little volume on that, as well? 

 MR. STEARNS. How fast are the cars going? Does it have any 

speed? 

 MR. MITCHELL. There is a mile per hour indicator. He is at about 

115 now, before breaking, and back down to a more reasonable 80. I 

should add, too, that the XBox Live service also allows for the download 

of additional cars and additional tracks in addition to multiple player 

game play. Thanks, Tim. You can turn that down for just a moment. 

There are also other out-of-game features to the XBox Live online 

service that includes a live messaging service. An XBox Live subscriber 

can actually invite friends to join in multi-player games, send voice or 

text messages, and initiate one-to-one voice chat with other players all 

without interrupting game play. You would be able to jump right back 

into your game from the point that you left. 

 There is also a feature called a friends list where subscribers can 

identify which of their friends are currently online and actually view the 

game that their friends are playing at any given time. There is also a 

feature called XBox Live Marketplace where subscribers can download 

additional game features. In this case it would involve additional tracks, 

additional cars. It may also be full versions of arcade-style games, game 

demos, and more. 

 Many are taking advantage of this XBox Live marketplace feature, 

by the way. Microsoft announced just last week that the ten millionth 

download had been made through the XBox marketplace. Importantly, 

too, XBox and XBox Live and in fact, all of the new generation of 

consoles will offer enhanced parental controls. XBox Live offers an 

entire suite of password protected parental controls which are called 

family settings that permit parents to tailor the types of entertainment 

experiences that children are exposed to online as well as in offline game 

play. 

 While Tim is on a roll here, I would encourage him to keep going, 

but I would also like to talk about some of the other technology that has 

been circulating among the panel this afternoon and that has to do with 

handheld game technology. Nintendo essentially created the handheld 

game device with its tremendously popular line of Gameboy products 

that emerged in 1989 with the original Gameboy and has been succeeded 

since by multiple generations. Estimates place the number of Gameboy 

units sold at over 120 million. Nintendo’s newest handheld device, it is 

the silver device that is circulating among you up there, is called the DS, 

for dual screen. When you get a chance to work with the dual screen, 

you may want to take note that the bottom of the two screens is actually 
42

touch sensitive and it is one of the controllers that you can use in game 

play. 

 Sony has also entered the handheld marketplace in March of last year 

with a revolutionary device called the Playstation Portable or PSP. I 

believe there are a number of PSPs circulating among you, as well. 

Those are the black devices. The PSP is capable of displaying still 

images, movies, and audio files stored either on removable disks or on 

memory sticks. One of the PSPs we are circulating is playing a game 

and the other one is actually playing a full-length feature film, Spiderman 

2. And so in addition to being a game playing device, it is a movie 

playback device, as well. 

 The PSP is possible because of an entirely new generation of storage 

media called the Universal Media Disc, or UMD. It is a very small 

encased optical media disk that actually stores 1.8 gigabytes of data and 

makes it possible for it to contain not only a full game, but also a fulllength motion picture. Even though the PSP was released last March, it 

only took until the end of the calendar year, first for Sony Studios, but by 

the end of the year, all of the major motion picture studios, to recognize 

that this was a technology that was very much in demand by consumers 

and began making movie content available in this UMD or PSP format. 

These handheld devices also use blue tooth and other wireless 

technologies to enable multi-player game play. 

 I don’t want to put too much of a damper on the party, but I would 

like to make just a couple of policy points, if I may. The first one being 

that all of these technologies that you have seen demonstrated are 

predicated on the ability to control and regulate access to the game play 

experience, whether it is access to software on disks or other storage 

media or access to servers that contain software or connection 

capabilities. The technologies that you have seen here and the access 

control technologies make it possible for consumers to get exposed to 

more products than they would otherwise if access control technologies 

were not available. It makes it possible, for example, for someone to 

download a full version of a game and actually try it for a limited period 

of time or even share it with friends and family or over the Net before 

making the decision whether to purchase that particular game. 

 These technologies provide consumers with enhanced flexibility. It 

is at the heart of the parental controls that I spoke of just a few minutes 

ago, that allow a parent to regulate their children’s access to game 

content. It allows our industry to open markets that we never imagined 

we would be in before. Access control technologies are at the heart of 

some of the industry technology that is being used in China right now by 

Nintendo and some of our other companies, as well. 
43

 Our industry knows how to use this technology and implement it in 

ways that consumers appreciate. Our products have always been digital 

and so we have always had to combat digital piracy, but we struck upon 

ways of doing it in a manner that does not interfere with consumers’ 

enjoyment of legitimately acquired product. You have helped us to a 

great extent with that by giving us the anti-circumvention provisions and 

other protections that we need to defend our products. 

 And my final message is that we believe these laws are working 

extremely well. They were well conceived, initially; they continue to 

serve their purpose even when applied to today’s technologies. There are 

effective checks and balances with respect to the anti-circumvention 

provisions. As a matter of fact, just this afternoon, there is a hearing 

going on at the Library of Congress on the Section 1201 rulemaking 

proceeding, which is one of the vital safety valves that keeps a check on 

whether non-infringing uses are being inhibited by these technologies. 

 We don’t believe that any further changes to these laws are 

warranted. I thank you very much for the opportunity to demonstrate our 

technology and look forward to answering your questions. 

 [The prepared statement of Stevan Mitchell follows:] 

PREPARED STATEMENT OF STEVAN MITCHELL, VICE PRESIDENT, INTELLECTUAL PROPERTY 

POLICY, ENTERTAINMENT SOFTWARE ASSOCIATION

Mr. Chairman and Members of the Subcommittee: 

 My name is Stevan Mitchell, and I am Vice President for Intellectual Property 

Policy with the Entertainment Software Association. We are the U.S. association 

dedicated to serving the business and public affairs needs of companies that publish video 

and computer games for video game consoles, personal computers, and the Internet. ESA 

members collectively account for more than 90 percent of the $7 billion in entertainment 

software sold in the U.S. in 2005, and billions more in export sales of U.S.-made 

entertainment software. 

 We are entering another dramatic phase in the growth of this young and vibrant 

industry. Every day we learn more about the promise of a new generation of game 

consoles that bring previously unimagined levels of computing power and graphics 

processing capability to consumers’ homes. 

 In the 34 years since the release of the Magnavox Odyssey, computer and video 

game sales have grown to over $27 billion worldwide, and are projected to double again, 

to nearly $55 billion, by 2009. Much of this growth will be propelled by enthusiasm for 

the new generation of video game consoles, including Microsoft’s XBox 360, Sony’s 

Playstation3, and the Nintendo Revolution. 

 Still more growth will come from the dramatic expansion of demand for online and 

mobile game play -- particularly in Asia. The OECD took particular note of these growth 

opportunities in its studies, last year, of the Online Computer and Video Game Industry 

and on Mobile Content. 

 Our industry’s products were born digital and have always been digital – meaning 

that the industry has always had to stay ahead of digital piracy. But we have done so 

with care and have learned a great deal in the process. Entertainment software 

publishers learned long ago, through experimentation with various copy-protection 

technologies in the 1980s and early 1990s, that consumers would vote by closing their 
44

wallets for technologies that were inconvenient or that interfered with their enjoyment of 

legitimately acquired products. 

 Accordingly, entertainment software publishers have learned to employ 

technological protection measures, including digital rights management (DRM) and 

various forms of disc-based authentication, in ways that not only protect publishers’ 

investments in their intellectual property, but that enhance consumer exposure and 

promote consumer choice. 

1) Enhancing consumer choice 

 These technologies make it possible, for example, for consumers to obtain full 

versions of games on a “try-before-you buy” basis – which would simply not be possible 

without the ability to achieve varying levels of access to these products. These 

technologies even allow sharing of trial versions with family, friends, and over the ‘Net. 

2) Expanding consumer features, including parental controls 

 These technologies also increase flexibility for consumers. While parental controls 

have been a feature of some consoles since 2001, in the next generation, all video game 

consoles will feature parental controls that allow parents to control children’s access to 

game and movie content based on established industry ratings. The technology that 

allows parents to permit access to some games but not others is also a variant of the DRM 

technology built into every console and game. 

3) Opening markets previously believed unavailable 

 Elsewhere in the world, technological protection measures make it possible for 

consumers to enjoy access to games in markets that were not previously regarded as 

viable due to astronomical piracy rates for traditional, “disc-bound” copies. In China, for 

example, DRM technologies are being used by Nintendo to deliver games to owners of 

its iQue consoles, at very competitive price points, in ways that are highly resilient to 

piracy. 

 Also in China, and other high-piracy markets, technological features of online 

games allow publishers to authenticate users and hardware, and to control access to the 

game experience through the sale of pre-paid access cards. So publishers, long plagued 

by piracy rates exceeding 90 percent, are actually beginning to see a return on 

investments made in online games and are responding accordingly – including by 

investing in further game development. 

4) Implementing technology in ways that consumers appreciate 

 There is compelling proof of the appreciation of these technologies in the industry’s 

growth – measured not only by the number of games sold but by the proliferation of new 

and successful game platforms. 

 Consider the healthy market we are seeing for sales of handheld games. Last year 

Nintendo announced having surpassed 10 million units in sales of its Dual Screen (DS) 

handheld device. And Sony’s PlayStation Portable (PSP) has successfully launched an 

entirely new media format for games and movies that can now be found on Universal 

Media Disc (UMD). Although the PSP was released last March, it took only until the end 

of the calendar year for all of the major movie studios to begin making content available 

on the new format. 

 At a time when some would argue that consumers are being oppressed by DRM 

technology, our industry provides consumers with an unprecedented level of flexibility to 

determine where, when and how they wish to enjoy a full range of digital products – with 

new delivery mechanisms coming on line every day. 

 Our industry continues to drive broadband uptake and adoption of a wide range of 

technology-based consumer products. Our industry and our member companies pledge to 
45

keep making compelling entertainment experiences available, on an ever-increasing 

number of platforms. 

 And to do so, they continue to rely on certain baseline legal protections, like the 

anti-circumvention provisions of the DMCA. We do not believe changes to this 

legislation are warranted. Adequate “safeguards,” to the extent they are needed, already 

can be found within the four corners of that legislation. 

 The Copyright Office’s Section 1201 Rulemaking obligates the Copyright Office to 

remain vigilant to instances in which non-infringing uses of certain classes of works are 

likely to be adversely affected. This process, we believe, has served as an effective 

“safety valve” and has been administered in a way that has not adversely affected the 

growth and success of the entertainment software industry.1 

 Entertainment software publishers invest millions of dollars so that consumers are 

assured of seamless and reliable access to the digital products they have lawfully 

acquired, and that technological protection measures do not interfere with consumers’ 

entertainment experiences. 

 The measures that publishers take to furnish access to their products are constantly 

scrutinized, by the consuming public, and through healthy competition with one another, 

over factors including convenience, reliability, and ease of use. To this, U.S. consumers 

have responded favorably, with their purchases of more than two hundred million PC and 

video games each year since 1999 – and those numbers continue to grow. 

 We appreciate the tools that Congress has created, that allow this industry to protect 

its technologies and products, while at the same time delivering on the expectations of 

hundreds of millions of satisfied customers. I thank the Subcommittee for its invitation 

to appear here today, and welcome the opportunity to respond to your questions. 

 

1

 As we reported earlier this year in our Joint Reply Comments -- since the 2003 rulemaking, over 

1800 new console games, 700 handheld games, and over 2200 PC games have been made available 

to the public. 

 MR. STEARNS. Thank you and I have given each of you a little extra 

time so you can show your demonstration. I will start with the questions 

first. Mr. Krikorian, when I saw your demonstration, I thought to myself 

if some Americans maybe have a second home, why would they need 

cable in their second home? If they had the ability to get broadband, 

then they could have cable at their second home through their computer 

or possibly tied into their existing TV, and then they wouldn’t have to 

pay the $50-$60 a month for cable. Is that true? 

 MR. KRIKORIAN. Well, I mean, first off, you probably know a lot 

more people that have second homes than me, but-- 

 MR. STEARNS. Well, let me put it this way. Could a person do that, 

if they had a second home? 
46

 MR. KRIKORIAN. If a person had a second home and they had 

broadband access that they were paying for in their home and they 

wanted to connect back to their primary residence, they absolutely could 

do that. I think, realistically, if someone has enough money to own a 

second home, they are probably going to want high-definition, they are 

going to want to have a nice, big 80-inch screen. 

 MR. STEARNS. But some day high-definition is going to come 

through broadband. Once you get broadband at three million kilobytes 

per second as opposed to DSL, then you will be able to have broadband 

through your computer, you are a third generation wireless, which 

means-- 

 MR. KRIKORIAN. Sure. 

 MR. STEARNS. So the question I have is don’t you think there is one 

of privacy, or don’t you think the cable companies are going to get upset 

about that? 

 MR. KRIKORIAN. Well, I think for the cable company this is a great 

thing if you look at it across the board. You look at it, number one, from 

a local broadcaster perspective. This is one of the technologies that I 

think lets them, the local broadcasters, stay relevant in this day and age 

when they are getting bombarded actually by the studios, and the 

broadcasters actually circumventing them. I think for the cable 

company, let us say I have Comcast in my primary residence and I am 

fortunate enough to have a secondary residence; I think a product like 

this actually is going to help drive their services. It is going to probably 

get me, let us say there is this three million bits per second service. Here 

is actually a compelling application why you actually might want to pay 

for it incrementally and get access to it. So I view it as a very additive 

thing, as well. 

 MR. STEARNS. Mr. Feehery, we know what the iPod has done for 

music, and Mr. Jobs is going to come out with an iPod for digital movies, 

and someday you are only limited by the possibility of the storage. So 

that you have here this Sony Playstation2 in front of me, and it has a disk 

in it that I have here and I can watch a movie. So what is wrong with me 

making a copy of this and putting this in my computer at my office and 

then having a copy that I give to my son or a copy that I have in my 

home. What is wrong with making a copy of that? 

 MR. FEEHERY. Well, I think that as you go through this process, you 

want to make sure that the same thing can be said about making a copy 

of anything. 

 MR. STEARNS. Well, let me just ask you a question. Do you agree 

with the idea of allowing the consumer, if he has his Playstation that he 

carries around and he goes to a business; he puts it in his pocket; if he 

wants to make a copy of this and leave it with his child or with his wife 
47

or in his home, do you agree that he should be able to make that one 

copy? Yes or no. 

 MR. FEEHERY. It is complicated. I think that we need to be part of 

that value-chain discussion so that we can offer consumers that choice. 

 MR. STEARNS. Well, your predecessor, who came here and testified, 

said he didn’t want one copy made. I just want to know if the Motion 

Picture Association is still taking the position that the consumer cannot 

make one copy? 

 MR. FEEHERY. Well, it is more complicated in the sense that we 

want to make sure-- 

 MR. STEARNS. Well, he was pretty clear. He put it up and said we 

don’t want one copy made. Is that still your position? 

 MR. FEEHERY. We want the marketplace to work, so we are giving 

the opportunity through this to provide people with copies if they choose 

to pay for it or not. I mean, that is what we are working for. 

 MR. STEARNS. Are you saying you can’t make one copy unless you 

pay for it? That is your position? 

 MR. FEEHERY. Well, we want to let the marketplace work on that, 

so-- 

 MR. STEARNS. Well, but if you want to make ten copies of this. 

They want to make more than one copy. We have had people testify that 

CDs, they make more than one copy. Sometimes they make just one 

copy, but I guess the question is, I am just trying to see. You have got to 

convince us that not making one copy is your position and that you are 

sticking by it or are you going to say if the marketplace works out that 

you can make one copy by putting a flag on it, you will accept that? 

 MR. FEEHERY. This is what the marketplace does. 

 MR. STEARNS. Okay. 

 MR. FEEHERY. We hope to give consumers those kinds of choices 

and we are working towards that, but I don’t think that we can say we 

want to give our stuff away for free. 

 MR. STEARNS. Mr. Mitchell, Sony’s Playstation, which I just 

showed you, do you have any concern about erosion of consumer rights 

in this area, movies and music as well as games. Are you concerned at 

all about something like this in the software side? 

 MR. MITCHELL. Not at all, Mr. Chairman. It is an enabling device. 

 MR. STEARNS. Okay. 

 MR. MITCHELL. It enables consumers to take with them their music, 

their photographs, and other media. It creates more opportunities to 

enjoy those products. 

 MR. STEARNS. Mr. Denney, in your opinion, has the evolution of the 

Fair Use Doctrine struck the right balance between content protection 

and a consumer’s right to enjoy content? 
48

 MR. MITCHELL. We think that so far, it has. There has been a good 

balance. 

 MR. STEARNS. Okay. You know, you saw Mr. Feehery, the TiVo 

demonstrations. They can download TV shows and put it in the TiVos, 

and we are hopefully some day they will be able to do it just like they do 

for the iPod. Do you see anything wrong with what is occurring that 

way? 

 MR. FEEHERY. Well, this guy, he is a Giants fan and he is a 

customer. I am a White Sox fan, but I am not a copyright lawyer. I 

would say that we understand the importance of consumer convenience 

with the respect of portability as well as remote access. The key is 

facilitating consumer convenience while ensuring that it does not become 

a shield for infringement or piracy. MPA is interested in working with 

providers of remote access and time shifting technologies to help ensure 

that safeguards such as identity mechanisms and cryptographic controls 

are in place to strike that appropriate balance. 

 MR. STEARNS. Okay, my time is expired. Ms. Schakowsky. 

 MS. SCHAKOWSKY. Thank you, Mr. Chairman. Mr. Krikorian, you 

make a big assumption that I actually know how to use my remote 

anywhere and so I guess my question is would you show me how to use--

no. And Mr. Denney, when I am at my grandchildren’s home, I love the 

TiVo, but again, I am trying to figure out how to get to where I want, so 

that is kind of where I am. What I wanted to ask, though, Mr. Feehery 

and Mr. Mitchell, of the things that Mr. Krikorian showed and Mr. 

Denney showed, is there problems for you in those, and if there are, I just 

want you to tell us where you see the problem and go ahead. 

 MR. FEEHERY. Well, like I said before, I am not a copyright lawyer, 

so I don’t want to get into the technical difficulties. We think that there 

are great possibilities to offer consumers, lots of choices. We want to 

work with anyone that has provided these kinds of remote access devices 

to make sure that we have the proper safeguards in place and we want to 

work with them to make sure that it doesn’t lead to greater piracy and 

that is our biggest concern, piracy is a huge problem for industry. We 

already see what has happened to the music industry. 

 MS. SCHAKOWSKY. And so I am asking, since we have seen some 

pretty exciting technologies from a consumers standpoint, are you 

looking at those and seeing problems for your industry, and I just wanted 

you to say if there are. 

 MR. FEEHERY. Well, we want to make sure that the proper 

safeguards are in place and that is our, as we work with these industries, 

make sure that the proper safeguards are in place so that piracy does not 

happen. So that is what we are working with them on. 
49

 MS. SCHAKOWSKY. Well, let me ask Mr. Mitchell. I will come back 

to you, Mr. Krikorian. 

 MR. MITCHELL. Yes. Well, I am a lawyer. I come from the 

enforcement side and furthermore, the criminal enforcement side, and we 

tend to take a fairly black and white view of these things. So from a 

perspective of making infringing reproductions, I was quite relieved to 

hear Mr. Krikorian’s technology, for example, would only allow access 

by one user at a time, which took away some of the initial concerns that I 

had flagged in my own mind. Beyond that, we would be happy to 

provide a more detailed analysis. I am not sure if I could do that for you 

on the fly today. 

 MS. SCHAKOWSKY. Okay. Mr. Krikorian. 

 MR. KRIKORIAN. Just one thing I wanted to point out is I agree with 

everybody on this panel in trying to find a middle ground between 

content and technology, but in all the examples that these gentlemen 

brought up, it is not to their fault, at all. Those are deals that are done 

with mega-corporation to mega-corporation, Apple and the studios. And 

one thing that is very important, I hope that you all continue to think 

about the two guys or gals in a garage who are working on some 

innovative technologies and are reliant on some level of fair use so they 

can actually innovate without going and asking for permission in 

advance, because I could never get these types of meetings with folks in 

the studios and the broadcasters, as hard as we actually tried. 

 MS. SCHAKOWSKY. Well, maybe this will help. 

 MR. KRIKORIAN. Now we can, which is great and this is helpful, so 

it brings everyone to the table, but it is a difficult thing when you are 

small company and that is where a lot of the true innovation comes from, 

is that garage. 

 MS. SCHAKOWSKY. Well, let me ask you, I am just curious. How 

successful has Slingbox and Sling Media been? 

 MR. KRIKORIAN. Well, when we launched the product and actually, 

it is quite interesting. We started the company in June of 2004. By July 

of 2005, 12 months later, we had actually deployed the product in over 

1,000 stores nationwide in Best Buy and CompUSA, which was very 

interesting because you never could build a company like this ten years 

ago. We are actually using a Sony factory that was sold to a private 

party in Singapore, and it is really interesting how you can virtualize and 

build an organization. Since then we have expanded into over 3,000 

stores, and while we don’t publicly disclose the specific numbers, we are 

now into the six figures of products sold, which is a pretty big deal for a 

small company. We are fortunate enough to raise our Series B round in 

January, so I have a job for at least another 12 months, I think. 
50

 But one thing that was really interesting, when we first started, it 

was very difficult to raise money and we were sort of living under this 

shadow of potential litigation all the time and investors were quite, quite 

nervous about it. Fortunately enough, we had a few folks that gave us a 

shot and we tried to act very responsibly with some of this one-to-one 

and so forth that we have been able to get to this point, but it is tough 

living under that shadow when you are first starting out. 

 MS. SCHAKOWSKY. Well, of course, the devil is in the detail, so I 

appreciate, though, the attitude of everybody at this table that we want to 

work out a way that we can satisfy consumer demand and not stifle 

innovation and still protect the products and the creative products that 

you create, so thank you. 

 MR. TERRY. [Presiding] Mr. Ferguson. 

 MR. FERGUSON. Thank you, Mr. Chairman. I just want to revisit 

one thing. I do have a couple of questions, but I am sorry Chairman 

Stearns has left, but I just believe that was a false choice that Mr. 

Feehery was being asked to make. It seems to me that when we are 

talking about making a copy for your use of a video game or something, 

when we are talking about the technology and we are talking about 

legislating, we are not talking, I, anyway am not very interested in 

somebody who makes a copy of their video game for their wife, for their 

child or something. How do you distinguish between the person who is 

going to make one copy of their video game for their child or their 

spouse or something, and the guy who is going to make 100 copies and 

start selling them on the street corner? 

 The problem is technology allows both, and if we start going down 

the road of well, it is buy one, get one free, what would happen if you 

bought a car and you said well, because I paid for this car, I am actually 

entitled to a second car. If that is what happened in the automobile 

industry, you would see two things happen real fast. Number one, the 

price of cars would shoot up and the amount of innovation and R & D 

that goes into finding new cars would go down really, really fast. We 

talk a lot about prescription drugs these days. What happens if you got a 

prescription from your doctor and you went to the pharmacy and you 

bought your drugs and you say well, actually, I know that I am buying a 

month’s supply, but I should really be able to have two months’ supply 

or a year’s supply. 

 It is preposterous to suggest that that wouldn’t have an impact. We 

can have an argument of whether it is right or wrong, but it is 

preposterous to suggest that that would not have an impact on the price 

of those goods and on the amount of innovation and future R & D that 

goes into the development of those goods, so I don’t know how one can 

possibly contend that loosening copyright protections will lead to an 
51

increase in products and an increase in products getting to consumers. 

So I think that needs to be said and I think Mr. Feehery was being put in 

a difficult position to have to answer a yes or no question to a question 

which frankly doesn’t have a yes or a no. It is a very complicated 

question. I don’t know if you want to comment any further. 

 MR. FEEHERY. Mr. Ferguson, I thank you for that comment. I 

would say that the fact of the matter is the consumers want to make a 

copy and there is a marketplace for that and we have the critical 

protections in place so it doesn’t go crazy and we are giving everyone 

you know thousands of copies if we give them one. If we have the 

critical protections in place and if the marketplace is allowed to work, we 

will do that, but the fact of the matter is the marketplace has to work and 

we have to have the critical protection technology in place so that it 

doesn’t get out of hand and lead to mass piracy that will kill our industry. 

 MR. FERGUSON. I appreciate that and I am short on time, so I just 

want to get to my questions and that is kind of where I am going. Just a 

couple of questions for Mr. Denney. In the past few years, especially 

since the Grokster decision, we have seen an explosion in the amount of 

content that is being made available to consumers legitimately. We have 

these agreements after agreements after agreements that are being 

worked out. The market seems to be working, yet folks who are working 

on legal and legitimate content distribution, doesn’t better content 

protection lead to more content being distributed to the marketplace 

legitimately? 

 MR. DENNEY. As we said, content production is an important aspect 

of what we design into the product. We are conscious of it, we make 

deliberate steps to deter piracy so yes, we do think it is an important 

thing. Should that be legislated or how should that be implemented, I 

think, it is up to the marketplace to figure out. 

 MR. FERGUSON. We all seem to be talking about the marketplace 

and people seem to have different definitions of that. In your testimony, 

you cited several examples of your new partnerships, as well as new 

technologies in the marketplace. Doesn’t this mean the marketplace is 

working? I mean, you have got agreements that you are working out 

with folks? 

 MR. DENNEY. We believe that the marketplace is working. If we 

have a concern, it is access to content, so you can work this out. So it is 

access to cable signals, it is being able to have access to some of the 

content so you can do innovative things. 

 MR. FERGUSON. But are you advocating, what are your thoughts on 

some of the legislation that has been introduced and that is being bandied 

about amongst some of the committee here? 
52

 MR. DENNEY. Which, I guess, which one in particular or do you 

want me to generally comment? 

