Table Of Content

S. HRG. 109–580 BROADCAST AND AUDIO FLAG HEARING BEFORETHE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION UNITED STATES SENATE ONE HUNDRED NINTH CONGRESS SECOND SESSION JANUARY 24, 2006 Printed for the use of the Committee on Commerce, Science, and Transportation ( U.S. GOVERNMENT PRINTING OFFICE 29–917 PDF 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 Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001 VerDate 0ct 09 2002 15:35 Sep 19, 2006 Jkt 029917 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 S:\WPSHR\GPO\DOCS\29917.TXT JACKF PsN: JACKF SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION ONE HUNDRED NINTH CONGRESS SECOND SESSION TED STEVENS, Alaska, Chairman JOHN MCCAIN, Arizona DANIEL K. INOUYE, Hawaii, Co-Chairman CONRAD BURNS, Montana JOHN D. ROCKEFELLER IV, West Virginia TRENT LOTT, Mississippi JOHN F. KERRY, Massachusetts KAY BAILEY HUTCHISON, Texas BYRON L. DORGAN, North Dakota OLYMPIA J. SNOWE, Maine BARBARA BOXER, California GORDON H. SMITH, Oregon BILL NELSON, Florida JOHN ENSIGN, Nevada MARIA CANTWELL, Washington GEORGE ALLEN, Virginia FRANK R. LAUTENBERG, New Jersey JOHN E. SUNUNU, New Hampshire E. BENJAMIN NELSON, Nebraska JIM DEMINT, South Carolina MARK PRYOR, Arkansas DAVID VITTER, Louisiana LISA J. SUTHERLAND, Republican Staff Director CHRISTINE DRAGER KURTH, Republican Deputy Staff Director KENNETH R. NAHIGIAN, Republican Chief Counsel MARGARET L. CUMMISKY, Democratic Staff Director and Chief Counsel SAMUEL E. WHITEHORN, Democratic Deputy Staff Director and General Counsel LILA HARPER HELMS, Democratic Policy Director (II) VerDate 0ct 09 2002 15:35 Sep 19, 2006 Jkt 029917 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 S:\WPSHR\GPO\DOCS\29917.