 MR. FERGUSON. Sure. 

 MR. DENNEY. Okay. 

 MR. FERGUSON. H.R. 1201. 

 MR. DENNEY. So we appreciate things that solidify-- 

 MR. FERGUSON. I like what I hear, what I think I hear you saying, 

but where the rubber hits the road, how do you feel about H.R 1201? 

 MR. DENNEY. Well, again, I am not an attorney. I can speak to 

some general-- 

 MR. FERGUSON. We are in the same boat on that one. 

 MR. DENNEY. We believe that, generally, we support things that 

support access to content and fair use. We have some concerns about 

some specific issues, but in general we are appreciative of things that 

preserve fair use the way it is today. 

 MR. FERGUSON. I would only suggest, and my time is up. I would 

think we agree. We all seem to rhetorically agree that the marketplace 

should be able to handle these things, but the difference is that the sands 

are shifting very quickly because of technology. Technology is a 

wonderful thing, but technology is enabling incredible new opportunities 

for piracy that, frankly, weren’t available just a few years ago and that is 

where, frankly, I have a concern, a number of us have a concern, and if 

the balance is shifting toward enabling and really encouraging piracy, I 

sure don’t want to see that pendulum swing any farther in that direction. 

I want to bring it back more towards the center. 

 MR. DENNEY. We agree, piracy has got to be controlled. We do not 

advocate piracy. We work against it. We think that the content 

providers in the market have tools, such as Grokster is an example, 

where the court decided it was making the distinction between people 

who encourage piracy and technology that could be used for other 

purposes. 

 MR. FERGUSON. Technology is fast, courts are slow. 

 MR. DENNEY. I agree. 

 MR. FERGUSON. It would be nice if we had some understood rules 

of the road that everybody had to live by from the beginning rather than 

having to adjudicate and go through a court battle every time we had a 

disagreement. 

 MR. DENNEY. Agreed, but they do create guidelines; when we make 

product decisions, we adhere to what we believe those guidelines to be 

and we take particular steps. And one other comment about, you had a 

question about other legislation that is pending. One comment that I did 

want to make is about analog. In general, the legislation that is pending 

is not something we advocate, and we believe it doesn’t work for the 
53

consumer. There are concerns about access to signal, there are concerns 

about its impact on the ability to innovate around content. And that said, 

we are completely open to working out what the correct solution is, so 

the forum to do that, I think, is within the industry. 

 MR. TERRY. Ms. Baldwin. 

 MS. BALDWIN. Thank you, Mr. Chairman. As we look to the future 

of digital rights management technology, one thing that has struck me is 

that there are so many different DRM standards that exist in the current 

market. For example, a TV show downloaded from iTunes is not going 

to work with Real Video streaming software. Recently, Sun 

Microsystems, Incorporated announced a project called the Open Media 

Commons Initiative, which is aimed at creating an open source, royaltyfree, digital rights management standard. I am going to ask this to any of 

the panelists who wish to comment. I would like to hear your comments 

generally on such a DRM model and also, do you think that such an idea 

could still fully protect the rights of content owners, and why don’t we 

start with you, Mr. Krikorian? 

 MR. KRIKORIAN. Yes. First off, I think you are hitting the nail on 

the head. This is one of the most critical things and items and personally, 

I don’t think it is being addressed. You see what Apple has now done 

and they have created a DRM that is very proprietary and ties the content 

and the consumer to Apple-only products. That is definitely not a free 

market effort and with their strong stranglehold on the industry. Let us 

say I wanted to make a distribution product in the home to be able to 

stream my content around legally and securely, so forth. 

 I can’t get access, as a company, into that DRM, so I believe the 

notion of an open DRM that is truly interoperable across many, many 

devices makes a heck of a lot of sense. I mean, at the end of the day the 

devil is in the details and the execution in making sure it is truly robust, 

but we are going to see a lot of consumer backlash, I believe, in the next 

couple of years, of people who have bought stuff from iTunes and they 

don’t quite understand all the limitations that come with that content. 

And again, it is not the studio’s issue at all, it is Apple’s, keeping 

everyone focused just on their products alone, and that will definitely 

stifle innovation, there is no question in my mind. 

 MR. FEEHERY. Boy, I am really glad you said it wasn’t the studio’s 

thing. 

 MR. KRIKORIAN. It is not. 

 MR. FEEHERY. Just talking to some of our folks, I think that this is 

something that with the risk of not getting into too much detail, I would 

say that this is something that we would like the marketplace to work out 

right now and I think that is where we are. I wasn’t talking about that 
54

particular thing in this hearing, but I think that where we are is let the 

marketplace work itself out. 

 MR. KRIKORIAN. Just one other thing. I wish the studios and the 

broadcasters actually, in terms of the marketplace deciding, I wish that 

they would actually push that and require that whenever they do a deal. 

They say look, this has to be open DRM standard because I think 

unknowingly what is happening, is that they are creating another cable 

monopoly but they don’t quite understand that. So I would urge 

marketplace perspective, that the broadcasters and the studios actually go 

and require that when they do deals. 

 MR. FEEHERY. The most important thing for us is protecting our 

content so it doesn’t lead to mass piracy, but other than that I think for 

these particular things, let the marketplace work itself out. 

 MR. DENNEY. In general, we are supportive of the concept of Sun’s 

proposals, the exact right solution. I think interoperability is a big issue 

that as time goes along, consumers are going to be burdened with 

navigating and we are generally supportive of protecting content, so we 

think that is the right thing. We agree that some proprietary protection 

schemes out there are basically impossible to work with, so you will 

never be able, as an innovator, you will never be able to break into that 

realm, so that is a concern that we have. 

 We are actually, in our next generation, the Series 3 box that we 

announced in January, we are going to support Windows Media DRM as 

part of that box, and we are doing it because it is something that we 

actually have the ability to license and is used in the marketplace 

generally widely, but it does mean that we license that from Microsoft, 

so we will be tied to Microsoft’s terms and conditions for that. Not 

saying they are overly onerous, but I think the idea of interoperability is 

something that consumers are going to have to grapple with as time goes 

along. 

 MS. BALDWIN. Mr. Mitchell, did you wish to comment on that? 

 MR. MITCHELL. No. 

 MS. BALDWIN. All right, I yield back. 

 MR. TERRY. Thank you. Mr. Mitchell, did you provide these for the 

committee’s observations? 

 MR. MITCHELL. We did. 

 MR. TERRY. Well, on behalf of the committee, we will have to mark 

these as exhibits and keep them. I don’t know if you understood that at 

the beginning. Not really. But there are several of us on here that have 

already purchased those types of equipment. But I guess the ultimate 

question, and Chairman Stearns has hit on it, but I want to ask it more 

succinctly and plainly to everyone up here, from your unique 

perspectives in the marketplace, both with TiVo and Sling, various 
55

niches and then Mr. Feehery representing, kind of, the big dog producers 

here, you said that right now the marketplace is kind of taking care of it, 

but we keep hearing that perhaps we need to tweak laws here and there 

by various parties with various interests. 

 I am just curious to hear from you whether or not you think that 

Congress should act in some certain way, and you fill in the blank. What 

would you tell us that we need to do to make sure that we protect both 

content and consumers’ rights? And I guess what I will say, to frame it a 

little bit more is doesn’t it seem like Congress helped create the PSP or 

the new XBox 360s or the new PS3 that will come out eventually, twice 

delayed now, but we won’t get into that because that is just saving me 

whatever they are going to sell it at in the market. So it doesn’t seem to 

me that Congress needs to interfere with anything right now, but at least 

with content protection, we are constantly being told that we need to. 

What do you think, Mr. Krikorian? 

 MR. KRIKORIAN. I think, and I wish I could give you a very specific 

item, but I think in general, you need to help preserve or keep a 

marketplace, if you will, or an environment where innovators can work 

under the fair use provisions to truly innovate without going and getting 

advanced approval. So let us take something specifically--and I am not 

an attorney, but when I look at the DMCA as it has been described to me, 

let us say I could make a product right now where I could make one copy 

of a DVD and I could specifically make sure that that could be audited, 

and I would allow only the person who bought the DVD to make one 

copy and put it on, let us say, another display device like a cell phone. It 

doesn’t even matter whether that is fair use or not. Basically, I have now 

violated the law. I have violated, I have circumvented encryption to 

actually make that work and so that is what is particularly troubling to 

me, is just having hard and fast rules sometimes, I think, prohibit that 

innovation because you can’t possibly make a hard and fast rule because 

no one could possibly think what is coming down in the future. 

 MR. TERRY. Mr. Feehery, I am interested in your answer, 

particularly. 

 MR. FEEHERY. Well, I would say that, in our view, greater content 

protection leads to greater innovations in the marketplace because it 

gives us a chance to get our content to more eyes in more different ways 

and look at what happened to DMCA and the direct development of the 

DVD and how many people now enjoy DVDs because of what happened 

to DMCA. I think that two things that we would really like, because 

Congress mandated that digital television, that we have broadcast flag 

and analog hold was the two things that we have asked for and that 

means with greater content protection there will be more consumer 
56

choice and more products that people can view our content on, which is 

ultimately our goal. 

 MR. TERRY. Mr. Denney, you had partly answered that question in 

your discussion with Mr. Ferguson. 

 MR. DENNEY. Yes. So just to follow up, we think generally things 

are working the way they are today. We are not asking for 

modifications. We would be a little concerned about mandating a 

particular technology in the marketplace, so mandating a certain DRM or 

some other technology, which I think creates the environment where you 

have to go ask permission or you are basically, you are forced to 

innovate down a certain path, so we would have concern about that, but 

in general, we think things are working the way they are today. 

 MR. TERRY. Mr. Mitchell. 

 MR. MITCHELL. Thank you. First, if I can have just a moment to 

respond to Mr. Krikorian. He said that a hard and fast rule against 

circumvention was likely unworkable and I think Congress had 

anticipated that within the four corners of the DMCA by creating the 

Section 1201 rulemaking, and I would suggest that the appropriate forum 

for his issue is that proceeding, which is a recurring proceeding; it comes 

up every three years and it gives the opportunity to basically issue 

exemptions to this or to any particular prohibitions. Hearings are going 

on now. Brewster Kahle, when he was seeking an exemption for his 

Internet archive enterprise, went to the copyright office and in fact, was 

issued an exemption, which he continues to make use of today. So I 

think the mechanisms are there to permit that flexibility without opening 

up the book on the law, itself. 

 MR. TERRY. Thank you. Should I go to-- 

 CHAIRMAN BARTON. Has Mr. Gonzalez been recognized? 

 MR. TERRY. You would be next, but you are the Chairman of the 

full committee. 

 CHAIRMAN BARTON. No, no, no. We alternate. 

 MR. TERRY. Mr. Gonzalez is recognized. 

 CHAIRMAN BARTON. After his snide remarks at full committee this 

morning, he still deserves the right of recognition before I do. 

 MR. GONZALEZ. Thank you for saying that, Mr. Chairman. I did 

appreciate that. But that has been my quote from the day that I got that 

operation, so it wasn’t anything. I know that my colleague, Mr. Terry, 

said that Congress didn’t have anything to do with the invention of the 

PSP. I want you all to know that Al Gore had one of these 20 years ago. 

You have to have a sense of humor. He didn’t know how to use it, but 

he had it. Anyway, why not get in trouble with both sides of the aisle? 

 Mr. Krikorian, I think you indicated that if you are in New York, you 

have got your laptop, y one user at a time can log in back home, right? It 
57

is not going to be like everyone in the dorm is going to be logging into 

that one student’s, right? 

 MR. KRIKORIAN. Correct. 

 MR. GONZALEZ. Because that was a concern and is a curious one. 

And I think that it was Mr. Ferguson who was talking, and we are talking 

about piracy devices and so on, and copyright and patents and all of that, 

yet there are other things that occur as a result of technology and the 

advances and the products that you are already discussing. And there 

was a story regarding Sling, and I am going to go ahead and read a 

couple of the quotes, and I am not even sure where we end up with this 

particular issue and I am not saying that it is going to be this committee 

or Judiciary or wherever it is, but this is the quote from the Wall Street 

Journal. “The TV industry has long been alarmed about the problem of 

digital piracy on the rise now, that more viewers watch shows via the 

Web, iPods, and cell phones. The concerns about the industry’s 

geographic structure are a newer and more complex issue. Geographic 

lines that have held certain parts of the TV business together are being 

eradicated into big concern.” 

 Then the other quote, this is an analysis: “The whole business model 

in the broadcast industry is based on geographic exclusivity. The 

potential use of the Slingbox fractures that.” How do you see the 

consequences of devices of the type that you have out there in the market 

impacting the way we do business now and broadcasters and such? 

 MR. KRIKORIAN. Right. I am really glad you brought that up. The 

funny thing was the day after the writer wrote that I had the opportunity 

to meet with her and walk her through, and the funny thing was, she 

flipped all the way around and realized that what we are doing is 

probably the best thing since sliced bread for the local broadcasters. So 

let us pretend for a second that you are a local broadcaster, okay, let us 

say you are KORN TV in San Francisco and I live in San Francisco. 

What the Slingbox does is it gives you, that broadcaster, the ability, a 

longer leash, if you will, to reach me on more displays and more places 

than you ever could. So let us go in sort of concentric circles. In the 

home, you have continued to lose me as a customer because I am 

spending more time on the Internet. What the Slingbox does is let you 

get your content to me on these displays where you have lost me. Now I 

am sitting in the office place in my cubicle. I am still in the same 

geographic area. And so what now is happening is that you are able to 

reach me, another ten hours a day that you never could reach me before. 

Now, let us go ahead and say that I am also a Nielsen household, okay? 

 MR. GONZALEZ. Okay. 

 MR. KRIKORIAN. And one of the arguments that I hear right at the 

very beginning, someone says well, that is good that you are able to 
58

reach me, but you are not getting credit. That is not true, at all. If I am a 

Nielsen household, what ends up happening, let us say I had a set meter, 

as an example. The Slingbox fits in very synergistically with that whole 

system, so now I am watching it on my display at the workplace. That 

meter is running even more. You are getting more and more and more 

credit. So now let us say, for example, that now I am in Washington, 

D.C. in a hotel room, like I was today, watching my KORN back home. 

One of the arguments could be well, this is a bad thing because the local 

D.C. affiliate is not being able to be seen in the hotel room. Well, first 

off, that local affiliate is not getting any credit from me watching it in the 

hotel room, anyway; that is one of the flaws in the whole Nielsen system; 

whereas, I am watching my local KORN back home, they are getting 

credit. And then if you really looked at it from an advertising 

perspective, anyways, I am watching a Toyota ad back in San Mateo. 

What is more effective, for me to watch that Toyota ad when I am sitting 

here in D.C. because I might buy the Toyota on the weekend, or is it 

better for me to watch a Washington, D.C. ad? So I think what is 

happening is we get down to this and what people end up realizing is this 

is actually a good thing, but historically it is bad because you are 

questioning the geographic boundaries and just historically, emotionally, 

it is a bad thing. But if you will look at it economically, I do think it is 

very additive thing. 

 MR. GONZALEZ. Well, it must be in its infancy stage as far as the 

debate itself and I appreciate your views on it and your explanation, 

because I found it somewhat confusing because I thought it could be an 

advantage, but like I said, it remains to be seen and we will hear from the 

other side on this. But my time is up and I thank you. 

 MR. TERRY. Chairman Barton. 

 CHAIRMAN BARTON. Thank you. I appreciate the hearing being 

held today. I know Chairman Stearns is not here in the room at the time, 

but I do appreciate that. My first question, I am trying to understand 

what the Slingbox really does, since I have never seen one. Do you have 

to have your TV on, the home TV, the base TV? 

 MR. KRIKORIAN. No, you don’t. In fact, you don’t even necessarily 

have to have a TV plugged in to it. So you take the Slingbox, put it in 

your home, plug your TV signal into it, your satellite, your cable, your 

over the air, whatever, connect it to your home network and then 

wherever you happen to be you can watch your TV. In fact, if you can 

switch over to the display right now, I have to-- 

 CHAIRMAN BARTON. That is okay. I just-- 

 MR. KRIKORIAN. Well, just-- 

 CHAIRMAN BARTON. So what you do is transfer the home signal? 

 MR. KRIKORIAN. Correct. 
59

 CHAIRMAN BARTON. Okay. 

 MR. KRIKORIAN. Right, we ship the home signal. 

 CHAIRMAN BARTON. Okay. 

 MR. KRIKORIAN. I am watching my TV right now, if you look up on 

the screens. This is my TV. I promise I haven’t been watching it the 

whole time. 

 CHAIRMAN BARTON. Oh, that is okay. 

 MR. KRIKORIAN. And I can go ahead and change the channel and do 

whatever I want. I just said watch CNN and I am tuning to CNN. This 

is my TV signal live at my house in San Mateo right now on a laptop you 

provided me. 

 CHAIRMAN BARTON. Now, we have had several hearings on this 

general concept of fair use versus copyright protection over the last 

several Congresses and it is no secret that I am a co-sponsor of Mr. 

Boucher’s Fair Use Bill, which we still have hopes to move this year. I 

don’t know who to ask this question to, probably Mr. Slingbox down 

there, since you developed this technology. Is it possible to have a 

technological solution to fair use so that we can protect the legitimate 

copyrights of the content providers that the Motion Picture Association 

represents, but yet let average consumers make a copy or two of 

particular video or a music CD that they wish to? Is there a 

technological solution that can allow what Mr. Boucher and I call fair 

use, but not give a commercial application to somebody that wanted to 

pirate dozens or hundreds or thousands of tens of thousands of the same 

CD or video? 

 MR. KRIKORIAN. I think if you set forth certain rules, for example, 

to say that the consumer has the right to make one copy of a DVD or 

what have you, I believe that you can come up with a technological 

solution to address that. To look at blanket technological solution that 

can address all possibilities that we don’t even know if it is going to 

come down the pike, I think that is a pretty difficult thing. But 

unfortunately, I don’t know as much as I probably need to. Ask me in 

another couple of months. I seem to be spending a lot of my time 

worrying about this. 

 CHAIRMAN BARTON. Mr. Denney, how would you answer that 

question? 

 MR. DENNEY. I would say that the beauty of technology is anything 

is possible. Would it be to consumer satisfaction and is it viable in the 

marketplace, is something I think we would have to look at a little more 

closely to give you a solid answer. We can go on the record if you want. 

But I think, certainly, there is a possibility of having such an 

environment. 

 CHAIRMAN BARTON. And, Mr. Feehery, you raised your hand. 
60

 MR. FEEHERY. I would say that-- 

 CHAIRMAN BARTON. Are you going to surprise me and semi-agree 

with me? 

 MR. FEEHERY. Well, I would say that because of DRM and the 

marketplace, it is already happening. In England, UA and Universal 

made a deal. They get three copies for just the price of one DVD. So the 

marketplace and the-- 

 CHAIRMAN BARTON. So your solution is to just give them three 

copies from the beginning. 

 MR. FEEHERY. Well, to give them the ability to make three copies. I 

think that the marketplace is working and I think, as Mr. Denney says, if 

given the chance to work, we can make this work for consumers who 

want it. 

 CHAIRMAN BARTON. So you are saying that one of your companies 

has signed an agreement that has in the original video the ability that it 

can be copied twice. Is that what you are saying? 

 MR. FEEHERY. What it says is that they get three copies for the price 

of just over one. I am not sure of the technicalities of it, if you do it 

yourself or if they give you three copies. Mr. Chairman, what I would 

like to do is-- 

 CHAIRMAN BARTON. Well, that is a big difference. 

 MR. FEEHERY. I know. I understand. I understand that. 

 CHAIRMAN BARTON. I mean, if you sell a CD or a video that you 

can copy twice and it works, that is a technical solution as opposed to 

giving them a coupon. If you want a couple more copies, turn the 

coupon in and we will give you two more copies. 

 MR. FEEHERY. My understanding of what has happened is you get 

one copy on the DVD, one copy on your computer and one copy on a 

portable for just over the price of a DVD. And what I would like to have 

happen is that our company, at some point in time, could come and talk 

to you about all the things that are happening technologically in the 

marketplace and where they plan on going, because I think that there is 

ways to make this work without a government mandate. 

 CHAIRMAN BARTON. All right. Mr. Mitchell you are the only 

hardware guy here, and I haven’t given you a chance. 

 MR. MITCHELL. Thank you, Mr. Chairman. I actually represent the 

software side, but we did bring along our hardware to be able to 

demonstrate our software. We believe that there are some real problems 

with running together at high speed. What was originally understood to 

be two entirely separate bodies of law, copyright law on one hand and 

the law against circumvention of technological protection measures on 

another. We think that some unintended consequences could come from 

depending on one at the same time, or looking for violations of both and 
61

only enforcing violations of both. The reason is because we know, 

probably better than anybody in the video game business, that there are 

real economic incentives out there for bad actors who would otherwise 

be producing infringing reproductions of our software to produce 

circumvention devices that will enable pirated games to be played on 

video game consoles. There are some very advanced technologies that 

are built into video game consoles, that are built into video game 

software, such that if you were to download a pirated version of a piece 

of video game software and put it in the console there, that X-Box 360, 

the X-Box 360 would recognize it as an infringing copy. It would fail to 

play it. And so being the arms race that it is, some enterprising 

entrepreneurs have created devices, not for the 360, but for other video 

game consoles that actually allow for the play of pirated games. They 

are called mod-chips. They are circumvention devices. These are 

devices that are clearly prohibited by the DMCA. They sell for about 

$40 or $50, and why not? Because once you have voided your warranty, 

once you have soldered this chip into your console, the whole world of 

pirated games become available to you. And so there are real economic 

incentives to produce a circumvention device, even though I may never 

have an underlying copyright infringement. 

 CHAIRMAN BARTON. If I may reclaim my lapsed time, we are not 

trying to circumvent anything, this committee. We are trying to get a 

law that is workable that protects your copyright and your software, but 

also allows the consumers of America to make one or two copies for 

personal use and do it legally, and that is more like my original question, 

is there a technological solution? You know, right now we don’t have a 

political solution, but if we at least started with the premise that we could 

have a technological solution, we might get a political solution, that is 

all, and no one on either side of this issue wants people to buy the device 

that you just mentioned and use it so that they can run pirated games or 

videos or whatever. I don’t think there is any support on either side of 

the aisle or in any committee in Congress for that. That is not what this 

hearing is about. We are totally with you on trying to prevent that. Mr. 

Chairman, I am going to yield back my time, but thank you and thanks to 

the panelists for being here today. 

 MR. TERRY. Mr. Chairman, you were last Member, so if you would 

like a second round of questioning, you are entitled. With that, I will 

thank all of you for spending your afternoon with us. It has been very 

interesting as well as educational, and we now stand adjourned. 

 [Whereupon, at 2:46 p.m., the subcommittee was adjourned.] 
62

DIGITAL CONTENT AND ENABLING 

TECHNOLOGY: SATISFYING THE 21ST

CENTURY CONSUMER 

WEDNESDAY, MAY 3, 2006 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON ENERGY AND COMMERCE, 

SUBCOMMITTEE ON COMMERCE, TRADE,

AND CONSUMER PROTECTION, 

Washington, DC. 

The subcommittee met, pursuant to notice, at 2:00 p.m., in Room 

2322 of the Rayburn House Office Building, Hon. Cliff Stearns 

[chairman] presiding. 

 Members present: Representatives Stearns, Bono, Terry, Murphy, 

Blackburn, and Schakowsky. 

 Staff present: Will Carty, Professional Staff Member; Chris Leahy, 

Policy Coordinator; David Cavicke, General Counsel; Consuela 

Washington, Minority Counsel; Alec Gerlach, Minority Staff Assistant; 

and Billy Harvard, Legislative Clerk. 

MR. STEARNS. The subcommittee will come to order and I think we 

will go ahead and start. The Ranking Member is on her way and we 

have other Members that have things we have to sandwich in together, so 

good afternoon. Today we continue our look at the future of digital 

content, new media distribution channels, and what all of this means for 

the consumer. That is what we are here today to talk about. In part two 

of our hearing, we will focus our attention to the audio and software side 

of the issue. I realize it has been over a month since our first hearing on 

digital content and a lot has happened just over the past few months. 

 Apple celebrated its billionth download, a number of content and 

device companies announced a new string of deals, and the market has 

continued to excite us with new gadgets and innovative content almost 

weekly it seems. I am excited to get back into this issue and hear from 

the distinguished group of experts from the digital device and content 

communities that are here before us today. Interestingly enough, Apple, 

a company with a great story to tell in this area chose not to join us this 

afternoon. Obviously, I am disappointed, as a legislator and a long time 

Mac user. I think I am one of the few. There are only three or four of us 
63

in the Senate and House, out of 535 Members here in Congress that use 

Mac today, so I am very disappointed. 

 This is not an investigation. I think they thought it was an 

investigation; it is not. And when I talked to their counsel, they said that 

they just did not want to participate for any reason and so they were 

pretty adamant about that, and I tried to tell them that it is just an 

opportunity for them to talk about the digital revolution that is quickly 

changing our marketplace, and to talk about devices. There is nothing 

proprietary that we are divulging here, but I could not convince them. 

 I would like to sincerely thank those folks, that have come, for their 

openness and assistance in helping us better understand the implications 

of new digital content and the distribution technology for the American 

consumers that exist today. You are doing all of us and the public a great 

service by joining us this afternoon. I think Ms. Schakowsky should be 

here momentarily, but I think, at this point, I will let the gentlelady from 

Tennessee give her opening statement, Mrs. Blackburn. 

 [The prepared statement of Hon. Cliff Stearns follows:] 

PREPARED STATEMENT OF THE HON. CLIFF STEARNS, CHAIRMAN, SUBCOMMITTEE ON 

COMMERCE, TRADE, AND CONSUMER PROTECTION

Good afternoon. 

Today we continue our look at the future of digital content, new media distribution 

channels, and what all of this means for the consumer. Part two of our hearing series will 

focus our attention to the audio and software side of the issue. I realize it’s been over a 

month since our first hearing on digital content and a lot has happened over the past few 

months -- Apple celebrated its billionth download, a number of content and device 

companies announced a new string of deals, and the market has continued to excite us 

with new gadgets and innovative content, almost weekly it seems. I’m excited to get 

back into this issue and hear from the distinguished group of experts from the digital 

device and content communities before us today. Interestingly, Apple, a company with a 

great story to tell in this area, chose not to join us today. I must say I’m disappointed as a 

legislator and a long-time Mac user. Please understand this is not an investigation it is 

rather an opportunity for members to learn about a digital revolution that is quickly 

changing the nature of the device and content market. I therefore again would like to 

sincerely thank you all for your openness and assistance in helping us better understand 

the implications of new digital content and distribution technology for American 

consumers. You are doing us and the public a great service by joining us this afternoon. 

With that, I would like to turn to my friend and colleague, the ranking member, Ms. 

Schakowsky for a few words. I also would like to encourage members to allow us to go 

straight to our panel unless a member did not offer a short statement at part one of our 

hearing series would like to do so now. I also would like to remind members that all 

statements can be included in the record and that statement time is always added to 

question time if you chose not to use it when called. 

Thank you and welcome. 

 MRS. BLACKBURN. Thank you, Mr. Chairman. I do want to thank 

you for holding this hearing and for your attention to the issue of digital 
64

content and technology that helps enable that content. I want to thank 

the entire panel for being here with us today, for submitting those 

testimonies to us, but I especially want to thank Bob Regan, who is the 

president of the National Association of Songwriters International. As 

co-chairman of the Congressional Songwriters Caucus, I believe that it is 

important that our songwriters have a voice here on Capitol Hill and 

having Bob be here today for our hearing is significant, and I appreciate 

his efforts. 

 A little bit about him. He is an accomplished songwriter and you 

may recognize some of his credits, which include Keith Urban’s hit, 

“You’re Everything,” and for an old man like the Chairman, he might 

remember Billy Ray Cyrus’ song “Busy Man.” Tricia Yearwood--he 

wasn’t listening. He didn’t catch that. Tricia Yearwood’s “Thinking 

About You,” and Reba McIntire’s “Til Love Comes Again.” Thank you 

for coming today, Bob. I am thrilled that you are here and appreciate 

your time. 

 There are several issues that are important that we should be 

considering today and as we go through looking at the digital content 

issue. Congress gave the satellite services a compulsory license to 

perform music so that subscribers could listen to it. Sometimes in this 

discussion we forget where we began. At last week’s Senate hearing, the 

witnesses were asked whether new devices used by these services go 

beyond the law because it enables your subscribers to cherry pick songs 

and build a library of music, making what some believe the law calls a 

distribution of the work. 

 Victoria Shaw, a songwriter from Nashville, spoke for a great many 

of my constituents and a great many artists all over this country when she 

noted that this new device used by the satellite industry is not merely 

designed to play music, but to distribute that music, as well. It seems 

more similar to an old iTunes download or a record sale and she rightly 

seeks fair compensation for the distribution. I think her quote at the 

hearing summed it up very well for these artists who are behind the scene 

and don’t enjoy the popularity of most performers, but are integral to the 

creative process. And her quote, “I don’t tour. I make 9.2 cents a song, 

that is a song. That is how I feed my children. I am the parent that 

works out of the house.” 

 Mr. Chairman, my State is home to some of the most creative 

songwriters and artists in the world. They are entitled to be paid fairly 

when their music is used according to the law, and from what I have 

learned, this new device is terrific, but many believe it is not just a 

performance device. I know the companies involved in the process are 

negotiating to address this issue and I know my constituents who would 

like to see closure on this issue. I look forward to the testimony of the 
65

witnesses; I look forward to the opportunity to ask some questions of the 

witnesses; and I hope that we can agree to explore both protecting 

content while providing new platforms for artists to distribute and market 

their product and send a message to the world that we are serious about 

protecting creative content. I yield back. 

 MR. STEARNS. I thank the gentlelady and I think we will move right 

to the panel since we have no more opening statements. We have Mr. 

Gary Parsons, Chairman of the Board of XM Satellite Radio; Mr. 

Michael Ostroff, General Counsel and Executive Vice President, 

Business and Legal Affairs, Universal Music Group; Mr. Dan 

Halyburton, Senior Vice President and General Manager, Group 

Operations, Susquehanna Radio, on behalf of the National Association of 

Broadcasters; Mr. Robert Regan, President of the Board, Nashville 

Songwriters Association International; and Mr. Jeffrey Lawrence, 

Director, Digital Home and Content Policy, Intel Corporation. Thank all 

of you for being here and Mr. Parsons, we will start with you. 

STATEMENTS OF GARY PARSONS, CHAIRMAN OF THE 

BOARD, XM SATELLITE RADIO; MICHAEL OSTROFF, 

GENERAL COUNSEL AND EXECUTIVE VICE PRESIDENT, 

BUSINESS AND LEGAL AFFAIRS, UNIVERSAL MUSIC 

GROUP; DAN HALYBURTON, SENIOR VICE PRESIDENT 

AND GENERAL MANAGER, GROUP OPERATIONS, 

SUSQUEHANNA RADIO, ON BEHALF OF THE NATIONAL 

ASSOCIATION OF BROADCASTERS; ROBERT REGAN, 

PRESIDENT OF THE BOARD, NASHVILLE 

SONGWRITERS ASSOCIATION INTERNATIONAL; AND 

JEFFREY LAWRENCE, DIRECTOR, DIGITAL HOME AND 

CONTENT POLICY, INTEL CORPORATION 

MR. PARSONS. Thank you very much, Mr. Chairman. 

 MR. STEARNS. Just pull the mic up a little closer to you and I think 

they are on. 

 MR. PARSONS. Is that better? 

 MR. STEARNS. Yes, okay. 

 MR. PARSONS. Thank you very much, Mr. Chairman and members 

of the subcommittee, and thank you for inviting XM to speak on behalf 

of the satellite radio industry, our customers, and actually, more broadly, 

to defend consumers’ rights to enjoy radio content for their own personal 

use. We believe it is possible to promote consumer rights and at the 

same time to protect the interests of content owners because we are a 

company that has been built by both. We hope to grow the music 

industry by enhancing the discovery of music by our 6.5 million 
66

subscribers, and that is actually 13 to 15 million listeners across the 

country. 

 We are excited about our potential at XM, but we are still an industry 

in its infancy. We will only succeed by keeping our existing listeners 

happy and by attracting new subscribers going forward. Today, XM 

Radio subscribers pay approximately $120 per year to listen to over 170 

channels of entertainment, sports, news, talk, and other programs, 

including 69 channels of commercial-free programming. Until recently, 

most of our subscribers heard their favorite programs only at home or in 

their cars; they wanted more. They wanted the ability to enjoy the 

service wherever or whenever they had a chance to listen. 

 So we have launched these new radio devices that give the 

subscribers the portability that they sought, the opportunity to store up to 

50 hours of programming from XM and the opportunity to purchase 

additional music tracks, even entire albums with ease from the new legal 

Napster on line music service. Offering a convenient way to buy music 

that is heard on XM is important to us. Our research shows that XM 

subscribers buy more music and over time buy a broader range of music 

and attend more concerts than most music consumers. We built our 

entire business in compliance with the laws that the music industry 

supported. 

 Today, the music industry gets paid twice for the music that our 

subscribers enjoy. First, through the royalties that we pay under Section 

114 of the Copyright Act of 1998 and then a second time, through the 

royalties paid under the Audio Home Recording Act, which go to the 

songwriters, among others. Under current law, we already pay more than 

any other company in copyright sound recording performance royalties, 

annually generating tens of millions of dollars in revenue for the music 

industry. In fact, we are about to enter a new round of negotiations to 

determine the new performance royalty rates for the next five years. But 

even under the current rates, satellite radio royalties to labels and artists 

would be in the hundreds of millions of dollars over the next five-year 

period. 

 Additionally, we will pay songwriters and music publishers hundreds 

of millions of dollars, as well, with our ASCAP, BMI, and CSAC 

licenses. And as the newest radios are just starting to roll out, if they are 

successful, this would generate tens of millions in additional royalties 

through the Audio Home Recording Act. Our new devices let consumers 

do the same thing that many of us have all done for the last 50 years with 

the convenience of digital technology. If a song comes on the radio you 

simply hit a save button right in the middle of the unit, just like recording 

off of FM radio. You can hear that song again later, if you want to. 
67

 You can set the radio by hour and channel to record at a given time, 

just like TiVo allows you to time shift your favorite TV shows, so for 

example, if you or your staff were busy at ten o’clock this morning when 

the debut of Bob Dylan’s new show on XM came on, you can set the 

radio by time and channel to record it and listen later at your 

convenience, or if you could have saved a late night West Coast baseball 

game last night to enjoy this morning. This traditional fair use activity is 

well known to all of you. In the analog era, we used to do it with reel-toreel tape recorders, cassette tapes, VHS tapes. Now, in the digital age, 

satellite listeners and TiVo owners use new technology to do it more 

conveniently. 

 But making it easier does not necessarily make it illegal. Let us be 

clear about what the devices do not do. A song saved on the radio is 

locked to the device. It can’t be moved, it can’t be copied to another 

device. It can’t be burned to a CD. It can’t be e-mailed to a friend. It 

can’t be put out on the Internet; all of the things that you do if you 

actually own a property. You can hear it only as long as you are an XM 

subscriber and only on this individual personal radio. You can’t get what 

you want immediately when you want it. An XM subscriber can only 

save a song on this device when and if an XM disc jockey has decided to 

play it. 

 In the past, Congress has rejected similar complaints to the ones that 

are being voiced today, the same complaints that seem to be raised every 

time a new technology emerges. But striking the right balance between 

the rights of users and rights of content owners, Congress gave 

entrepreneurs the freedom to innovate, which gave consumers, in turn, 

the right to purchase VCRs, TiVos, CD burners, even MP3 players. We 

hope that you will continue this consistent record of innovation by 

allowing satellite radio subscribers the opportunity to enjoy the services 

for which they have paid, wherever they are and whenever they can 

listen. Thank you very much. 

 [The prepared statement of Gary Parsons follows:] 

PREPARED STATEMENT OF GARY PARSONS, CHAIRMAN OF THE BOARD, XM SATELLITE 

RADIO

 Mr. Chairman and Members of the Subcommittee, I am pleased to appear on behalf 

of our 800 employees, who have made XM Satellite Radio America’s most popular 

satellite radio company. Thank you for inviting XM to speak on behalf of the satellite 

radio industry and our customers, and more broadly in support of consumers’ right to 

enjoy radio content for their own personal use. Like the Members of this Subcommittee 

who long have promoted fair use, we believe it is possible to both support consumers’ 

personal rights to time-shift and record from broadcasts, and protect the interests of 

content owners. 

As we look to the future, we hope to help grow the music industry by enhancing the 

discovery of music by our six and a half million subscribers and an estimated thirteen to 
68

fifteen million XM listeners across the country. We’re very excited about our potential at 

XM, but we still are an industry in its infancy. We will only succeed by keeping our 

existing subscribers and attracting lots of new ones. And we can only do that through 

constant innovation to improve listeners’ experience. 

Today, XM subscribers can expect to pay approximately $120 per year to listen to 

over 170 channels of entertainment, sports, news, talk, and other programs, including 69 

channels of commercial-free music programming. Until recently, most of our subscribers 

heard their favorite programs only at home or in their cars and trucks. To add to their 

enjoyment, we first developed a hand-held device that could receive XM live and store 

up to five hours of programming. In response to growing consumer demand, we are 

bringing new portable personal products to market that, for the first time, will give our 

subscribers the ability to receive live XM satellite radio, “time-shift” XM programming 

for later listening, and listen to their own MP3 music collection, all in a single, 

convenient handheld device. These new generation portable radios will allow subscribers 

to store up to 50 hours of XM programming, to enjoy their music on the go, and to 

purchase additional music tracks--even entire albums--with ease from the new Napster 

online music service. 

Our research shows that XM subscribers buy more music, and over time buy a 

broader range of music and attend more concerts, than other music consumers. Despite 

this fact, the recording industry wants to stop these new products from coming to market, 

that is, unless we let them take control of designing the features we build into the devices. 

As a result, we have been threatened with litigation and now face the prospect of devicecrippling legislation in this and other Congressional Committees. 

About XM 

XM is one of the great American high-tech success stories of this decade. Using 

spectrum purchased at auction for nearly $90 million, we launched our subscription 

service late in 2001. Since then, we have invested nearly $3 billion in building a state-ofthe-art network for the delivery of radio programming. Despite the challenges of 

launching a business in an economic recession and at the height of the dot.com bust, XM 

has grown into an enormously popular consumer business. And we hope for it to be a 

cash-positive business soon as well. 

We built our entire business in compliance with the law, particularly the Audio 

Home Recording Act and the Digital Millennium Copyright Act of 1998. As a result, the 

record industry gets paid twice for the music our subscribers enjoy; once through the 

royalties we pay under Section 114 of the Copyright Act of 1998, and a second time 

when our device manufacturers pay royalties under the Audio Home Recording Act. 

We continue to make huge investments not only in technology, but also in gifted 

individuals. We employ rocket scientists, electrical and broadcast engineers, consumer 

electronics wizards, athletes, a public radio legend, traffic reporters, marketing experts, 

and some of the world’s foremost music experts. Unfortunately, we also have been forced 

to employ more and more lawyers. 

Relationship to the Music Industry 

Since the launch of our service, XM and the music industry have enjoyed a 

symbiotic relationship. Without compelling content, our multi-billion dollar, state-of-theart delivery system would not have attracted more than six and a half million subscribers. 

Nor would the music and recording industries, and songwriters and performers have 

received tens of millions of dollars in royalties from us. Having made that investment, 

we are now delivering a wide diversity of music to millions of enthusiastic, paying music 

fans. We have demonstrated that you can build a business that promotes the interests of 

both consumers and the music industry. 
69

As an industry, satellite radio is the single largest contributor of sound recording 

performance royalties to artists and record labels. In fact, XM and Sirius pay more in 

such performance royalties than all other digital broadcasters and webcasters combined. 

Likewise, XM and Sirius pay huge royalties to composers and publishers. We respect, 

appreciate, and compensate creators of music. In short, through the investment of 

enormous amounts of risk capital, we have created a new source of royalty payments for 

rights holders. 

In addition to these new royalty payments, we continue to provide the music 

industry with a powerful promotional platform. Airplay has long been an essential 

promotional tool for music. In fact, Congress exempted traditional radio from paying 

sound recording performance royalties precisely because it recognized its promotional 

value. XM provides the same if not greater promotional value to artists and labels, and 

yet we do not enjoy this same exemption. Even for HD digital radio, terrestrial 

broadcasters are exempt from the sound recording performance royalty obligations that 

XM pays. In fact, as you know, recent payola allegations suggest that record labels (that 

collect money from satellite radio) actually pay traditional radio stations to play their 

music. Despite this disparate treatment, we are not here today to ask you to change 

current law, but instead to help you understand the competitive environment in which we 

operate. 

Over the past two decades, playlists at traditional radio stations have been shrinking, 

forcing the public to endure an endless repetition of the same handful of songs. The 

variety of formats has declined as well. By contrast, XM offers our subscribers 69 

channels of commercial-free music. We have over two million titles in our collection, and 

play approximately 160,000 different tracks each month. 

We have something for everyone: 24-hours per day of bluegrass, blues, classical, 

country, hip hop, jazz, opera, pop, and rock and roll. We have channels devoted to 

emerging artists. We have a channel for artists that as yet are unsigned to any major 

record label. Our “Deep Tracks” channel has helped to reinvigorate the careers of many 

rock stars of the 1960s and ‘70s, and we have provided the opportunity for bands to 

perform live in the “XM Café” at our recording studios. XM presents a series called 

“Artist Confidential” and music shows hosted by stars as diverse as Bob Dylan, Quincy 

Jones, Tom Petty, Wynton Marsalis, and Snoop Dogg to help our listeners understand 

more about music from the artists’ perspective. Our channel 73, “Frank’s Place,” 

features the greatest singers of American Popular Song, from its namesake Frank Sinatra 

to greats such as Ella Fitzgerald, Sarah Vaughan, Tony Bennett, and Rosemary Clooney. 

At the touch of a button, XM listeners see the name of the performing artist and the 

name of the song they are hearing. Unlike broadcast radio stations, which rarely 

announce what they play, XM is a powerful tool for educating consumers hungry to 

discover and buy more music. In so doing, we provide promotional value and royalty 

compensation never offered to the record industry by traditional radio. And yet the music 

industry continually attacks us for bringing great new products to market. 

New Devices 

From the outset, we have been committed to offering consumers the best and most 

innovative products, while respecting copyright. Our subscribers want more than just the 

ability to hear great music at home or on the highway. Last year, we introduced a line of 

products called XM2GO. These portable products allow consumers to listen to XM live 

or to record up to five hours of programming, and thus to enjoy XM even when they 

cannot receive a satellite signal, such as at the gym or on an airplane flight. 

We are building on the success and the functionality of the XM2GO devices with 

the Pioneer Inno and the Samsung Helix. Like the XM2GO, these new personal portable 

devices enable consumers to listen to live XM or to record content they receive over 

satellite radio. A subscriber can program these devices, like “time-shifting” on a VCR or 
70

TiVo, to record a program that they cannot listen to live. Just as you can time-shift the 

television broadcast of a baseball game for later viewing on your VCR or TiVo, you can 

use these new XM portable devices to time-shift the radio broadcast of the game from 

XM. The devices also will offer the type of functionality consumers have come to expect 

from their everyday personal portable music devices. The XM Helix and Inno players 

give consumers the ability to organize the content they have recorded so they can listen to 

that content in any order they choose. In addition, the new devices include the ability for 

consumers to store songs from their personal music collection, as they can do with any 

MP3 player, and to mix those songs with new music they hear on satellite radio. And if 

they enjoy a song they have heard or recorded, they can “bookmark” a song to buy it later 

on CD, or, they can connect to their computer and purchase the song lawfully online from 

the new Napster and have it downloaded directly to the device. 

As a responsible business, we specifically designed our products to comply with the 

Audio Home Recording Act (AHRA). When it adopted the AHRA in 1992, Congress 

created the legal framework for companies like XM to manufacture and distribute devices 

that can record digital music. As you will recall, that legislation allows consumers to 

digitally record music from CDs and broadcast transmissions for personal use, but 

prevents making digital copies from copies. In addition, under the AHRA manufacturers 

pay royalties on the sale of devices. The millions in revenues paid by manufacturers are 

shared with everyone in the music industry, under a formula enacted by Congress with 

the support of all music industry stakeholders. In return, manufacturers, distributors, 

retailers, and consumers are immune from lawsuits based on copyright infringement. 

This represented a balanced compromise that won unqualified support from the recording 

industry, the music industry, and the consumer electronics industry. 

Congress intended the AHRA as a comprehensive and forward-looking compromise 

solution for the recording industry’s concerns, for all new digital recording devices. 

And so did the recording industry. Then-RIAA president Jay Berman testified 

before Congress that the AHRA “will eliminate the legal uncertainty about home audio 

taping that has clouded the marketplace,” and “will allow consumer electronics 

manufacturers to introduce new audio technology into the market without fear of 

infringement lawsuits... .” In supporting the passage of the AHRA, Mr. Berman assured 

Congress that they would not have to revisit the home recording controversy for every 

new generation of digital recorder, proclaiming that the AHRA “is a generic solution that 

applies across the board to all forms of digital audio recording technology. Congress will 

not be in the position after enactment of this bill of having to enact subsequent bills to 

provide protection for new forms of digital audio recording technologies.” 

Similarly, on behalf of the songwriting and music publishing community, thenpresident of the National Music Publishers Association, Edward P. Murphy, testified 

before Congress in support of the AHRA, “[Our] enthusiastic support for the Audio 

Home Recording Act ... stems from its comprehensive approach to audio home taping 

issues. The proposed legislation incorporates the critical royalty component, and it 

extends to all digital audio recording technologies, not just to DAT.” 

In reliance on the AHRA, XM has invested in the design and manufacture of our 

new generation personal portable radio products. In compliance with the AHRA, these 

new generation devices do not allow any of the recorded content to be moved off the 

device in digital form. Content saved to the device from XM stays on the device, and 

cannot be copied or moved. The only output on these devices goes to your headphones, 

in analog form. The new Helix and Inno products promote personal listening enjoyment, 

not Internet piracy. 

Despite our payment of millions of dollars in performance royalties and millions 

more in AHRA royalties, and the limitations we designed into the devices so that XM 

content will not be uploaded to the Internet, XM still faces opposition from the music 

industry. We have heard it said that allowing consumers to record satellite radio turns our 
71

radio service into an unlawful download business. We disagree. We have heard it said 

that we are now giving consumers for the first time the ability “to slice and dice” music 

as they see fit. We disagree. And we have been told our devices will cannibalize the sale 

of recorded music, rather than promote sales as XM has done since its inception. We 

emphatically disagree. 

As an initial matter, we strongly reject the music industry’s efforts to roll back the 

long-established ability of consumers to record off the radio for personal use. We are 

particularly disappointed that the head of the RIAA has sought to vilify our law-abiding 

customers in testimony before the House Judiciary Committee, when he accused home 

tapers using new technology of “boldly engag[ing] in piracy with little fear of 

prosecution.” XM listeners are avid music fans and some of the music industry’s best 

customers, not pirates. And XM, and the consumer electronics manufacturers which 

build our new products in compliance with the AHRA, are not pirates either. 

Recording content off satellite radio is not the same as downloading music and has 

nothing to do with piracy: 

 When a consumer wishes to download a song from the new Napster or iTunes, 

he can acquire that specific song on-demand within seconds of entering the 

name of the song. By contrast, XM subscribers have no ability to choose what 

XM plays or, therefore, what songs they can record. XM decides what is 

played. 

 When a consumer buys a download from an Internet service, she can typically 

copy the song onto multiple devices and even burn it on to CDs. If a subscriber 

records a song from XM, the song is output only to her headphones. It cannot 

be burned directly to a CD, moved to any other device, or uploaded to the 

Internet. 

 When a consumer purchases a download, he gets the full song from beginning 

to end. When a subscriber records a song off of XM, the recording is no 

substitute for the original. Just like recordings made using a tape recorder from 

FM radio, songs recorded off XM include DJ talk, overlapping parts of the 

preceding and following songs, and they may even have a few seconds cut off. 

 A download service, unlike XM, knows exactly what the consumer is 

downloading and can charge for every download. XM, like any radio service, 

has no way to know how many subscribers are listening at any given time, no 

less whether or what any subscriber may be recording. That is precisely why 

Congress created a royalty payment pool under the AHRA of funds to be 

shared among the music industry, based on general digital recording for 

personal use. 

In short, we are providing our subscribers greater value from their XM subscription: 

the ability to take XM with them everywhere, on the go in their busy lives. 

These new personal portable XM devices are merely today’s equivalent of recording 

off the radio, with the flexibility consumers have come to expect from new digital 

technology. We are giving our subscribers the tools to enjoy music they have lawfully 

acquired, with the capability to listen to that music in any order they want, to skip over 

songs they don’t like, and to put together lists of songs for listening when jogging, 

commuting, or shopping – including when shopping for CDs. When a consumer records 

television programming on a TiVo, he or she can search for a particular episode and 

disaggregate it from the other recorded content. Like TiVo, we give consumers the tools 

to maximize their personal, non-commercial listening experience. But unlike TiVo, we 

cannot offer a program guide to tell our subscribers what songs are coming or when to 

record – because the law prohibits us from doing so. 

As in the days of reel-to-reel tape and later with analog cassettes, consumers can 

record from XM programming and decide when and in what order to listen to it. No 

doubt a few of you remember the experience of recording a song off the radio, using a 
72

razor blade to cut the tape, and with the help of Scotch® tape re-arranging the songs to 

make a party list of favorites. Our devices, like many other lawful products on the market 

today, simply update the tools for personal recording of radio into the 21st century. Had 

Congress heeded the objections of the content industry to each new technological 

innovation, consumers never would have had the right to enjoy the analog cassette 

recorder, the VCR, the CD Recorder, the MP3 player, the TiVo, the Slingbox – or, now, 

XM’s new generation portable satellite radios. Our new devices offer our subscribers the 

convenience of digital recording technology that they get from every other new digital 

media device they own. But just because a device makes personal recording convenient 

does not, and should not, make it illegal. 

Conclusion 

Today, XM offers more than six and a half million subscribers and thirteen to fifteen 

million listeners the ability to enjoy music wherever they go. We are doing so lawfully, 

pursuant to the statutory framework Congress established in 1992 and 1998. We are 

doing so in a way that delivers tens of millions of dollars in new royalty payments to the 

music industry and millions more in additional royalty payments under the AHRA. And 

we are doing so in a way that facilitates the purchase of music and thus gives the music 

industry another way to compete against illegal P2P networks. 

In short, we are doing it right. We are following the laws that Congress designed to 

apply to XM and to our new generation portable personal products. Like the companies 

behind every new technology from the transistor radio to the iPod, XM Satellite Radio is 

giving consumers new lawful ways to take their music wherever they go. We provide 

compensation to songwriters and music publishers both through performance rights and 

the AHRA. And, in addition to the AHRA payments on our devices, satellite radio pays 

more performance rights royalties to sound recording copyright owners and performing 

artists than any other industry. 

Thank you for your consideration of our views and thank you again for standing up 

for the rights of innovators to bring new products to market and consumers to exercise 

their fair use rights. 

 MR. STEARNS. Thank you. Mr. Ostroff. 

MR. OSTROFF. Chairman Stearns and members of the committee, 

thank you for inviting me here today. My name is Michael Ostroff and I 

am General Counsel of the Universal Music Group. I am going to use 

my time to highlight the ways in which Universal has welcomed the 

opportunities that digital technologies provide artists, record companies, 

and music fans around the globe. The music industry has gone through a 

very difficult period. On-line piracy has caused substantial losses over 

the last six years. 

 Thankfully, we are starting to climb out of the hole, in part because 

of the support that we have received from the Administration and the 

Congress. This committee helped educate the public about the dangers 

posed by peer-to-peer technology. Your hearings informed parents, 

teachers, and the news media on the ways that pornography inhabited 

PDPs and the ways that services inserted viruses, spyware and other 

dangerous software on a user’s PC. 

 A key reason for our recovery is digital technology, which enables 

consumers to enjoy music in new ways. Today, I am going to show you 
73

several devices and services that we have authorized to perform, 

distribute, or reproduce Universal’s vast repertoire; oldies and today’s 

hits, from Mozart to Motown to Mariah Carey. I want to emphasize that 

the services that I am going to describe got off the ground through free 

market negotiations: a willing buyer; an entrepreneur with an idea; and a 

willing seller, music companies that own the rights guaranteed by the 

Copyright Act struck a deal. 

 Let us start with the ringtones that people use to personalize their 

phone. We will use Matt’s phone. When I call him, he knows it is me 

because his phone plays a song by Universal artist Cheryl Crow that 

mentions Santa Monica. That is where my office is located. Now let me 

show you what you hear when you call Matt. This is called a ringback, 

another way for a consumer to personalize his or her phone. When you 

call Matt, you hear “Xs and Os” by the Universal artist Trisha Yearwood. 

When Matt gets a call from Morna, he receives a music video as his 

ringtone. You will have a hard time seeing it from the dais, but the 

image is remarkably good. While the call is coming in, he can watch 30 

seconds of a music video. The mobile phone industry seized the value of 

music personalization and is using music to promote their networks. As 

seen here, Verizon and others also offer their subscribers downloads of 

full-length songs through the cellular network. 

 [Slide.] 

 The slide shows Moby TV, a service that streams music video to 

your mobile phone. With a stream, the music video is not stored on the 

phone; the consumer subscribes to a channel and watches and listens to 

videos on the fly. 

 [Slide.] 

 Now let us move from mobile phones to personal computers and 

portable music players. This is iTunes and this is the iPod. We sell our 

recordings to iTunes which sells music downloads by the single song or 

as an album. 

 [Slide.] 

 The next slide displays music subscriptions. For a monthly fee, a 

consumer can download over one million different tracks, again, old 

songs and new releases that you can store for as long as you subscribe to 

the service. Music from Rhapsody can be transferred to over a hundred 

different portable devices like those that I brought with me here. 

 [Slide.] 

 The next slide is of a particular kind of subscription service that 

focuses on the college market. Piracy on university networks is a huge 

problem for us, so we have heavily discounted our prices in order to 

encourage colleges and their students to go legit. 

 [Slide.] 
74

 Next is an example of an on-demand music video service. Music 

fans can now go to sites like Yahoo and view the music videos of their 

choice. We also have worked out a deal with a company that offers 

music videos on demand through cable television. 

 [Slide.] 

 Here is another service we authorize Yahoo to offer: an interactive, 

personalized Internet radio service. With Launchcast, you tell the service 

what your favorite songs and artists are and a customized station based 

on those preferences is created for you. 

 [Slide.] 

 Another noteworthy development is the rollout of legitimate 

authorized licensed peer-to-peer services. This product would not have 

been feasible but for the Supreme Court’s unanimous decision in support 

of artists and creators in last year’s Grokster case. 

 Mr. Chairman, I was glad that you asked me to highlight the devices 

in a legitimate digital marketplace and I could have shown many more. 

These examples make it clear that we are ready, willing, and able to 

license viable business models. We can be as flexible as necessary to 

build a partnership with any business that wants to play by the rules. 

Indeed, we are working closely right now with our long-time partners, 

the radio broadcasters, to come up with a way to support the expeditious 

rollout of HD radio. We are working on a consensus on digital radio 

copy protection. 

 We hope and expect that in the future we will be licensing the sale of 

downloads and other services with your local broadcaster as our business 

partner. I remain hopeful that we can also work out a marketplace 

accommodation with XM, a company we have worked well with over its 

critical first years. We did not object when Congress gave the satellite 

services a compulsory license to perform our music so that their 

subscribers could listen to it. We helped them get started by agreeing to 

below market payments from them. Now XM wants to contort the 

government imposed performance license into a service that allows their 

subscribers to make permanent downloads of our individual songs. 

 The new device permits consumers to record satellite programming; 

see a list of songs recorded; select the specific tracks they want to hold 

on to, as well as those they wish to delete; and a library to select the 

tracks for future use. It is a great device. In fact, it is much like an iPod, 

but unlike an iPod, you don’t have to pay for the music you keep. Sirius 

Radio sells a similar device, which I have here. It is not as robust as the 

new XM products, but similar. We brought our concerns to Sirius and 

entered into a satisfactory agreement with respect to their S50 and look 

forward to productive business discussions regarding the distribution of 

future products. 
75

 Again, we are ready to license our rights on behalf of the artists and 

creators we work with and hope to do so not only with XM, but with a 

great many other services that approach us in the years ahead. Mr. 

Chairman, thank you. I look forward to your questions. 

 [The prepared statement of Michael Ostroff follows:] 

PREPARED STATEMENT OF MICHAEL OSTROFF, GENERAL COUNSEL AND EXECUTIVE VICE 

PRESIDENT, BUSINESS AND LEGAL AFFAIRS, UNIVERSAL MUSIC GROUP

Chairman Stearns, Ranking Member Schakowsky, and Members of the 

Subcommittee, thank you very much for requesting our views on the issue of digital 

audio content and meeting consumer demand in the marketplace. My name is Michael 

Ostroff and I am General Counsel and Executive Vice President, Business and Legal 

Affairs, for the Universal Music Group. Music has been at the forefront of the electronic 

marketplace and we at Universal have worked hard over the past several years to provide 

consumers with the most choices and the best digital music experience possible. 

We are driven in the marketplace by consumers, and consumers are demanding 

quality, convenience and choice. Today, consumers have more choices in how they 

obtain their music than ever before: online downloads such as iTunes; subscription 

services such as Napster and Rhapsody, including portability features such as Napster to 

Go, and special discounted rates for subscription services at colleges; ringtones; 

ringbacks; mobile downloads; mobile videos; online videos on demand; kiosks in retail 

stores; legitimate peer-to-peer services; interactive web radio; and instant post-concert 

recorded CDs are just some of the new formats in which we are making music available. 

These are in addition to new physical formats such as DVD-Audio, Super Audio CD, and 

DualDiscs. 

Considering that all of the products and services listed above have appeared in just 

the past few years – almost a blink of the eye in the long history of music distribution – 

you can only imagine what is yet to come in the near future. 

Universal is excited about licensing and selling our music in these and other new 

digital formats to bring more music to more fans from both our vast catalog as well as 

new artists. And we are flexible in the way we craft digital agreements, so that 

consumers can use the music they purchase conveniently and in ways that meet their 

reasonable needs, while at the same time protecting the content against illegal 

redistribution and other forms of piracy. 

We believe that marketplace negotiations have worked best, allowing us to set 

appropriate rates and ensure reasonable content protection. Such negotiations have 

worked far better than compulsory licenses, such as those granted to satellite, cable, and 

Internet listening services. Our legal obligation to make our music available due to this 

compulsory license leads to situations like one we are facing right now – in which XM 

satellite radio is offering its customers the ability to download music and create a digital 

music library on its portable devices, in much the same way that iTunes offers permanent 

downloads. Of course, the big difference is that in the case of iTunes, Apple 

compensates artists, creators and copyright owners through a distribution fee. 

Let’s be clear. Congress gave the satellite services a compulsory license to perform 

our music, so that their subscribers could listen to it. Our company and others in the 

industry helped the satellite services get started by agreeing to below market payments 

for our property. We worked with them to help them develop interesting channels 

featuring interaction with our artists. Now XM wants to stretch and reinterpret the 

government imposed license into a service that enables their subscribers to make 

permanent copies of our music. 
76

Universal Music does not object to XM offering its subscribers a distribution service 

in addition to a broadcast service, so long as XM agrees to pay us for the distributions. 

Rather than working to reach a fair accommodation through marketplace negotiations, 

however, XM claims that the compulsory performance license it enjoys enables it to 

distribute our content as though it’s just another aspect of performing our music, and that 

its payment for performances covers what are in fact distributions. XM also claims that, 

instead of paying an appropriate distribution fee, its manufacturing partners are merely 

required to pay royalties under the Audio Home Recording Act, a payment system that 

was intended only to cover serial recording on Digital Audio Tapes and was never 

intended to replace the licenses required for distributions of music. 

Allowing XM to make distributions while paying only performance fees is unfair to 

the legitimate music distribution services like iTunes, Napster, Rhapsody and Yahoo!, 

that are just starting to gain traction in the face of competition from illegitimate, 

unauthorized services that have been giving away our music for free. And it is unfair to 

the music companies and artists who deserve compensation for the blood, sweat, tears 

and capital they invest in creating new and innovative sounds. The growth of digital 

distribution in its many forms – via cellphones, internet, cable and now via broadcast 

signals -- depends upon a legitimate marketplace. A legitimate marketplace, in turn, 

depends upon the ability to protect content effectively. 

The emerging digital formats are made possible because content protection is able to 

set levels of “ownership” of a copy of our music at different price points. For streaming 

music, consumers pay at one price point; for permanent downloads, consumers expect to 

pay at a higher price point. Just like a consumer has a different expectation of price when 

renting a musical instrument versus buying it. Without the ability to define the 

parameters of use, without the ability to protect the content, distributors could only offer 

consumers music on a one-price-fits-all basis; and, in order to cover all platforms and 

services, that price would necessarily be higher. That, of course, is not good for 

consumers. In short, content protection presents more opportunities for content creators 

and providers, which ultimately leads to more opportunities – and choice – for 

consumers. 

In last year’s unanimous Grokster decision, the United States Supreme Court gave 

the legitimate digital marketplace a boost. By holding liable those services that facilitate 

piracy, the Court opened the door for the legitimate digital marketplace to succeed and 

emphasized the importance of protecting copyrighted works. Weakening copyright and 

allowing for the circumvention of content protection is antithetical to the Court’s holding; 

and, by decreasing the market opportunities for both media creators and distributors, the 

circumventing or “hacking” of content protection ultimately harms consumers. 

Unfortunately, a bill has been introduced and referred to this Subcommittee, H.R. 

1201, that would undermine the legitimate marketplace by granting a “hacking” right to 

consumers. It would allow the removal of copy protection contained on a digital product, 

as long as it is done for “fair use” purposes. This legislation distorts the meaning of fair 

use and would lead to the exact escalation of piracy the Grokster case sought to prevent. 

Fair use has never meant “free access.” If you want to copy a portion of a chapter of a 

book to quote in a book report, you cannot steal the book in order to do so. Yet, that is 

exactly what H.R. 1201 would allow. It is the equivalent of allowing a consumer to buy a 

“black box” to get HBO for free, as long as the consumer is only using it to watch 

programming for “fair use purposes.” And, of course, once the content protection is 

removed, that protection is compromised for all purposes. Given that licensing practices 

in the marketplace already allow for personal uses that meet consumer expectations, this 

bill is unnecessary and dangerous. 

H.R. 1201 would undo much of what this Committee and the Congress 

accomplished in 1998 when it passed the “Digital Millennium Copyright Act.” Since 
77

passage of the DMCA, the digital marketplace for content has exploded. Weakening it 

would stymie future growth. 

In fact, the Congress rejected in 1998 the language proposed in section 5 of H.R. 

1201. Instead, under the leadership of the Commerce Committee, Congress created a 

procedure to ensure that adequate public access to copyrighted materials is maintained: 

the Librarian of Congress, working with the Commerce Department, investigates, every 

three years, whether public access to copyrighted materials is being harmed or threatened. 

In both 2000 and 2003, the Librarian considered broad exceptions similar to H.R. 1201, 

and rejected them, because proponents could not demonstrate harm. 

Another proceeding is in process this year. There is no evidence the Congress made a 

mistake in 1998. Just the opposite: the Congress got it right, and there is no basis for 

undoing that decision now. 

H.R. 1201 would also undermine efforts to fight piracy and promote respect for 

copyrights worldwide. Because U.S. copyrighted works dominate world markets, the 

U.S. Congress and Administrations – Republican and Democrat – have all worked hard 

to upgrade copyright law and enforcement internationally. Because America has such a 

huge stake in intellectual property protection, we set the standard that we hope the world 

will follow. In recent years, this effort has paid special attention to protecting encryption 

and similar technologies against hacking. H.R. 1201 would pull the rug out from under 

these efforts, and expose U.S. works to greater risks of piracy in markets around the 

globe. 

We ask that this Subcommittee reject H.R. 1201, and allow the marketplace to 

continue to meet consumer expectations. The many different options consumers have 

today in which to get their music is a function of that legitimate free marketplace. This 

proves that one thing is certain – if music distribution is left to the free market, we will 

find a way to license these and many more uses of our music with functionality 

consumers can only imagine today. Universal has embraced and made deals for 

numerous different distribution models, and we look forward to welcoming many more in 

the future. We are extremely eager for consumers to have increasing numbers of options 

for where they get their music and how they experience it. The better the experience for 

consumers, the better it is for us as well. 

There are instances, however, where we do not have rights, in which the free 

marketplace is not allowed to work, necessitating changes in the law to maintain a 

legitimate marketplace. This is perhaps most evident with over-the-air radio. The next 

generation of new HD Radio devices would allow listeners to record, sort, and 

permanently store individual songs in a digital jukebox, replicating a sale made from a 

digital download service such as iTunes. But we have no performance right for over-theair radio, which means that we have no leverage when seeking to negotiate appropriate 

use of our music. 

Fortunately, we are already in productive discussions with the broadcast industry to 

ensure that the functionality of these new HD Radio devices does not substitute for sales 

in the marketplace. In part because of our longstanding relationship with broadcasters, 

and additionally at the urging of Senators Stevens and Inouye during a January hearing 

on Broadcast and Audio Flag before the Senate Committee on Commerce, Science and 

Transportation, representatives of the music and broadcast industries agreed to meet to 

work out the issues. Since then, there have been several meetings, including a very 

productive one in New York between senior executives of both industries, resulting in the 

formation of two negotiating groups, an Audio Flag Task Force and a Technical 

Implementation Working group. We remain optimistic about these talks, are committed 

to a swift rollout of HD radio, and continue to believe that the best solution is one that 

comes from free marketplace negotiations. 

But it is important to remember that there remains a marketplace failure due to our 

lack of an over-the-air performance right – our bargaining power is limited by the fact 
78

that we cannot simply say, “no, you may not use our music.” Therefore, while we are 

encouraged that the broadcasters will continue to negotiate in good faith, we appreciate 

the introduction of legislation such as H.R. 4861, The Audio Broadcast Flag Licensing 

Act. This bill, introduced by Representatives Ferguson, Towns, Bono, Gordon and 

Blackburn, addresses this marketplace failure by granting the FCC jurisdiction to 

promulgate rules regarding content protection for digital over-the-air radio. The bill 

requires digital radio services that use the government spectrum to implement certain 

content protection technology. H.R. 4861 strikes the right balance between creating new 

radio services that bring more choices to consumers, and protecting the property rights of 

creators. The bill also prevents unfair competition between radio services and download 

services, by appropriately providing for private market negotiations of an “audio 

broadcast flag” that will differentiate between radio broadcasts and download services, 

and require a market license only for download services. 

The bill assures that no one device or technology manufacturer has an advantage 

over another and will maximize the range of broadcast receiving devices made available 

to the public. Further, it makes clear that the adoption and implementation of an audio 

broadcast flag will in no way delay the final operational rules for digital radio and assures 

that legacy devices are not affected. By using broadcast flag technology, devices already 

on the market prior to the enactment of legislation will not be made obsolete, but will 

remain fully functional. 

At the same time, we agree with the leadership of the Senate Commerce Committee 

that it is preferable to find a marketplace solution, and appreciate that they have asked the 

parties to work toward such a solution and report to the Committee periodically. As 

Senator Stevens said, “the creative content side and the distribution side of the music 

industry should seek mutual ground that supports business models for both.” 

 And we greatly appreciate NAB President David Rehr’s acknowledgement of his 

industry’s “strong interest in collaborating to find a workable solution to content 

protection issues associated with terrestrial digital radio broadcasting,” and his agreeing 

in a joint report to the Committee that the scope of the negotiations on flag 

implementation would include usage rules preventing the disaggregation or “cherrypicking” of songs from surrounding content transmitted over HD radio, and assurance of 

an expeditious rollout of HD radio nationwide. Following the positive initial meetings 

between our industries, we think we are on the right track. 

The future of the digital marketplace is a great one for consumers in the 21st century. 

Wouldn’t it be great if you could push a button and buy a song when you hear it on the 

radio that is automatically charged to your credit card? Or to push a button on your iPod 

that automatically purchases an individual track? Or to play any song on demand on your 

portable player any time you want for a monthly fee? All of this is possible in the free 

market in a manner that maintains the incentive to create and invest in music. Robust 

content protection, and preventing against the hacking of that protection, will assure that 

possibility for consumers, and provide a return on investment for creators, broadcasters, 

device manufacturers, and all other parties that bring new and exciting entertainment to 

market. 

Thank you for focusing on this important issue. 

 MR. STEARNS. Thank you and you could have added there are no 

commercials, right? These are not our products. We have a vote, but I 

think we have some more time, so Mr. Halyburton, go ahead. 

MR. HALYBURTON. Thank you, Chairman Stearns and members of 

the committee. My name is Dan Halyburton, I am Senior Vice President 

and General Manager for Susquehanna Radio. I am here today on behalf 
79

of the National Association of Broadcasters where I serve as the chair for 

the NAB Audio Flag Task Force. The NAB is a trade association that 

advocates on behalf of more than 8,300 free local radio and television 

stations, as well as broadcast networks, before Congress, the FCC, and 

the courts. Local broadcasters are engaged in an exciting transition to 

digital. Currently 777 AM and FM stations are on the air in digital, and 

many more will roll out in the near future. 

 Digital radio not only offers crystal clear audio, it also permits the 

broadcasting of multiple free over-the-air program channels. Radio 

stations will be able to bring additional local service to the public with 

their current spectrum, while at the same time providing expanded 

opportunities to promote more varied artists, music, and local 

information services. Digital radio also offers greater format diversity 

for listeners. In 1993, radio offered about 32 formats while expanding to 

over 70 formats in the year 2004. HD radio offers listeners an even 

greater expansion of programming, choice, diversity, and variety. 

 2006 and 2007 promise to be pivotal years for this revolution in 

radio. Auto makers are signing up for factory-installed radios, retail 

outlets are featuring many new digital radio products and we are doing 

our part to spur the transition. Major radio groups are engaged in a 

massive marketing campaign to make sure consumers are aware of 

digital radio and educated on its benefits. The future of digital radio also 

involves a discussion of content protection. Local broadcasters are 

content producers ourselves and oppose piracy in all forms. To that end, 

the NAB is working with the recording industry to develop options for 

content protection so long as those options don’t slow down radio’s 

digital transition. 

 These discussions have been very constructive and the NAB strongly 

believes that the broadcast industry and the recording industry and other 

stakeholders can work toward a consensus on digital radio copy 

protection systems. While our discussions will explore many options, 

one approach we both agree is not viable involves encryption at the 

source. No proposal should be allowed to derail the HD radio rollout by 

making obsolete thousands of receivers already on the market, as well as 

millions more in the manufacturing pipeline. 

 As our discussions with the recording industry continue, we urge the 

Congress and the regulators to allow these private negotiations a chance 

to work. At this time, we should refrain from adopting an unnecessary 

legislative mandate or pushing a premature adoption of a quick fix for 

copy protection and digital radio. Mr. Chairman, as I mentioned, HD 

radio will also enable broadcasters to better serve our local communities 

and remain competitive in the evolving digital media marketplace. All of 
80

these new digital services will amplify radio’s traditional strength; free, 

over-the-air service to the community. 

 As a public license holder, local broadcasters cover issues of concern 

to local communities, adhere to regulations on over-the-air content, play 

a vital role with emergency services including Amber Alert, and initiate 

and partner in public service campaigns. Some of the discussion today 

from other witnesses may involve calls for parity with over-the-air radio, 

including calls for a new performance right tax on broadcasters. Local 

broadcasters have a deep, extensive relationship with the recording 

industry in promoting new music and artists, a relationship that has been 

upheld by Congress on many occasions. This partnership works and 

should not be changed. 

 I would also draw the committee’s attention to satellite radio’s desire 

to ultimately provide local advertising and local content. As a national 

service, satellite radio is not required to serve local communities and is 

not subject to content regulations and many other public service 

obligations. Local broadcasters appreciate the 125 cosponsors of H.R. 

998, including Congressman Chip Pickering and Congressman Gene 

Green. H.R. 998 clarifies satellite radio’s role as a national only service 

and preserves the local role of the broadcaster. 

 Mr. Chairman, the successful deployment of digital radio holds much 

promise and will significantly improve services for our listeners and your 

constituents. Thank you. 

 [The prepared statement of Dan Halyburton follows:] 

PREPARED STATEMENT OF DAN HALYBURTON, SENIOR VICE PRESIDENT AND GENERAL 

MANAGER, GROUP OPERATIONS, SUSQUEHANNA RADIO CORPORATION, ON BEHALF OF THE 

NATIONAL ASSOCIATION OF BROADCASTERS

Good afternoon, Chairman Stearns and Members of the Subcommittee. My name is 

Dan Halyburton. I am the Senior Vice President and General Manager for Group 

Operations for Susquehanna Radio Corp., which owns 33 broadcast radio stations. I am 

also Chairman of NAB’s Audio Flag Task Force. I am testifying today on behalf of the 

National Association of Broadcasters (NAB). NAB is a trade association that advocates 

on behalf of more than 8,300 free, local radio and television stations and also broadcast 

networks before Congress, the Federal Communications Commission and the Courts. 

 My message today is a simple one. The radio broadcasting industry is currently 

embracing digital technology. Given the importance of this digital transition to both 

consumers and local broadcasters, any technical system developed to provide copy 

protection for digital content must not impede the digital radio roll-out. Although 

broadcasters oppose piracy in all shapes and forms, NAB remains concerned that 

legislatively imposing requirements for digital copy protection at this time could stall the 

digital radio transition. Moreover, certain audio copy protection methods that have been 

proposed, such as encryption, are problematic for additional reasons. NAB accordingly 

urges Congress to allow the broadcast industry, the recording industry and other vital 

stakeholders to continue working toward a consensus on digital radio copy protection.
81

Any System to Protect Digital Content Must Not Impede the Digital Radio Roll-Out 

 Today, I can report that local radio broadcasters are engaged in an exciting transition 

to digital audio broadcasting (DAB). The industry sees digital high definition radio as 

our future—it will enable us to better serve our local communities and to remain 

competitive in today’s ever-changing digital media marketplace. But we face many 

challenges as we work toward a successful and timely transition to digital radio. Those 

challenges would be exacerbated – and the roll-out delayed – by a “quick fix” technical 

system to provide copy protection for digital radio. For this reason, NAB and the 

Recording Industry Association of America (RIAA) are now discussing the development 

of a consensus on digital radio copy protection. We urge you to allow this industry 

process to continue without the adoption of premature legislative mandates that could 

well have disastrous consequences for our industry. 

 The radio industry in America has begun its massive roll-out of digital broadcast 

transmissions and all-new digital radio receivers. Currently, 767 digital AM and FM 

stations are on the air. Broadcasters have individually committed to upgrade more than 

2,000 stations to high definition (HD) radio technology this year. Why are radio 

broadcasters embracing HD radio? In short, because it will allow local broadcasters to 

better serve their listeners and to remain competitive in today’s digital media 

marketplace. HD radio not only offers crystal-clear audio; it also permits the 

broadcasting of multiple free, over-the-air program streams to bring additional content 

(including much more local content) to the public within stations’ current spectrum. It 

further enables other services, including wireless data enabling text information, such as 

song titles and artists or weather and traffic alerts. Even more innovative features are 

under development, such as program menus giving listeners instant access to a favorite 

drive time show, news and information, and special music programming. New features 

of the future could also include real-time traffic reports broadcast by local stations and 

visually displayed on a vehicle’s navigation system. In sum, digital radio will allow 

broadcasters to remain a vital and vibrant part of the media landscape of the future. 

 But beyond thousands of radio stations converting to digital, the HD radio 

revolution also involves the consumer electronics industry and, most importantly, 

consumers. New digital radio receivers have been launched in the marketplace across a 

range of product categories. Major radio groups are engaged in a massive marketing 

campaign to promote digital radio to consumers. And auto makers and after-market 

manufacturers are beginning to produce digital radio products for car sound systems. 

2006 and 2007 promise to be pivotal years for the roll-out of digital radio, with auto 

makers signing up for factory-installed radios, retail outlets prominently featuring many 

new digital radio products, and hundreds more broadcasters commencing digital 

transmissions. Given this investment by broadcasters and equipment manufacturers and 

the benefits that consumers will receive from a successful deployment of digital radio, it 

is of paramount importance that any copy protection mechanism not impede the digital 

radio roll-out. 

NAB remains concerned that developing and implementing a technical system to 

provide copy protection for digital radio not have a negative impact on the digital radio 

transition. Reaching a final consensus on the digital television (DTV) broadcast flag 

mechanism, for example, entailed many years of intense negotiations by scores of 

participants from a wide array of industry sectors. The purpose, concept and 

methodology of the DTV flag were then the subject of voluminous comments and reply 

comments from affected industry and consumers groups, companies and organizations. 

The FCC scrutinized these comments, heard in-person presentations from many 

interested parties and concluded that the purpose of preventing widespread indiscriminate 

re-distribution of digital video content over the Internet was worthy and that the 

methodology was sound and workable. 
82

NAB has expressed its willingness to participate in developing and forging a 

consensus on a digital radio copy protection system so long as it would not interrupt the 

digital roll-out or create uncertainty that would lead to a slow down of adoption rates by 

manufacturers, consumers or even broadcasters. To that end, NAB and RIAA are 

engaged in on-going discussions regarding copy protection. We jointly held an executive 

level meeting in New York City that served as a starting point for our discussions. We 

have established two working groups that will continue to move forward with meetings, 

which we expect will ultimately involve and include other vital stakeholders in a 

successful resolution of the issues. 

Given these on-going discussions, NAB does not believe that legislation mandating 

any particular system of digital radio copy protection is necessary at this time. Terrestrial 

digital radio is a far different platform from satellite and on-line music services and 

delivery. The reality or scope of any threat to the recording industry from a scenario in 

which consumers make good quality recordings from digital broadcasts on their local 

radio stations is still an evolving concern. Those desiring to obtain and listen to pure, 

uninterrupted performances of sound recordings, in lieu of the radio, already have an 

abundant number of means to do so. Satellite and cable digital subscription services, 

hundreds of thousands of unencrypted compact discs, peer to peer file sharing, and hours 

of uninterrupted music that can be stored on recordable CDs and hard drives, are but a 

few such means. These are far different concerns than that of consumers seeking out 

random digital audio broadcast signals that may contain DJ patter over the recordings in 

order to create files to make copies of or distribute sound recordings. Nonetheless, NAB 

strongly believes that the broadcast industry, the recording industry, and other vital 

stakeholders can work toward a consensus on digital radio copy protection system, as 

warranted by marketplace conditions and technological developments. 

The Public’s Right to Make Private Copies of Sound Recordings for Personal Use 

Must Be Taken Into Account 

In addition, in any discussion about affording copy protection to digital audio 

recordings or transmissions, all parties must take into account Congress’ long-standing 

policy of protecting and preserving the public’s right to make home recordings of sound 

recordings for personal use. The House Report accompanying the Sound Recording Act 

of 1971 stated: 

HOME RECORDING 

In approving the creation of a limited copyright in sound recordings it is the 

intention of the Committee that this limited copyright not grant any broader rights 

than are accorded to other copyright proprietors under the existing title 17. 

Specifically, it is not the intention of the Committee to restrain the home recording, 

from broadcasts or from tapes or records, of recorded performances, where the 

home recording is for private use and with no purpose of reproducing or otherwise 

capitalizing commercially on it. This practice is common and unrestrained today, 

and the record producers and performers would be in no different position from that 

of the owners of copyright in recorded musical compositions over the past 20 

years.1

Since that Act, Congress has expanded the sound recording right only sparingly, in 

careful response to specific and well-documented threats, all the while reiterating the 

importance of preserving the public’s right to make home copies for personal use. 

In the Audio Home Recording Act of 1992 (“AHRA”), Congress definitively addressed 

the issue of home recording of sound recordings and musical works. This Act was 

 

1

 H. Rep. No. 92-487, 92d Congress, 1st Sess. at 7 (Sept. 22, 1971) (emphasis added). 
83

intended to be comprehensive, forward-looking legislation designed to end, once and for 

all, the “longstanding controversy” surrounding the home recording of prerecorded 

music.2 Indeed, then-President of RIAA, Jay Berman, described the bill that became the 

AHRA as “a generic solution that applies across the board to all forms of digital audio 

recording technology.”3

 

The Senate Report that accompanied the AHRA opened its discussion of the bill 

with the assertion that “[t]he purpose of S.1623 is to ensure the right of consumers to 

make analog or digital audio recordings of copyrighted music for their private 

noncommercial use.” 4 To this end, the provision of the AHRA providing the exemption 

for home copying, section 1008, was considered “one of the cornerstones of the bill” 

because it “removes the legal cloud over home copying of prerecorded music in the most 

proconsumer way possible: It gives consumers a complete exemption for noncommercial 

home copying of both digital and analog music, even though the royalty obligations 

under the bill apply only to digitally formatted music.”5

 The Ninth Circuit confirmed this 

conclusion in Recording Industry Association of America v. Diamond Multimedia 

Systems, Inc., 180 F.3d 1072 (9th Cir. 1999). 

Certain Proposals for Audio Copy Protection Are Problematic

 One proposal for resolving copy protection concerns is to mandate that all radio 

broadcasters encrypt their digital content at the source. NAB strongly opposes this 

approach. Such a mandate would be antithetical to the concept of free, over-the-air 

broadcasting. No U.S. free, over-the-air broadcast service, analog or digital, has ever 

been required to encrypt its transmissions. 

 Any encryption requirement would also likely risk stalling the digital radio 

transition by requiring a change in the technical digital radio broadcasting standard of 

such magnitude that a year’s delay and likely more would be inevitable. Resulting 

uncertainty in the marketplace and potential loss of confidence and interest in digital 

audio broadcasting by manufacturers now ready to roll out DAB receivers would harm 

broadcasters and threaten the public’s receipt of digital radio. To date, there has been no 

investigation of what kind of encryption would be utilized, what copy control and redistribution measures would be added (and acceptable to various stakeholders), and what 

features receivers can and cannot employ in terms of storage and replay. 

Required encryption of DAB transmissions, even at this early stage, would likely 

result in obsolescence of millions of units of DAB components currently in the 

production pipeline, including receivers, integrated circuits and installed component parts 

in automobiles. This would clearly decrease manufacturers’ and auto makers’ 

enthusiasm for developing and deploying DAB products. 

Encryption and copyright protection considerations with regard to digital radio differ 

in important ways from the DTV broadcast flag. The DTV broadcast flag does not 

involve copy restrictions, but rather is designed to prevent only indiscriminate redistribution of broadcast programming over the Internet. The DTV broadcast flag does 

not disable the existing base of “legacy” receivers, which will simply not “read” the flag 

and its instructions on re-distribution. As noted above, the encryption of DAB signals 

would obsolete receivers now in the field, as well as receivers and component parts 

currently in the production pipeline. And, as previously explained, with the DTV flag, 

 

2 See S. Rep. No. 102-294, 102d Cong., 2d Sess. 30, 51 (June 9, 1992). 3

 Hearing Before the Senate Subcommittee on Communications, S. Hrg. 102-908, Serial No. J-102-

43, at 111 (Oct. 29, 1991) (statement of Jason Berman, President of RIAA) (emphasis added). 4

 S. Rep. No. 102-294, at 51. 

5

 138 Cong. Rec. H9029, H9033 (daily ed., Sept. 22, 1992) (statement of Rep. Hughes) (emphasis 

added).
84

there was a consensus solution developed by a broad cross-section of industry 

participants. 

Congress Should Reject Efforts to Impose a Sound Recording Performance Right in 

Digital Broadcasts 

NAB urges the Subcommittee to recognize that a new performance right tax on 

broadcasters is unnecessary and has no relationship to concerns about the copying and 

redistribution of digital content. 

 Throughout the history of the debate over sound recording copyrights, Congress has 

consistently recognized that recording companies reap very significant promotional 

benefits from the exposure given their recordings by radio stations and that placing 

burdensome restrictions on performances could alter that relationship, to the detriment of 

both industries. For that reason, in the 1920s and for five decades following, Congress 

regularly considered proposals to grant copyright rights in sound recordings, but 

repeatedly rejected such proposals. 

When Congress did first afford limited copyright protection to sound recordings in 

1971, it prohibited only unauthorized reproduction and distribution of records, but did not 

create a sound recording performance right. During the comprehensive revision of the 

Copyright Act in 1976, Congress again considered, and rejected, granting a sound 

recording performance right. Congress continued to refuse to provide any sound 

recording performance right for another twenty years. During that time, the recording 

industry thrived, due in large measure to the promotional value of radio performances of 

their records.6

 It was not until the Digital Performance Rights in Sound Recordings Act of 1995 

(the “DPRA”) that even a limited performance right in sound recordings was granted. In 

granting this limited right, Congress stated it “should do nothing to change or jeopardize 

the mutually beneficial economic relationship between the recording and traditional 

broadcasting industries.”7

 As explained in the Senate Report accompanying the DPRA, 

“The underlying rationale for creation of this limited right is grounded in the way the 

market for prerecorded music has developed, and the potential impact on that market 

posed by subscriptions and interactive services – but not by broadcasting and related 

transmissions.”8 

 Consistent with Congress’ intent, the DPRA expressly exempted from sound 

recording performance right liability non-subscription, non-interactive transmissions, 

including “non-subscription broadcast transmission[s]” – transmission[s] made by FCC 

licensed radio broadcasters.9 Congress made clear that the purpose of this broadcast 

exemption was to preserve the historical, mutually beneficial relationship between 

recording companies and radio stations: 

The Committee, in reviewing the record before it and the goals of this legislation, 

recognizes that the sale of many sound recordings and careers of many performers 

have benefited considerably from airplay and other promotional activities provided 

by both noncommercial and advertiser-supported, free over-the-air broadcasting. 

The Committee also recognizes that the radio industry has grown and prospered 

 

6 See, e.g., S. Rep. No. 93-983, at 225-26 (1974) (“The financial success of recording companies and 

artists who contract with these companies is directly related to the volume of record sales, which, in 

turn, depends in great measure on the promotion efforts of broadcasters.”). 7

 S. Rep. No. 104-129, at 15 ("1995 Senate Report"); accord, id. at 13 (Congress sought to ensure 

that extensions of copyright protection in favor of the recording industry did not "upset[] the longstanding business relationships among record producers and performers, music composers and 

publishers and broadcasters that have served all of these industries well for decades."). 8 Id. at 17. 9

 17 U.S.C. §114(d)(1)(A). 
85

with the availability and use of prerecorded music. This legislation should do 

nothing to change or jeopardize the mutually beneficial economic relationship 

between the recording and traditional broadcasting industries.10

 The Senate Report similarly confirmed that “[i]t is the Committee’s intent to provide 

copyright holders of sound recordings with the ability to control the distribution of their 

product by digital transmissions, without hampering the arrival of new technologies, and 

without imposing new and unreasonable burdens on radio and television broadcasters, 

which often promote, and appear to pose no threat to, the distribution of sound 

recordings.”11 In sum, the transition of traditional local radio stations from analog to 

digital presents no basis to alter fundamentally the long-standing mutually beneficial 

relationship between the recording and broadcasting industries by imposing a new 

performance right in digital broadcasts, when one does not exist in analog. 

NAB further stresses that this discussion is not intended to minimize legitimate 

concerns the recording industry may have about the need for copy protection. Rather, it 

is intended to assist the Subcommittee in understanding why a performance right for 

sound recordings is irrelevant to those concerns. 

Conclusion

 The deployment of digital radio is essential for terrestrial broadcasters to better serve 

their listeners and to remain competitive in today’s digital media marketplace. Because 

of the importance of a timely and successful roll-out of digital radio, any system to 

protect digital content must not impede the transition. NAB and RIAA are engaged in 

discussions to develop a consensus on digital radio copy protection. Congress should 

allow this industry process to continue without the adoption of premature legislative 

mandates. 

 Thank you for this opportunity to share our views. 

 MR. STEARNS. I thank you. We have about three or four minutes 

left, so we are going to take a short break and we have three votes, so if 

you will be patient with us, we have got one; it is almost over, and then 

we have got two more in five minutes, so we should be back in about 15 

minutes or less. 

 [Recess.] 

 MR. STEARNS. The subcommittee will reconvene and Mr. Regan, 

thank you, and all of you, for your patience here and I welcome your 

opening statement. 

MR. REGAN. Mr. Chairman, members of the subcommittee, thanks 

for allowing me to speak today on behalf of songwriters. My name is 

Bob Regan. I am the current President of the National Songwriters 

Association International, the largest not-for-profit trade association for 

songwriters in America. I have heard it said that writers really have only 

one story to tell, their own. With that in mind, I would like to give some 

insight into the profession of songwriting, what we call America’s 

smallest small business and what content creation actually entails. 

 

10 1995 Senate Report, at 15. 

11 Id.
86

 Forty years ago I sat in my bedroom with the Beatles songbook, my 

first guitar, and my first broken heart. As I fumbled with the chords to 

“Norwegian Wood,” I experienced the healing restorative powers of 

music, though I doubt I would have put it that way at the time. In 

college, when I played “Louie Louie” at frat parties, I saw firsthand the 

exuberance and release that a song can bring about. Think 20 Sig Eps 

doing the Gator on the floor. I witnessed songs like Bob Dylan’s 

“Blowing in the Wind” or Merle Haggard’s “Walking on the Fighting 

Side of Me” become far more than content or entertainment. They were 

anthems and battle cries that cut as deep as the rifts in society at that 

time. 

 Upon graduating from college, I postponed applying to law school 

for a year to try the music business full time. Eight years later, I landed a 

recording contract with a major label in Los Angeles. To that point, the 

songs I had written were of value only to my friends, family, and myself. 

They were performed at weddings; they commemorated the birth of my 

children and the passing of my parents. Was my recording debut a 

success? Unfortunately, I was one of the large majority of recording 

artists who never make a dollar or make a second record. 

 At age 35, I gave myself three years to write a hit or pack it in. I 

moved my family across country to Nashville, Tennessee. There I was 

one of the lucky ones. I signed a contract as a staff writer for $100 a 

week, fully recoupable from future royalties, by the way. I had a few 

songs recorded and then right at the three-year mark, Reba McIntire 

recorded and released a song which I had co-written. I finally had the hit 

and the validation that I had been working and praying for. Was I now 

wealthy? Well, I received about $35,000 for my share of the royalties, 

paid over two years. Going forward, I was able to become a business 

partner and co-owner of my copyrights. 

 Over the past two decades, I have had many songs recorded and had 

several hits on country radio. I have been blessed beyond all my 

expectations and have the greatest occupation anyone could ask for. Am 

I now wealthy? Well, consider this: if I am lucky enough to co-write a 

song on a million selling CD, my writer’s share is about $23,000. 

Congress, by the way, determines that rate. 

 The title of this hearing speaks to “Satisfying the 21st Century 

Consumer.” We songwriters and the artists who record our songs are 

more than willing, as we have always been, to provide content for new 

technologies. We welcome the opportunity. We are, however, opposed 

to business models that attempt to devalue our music, to redefine how we 

are compensated, or to turn a radio signal into an on demand record 

store. We only ask that we are able to make a living; not a killing, a 

living. 
87

 Songs and songwriters are the tip of the inverted pyramid upon 

which the entire multi-billion dollar music industry is balanced, and 

others can speak far better than I to the specifics of pending legislation. 

As I said, I never did make it to law school. I am, however, familiar with 

Article I Section 8 of the Constitution which guarantees me the exclusive 

right to my creations. In addition, common sense tells me that we need 

to have parity for all digital delivery platforms if any are to succeed and 

if we are to all reap the benefits of the digital age. 

 As I said, I have only my own story to tell, but it seems my songs 

have told the stories of many others, as well. Who knows? Maybe 

somewhere right now there is a kid in his bedroom with a guitar and a 

broken heart trying to learn one of my songs. If that should lead him to 

embark upon a career in music today, he will have many wonderful 

outlets that I never had. Let us value his creations fairly and give him the 

chance to tell the stories of the next generation. Thanks. 

 [The prepared statement of Robert Regan follows:] 

PREPARED STATEMENT OF ROBERT REGAN, PRESIDENT OF THE BOARD, NASHVILLE 

SONGWRITERS ASSOCIATION INTERNATIONAL

 Mr. Chairman, and Members of the Committee, thank you for allowing me to speak 

today on behalf of songwriters. My name is Bob Regan. I am the current President of the 

Nashville Songwriters Association International, the largest not-for-profit trade 

association for songwriters in America. 

 I’ve heard it said that most writers really have only one story to tell...their own. 

With that in mind, I’d like to give some insight into the business and profession of song 

writing and into what content creation actually entails. 

 Forty years ago I sat in my bedroom with a Beatles songbook, my first guitar and 

my first broken heart. As I struggled to play the chords to “Norwegian Wood,” I 

experienced the healing, restorative powers of music, though I doubt I’d have put it that 

way at the time. In college, when I played “Louie Louie” at frat parties, I saw first hand 

the exuberance and release that a song could bring about. Think 20 Sig Eps doing the 

Gator. I witnessed songs like Bob Dylan’s “Blowing in the Wind” or Merle Haggard’s 

“Walking on the Fighting Side of Me” become far more than entertainment. They were 

anthems and battle cries that cut as deep as the rifts in society at that time. 

 Upon graduating, I decided to postpone applying to Law School for a year to try 

song writing and the music business full time. One year turned into five which became 

ten before I landed a recording contract with a major record label in Los Angeles. To that 

point, the songs I had written were of value only to friends, family and myself. They were 

performed at weddings; they commemorated the birth of my children and the passing of 

my parents. 

 Was my recording debut a success? No, I was one of the large majority of 

recording artists who never make a dollar or make a second record. 

 At age 35, I gave myself three years to write a hit or pack it in. I moved my family 

across country to the songwriting capitol of the world, Nashville, TN. 

 There, I was one of the lucky ones. I signed a contract as a staff writer for $100 per 

week, to be repaid from future royalties. I had a few songs recorded and then, right at the 

three-year mark, Reba McIntire recorded and released a song which I had co-written. I 

finally had the hit and the validation that I had been working and praying for. Was I now 
88

wealthy? Well, I received around $35,000 for my share of the royalties. Going forward, I 

became a co-publisher and co-owner of my copyrights. 

 Over the past two decades I have had many songs recorded and several of those 

have been hits on country radio. I have been blessed beyond all my expectations and have 

the greatest occupation anyone could ask for. Am I now wealthy? Hardly. If I’m lucky 

enough to co-write a song on a rare million selling CD, my writer’s share is $22,750. 

Congress, by the way, determines that rate. 

 The title of this hearing speaks to “Satisfying the 21st Century Consumer.” We 

songwriters are more than willing, as we have always been, to provide content for new 

technologies. We welcome the opportunity. We are, however, opposed to business 

models that attempt to devalue our music, re-define how we are compensated or turn a 

radio signal into an on demand record store. 

 Others here can speak better than I to the specifics of pending legislation. As I said, 

I never did make it to Law School. I am, however, familiar with Article I Section 8 of the 

Constitution which gaurantees me the exclusive right to my creations. In addition 

common sense tells me that we need to have parity for all digital delivery platforms if any 

are to succeed and if we are all to reap the benefits of the digital age. 

 In closing, I may have only my own story to tell but it seems it has been the story 

of others as well. Who knows, maybe somewhere right now there’s a kid in his bedroom 

with a guitar and a broken heart trying to play one of my songs. If that should lead him to 

embark on a career in music today, he will have many wonderful new outlets for his 

work. Let’s value his creations fairly and give him the chance to tell the stories of the 

next generation. 

 Thank you for this opportunity. 

 MR. STEARNS. Thank you, Mr. Regan. I think that is a rather 

touching story for all of us. Mr. Lawrence. 

MR. LAWRENCE. Thank you, Mr. Chairman. Wow, that is really 

hard to follow. My name is Jeff Lawrence. I am the Director of Content 

Policy at Intel Corporation and I think that, you know, the perspective 

that I want to bring here today is a sort of step back. There are a lot of 

hot issues out there that people are focusing on, sort of micro-issues, if 

you will, but I want to step back a little bit and take a look at progress 

that has been made over the last decade and where we might end up in 

the next decade. 

 Intel has this vision of a digital home. It is a vision that I share. It is 

a world where consumers can enjoy the content of their choice that they 

have lawfully acquired; any device, any place, any time the way that they 

want to. To realize that vision, content protection is actually a necessary 

part of it. And Intel has spent the better part of a decade working to 

build a reasonably protected digital infrastructure in the home and 

elsewhere to support these new emerging digital business models. 

 And what we do is we get together with a lot of companies across the 

industry, with content creators, IT companies, and CE companies, and 

we get together to try and strike deals with respect to content protection 

to enable new business models, to look out for the rights of consumers, 

to make sure that it all works in the ecosystem because one thing that we 

have learned for sure is that if there is some part of the ecosystem that 
89

doesn’t work for them, then it doesn’t work for the whole ecosystem. 

And we are actually fairly confident, and we have a high degree of 

optimism, when you look back, when you look forward a decade that we 

are, in fact, going to realize that digital home. 

 And there are a couple of principles that we think are important 

whenever we talk about content protection. One is respecting intellectual 

property rights and respecting consumer issues and consumer rights. 

Two, the reality that some form of a reasonably protected environment is 

necessary to support that digital infrastructure and you know, one of the 

things that is most important to me is the idea of a protected environment 

is one that should actually enable all kinds of new and cool consumer 

uses. It isn’t one that necessarily has to lock it all down and prevent 

consumers from doing things, rather it should actually open the locks and 

allow people to do interesting and new things with the content that they 

have acquired. 

 Lastly and very importantly is the notion that markets and not 

mandates are the things that actually deliver these solutions, and I agree 

with many of the comments of my colleagues here. And we have 

focused a lot of our efforts out of the marketplace, you know, be it at the 

DVD, CCA, which is in response for DVD video, content protection, or 

the next generation optical media. There is a group out there that is 

called AACS that does the content protection for that, enabling new 

consumer experiences, learning from the mistakes of the DVD in the 

sense of the limitations. 

 Debate goes into the next generations. To home networking 

technologies to making sure that devices can interoperate, we are there. 

We are confident, so I guess my message is yes, there are some issues, 

but I don’t think the sky is falling and looking from a larger, longer term 

perspective with a reasonable balanced approach to the issues, letting the 

market go out there and drive them, we are confident that the digital 

home will be realized. And with that, I am going to stop and I don’t 

know if I was the closer or the opener, but I appreciate it, Mr. Chairman, 

and thank you very much. 

 [The prepared statement of Jeffrey T. Lawrence follows:] 

PREPARED STATEMENT OF JEFFREY T. LAWRENCE, DIRECTOR, DIGITAL HOME AND 

CONTENT POLICY, INTEL CORPORATION

Good Morning Mr. Chairman. I am Jeff Lawrence, Director of Content Policy 

and Architecture for Intel Corporation. Intel, the world leader in silicon innovation, 

develops technologies, products and initiatives to continually advance how people work 

and live. Intel is based in Santa Clara, California and currently employs approximately 

100,000 people around the world, of which about 60% are located in the United States. 

As Director of Content Policy and Architecture, I am responsible for all of Intel’s 

many content protection engagements, from public policy and legal matters like the 
90

Broadcast Flag, to Cable Plug and Play, and a host of market based initiatives where 

companies from the IT, CE and content industries come together to find private, market 

based solutions to advance new consumer experiences in digital media. Some of the 

initiatives that you may be familiar with include Advanced Access Content System 

(AACS), for next generation high definition optical media like Blue Ray Disk and High 

Definition DVD, Digital Transmission Content Protection (DTCP) used to move 

compressed digital content in a protected home network, and High-bandwidth Digital 

Content Protection (HDCP) used to protect outputs to new digital displays. I appreciate 

the opportunity to provide some perspectives on the consumer digital media experience 

that I anticipate in the next ten to fifteen years. 

I share a vision that Intel calls “Digital Home”, where consumers are able to 

consume the content of their choice any time, any place and in any device.1

 It is a vision 

based on interoperability among a wide range of intelligent devices, such as PCs, game 

consoles, home gateways, cell phones, other peripherals, traditional and innovative CE 

devices, and a host of new innovative devices that are sure to emerge as the engine of 

innovation churns on. The Digital Home will be a place where consumer choice, 

flexibility and portability enables consumers ease of use and a multiplicity of compelling 

new media experiences. Mr. Chairman, it is my belief that we will in fact realize the 

Digital Home vision in the next decade, and that the market place will resolve the issues 

that some may perceive as obstacles or threats to that progress. The key is to bring a 

balanced approach to the digital media ecosystem. I firmly believe that such a balanced 

approach should include the following fundamental principles: 

y Respect for Intellectual Property, Rights holders and Consumer interests 

y Reasonably Protected Digital Environment is Necessary Infrastructure For the 

Digital Future 

y A Reasonably Protected Digital Environment Should Provide Consumers 

Flexibility, Portability and Choice 

y Markets, Not Mandates, Stimulate Innovation and Deliver Consumer Value. 

I have been actively engaged in the digital media transition for the past eight years, 

and Intel has engaged for the better part of a decade. The path of technical innovation 

with respect to digital media is rapid, and although there are many challenges relating to 

rights management and content protection, we have seen tremendous progress toward a 

realization of the digital home goals. With such a wide range of often competing 

interests, it is sometimes easy to lose sight of the tremendous progress that has been 

made, that is being made now, and that will continue to be made into the next decade. It 

is my opinion that in a decade from now, the digital home vision will be realized, and that 

what are often characterized today as mountainous roadblocks to realization of that effort, 

will then be forgotten in large measure or simply viewed as small bumps along the digital 

highway. Here are just a few of the reasons why I am optimistic that “new media” 

will continue to evolve in ways that support an enhanced consumer experience while 

fully protecting the rights of content creators and owners. 

DVD Video. In 1996 the motion picture, consumer electronics and information 

technology industries got together to develop a compelling new consumer experience 

known as the DVD. Many said that consumers would reject content protected disks and 

content protection generally, but they were wrong. The DVD has proved to be the most 

successful consumer entertainment media of all time. As consumer expectations with 

respect to DVDs are changing, permitted DVD usage models are also evolving (even if 

slowly). For example, today, you can stream DVD content in your IP based home 

network using technologies like DTCP over IP and Windows Media DRM, something 

completely unthinkable just a few short years ago, and the industries are exploring ways 

to enable new uses, such as managed copies and DVD download to disk. While the road 

 

1

 As authorized. 
91

may be bumpy with impatience, I’m confident that these new experiences will be 

delivered in time. 

High Definition Video. The CE, IT and content communities have gotten together 

again to work on next generation high definition optical media, including Blue Ray Disk 

and High Definition DVD. From the outset, these industries have recognized that 

consumer flexibility and portability are key factors to meeting the expectations of today’s 

and tomorrow’s consumers, and from the outset have developed those specifications and 

content protection schemes such as AACS with those capabilities in mind. 

Digital Music on Demand. In a few short years we have seen a revolution in the 

way consumers buy and consume music. “Napster”, which was once associated with 

unauthorized peer to peer file sharing, is today a thriving, legitimate, online music 

business, and nothing needs to be said about Apple’s iTunes and the iPod, which have 

been immensely successful in the marketplace. 

Interoperability. There are a growing number of efforts in the market place to 

address interoperability issues, including for example the Digital Living Network 

Alliance which currently cites DTCP over IP as the first interoperable digital link for 

protected content. From beginnings like this, I am confident that the market will deliver 

a range of interoperability solutions, including those that are device based and those that 

are network based. It might take a little time to sort through all of the business model 

issues associated with interoperability, but I am confident that consumers will ultimately 

get what they want, and that the market will pass by this bump on the road and never look 

back. 

Consumer Notice. One of the most important factors in establishing an effective 

and functioning digital market place is consumer choice based on knowledge of the rights 

and limitations associated with a particular digital offering. 

Mr. Chairman, these are just a few of the examples why I am optimistic about the 

future for consumers in the new digital age. We have come a long way already, and 

although there is still a long way to go, some of the world’s best and brightest are fully 

engaged to address the problems and issues along the way. Keeping a balanced 

perspective on where we have come from, where we are going, and the needs and 

expectations of consumers and other interested parties, will surely make the Digital 

Home vision a reality. 

 MR. STEARNS. Well, you are the closer and so I have an opportunity 

to start out the questioning. And I guess, perhaps, I will ask Mr. Regan 

this question and then I will ask Mr. Ostroff this question. I will start 

with you, Mr. Ostroff. Article I Section 8 of the Constitution states, 

“The Congress shall have power to promote the progress of science and 

useful arts by securing, for a limited time, to authors and inventors the 

exclusive right to their respective writings and discovery.” And this is 

where the argument goes, this limited time. What does that mean to 

you? Do you agree that the exclusive rights should be only for a limited 

time, I guess that is the question I have and then for you, too, Mr. Regan. 

Since you are an artist, you probably feel this more keenly, and then I 

will go into a little bit on the fair use aspect of it, so go ahead. 

 MR. OSTROFF. Well, far be it from me to disagree with the 

Constitution, so I don’t have a problem with Article I Section 8 and the 

Supreme Court recently ruled on that issue, so no, I don’t have an issue 

with that provision. 
92

 MR. REGAN. As far as for me, I would be delighted for my children 

and my grandchildren to be able to reap the benefits of my labor, much 

like anyone who creates anything else. I would point out that when Life 

Plus 70 was passed, the songwriters, at the same time the restaurant bill 

was passed which removed our royalties from any retail commercial 

establishment under 3500 square feet, I believe, so we did get that 

extension, but we did pay dearly and just real briefly speaking of-- 

 MR. STEARNS. When you say you paid dearly, what do you mean by 

that? 

 MR. REGAN. Up until that point we had received ASCAP and DMI 

received licensing revenues from all retail businesses that used our music 

under 3,500 square feet, which is, I would venture to guess, the vast 

majority of retail establishments, so that is not really germane to the 

question, but we got Life Plus 70, but the songwriters paid a price. 

 MR. STEARNS. Um-hum. 

 MR. REGAN. Speaking of time, just real briefly, just this morning we 

are talking about content versus technology. It doesn’t seem as though 

technology is the problem. I pulled up from this week in 1956 the top 

ten songs, number one, “Don’t Be Cruel,” number two, “Hound Dog,” 

“Singing the Blues,” “Heartbreak Hotel,” “Love Me Tender.” 1966: 

“I’m a Believer,” The Ballad of the Green Beret,” “Winchester 

Cathedral,” “Soul and Inspiration,” “Monday, Monday,” et cetera, et 

cetera. 1976: “Tonight’s the Night,” Rod Stewart; “Silly Love Songs,” 

“Play That Funky Music.” There was astounding content long before 

there was astounding technology, so we can have all the tech in the 

world. Without great content, it is dead in the water. That is what is 

going to satisfy consumers. 

 MR. STEARNS. And I think most of us in this room have heard the 

songs you mentioned and have felt the same euphoric, almost obviously 

spiritual feeling that you can’t even get, probably, any other way except 

music. So Mr. Parsons, you have been accused of hiding behind the law 

here and in defending his products against criticism, I thought I would 

give you an opportunity to respond. You heard some of the criticism 

here and so you might want to take a chance to do that. 

 MR. PARSONS. Thank you very much, Mr. Chairman. 

 MR. STEARNS. I think you have to put your speaker on. 

 MR. PARSONS. Thank you very much. Yes, we very carefully 

followed the law and I guess I was accused of hiding behind the Audio 

Home Recording Act, which we are in full compliance of. The important 

element of it the Congress has set, in a number of different laws, is a 

seamless web of protection for the music industry, appropriately, and for 

the songwriters, appropriately, where they receive different payments for 

different uses of their property in various ways. We have tried to not 
93

only design our devices, but design our business to comply with all of 

those and actually, I think I am the only person here at the table that pays 

under all of those. I mean, this is not early Napster or illegal file sharing 

or an illegal downloading situation. 

 We pay under each and every one of the mechanisms that have been 

put in place. And frankly, when Congress took up the Audio Home 

Recording Act it was in an effort to deal with how do you fairly 

compensate for that underlying property and balance that with a 

consumers’ right that they have always had to make an impulse 

recording of that for their own use and the focus, obviously, at that point 

in time was very clearly on ensuring that it really was for their fair use; 

only to record something off the radio, not to put it on the Internet, not to 

distribute it, burn multiple copies. And so the payments that we make 

are in full compliance with all of the laws. 

 We pay all of the performance elements, a percentage of our 

revenue comes in and goes to the music industry and the songwriters for 

the right to perform it. We pay through the manufacturing partners and 

the Audio Home Recording Act for the right for our consumers to record 

it. 

 MR. STEARNS. Right. 

 MR. PARSONS. And then to the extent that this is used actually as an 

MP3 player, which it does serve that-- 

 MR. STEARNS. Mr. Parsons, could I take that, after I record a song 

could I play that through my hi-fi? 

 MR. PARSONS. You could hook it up to any speaker system. 

 MR. STEARNS. I could play it in my car or I could play it in my-- 

 MR. PARSONS. Yes. 

 MR. STEARNS. Okay. 

 MR. PARSONS. Or you can play it through the ear buds. 

 MR. STEARNS. Right. 

 MR. PARSONS. But the only way to get the music out is through this 

audio jack. 

 MR. STEARNS. Right. But when I play it through my hi-fi system, I 

can record it with a cassette. Can I record it with a cassette once it is 

going through my hi-fi set? 

 MR. PARSONS. Chairman, I think that virtually any device that can 

be heard can then be re-recorded and then abused inappropriately. 

 MR. STEARNS. You could burn it on a CD. 

 MR. PARSONS. We have just taken to ensure that there are no ways 

that any digital copies can be made, it cannot be abused in that way and 

that was the substance of the Act. 

 MR. STEARNS. We might do a second round here, but Mr. 

Halyburton, I just want to ask this question. You mentioned that the 
94

NAB and the RIAA are in discussions about digital broadcast copy 

protection. 

 MR. HALYBURTON. Yes. 

 MR. STEARNS. Can you give us an indication of what is on the 

table? Are you looking at technical solutions? Is there still preservation 

of a consumer’s right to make fair use of a digital copy of a digital 

broadcast? That is the key aspect. 

 MR. HALYBURTON. Yes, there is and the discussions have been 

going very well. They probably break down into two areas: usage rules, 

which, I think, are probably the more complicated part of it because that 

kind of drives the technology, and what kind of tech will come to play. 

But I think on the radio side, we are starting to understand the issues of 

the recording industry and understand their needs and concerns. They 

are learning about our business because there are some issues that I don’t 

think they knew, necessarily, about how we ran radio, so I think we are 

finding some common ground and I think we are making good progress. 

 MR. STEARNS. Can you reveal what the technical solutions are? 

 MR. HALYBURTON. We are not there yet. 

 MR. STEARNS. You are not there. 

 MR. HALYBURTON. We have had four meetings; we have had one 

good technical meeting just a couple of weeks ago, but we are making 

good progress. 

 MR. STEARNS. Okay. 

 MR. HALYBURTON. It took a long time to do the television flag. I 

am hoping that we can make progress and get further along and more 

quickly than they did. 

 MR. STEARNS. My time is expired. I welcome the Ranking 

Member, Ms. Schakowsky. 

 MS. SCHAKOWSKY. I want to apologize first to you, Mr. Chairman, 

and then to our witnesses for my inability to hear all of your statements 

and also, I am not going to be able to stay any longer. I wanted to just 

tell you kind of where I am coming from, as you probably know. This is 

really the second half of hearings that began in March and I hope that 

this dialogue will continue and I appreciate your input. Not all of us are 

as technically advanced as others and so it is really helpful for you to 

inform our opinions. 

 And it is just a fact that in the age of the Internet that digital rights 

management is among the most contested issues in the legal world. 

Copyright principles and technological capabilities are constantly 

changing, are challenging each other and it is not always easy to strike 

the appropriate balance between protecting copyright holders and 

consumer rights. In a way, the battle against piracy has pitted content 

providers against consumers, who are not the true enemies, but 
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unfortunately, each time there is a new gadget for consumers to use to 

hear their favorite music or classic movie, or enjoy a book, piracy 

advances as new opportunities to steal and in the end, it is both the 

consumers and the artists who end up paying the cost. 

 Since we began these hearings, I have been talking with artist 

groups, content providers, consumer groups, and technology developers 

and I believe, I hope not naively, that we can work together to fight 

pirates and not each other, so I appreciate this hearing today to see how 

technology has developed under the DMCA and what challenges have 

arisen in the process. And as I said, I hope that we can constructively 

move forward. So I thank you, Mr. Chairman, and all of you. 

 MR. STEARNS. I thank you. Ms. Bono. 

 MS. BONO. Thank you, Mr. Chairman, and I thank all of you 

panelists for your time today. First of all, I guess, for Mr. Parsons; the 

past two months I have bought two new cars, one for my 18-year-old son 

and one for myself. Important to those vehicles, I didn’t even open the 

hood to see what kind of engine they had, but I know they both have 

Bluetooth and satellite radio. And those are important selling points for 

that car. But if Nissan, in my son’s case, said I am going to sell this 

Nissan with satellite capability but you don’t have to pay for the satellite 

capability, is that fair business practice? 

 MR. PARSONS. I think you can certainly purchase the radio with it in 

order to subscribe to the service. 

 MS. BONO. But I found magically the code to the satellite and now I 

am not going to pay you for your service, but the selling point for that 

vehicle was that satellite radio, which is now stealing your signal, would 

you be in here screaming like a banshee if that were happening? 

 MR. PARSONS. Congresswoman, absolutely so. Stealing and piracy 

and not paying for this are, you know, something I think everyone on this 

committee and certainly, everyone on this panel are completely against. 

 MS. BONO. Well, I wouldn’t say stealing is, but the problem we are 

wrestling here with your technology, and first of all, I love your product, 

but it is not stealing, but you are not referring it to distribution and I think 

the Chairman was referring to can I walk this around to multiple hi-fis, 

my car, my PC, how many platforms can I integrate this with? This is 

mobile now and you know, it is interesting. It is set to record my 

favorites and as I scroll through my play list, I am told, like the Rolling 

Stones and The Who and Led Zeppelin and blah, blah, blah, and I got the 

song called “Do, Do, Do, Do” and I had to wrack my brain and never 

heard of it, so you scroll through the Rolling Stones, gee, I like that song, 

too, great. Give it to me. Never heard of it, but now I actually just got a 

brand new song for free, distributed to me. So the difference to me, you 
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are saying this is a performance and I am saying it is just distribution, 

correct? 

 MR. PARSONS. I think that is the essence of it, yes. 

 MS. BONO. The essence of it. Well, I own this and again, this is 

when you said analog versus digital way back when, we loved that 

argument. But the truth is, and you said this is an MP3 file or the 

equivalent thereof, so it is not, I mean, it is a copy of a copy. This is like 

a copy of a master, which is not the same as saying gee, I have taken my 

little stereo and recording it analog onto tape. Isn’t it entirely different 

than that? 

 MR. PARSONS. Congresswoman, actually it is not, for the following 

reason. I mean, clearly, we pay for each one of those issues. There may 

be debates upon whether the rate for each one of those functions is 

correct; whether our performance royalty should be more, which 

obviously, the recording industry feels it should be, and we will go 

through a negotiation and we will have an arbitration on that and 

determine it. 

 MS. BONO. And thank you, I--yes. 

 MR. PARSONS. And whether the amount that is paid by the 

manufacturer for that right to record is correct, Congressionally 

established and we pay under that for that right to record. But the 

essence that you talk about, the ability to take it from one place to 

another, you may have taken your audio cassette from one place to 

another and dropped it in your cassette player in multiple different 

locations, but that didn’t change the fact that you recorded it once. What 

was the difference between analog and digital? The real difference 

between analog and digital and the fearful aspects of digital, everyone in 

this committee dealt with and effectively had to be addressed in the 

Audio Home Recording Act, was digital can make multiple copies and 

distribute them in perfect form. The first copy is really not much 

different. 

 MS. BONO. That is my point. 

 MR. PARSONS. And in essence-- 

 MS. BONO. Let me reclaim my time here. 

 MR. PARSONS. Sure. 

 MS. BONO. My time is limited. That is my point to you; I am glad 

you are reiterating it maybe a little bit more articulately. It is a copy of a 

master, so the quality of that is entirely different. So I think we are 

talking about the same thing and I want to, you know, it is all semantics 

here and is it, you paid major league baseball and Oprah Winfrey tens of 

millions of dollars to promote your product, but you don’t want to pay 

the songwriter the distribution right, correct? And so isn’t it that you are 

building your business model based upon the back of the ordinary 
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songwriter and in my case, you know, it is personal for me and I hate to 

do that, because you never know when you end up in the press being 

terribly quoted, but my son, as I said, starts college in September and 

thank God for Sonny’s royalties because I could not afford college if 

Sonny’s royalties weren’t paying for that in September. So it is personal 

for me and I do take it very, very seriously. But you know, I think if we 

need to define the difference between distribution and we need, in 

Congress, to say what you are doing is distributing the product, then we 

will work on that. I mean, is your model different from Sirius? 

 MR. PARSONS. No, Congresswoman, it is very similar and in fact, 

the difference that has been defined between distribution and 

performance is the reason that we are paying separate rates for each and 

we are the largest single payer. I mean, we clearly believe-- 

 MS. BONO. But I am sorry. So you are paying a distribution to the 

songwriter? 

 MR. PARSONS. If it is done on a download basis, there is a 

distribution-- 

 MS. BONO. Come on, come on, come on, come on. So you are 

saying this is not a download, I am saying it is. That is the difference 

here. We are back to the same game. 

 MR. PARSONS. Correct. And I am saying that the laws that were 

established that defined what a download was versus what a distribution-

-no, Congresswoman, the only thing that can get off of this device is the 

artist and song title. 

 MS. BONO. How is that? 

 MR. PARSONS. We have restricted it such that nothing else can come 

out. 

 MS. BONO. With what? With what? 

 MR. PARSONS. The encryption within-- 

 MS. BONO. The DRM. Okay, so Congress right now is debating 

that it could be legal to circumvent that DRM, right? 

 MR. PARSONS. Correct, in a different bill, yes. 

 MS. BONO. Yes, in a different bill, which gets to the same point. So 

now we are hooking this, I don’t know where that is going to go, but 

potentially, if you can circumvent the DRM technology in this, suddenly 

this is on the Internet. Your song that you gave me, I am now uploading 

to whatever file sharing network I choose to. 

 MR. PARSONS. Correct. And in that case, everyone at this table will 

be on the same side to try to prevent that from occurring because right 

now, when only the artist and song title comes out, it is so that can 

facilitate a legal download with Napster, our partner, so in fact that 

distribution is paid. The things that cannot be done out of this, it can 

only make one copy. It only makes this personal copy. It cannot move 
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beyond this device. It cannot be burned to CDs, it cannot be distributed 

over the Internet. All of the classic things that would be done, if in fact it 

was a distribution and we had paid underneath those amounts, so we pay 

the performance; we are the largest single payer of performance rights. 

 MS. BONO. Of performance. We got that point. 

 MR. PARSONS. And-- 

 MS. BONO. And thank you, by the way. Thank you very, very 

much. 

 MR. PARSONS. And we would like other people paying this, too, if 

we are going to debate that particular piece of it. And then we also pay, 

once again, for the right to record under the amounts established by 

Congress, and then we facilitate the payment for a distribution by only 

allowing off of this device the artist and song title and then linking it up 

with Napster so that, in fact, you can get a legal download and pay the 

third way. 

 MS. BONO. I know I have overstayed my time. I thank you, Mr. 

Chairman, but Mr. Lawrence, you said the sky is not falling. The sky is 

bluer than ever for all of us in this room if one industry or one particular 

component of it doesn’t make it on the back of another and that is my 

only point, but the sky is bluer than ever and I am encouraged by all 

these technologies and the content providers, everybody, but I don’t like 

to see one, in your case, you profit on the backs of the songwriters. So 

with that, I will yield back, Mr. Chairman. 

 MR. STEARNS. I thank the gentlelady. Mr. Murphy. 

 MR. MURPHY. I am going to ask some more questions, so you can 

listen to me. Mr. Lawrence, you are sort of an expert here, Director of 

Digital Home and Content Policy of Intel Corporation, so we want to get 

to you here. I have got three questions for you. The first question is, 

please explain how some of the current DRM technologies used in the 

music business limit consumer use, particularly in music purchased on 

line from such services as Apple’s iTunes? 

 MR. LAWRENCE. Sir, I am not an expert in iTunes other than the fact 

that I subscribe to it. 

 MR. MURPHY. Okay. 

 MR. LAWRENCE. But fundamentally, it is a deploying of a digital 

rights management technology and there is really a wide range of them. 

Microsoft builds one, Real Networks builds one. There are a number of 

them out there and they are fundamentally based on encryption at the 

source where the point of distribution, the content is encrypted and then 

it is delivered to a device and when the device receives it, in order to 

actually decrypt the content and use it, it has to have a key and to get that 

key, to build the device, come a variety of rules that decide, that dictate 
99

how robust against hacking it has to be and also dictate the usage rules, 

you know, what is the device allowed to do. 

 And you know, the thing that is interesting about iTunes is actually 

it is a very flexible consumer usage model and they had to. Had to, 

maybe that is not the right word, but they adopted a model that 

consumers would find usable in their everyday lives. And so you can 

move it around to a couple of PCs and you can even make a backup copy 

because they met those consumer expectations. But they are all 

fundamentally based on the notion of distribution at the source where it 

is protected, meaning it is encrypted. And once it is encrypted, you 

know, there is a variety of just sort of tools that you can use to manage 

the content and decide where it goes, and that is why we try to build an 

environment where that content can move around in a protected manner 

and consumers can still enjoy it. 

 MR. MURPHY. In the discussion, the gentlelady from California was 

talking about the difference between distribution and downloading and 

you heard their conversation, what is your opinion? I am putting you on 

the spot a little bit on distribution and downloading. Would you say 

what he is doing is downloading or distributing? 

 MR. LAWRENCE. Well, you are putting me on the spot. I knew I was 

the odd man out. 

 MR. MURPHY. This is just an open discussion. 

 MR. LAWRENCE. Yes. 

 MR. MURPHY. I mean, you can give your reply here in a way that 

can be from a technical standpoint. 

 MR. LAWRENCE. I will tell you what-- 

 MR. MURPHY. I think it is an important point she made. 

 MS. BONO. Just clarify real fast between distribution and 

performance. 

 MR. LAWRENCE. So without giving you a specific legal opinion. 

 MR. MURPHY. Yes. 

 MR. LAWRENCE. You know, I think that we do have the case where 

we have a statutory regime that was developed in an analog world and 

for analog business models, and now we have the digital world and 

digital business models and they don’t oftentimes mesh together very 

well. And you know, as we talk about how do we address and fix some 

of these problems, I think that is a real challenge, but there seems to be, 

or there is often a tendency to want to point to the makers of devices, IT 

devices or CD devices, and ask them, through a government mandate or 

something to try and fix a problem that isn’t really fixable there. It needs 

to be fixed at a more fundamental place where the business relationship 

between the rights holders and the broadcasters, that needs to be ironed 

out more clearly. So without giving you the legal answer, I don’t think it 
100

is a technical problem so much as it is a business problem and an old 

regime. 

 MR. MURPHY. I accept that. Yes? 

 MR. OSTROFF. Can I make a comment on the DRM point? 

 MR. MURPHY. Sure. 

 MR. OSTROFF. I think DRMs have gotten a bad rap, an unfair rap 

because if you look at these devices here, if you look at the DVD, none 

of those would be possible without DRMs. It is probably one of the 

areas, few areas at this hearing where Mr. Parsons and I will disagree. 

Without DRMs, his XM satellite service can be hacked. 

 MR. MURPHY. Do you two disagree or agree? 

 MR. PARSONS. No, we agree. 

 MR. OSTROFF. You know, when it comes to our intellectual 

property, our copyrights, which we only have for a limited time, unlike 

other property, we have to be able to market them and we want to be able 

to make our content, our music, what Mr. Regan produces, what our 

artists produce, available to as many people as possible in as many ways. 

And it is just that we want to get compensated for them and DRMs is 

what makes that available. That is what allows iTunes; that is what 

allows the subscription services. And I just want that point to be clear 

here today. 

 MR. MURPHY. Good. Mr. Lawrence, again, what are the limits and 

the capabilities of DRM technologies? What limits do you believe may 

be imposed on consumers by these technologies? And this is sort of a 

tradeoff from what he is talking about. 

 MR. LAWRENCE. Yes, that is actually a really open-ended question, 

as well, because you know, as a technology developer, there is almost an 

unlimited range of things that you can do. But when you build a digital 

rights management technology, you have to take into a number of 

important considerations, such as the cost of implementation and what is 

the actual goal that we are trying to solve and so I think that from a 

technical perspective, you can do a lot of stuff, but it may not be practical 

to deploy a highly complicated, overly sophisticated sort of militarygrade style security system. The real goal is to keep honest people sort 

of honest. We say that a lot, I know, but also to support a reasonable 

infrastructure that will support the digital business model. 

 And so when you go to build the technology itself, you actually 

take--it is one place where you actually balance a whole host of interests, 

you know what the goal is. How do we reasonably keep it secure; how 

do we enable consumers, you have all these policy things that go in, and 

what is the cost of building and implementing. Because one thing that is 

interesting is consumers really don’t pay extra for content protection and 

it needs to be something that is seamless and friendly to them because if 
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they reject it, if it doesn’t work for them, then they find alternatives. So 

you can do a lot of stuff, but in practice what works is a different matter. 

 MR. PARSONS. Mr. Chairman, I will also note on that, that the 

physical DRM, the inability to get something off, is very important. 

Really, it is the object to make that which is legal very easy, very 

convenient and that which is illegal, make it very complex and very 

difficult to break, and that is the best shot that a developer, if you are 

looking at creating a new device, what you are trying to do is to allow the 

fair use elements to be done easily, seamlessly, but ensure that the illegal 

activities or things that make serial copies are very difficult to 

accomplish. 

 MR. STEARNS. You used, Mr. Lawrence, in your statement you said 

that “reasonably protected digital environment” is essential for the future 

of this business. I guess the question is, can you define more 

quantitatively what that means? 

 MR. LAWRENCE. In terms of what is reasonable? 

 MR. STEARNS. Yes. 

 MR. LAWRENCE. Yes, I think that goes back to that interesting 

balancing of interest tests that we talked about. You know, it is 

ultimately a cost-benefit analysis and content protection because we 

could build, for example, military grade security that would be 

astronomical in the cost perspective to implement, and that wouldn’t 

advance any of these business models. The other piece is that law 

enforcement is really an important part of dealing with piracy. The 

things we have learned in the DRM world is that the determined hacker, 

the determined pirate, he will defeat whatever you build and so this is 

balancing, there is an important role for law enforcement in content 

protection. 

 It is the only thing that is effective against pirates and then is sort of 

a reasonable degree of protection which is effective to encourage 

consumers to behave in a reasonable way. And so you have to balance 

those things when you build your technology and deploy it. And you 

know, to the rights holders community over the years, they have really 

come to appreciate the fact that, and look at the cost factor. DVDs are 

really inexpensive now, you know, and if they were still $600 apiece, 

then there is not as big a market and so there really are a lot of cost 

benefits that go in. 

 MR. STEARNS. You know, we had a hearing on the Boucher bill that 

was referred to here earlier, and Jack Valenti, when he was still the 

president of the Motion Picture Association, was adamant that he did not 

want one copy made of a DVD, period. And then right next to him was a 

man who was making lots of copies of CDs and recordings and he 

probably, judging from his testimony, shouldn’t have been doing as 
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much as he did, because he was making a whole library and providing 

for his friends, and so as he kept talking, we started to realize he 

probably was going much too far. But when you heard Jack Valenti be 

so strict that we could not make, a family could not make one copy of a 

DVD, this goes to the understanding of what is reasonably a protected 

digital environment. Under that scenario, what is your opinion, now it is 

just your opinion; do you think a family should be able to make a copy of 

a DVD, one copy for their own personal use? 

 MR. LAWRENCE. So that is a great loaded question. 

 MR. STEARNS. It is a loaded question. 

 MR. LAWRENCE. Yes. No, that is really good one. So what I think, 

and what they are working at at the DVDCCA, they are considering a 

variety of ways to enable recording of DVDs because whether it is 

appropriate as a legal matter or not, almost doesn’t matter. The reality is 

consumers want to do it and if they can do it in a way that rights holders 

are still compensated, it really ought to be enabled and all of the content 

protection efforts that we have been involved in, you know, we have 

tried to stay away from the argument of what is legally fair use or not fair 

use. Because in practice, when we build this protected environment and 

they pump this high value entertainment content in it, ultimately all of 

our customers are those consumers, and if they can do a variety of cool 

things that go way beyond what the law would describe as fair use, then 

that is going to be the most successful and compelling business model, 

we believe. 

 MR. STEARNS. Okay. I am going to close by unanimous consent I 

am going to put into the record Mike Ferguson’s statement. Mr. 

Ferguson has the Audio Broadcast Flag Licensing Act of 2006, it is H.R. 

4861. He has done a wonderful job on this bill. He regrets he could not 

be here, but I want to give high praise to his H.R. 4861 and to put his 

opening statement into the record and with that, Mrs. Blackburn. 

 [The statement follows:] 

PREPARED STATEMENT OF THE HON. MIKE FERGUSON, A REPRESENTATIVE IN CONGRESS 

FROM THE STATE OF NEW JERSEY

Mr. Chairman, thank you for holding this hearing. This subcommittee can serve an 

important role in this area, shining a light on exciting new technologies, examining how 

to effectively protect digital content, and ultimately, ensuring that consumers get access 

to new products in a quick, reliable – and responsible – fashion. 

Today’s hearing will focus on digital audio devices, content protection on those 

devices, and the effect on the American consumer. This is an area of keen interest to me, 

as I have introduced legislation that is designed to facilitate deployment of digital radio 

services, ensure consumer choice and protect the property rights of content creators. 

The Audio Broadcast Flag Licensing Act of 2006 is designed to ensure that 

intellectual property rights are respected and that those who create content are duly 

compensated, with the end goal being more consumer choice on the marketplace. Most 
103

importantly, my bill makes sure that the marketplace, not Congress, is where these 

negotiations happen. It is not the role of Congress to pick winners and losers but to 

ensure that all parties are competing on a level playing field. 

The legislation first requires digital radio services using government spectrum to 

acquire the same licenses from music creators that download and subscription digital 

music services currently must obtain to provide the same services. Some have claimed 

that these new services fall under the Audio Home Recording Act (AHRA). The AHRA 

was passed in 1992 at a time when even the Internet was mostly unknown to legislators 

and consumers. 

The fact remains that Congress could not have foreseen that some would choose to 

turn their performance license into a distribution licenses, without paying for the 

privilege. I find it hard to believe that Congress, while deliberating the AHRA, would 

agree that creators should be compensated $2 million a year under the AHRA when they 

are currently making almost $2 million a day from legal download services. 

Additionally, services such as Rhapsody and Yahoo! have both radio services and 

distribution services currently in the marketplace. They negotiated their licenses in the 

marketplace and did not claim that they would fall under the AHRA. Why is it that 

others, wanting to provide that same service, have decided to claim they are covered 

under AHRA? 

 The bill also provides for private market negotiations of an “audio broadcast flag” 

that will ensure that digital radio broadcasts are not indiscriminately disseminated over 

the internet. 

While the bill is clear in its intent to protect content, it also ensures that American 

consumers remain unaffected. Legacy devices already in the stream of commerce would 

remain unaffected, and the bill specifically states that the HD Radio rollout remain 

unimpeded. 

Of course, the preference is to see these issues resolved between the respective 

parties in the private sector. And I hope they can be resolved – in quick fashion. But the 

fact remains that digital audio products are on the market today that allow authorized 

downloading and carry a risk of illegal uploading to the World Wide Web. 

This is an issue that undoubtedly deserves Congress’ attention, but may also need 

Congress’ direction. The Audio Broadcast Flag Licensing Act is not only for the good of 

content creators, more importantly its for the good of the consumer – our constituents. To 

ensure that these exciting products continue to flow to consumers, intellectual property 

needs be protected. There must be a balance. 

 MRS. BLACKBURN. Thank you, Mr. Chairman. I appreciate that and 

I appreciate you all bearing with us as we have another hearing going on 

downstairs and we have had votes in the middle of this, but we do 

appreciate the work that you do and that you are here to talk with us. I 

will have to tell you it is so interesting to me to listen to the 

conversations taking place, having so many creators in my district. And 

I love to tell people about my district, you know, because we have 

creators, songwriters, producers, original thought thinkers and it is a 

great community and a great place to be creative, and I think it is so 

important that we realize what that creativity brings to this country as an 

economic development issue, as a trade issue, entertainment being such 

an enormous, enormous part of the exports that we have. 

 And some of you that are sitting there right now rolling your eyes 

and acting so bored with my little dialogue, I would just like to say we 
104

are here to protect what you create, too. And one of the ways that we do 

that is to be certain that people understand that we should respect 

copyright law in this country, so thank you all for coming and sitting 

down with us because working this out is something that we want to do. 

You know, Mr. Lawrence, listening to you talk, I hope that you are 

paying attention and I am sure that you are and I am sure that the good 

folks that work with you are paying attention to Section 107 of the 

Copyright Act because that defines the difference in something that is 

there for personal use and something that is there for commercialization. 

 And also, it is where we get into talking a little bit about what is fair 

use and what is free use, or as one of my songwriter friends says, fairly 

useful way to steal my music. And that is where we have to draw this 

line. We have to send a message to all the creators in this country and to 

our trading partners that we are going to respect what we create in this 

country. That we recognize it is private property, and that we hold it to 

be something uniquely wonderful and uniquely American. 

 Now, I do have a question I want to ask you. The Chairman just 

mentioned the broadcast flag bill that Mr. Ferguson has worked on and I 

do wish that he was able to be with us today. Ms. Bono and I have both 

co-sponsored that piece of legislation and we were talking a little as we 

were going down to vote about the compensation methods and the 

business models and how things are structured. And so Mr. Parsons and 

Mr. Halyburton, let me come to you with my question on this. It seems, 

as we look at the broadcast flag issue and having that audio flag in there, 

and you have talked a little bit about the HD and the satellite radio work, 

that we want to be sure it doesn’t translate into a download service. 

 You want to be sure that you protect your business model that you 

have invested hundreds of millions of dollars to put into place and we 

respect that because we like for companies to be successful. But it seems 

to me that the audio flag would be a way for you to help protect that 

content and still, at the same time, ensure the profitability of your 

business. Do you want to comment on that? 

 MR. PARSONS. I think, actually, Mr. Halyburton began that 

conversation with some prior descriptions of it. They are in the midst of 

a negotiation and discussion about exactly how that is to be implemented 

and those negotiations and discussions are going on to look at how the 

technology can do it. Essentially, one element that I think we all agree 

on, whether it is an audio flag purpose, whether audio flag is the way that 

you achieve it versus other ways that you achieve it, there has to be some 

way to ensure that digital content that comes over a delivery mechanism 

cannot, then, subsequently be abused for more than personal use. 

 I mean, we are big defenders of fair use or personal use and we 

believe we are correctly doing it, but we are also just as passionately 
105

defenders that it not go beyond that. That hurts us, that hurts the 

recording artists, that hurts everyone to have it beyond that point. So 

from our standpoint, we essentially put a physical restriction on it. You 

just simply cannot get off of the device to ever distribute it, so we don’t 

see a need in that system, since we have a closed protected system. 

 MRS. BLACKBURN. So you would consider it to be redundant? 

 MR. PARSONS. We would consider it to be redundant to our system. 

It may not be to the HD radio system, because theirs is going to be a 

more open system where they may not be able to restrict it without it, but 

I will turn that to Mr. Halyburton. 

 MR. HALYBURTON. Yes, I think-- 

 MRS. BLACKBURN. I think we are almost out of time and I have got 

one other quick question. 

 MR. HALYBURTON. Okay. 

 MRS. BLACKBURN. Go ahead. 

 MR. HALYBURTON. Okay. Yes, I think that ours is a kind of unique 

issue that the broadcasters are working on. We have had very good 

meetings with the recording industry. We are understanding their issues 

and they are understanding our operations and I think the meetings have 

gone very well in the direction of finding a way to protect that content. 

 MRS. BLACKBURN. Okay, anybody else want to issue anything 

there? I have got one other question. Mr. Parsons, you, in the beginning, 

mentioned that you were paying hundreds of millions of dollars to 

creators and performers and that you were paying twice and you spoke in 

the aggregate. Would you like to, at this point, break that down so you 

are talking about what you are paying the performer, what you are 

paying the songwriter per play? Would you like to do that? 

 MR. PARSONS. Congresswoman, it actually doesn’t end up being per 

play, it ends up being as a portion of all of our revenue. 

 MRS. BLACKBURN. Okay. 

 MR. PARSONS. So whatever amount of revenue that we make-- 

 MRS. BLACKBURN. For the record, would you like to explain that so 

that it is clear in the record? 

 MR. PARSONS. Yes. Okay, clear in the record, the agreements that 

we have in place right now, we have operated under five years of the 

agreement. We are currently renegotiating those rates for the coming 

five years on a performance basis. Those amounts come to tens of 

millions of dollars now and with the growth of our industry under the 

current existing rates, will be hundreds of millions of dollars over the 

coming five years. It roughly equates to 6 to 7 percent off the top of all 

of our revenue and then by the statutory requirements, that is broken 

down by a percent that goes directly to the recording artist and 

distributed; a percent that goes to the publishers; a percent that goes to 
106

the composers; each of those get a designated portion under the 

compulsory license. 

 The second area of payment that we referred to is a different 

distribution. 

 MRS. BLACKBURN. Okay, now hold on just a second there. You 

said they are going to get 6 to 7 percent of your total revenues and then 

that is going to be split between your performers and your songwriters 

and your publishers. 

 MR. PARSONS. Correct. We have different agreements with BMI, 

ASCAP, CSAC for those purposes. We have different agreements. We 

actually have a breakdown of what percentage each group gets out of 

that. 

 MRS. BLACKBURN. That is great. For clarification for the record, as 

we go ahead looking at the issue, just reading the testimony, I had a 

feeling that you might want to clarify that for the record as we move 

forward. Mr. Ostroff? 

 MR. OSTROFF. Yes, if I could make a point on that. What Mr. 

Parsons is referring to as the second payment is payments that are made 

under the AHRA by the device manufacturers. The music industry, 

recordings and music publishers, songwriters combined this year, we 

expect to make $2 million from all of the AHRA payments. In contrast 

to that, for downloads today, we are going to sell two million copies of 

digital downloads. Every day we are selling two million copies. On an 

annual basis, the comparison is two million versus close to a billion, so 

what the XM device, which is a distribution device, is paying less than 

peanuts for that ability. 

 MR. PARSONS. May I note on that? However, that is because there 

are very few devices that have been manufactured and if this is half as 

popular as an iPod, it is tens of millions per year. 

 MRS. BLACKBURN. Mr. Parsons, I am now three minutes and 52 

seconds over. 

 MR. PARSONS. Yes, ma’am. 

 MRS. BLACKBURN. And I need to yield back to the Chairman and 

then he may want to continue with the line of questioning, but thank you 

all so very much. We want to find a resolution to this issue and we 

appreciate your work today. Mr. Chairman, thank you for your 

generosity with the time. 

 MR. STEARNS. Oh, sure. Okay, Mr. Murphy, I am sorry I didn’t get 

you earlier. Go ahead. 

 MR. MURPHY. You know, I have written a few songs in my time, I 

play guitar and I would be glad to audition for any of you. My concern 

is, let me make sure I understand this. So let us say my song is a hit, I 

am backed up by Marsha Blackburn and her Tennessee Gitpickers or 
107

something like that. We have this great song. I wrote it, she has a backup band, she sings harmony. If I sell, we will be modest, a million CDs, 

how much money do I get from that? 

 MR. REGAN. As I mentioned, if you-- 

 MR. MURPHY. Give me a number. Make me excited here. 

 MR. REGAN. Well, you won’t get excited, I am sorry to report. But 

the mechanical rate at this point is, I believe, 9.1, 9.2 cents. As I said 

earlier, if you co-write the song, which almost all Nashville songs are cowritten, and we have a publisher, you will reap approximately $23,000 

for that million selling CD. 

 MR. MURPHY. And what if this gets played on XM Satellite Radio, 

how much do I get? 

 MR. PARSONS. I wouldn’t be able to tell you what the formula is for 

that. 

 MR. MURPHY. If a million people download it. 

 MR. PARSONS. Well, they don’t download it, but it is how often is it 

played. 

 MR. MURPHY. Wait a minute. 

 MR. PARSONS. How we pay under this is-- 

 MR. MURPHY. But they can record it; they can keep it, right? 

 MR. PARSONS. Correct. 

 MR. MURPHY. Okay, so they kept the song now, so it is on their 

personal file. They got it from XM. How much money-- 

 MR. PARSONS. It would depend on how frequently they were 

played. 

 MR. MURPHY. Every time they play it on their own personal--I am 

not talking about every time you play it. 

 MR. PARSONS. No. 

 MR. MURPHY. If you play it once and a million people say I like 

that, I have got to get this song and they keep it now, how much money 

do I get? 

 MR. PARSONS. It is a different percent that gets paid-- 

 MR. MURPHY. Give me a ballpark figure. If you don’t know, you 

shouldn’t be in this business. Give me an idea. How much money do I 

get? Don’t avoid the question. Give me an idea. I want to know. This 

is not making me happy and-- 

 MR. PARSONS. It will purely depend on how often you were played. 

 MR. MURPHY. Or her, either. 

 MR. PARSONS. It is just like this. 

 MR. MURPHY. Do I get a million dollars, do I get 23 cents, $20,000? 

What do I get? 

 MR. PARSONS. It depends on how often you were played. 
108

 MR. MURPHY. Geez, Mr. Chairman, this is not good. We are not 

getting cooperation from the witness. Come on. If a million people 

decide to download it, would that make any difference in how much I 

get? Yes or no. 

 MR. PARSONS. If a million bought it on Napster through our 

flagging of it, it would be one fee. 

 MR. MURPHY. Okay. How much? 

 MR. PARSONS. If a million plays were done on our service on an 

ongoing basis, it would be a different fee. 

 MR. MURPHY. Give me an idea. 

 MR. PARSONS. Well, it depends on how popular and how many you 

make. 

 MR. MURPHY. I just told you. A million people heard it, they said I 

want to keep that song. 

 MR. PARSONS. Okay, we will have to break it down. Over the next 

five years we are paying hundreds of millions-- 

 MR. MURPHY. We will just assume--Mr. Chairman, I would love it 

if you could ask him to write a response to this question because of my 

time. 

 MR. STEARNS. Will the gentleman yield just for a second? As I 

understand it though, if people, a million people download that onto your 

radio, you don’t pay anything, isn’t that true? If a million people are 

recording it over the air? If they have your radio and they say by golly, 

the announcer says we are coming up with “Don’t Be Cruel,” and a 

million people download that into their radio, you don’t pay anything and 

those people can listen to that. You said in your opening statement they 

can listen to “Don’t Be Cruel” again and again and again. 

 MR. PARSONS. Mr. Chairman, that is--no. We cannot, by the way. 

There are restrictions. We cannot say that this is what is coming up. 

 MS. BONO. Actually, if I might, you don’t have to say it. I just told 

my gizmo for the next 30 days find anything by Elvis Presley and 

download it for me while I am asleep, so nobody needs to announce it. 

 MR. STEARNS. No, I am just saying, I mean, if you have got, if you 

have worked out that you don’t pay anything, just tell them. I mean, it is 

no big deal in the sense that he is trying to make a point and I am trying 

to help you answer the question, which I think is you don’t pay anything. 

 MR. MURPHY. Is the answer zero? 

 MR. PARSONS. The answer for each recording of this would be zero. 

 MR. MURPHY. Thank you very much. Boy, it took me a long time. 

I hope you will give me a little bit more time here. Okay, and here is my 

concern. I talk to a lot of high school and college classes, students, and I 

use, as an example of, does Congress have a role in their life because a 

lot of them think there is really nothing I am interested in here. You talk 
109

about highways and roads and deficits, things like that. But I ask them, I 

bring up questions about the Constitution and the issues involved in the 

Constitution from the onset about copyright law and patent laws. And I 

ask them do they think it should be illegal for them to take music and 

download it without giving any compensation to the songwriter, the 

performer, the recording company, the gaffer, the janitor, all those people 

involved. 

 And they say things to me like well, I don’t really want to buy CDs 

because nine out of ten songs, insert appropriate teenage slang here, 

aren’t very good or the musicians already make so much money; it 

doesn’t matter or it is available, so it must be okay; or I don’t have the 

money to get it all, so I just load it on or also, if I put it on my iPod and I 

break my iPod, I have lost everything, so I make multiple copies and my 

friends all share them. What should I tell teenagers and college students 

today about the Constitution and ethics? I hear these things so often. 

What should I tell them? Gentlemen. 

 MR. OSTROFF. Well, I think that you are asking the right questions. 

 MR. MURPHY. Because that is your audience. 

 MR. OSTROFF. But not getting the right answers. I think that there 

has been a shift in recent years because of the things that we and others 

have done. For one simple example, I buy a CD, there is only one good 

song. I can go to iTunes and buy that one good song for 99 cents and the 

different ways that we have now made music available, I think satisfy 

consumers’, kids’ needs and you know, it is still very, very difficult to 

compete with free. 

 MR. MURPHY. So let us talk about the ethics of this. 

 MR. OSTROFF. The ethics, I think, are pretty clear. Theft is theft and 

people put their hard work, their blood, their sweat, their tears--Mr. 

Regan can speak of that, you know, much more than me; I am just a 

mere businessman--to create these wonderful songs and wonderful 

recordings. And to just take it without paying the people who did the 

work is just wrong. 

 MR. PARSONS. And Congressman, I agree 100 percent with that. 

We have fought that and that is why we do pay. We are the largest 

single payer of all these performance-- 

 MR. MURPHY. We have already established you pay them zero, so 

let us move on. Anybody else? 

 MR. REGAN. Well, I would just say if all we have to make is a moral 

argument, it is extremely difficult. My own son, I have caught him with 

burned CDs. He doesn’t do it in my house, but his very Nikes are 

dependent upon the proceeds of intellectual property and I try not to beat 

him, but sometimes I can’t stop myself. If all we have is the moral 
110

argument, it is extremely difficult. That is why we have to have 

Congress help us out to protect this stuff and-- 

 MR. MURPHY. Mr. Lawrence, you were going to comment? 

 MR. LAWRENCE. Yes, I can’t let this pass. We completely agree 

that, you know, in a digital age and a digital society where the assets are 

different than they have been in the past, the ethics and honest behavior 

is a critical part of a successful digital marketplace, it just is. And it has 

to become a fundamental piece of our society and it is incumbent on us, 

as parents who have children and parents who, you know, just no 

children and even amongst ourselves, the education piece is just 

paramount and never has ethical behavior been more important and it is a 

fundamental American value and we really, really do need to stress and 

drive that home. 

 MR. MURPHY. Thank you. I know I am over time. One other thing 

I would just like to ask for, for the sake of parents of young children. I 

no longer have a young child, but one of the things that is valuable for 

parents is, you know, for those DVDs they have already played 6,000 

times, many times parents would prefer if I can keep the master copy 

hidden away and give my kids a copy so when it gets covered with 

peanut butter and jelly and milk and everything else there, we can always 

make a new one. Is that something the industry would find a way to 

permit? 

 MR. LAWRENCE. Yes. So you know, with respect to the content, 

industry has recognized that people want the ability to do managed 

copies and that they want the ability to burn backups and so when the 

next generation optical media formats, which are high def DVD and blue 

rate disc, they are going to come with those basic capabilities, you know, 

that if you want to do a backup, you can do it. If you want to move it to 

a portable device, those things will be enabled. When we did the DVD, 

you know, there was some doubt that even consumers would accept 

content protection at all, but they clearly do. The consumers’ 

expectations or their desire to make backups and such like that has 

changed over time and so there is actually an effort in the DVDCCA to 

try and address that, and I think that the content community, to their 

credit, have said this is what our consumers want and demand and we 

need to find a way to make a proposition that is acceptable to all parties 

to make it happen. 

 MR. MURPHY. Given all that is taking place, I hope we will be able 

to draft legislation that keeps up with the technology because by the time 

we type this up, everything will change, so but thank you very much for 

your testimony. Thank you, Mr. Chairman. 

 MR. STEARNS. I thank the gentleman. The gentlelady, Ms. Bono. 
111

 MS. BONO. Thank you, Mr. Chairman. Okay, if I take my iPod and 

I hire Mr. Lawrence because he is clearly very brilliant and I say put 

some antenna on my iPod and let us go around southern California and 

start streaming music via wi-fi or EDVO or whatever the terrestrial 

Internet is going to be, doing wirelessly, how is that different if my iPod 

could suddenly start doing that, why would I need this if I could do that 

with my iPod? 

 MR. PARSONS. Congresswoman, there are different rates that are 

established for each one. The wi-fi may, in fact, not be paying a 

performance, it might be paying on a download basis. Many of these 

devices don’t pay under the Audio Home Recording Act. They don’t 

pay a performance, but do pay on a download. The device that was 

shown here, which is actually a video iPod, if you wanted to watch 

Desperate Housewives for free, you watch it over the air for free. If you 

want to put it on your TiVo and record it to watch it later, you do that, as 

well, for free. If you didn’t remember to record it, like you would have 

on this, then you have to download it from iTunes and it costs you $2. 

Each one of those-- 

 MS. BONO. It would have been like I would have had to remember 

on this? 

 MR. PARSONS. Pardon? 

 MS. BONO. Just 17 songs have been downloaded on here. I haven’t 

done a thing. 

 MR. PARSONS. Right, and if you had set up your TiVo to record 

those, you might have gotten it or you might not have. Each one of 

those, the consumer is willing to pay and willing to experience a 

different environment-- 

 MS. BONO. Then why aren’t you? Why aren’t you? I mean, again, I 

love your product, but why aren’t you? You know, he--God, he was 

good for a psychologist. He can put you in your place. I hate to be on 

your couch. But he got you to say it. I mean, why don’t you--and I have 

a feeling you will. I think at the end of the day you are going to hear 

footsteps coming from Congress that are going to hopefully let you know 

that we think you ought to be paying, that this is a distribution model, not 

a performance model. 

 MR. PARSONS. Well, Congresswoman, you really do hit the exact 

issue, which is it a distribution or is it a fair use recording over the air? 

Because that makes all the difference. 

 MS. BONO. Well, we seem to think, as consumers, it is a 

distribution. 

 MR. PARSONS. Correct. You are saying it is a distribution and I am 

saying that in Section 114 of the Audio Home Recording Act, Congress 
112

very carefully said this is a distribution; this is fair use over the air, and 

established exactly what those rules were. 

 MS. BONO. I am sorry. What year was that written? 

 MR. PARSONS. 1992. But at that point in time--and it was written 

for a digital environment. As a matter of fact, it was-- 

 MS. BONO. Mr. Lawrence, do you think in 1992--you were probably 

at MIT or somewhere, Cal Tech or something. 

 MR. LAWRENCE. I wish. 

 MS. BONO. But did you anticipate in 1992 this is where we would 

be? I mean, in 1992, I mean, to go to something that is completely 

antiquated. I mean, literally, as I said, my son and I bought cars that are-

-I will let you get to it. I am on a roll. But I bought a car that is basically 

a cell phone and satellite radio; so did my son. I mean, mine is a BMW, 

his is a Nissan, but that is where we are today, so I am sorry, please. 

 MR. LAWRENCE. You know, when you look back at some of the 

efforts that have been made through laws to address innovations that are 

happening in technology and business models, when I go back to 1992, 

for me it shows that it is just oftentimes not effective because we don’t 

see where it is going. And so if we can level the playing field so that the 

problem can be solved in the business world where it really ought to be 

solved and let the markets address them, that is important. It goes back 

to my point earlier about we have got one regulatory regime and a new 

world and there has been a lot of discussion about efforts to try and 

address the problem. 

 And I want to reiterate again that, you know, our industry is not 

really a part of any of those discussions and there is a lot of talk about 

technical solutions and there is a lot of talk about ways to do it. But I 

fear that again we are going to go back and try and impose a fix on 

technology providers or innovators; it is not going to fix the problem. In 

fact, if you go back and look at some of the devices that were regulated, I 

mean, it effectively just made them obsolete and everybody moved to 

something else. We need to fundamentally address the problem and not 

look for a band-aid solution. 

 MS. BONO. But it is so, I mean, clearly from the discussions about 

the illegal downloading, my son, you know, my children previously 

doing all sorts of PDP things, at the end of the day it is the songwriters, 

the intellectual property rights holder who always gets hurt. But it is 

always, and this is the case here, that they know that they can squeeze 

out this guy, the intellectual property rights holder, because at the end of 

the day this is the hardest argument to make, that that guy who wrote the 

song, sitting in Nashville or sitting in Sunset Boulevard in Hollywood, 

has a right to what he owns. That is the hardest argument to make and 

the easiest guy to squeeze out of the equation, wouldn’t you say? 
113

 MR. LAWRENCE. That may be true under the current regulatory 

statutory regime and that is why I think that is a problem. I can’t 

disagree with your point. It is where do you try and fix it. I just think 

that the history of sort of government mandates on technology providers, 

you know, like device makers, to try and fix a lot of these problems, I 

just don’t think it has been effective and going forward, I don’t think it is 

effective but, you know, sometimes if there is some sort of a mandate 

that by consensus all the people agree is appropriate, like the broadcast 

flag where there was a process that people got together. 

 We had a material hand in participating. In fact, the guy who 

worked for me drafted a big chunk of that regulation. There was a 

consensus, there was an agreement that a particular technical approach 

was narrowly tailored to solve a particular technical problem, a particular 

problem and also, that the rules around it were reasonable and were 

agreed to. And in fact, that it was the right legislative approach, if you 

will, or the right regulatory approach, to solve a problem. And that a 

regulatory approach was maybe the right way to do it. And the thing that 

is really concerning for me is there seems to be this, a group that is going 

down that path rapidly and we are standing by watching and none of 

those other elements that went into the broadcast flag, for example, seem 

to be--I mean, there is a variety of proposals out there and some are 

closer than others, but that is a real concern, that none of that sort of 

consensus process--we have consensus with some of the affected parties, 

but the rest of us. 

 MS. BONO. Well, our doors are always open, all of us, I know and 

we will welcome your input and guidance at any point in time. But I just 

have one last question because again, the Chairman has indulged me with 

too much time, for any of the panelists and I don’t know the answer, but 

with all of this that we are talking about and the international world, the 

global marketplace, are we giving ourselves an advantage or a 

disadvantage? Are we strengthening or weakening our hands here? And 

just food for thought, are we--because I know the laws are different in 

Europe and we face that battle, as well, but are we strengthening or 

weakening our hands with distribution versus--and on that note, if I have 

this for 30 days and I download every song that I like, can I just 

discontinue my service with you without a penalty? 

 MR. PARSONS. No, Congresswoman, you cannot and as long as you 

continue paying us, then a significant portion of our revenue goes to pay 

for the-- 

 MS. BONO. Performance royalties, but-- 

 MR. PARSONS. And actually, one of the things that worked well out 

of that, by the way, for the small guy was the compulsory license 

because what actually happens on there, I mean, we constantly get 
114

positive things from smaller artists. The record labels do tend to take 

care of the big artists, but under the compulsory license, because we play 

a much wider variety, what actually happens is the percent of our 

revenue that flows in to compensate songwriters or artists or the 

musicians ends up tending to go to the much smaller ones. There are 

artists now getting checks for the very first time in their history that 

never really got them or underlying performers that got them for that 

reason. 

 MS. BONO. But I can cancel my subscription after my device has all 

of my favorite songs on it without a penalty? 

 MR. PARSONS. No, Congresswoman, you cannot. You cannot 

access that. 

 MS. BONO. I see. 

 MR. PARSONS. The only time you can access it is if you continue to 

pay your subscription and therefore continue to pay the recording-- 

 MS. BONO. From my pay list? 

 MR. PARSONS. Correct. 

 MR. LAWRENCE. Could I comment just briefly from a technical 

perspective? You know, I think that if we would start by using the 

technologies that are available to us and encrypt our content at the 

source, you know, protect it, really protect it instead of just distribute it 

out there in the clear, that it would go a long way to addressing a lot of 

these issues. 

 MS. BONO. So you are against H.R. 1201 which makes it legal to--

right. 

 MR. LAWRENCE. Yes, you know, we have built a lot of technologies 

and we understand what consumers want to do, but the fundamental 

problem is you build a lock and if you tell people they can distribute 

keys, then what is the point in building a lock and that is just-- it is one of 

these, you know, there are probably some exceptions that are 

appropriate, but they have got to be really narrowly tailored and just as a 

general matter, I am afraid it is the exceptions that swallow the rule, I 

mean, just in practice, when I lock it. 

 MS. BONO. In my international-- 

 MR. OSTROFF. It is very important to this country. Intellectual 

property, movies, music, other creative works are one of the country’s 

major exports. If we don’t set the right standards, and the rest of the 

world follows us in many respects, then our creative works won’t be 

protected anywhere in the world. 

 MS. BONO. Thank you. Thank you very much, Mr. Chairman. 

 MR. STEARNS. I thank you and I think we are concluded with our 

hearing today. Mr. Regan, I am just curious. What was the name of the 

song that after you finally hit and got paid for that succeeded? 
115

 MR. REGAN. Reba McIntire’s “Til Love Comes Again.” 

 MR. STEARNS. Oh, okay. 

 MR. REGAN. I mentioned that I made a certain amount of money. 

The monies have gone up significantly. 

 MR. STEARNS. It was $23,000 I think you said. 

 MR. REGAN. Well, that was about 35 for a top five single back in 

1985. It has gone up significantly. 

 MR. STEARNS. What would it be today? 

 MR. REGAN. Well, top five radio hit co-written, maybe performance 

is $150,000. 

 MR. STEARNS. Okay. 

 MR. REGAN. Good year. By the way--I may make it all in one year. 

 MR. STEARNS. Zero the next. 

 MR. REGAN. Eaten alive tax-wise. 

 MR. STEARNS. Well, let me just conclude and thank the witnesses 

for their patience while we voted. We are going to vote again here and I 

am going to conclude. I think there has been enough interest on this that 

we might have another hearing or at least a study and so we appreciate 

your time and effort and the committee is adjourned. 

 [Whereupon, at 4:20 p.m., the subcommittee was adjourned.] 
116

RESPONSE FOR THE RECORD BY GARY PARSONS, CHAIRMAN OF THE BOARD, XM SATELLITE 

RADIO

Questions from the Honorable Joseph R. Pitts 

1. For many years, we have made the assumption that songs played on 

traditional radio promote music sales. How would you compare the promotion value of 

your satellite service to traditional radio? 

Response:

 On behalf of XM Satellite Radio, I thank Congressman Pitts for posing a question 

that illustrates one of the many beneficial aspects of XM Radio for recording artists and 

recording labels. Airplay always has been a primary promotional vehicle for the sale of 

recorded music, and XM is no exception. Our research shows that XM promotes sales of 

recorded music, and that our promotional impact is deeper in key respects than traditional 

radio's. 

 Today's typical FM radio dial presents the listener with a choice among a small 

number of music styles and formats, and a limited playlist of artists and songs. 

Consequently, traditional radio stations do an admirable job of promoting sales of a few 

"hit" records by today's recording stars. 

 By contrast, XM features 69 channels of commercial-free music characterized 

according to genres and themes: by decade from the 1940's to 1990's; channels of today's 

hits; country and folk channels; Christian music channels; classic and alternative rock; 

jazz and American popular song; blues; classical; hip-hop and soul; dance channels; Latin 

and world music; and many more. Even channels dedicated to 40’s Big Band music, 

Bluegrass or Southern Gospel music, clearly play music that would receive little airplay 

without satellite radio. Several XM channels are devoted to the discovery of new artists, 

such the "Hear Music" channel. XM has a library of more than 2.2 million recordings, 

and we estimate that during a given month XM channels feature more than 160,000 

different sound recordings. 

 In addition, XM Radio subscribers can hear special music programming developed 

by XM solely for our listeners. Programs hosted by artists as diverse as Bob Dylan, 

Quincy Jones, Wynton Marsalis, Tom Petty and Ludacris, take listeners inside the 

musical minds of innovative and enduring artists for their unique perspective on 

American music. XM presents concerts recorded live in other locations or at the XM 

performance space in our studios here in Washington, D.C., featuring stars of the 1960's 

through the present day. Many of XM's announcers get behind the music to talk about 

the artists, and program the music in ways that connect the songs by style or by theme. 

 As a result, XM subscribers are exposed to a far more diverse range of artists, genres 

and songs than traditional radio listeners get to hear. They can see on their radios the 

names of the artists and the songs we play, and so can more easily become familiar with 

new artists and new styles of music. Our research indicates that XM subscribers enjoy 

XM more than traditional radio because they are able to enjoy and learn about music they 

cannot hear elsewhere; and, not surprisingly, that they tend to purchase more recorded 

music and concert tickets than the average consumer. 

Artists featured on XM tell us that the airplay and artist specials they receive on XM 

have benefited their careers, and we hear this from artists as diverse as those who had 

their "hit singles" decades ago as well as "up and coming" artists just starting their careers 

and looking for their first big break. 

 All in all, XM believes that for those consumers who listen to "hit" radio channels 

on XM instead of traditional terrestrial radio, XM, just like FM radio, is a great vehicle 

for of promoting sales of those hits. But moreover, for the vast majority of recording 
117

artists who have extraordinary musical talent but don't top today's limited playlist charts, 

we believe that XM is a far more effective promotional medium than traditional radio is 

or ever has been. 
118

RESPONSE FOR THE RECORD BY MICHAEL OSTROFF, GENERAL COUNSEL AND EXECUTIVE 

VICE PRESIDENT, BUSINESS AND LEGAL AFFAIRS, UNIVERSAL MUSIC GROUP

RESPONSE TO QUESTION OF THE HONORABLE JOSEPH R. PITTS 

 

QUESTION: In his testimony, Mr. Parsons points out that consumers have been 

making “mix tapes” of their favorite songs for decades. I was struck by Mr. 

Parsons’ argument that making something simpler or more convenient doesn’t 

make it illegal. Why does the recording industry object to something consumers 

have been doing for decades?

 

ANSWER: Our objection to the new portable satellite radio/mp3 players offered by XM 

has nothing to do with customary or traditional recording off the radio by 

listeners. Specifically, we object to XM’s allowing subscribers to record up to 50 hours of 

XM programming, see a list of tracks that have been recorded (by artist, song title or 

genre), cherry pick the specific tracks they want to keep on the device, and delete the rest 

– without payment of a license fee for that activity. 

 

Congress gave the satellite services a compulsory license to perform our music, so that 

their subscribers could listen to it. Our company and others in the industry helped the 

satellite services get started by agreeing to below market payments for our property. 

Now XM is stretching and reinterpreting the government-imposed license into a service 

that enables their subscribers to make permanent copies of our music. This service goes 

beyond mere performance – in copyright law, such services are characterized as 

distributions. When music services want to distribute recorded music, they must seek a 

marketplace agreement with the copyright owners of the music they plan to offer. Just as 

other music services had to come to companies like ours to reach market agreements on 

their new “simple and convenient” distribution service, we believe it is only fair that XM 

do the same. 

 

During the hearing Congressman Tim Murphy asked the Chairman of the Board of XM 

how much a songwriter would make per song if 1 million XM subscribers used the new 

portable device and the new service XM is offering to record and store a song. After 

some hemming and hawing, the XM Chairman finally responded: “The answer for each 

recording is zero.” That fact is contrary to the policy at the heart of the compulsory 

license and unfair to creators who rely upon royalties from music sales for their 

livelihood. 
119

RESPONSE FOR THE RECORD BY DAN HALYBURTON, SENIOR VICE PRESIDENT AND GENERAL 

MANAGER, GROUP OPERATIONS, SUSQUEHANNA RADIO, ON BEHALF OF THE NATIONAL 

ASSOCIATION OF BROADCASTERS

QUESTIONS FROM THE HONORABLE JOSEPH R. PITTS

1. Are you concerned that the recording industry is trying to persuade Congress to 

require broadcasters to begin paying money in order to broadcast music in high 

definition? 

Yes, broadcasters are very concerned. For decades, the recording industry sought 

and Congress has consistently rejected providing a performance right for sound 

recordings. 

Congress specifically and definitively rejected applying performance rights in sound 

recordings played by terrestrial analog and digital radio stations because they posed no 

threat to sales of sound recordings and for the following additional reasons: 

● Congress has long recognized that the recording industry reaps huge 

promotional benefits from the exposure given its recordings and artists by radio 

stations. These include airplay of the recordings, on-air interviews, and concert 

promotion publicity. Many stations, such as WGMS here in Washington 

provide specific opportunities to feature new and emerging artists. 

● In the words of the Senate Judiciary Committee: "Free over-the-air broadcasts 

are available without subscription . . . and provide a mix of entertainment and 

non-entertainment programming and other possible interest activities to local 

opportunities to fulfill a condition of the broadcasters' license." 

● Again, in the words of the Senate Judiciary Committee, Congress did not want 

to "upset longstanding business and contractual relationships among record 

producers and performers, music composers and publishers and broadcasters 

that have served all of these industries well for decades." 

With respect to this last point, the symbiotic relationship among the various 

industries is a complex one. Music composers and publishers receive enormous 

compensation through public performance licensing fees paid by broadcast radio stations 

to performing rights organizations such as ASCAP, BMI and SESAC. In 2006, the radio 

industry will pay these organizations approximately $435 million in royalties. Music 

producers and publishers also receive some royalty payments from producers of sound 

recordings that record their works, but those sums are small relative to the receipts by the 

record companies from the sale of recordings. 

The record producers and recording artists, on the other hand, receive the vast 

majority of their revenues from the sale of sound recordings. While receiving no 

copyright fees from broadcasters, they enjoy tremendous promotional values from fee 

over-the-air broadcasting. In 1995, Congress granted record companies a very limited 

performance right with respect to interactive and subscription digital audio transmissions 

of sound recordings (over both cable systems and the Internet). The granting of this new 

limited right was not premised on any recognition that the producers and performers of 

sound recordings were suddenly entitled to a new revenue stream. Rather, the rights were 

granted in response to recording industry concerns "that certain types of subscription and 

interactive audio services might adversely affect sales of sound recordings and erode 

copyright owners' ability to control and be paid for their work." Senate Commerce 

Committee, 1995 Report. 

The recording industry and others also like to trot out the “free spectrum” argument 

in their call for a performance right. While it may be true that pioneer radio broadcasters 
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receiving allocations decades ago paid no fee for their spectrum, virtually every current 

radio broadcast operation has paid anywhere from tens of thousands of dollars to tens of 

millions of dollars to acquire those operations and collectively the industry has paid 

hundreds of billions of dollars in such acquisition costs. Our industry also has paid 

billions of dollars to build and upgrade our facilities, and bring value to the American 

public over what is otherwise simply air. Terrestrial radio broadcasters continue doing so 

today as we convert to digital. These acquisition costs include the cost of acquiring the 

right to use the spectrum on which these stations operate. Second, since 1997, new 

commercial radio stations must obtain their licenses by way of auctions just like any 

other spectrum user. 

In addition to the points above, it should be noted the unique role broadcasters' play 

in serving local communities – these licensing and public service obligations are by no 

means insignificant. Licensing requirements include: providing and reporting on 

programming giving significant treatment to community issues; providing "equal 

opportunities" to candidates and favorable rates to certain candidates; program sponsor 

identification; regulated contests and promotions; indecency regulations; maintaining 

public inspection files; and regulation of lotteries. In 2003, the radio industry provided 

$6.7 billion in free air time and fundraising for worthy causes. Results for 2005 will be 

available shortly. 
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RESPONSE FOR THE RECORD BY JEFFREY T. LAWRENCE, DIRECTOR, DIGITAL HOME &

CONTENT POLICY, INTEL CORPORATION

Answer of Witness Jeff Lawrence to Supplemental Question for the Record of Mr. Pitts 

A: Intel believes the balance is struck by the proper use of DRM technology in a 

manner that recognizes consumers' legitimate fair use interests in utilizing all or 

portions of a work, while protecting the legitimate commercial interests of content 

owners. Intel has worked hard to bring to the market discrete DRM functionalities 

that allow consumers to make limited copies of all or portions of a work for fair use 

purposes - whether it be the making of a limited number of personal copies for use 

in different platforms, or the copying of small portions for purposes of parody, 

scholarship, etc. Intel does not subscribe to any approach that would encourage or 

allow consumers to make unrestricted use of content in the name of "fair use", and 

we support the right of content owners to seek legal redress for products or services 

that are marketed with the principal objective of facilitating copyright 

infringement. 

Content owners are now beginning to embrace such fair use functionalities in DRM 

tools as a means of providing greater value to consumers. 
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SUBMISSION FOR THE RECORD BY GARY PARSONS, CHAIRMAN OF THE BOARD, XM

SATELLITE RADIO
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SUBMISSION FOR THE RECORD BY THE AMERICAN SOCIETY OF COMPOSERS, AUTHORS AND 

PUBLISHERS

The American Society of Composers, Authors and Publishers (“ASCAP”), on behalf 

of its almost 250,000 songwriter, composer and music publisher members, thanks the 

Subcommittee for the opportunity to comment on the issues discussed at the May 3, 2006 

hearing, “Digital Content and Enabling Technology: Satisfying the 21st Century 

Consumer.” ASCAP commends the Subcommittee for its timely hearing on the crucial 

issues facing the creators, owners, users, and consumers of copyrighted works in 

connection with emerging digital technologies, and respectfully offers its perspective for 

the Subcommittee’s consideration. In summary: 

• ASCAP and its members embrace and encourage music performances by new 

digital technologies. ASCAP has developed and offered innovative licensing 

arrangements for satellite radio, Internet, and wireless services which perform 

copyrighted musical works created and owned by ASCAP’s members. 

Thousands of those services hold ASCAP licenses. 

• ASCAP supports enactment of H.R. 4861, the Audio Broadcast Flag Licensing 

Act of 2006. This bill would protect creators and owners of music from online 

piracy, while preserving ASCAP’s ability to track and monitor performances 

for the benefit of creators and copyright owners, including its songwriter, 

composer and music publisher members. 

• In the digital world, the transmission of a copyrighted musical work does not 

have to be either a “performance” or a “distribution.” Rather, under the 

Copyright Act, the digital transmission of a musical work is both a performance 

and a distribution, and both rights should be fairly compensated. 

About ASCAP

ASCAP is this nation’s first and largest performing rights organization (“PRO”), 

with almost a quarter-million composer, lyricist, and music publisher members, and a 

repertory of many millions of copyrighted musical works. On behalf of its members, 

ASCAP licenses the nondramatic public performance rights in musical works to a wide 

range of users, including television and radio broadcasters, online services, 

background/foreground music services, hotels, nightclubs, and colleges and universities. 

ASCAP represents not only American writers and publishers, but also hundreds of 

thousands of foreign writers and publishers through affiliation agreements with PROs in 

more than 80 countries. Under those agreements, ASCAP licenses the foreign PROs’ 

repertories in the United States, and the foreign PROs license the ASCAP repertory in 

their countries. Because performances of American music are a popular export product 

worldwide, ASCAP collects between 4 and 5 times as much from foreign PROs as it pays 

out to them, generating a trade surplus for the United States. 

ASCAP’s repertory is as richly diverse as this country’s history. ASCAP composers 

and lyricists write in nearly every musical genre including pop, jazz, symphonic and 

concert, film and television scoring, rock, country, new age, hip-hop, Latin, gospel, and 

rhythm and blues, and their works range from some of the most familiar standards to the 

latest hits. As creators and owners of this vast array of musical works, ASCAP’s writers 

and publishers have an important stake in ensuring that the copyright law adequately 

protects their rights, both now and in the future. 

ASCAP Welcomes and Encourages the Spread of 

New Digital Technologies to Consumers

 ASCAP understands that emerging technologies often require flexible business 

models. We have long worked with music users to offer innovative licensing 

arrangements to meet the needs of these new technologies – arrangements which must 
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also secure a fair return to writers and music publishers for the commercial use of their 

intellectual property. ASCAP never wants to cut off or limit the public performance of 

music. We license any user who requests a license, and ask only that a reasonable license 

fee be paid to compensate songwriters, composers and music publishers for the use of 

their property. 

To this end, ASCAP has been at the forefront of licensing new technologies like satellite 

radio, Internet, and wireless music services: 

• When satellite radio first entered the marketplace, ASCAP was there to help 

supply the music. ASCAP entered licenses with XM and Sirius in 2002, 

ensuring that these services could build and expand diverse arrays of 

programming for their customers. 

• ASCAP first began offering Internet music license agreements in 1995. Since 

that time, we have worked with many operators of Internet sites and services to 

develop the best licensing solutions for the ever-growing number of online 

music uses and business models. ASCAP has continued to update its online 

licenses to adjust to changing times, and currently offers two versions of our 

widely-used Internet web site and service license agreements: the “ASCAP 

Experimental License Agreement for Internet Sites and Services Release 5.0” 

for non-interactive sites and services, and the “ASCAP Experimental License 

Agreement for Interactive Sites and Services Release 2.0” for interactive sites 

and services. 

• Since 2001, ASCAP has offered a license agreement designed specifically for 

providers of “ringtones,” “ringbacks,” and other music-related products and 

services offered on wireless devices. Today, the “ASCAP Wireless Music” 

license agreement authorizes a wide variety of such performances. 

 But songwriters, composers and music publishers still face significant challenges in 

the digital marketplace. We must ensure that, as new technologies and uses take hold, 

any legislative solutions will protect our members’ rights and ensure adequate and fair 

compensation for performances of musical works in the new media. 

ASCAP Fully Supports H.R. 4861, the 

Audio Broadcast Flag Licensing Act of 2006

ASCAP wholeheartedly endorses and supports the enactment of H.R. 4861, the 

Audio Broadcast Flag Licensing Act of 2006 introduced by Rep. Ferguson and cosponsored by Reps. Towns, Bono, Gordon, and Blackburn. It is apparent that the 

unauthorized distribution of musical transmissions over the Internet and otherwise, made 

possible by digital technology, harms the economic well-being of ASCAP’s members and 

America’s entire musical community. H.R. 4861 would authorize reasonable licensing 

conditions on digital audio radio broadcasts which would prevent that harm, while 

ensuring that home listeners could continue to enjoy music through all the means they 

have traditionally enjoyed. 

H.R. 4861 also contains specific provisions that would enable ASCAP to continue 

an activity that is crucial to its operations and those of other creators and copyright 

owners—the digital monitoring of broadcasts and transmissions. ASCAP has long 

tracked music performances to ensure that its members are properly compensated. In 

recent years, ASCAP has developed the leading digital fingerprinting technology that, 

today, electronically monitors the broadcasts of nearly 2,500 radio stations in almost 200 

U.S. markets. Using this technology, ASCAP tracks each of the millions of over-the-air 

performances that occur every day in these radio markets. Digital monitoring services 

are vital for ASCAP to serve its members, and H.R. 4861 would preserve ASCAP’s 

ability to continue employing such technologies for signals with an audio broadcast flag. 
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Digital Transmissions of Musical Works 

Are Both Performances and Distributions

 At the May 3 hearing, the discussion turned to the question of whether certain digital 

transmissions of music were “performances” or “distributions,” and accordingly, how 

such uses should be compensated. The uses and statutory rights that are implicated in 

digital transmissions, however, are not an “either-or” proposition, as some assumed. 

Digital transmissions of musical works implicate both the performance and the 

distribution right. In particular, all such digital transmissions involve a public 

performance protected by copyright. 

 The Copyright Act states this much when it defines “perform” as “to recite, render, 

play, dance, or act” a work, “either directly or by means of any device or process . . . .” 

17 U.S.C. § 101. A transmission is precisely such a recitation or rendering, and no one 

particular technology limits it. The Senate and House reports accompanying the Digital 

Performance Right in Sound Recordings Act of 1995 addressed this very point and 

confirmed that digital transmissions of musical works are public performances: 

Under existing principles of copyright law, the transmission or other 

communication to the public of a musical work constitutes a public 

performance of that musical work. The digital transmission of a sound 

recording that results in the reproduction by or for the transmission recipient of 

a phonorecord of the sound recording implicates the exclusive rights to 

reproduce and distribute the sound recording and the musical work embodied 

therein. New technological uses of copyrighted sound recordings are arising 

which require an affirmation of existing copyright principles and application of 

those principles to the digital transmission of sound recordings, to encourage 

the creation of and protect rights in those sound recordings and the musical 

works they contain. 

S. Rep. No. 104-128 at 27 (1995); H.R. Rep. No. 104-274 at 22 (1995). 

 We should note that just because digital transmissions of musical works involve 

both performance and distribution rights, both rights need not be compensated equally. 

Understandably, the value of each right depends on appropriate marketplace 

considerations, including which use predominates. But when it comes to such digital 

transmissions, giving compensation only for the distribution and not for the performance 

(or vice versa) would deny the full value of the use to the creators and owners of musical 

works. Any legislative enactment that affects digital copyrighted works and the 

technologies for transmitting them must preserve both the performance and distribution 

rights that are inherent in the transmission. 

Conclusion

 ASCAP thanks the Subcommittee for the opportunity to share its perspective on 

behalf of its songwriter, composer and music publisher members. As the Subcommittee 

considers the impact of new digital technologies on the creators, users, and consumers of 

digital copyrighted works, we trust Congress will continue to recognize that songwriters, 

composers and music publishers must receive the proper protection for all their rights 

under the Copyright Act. 

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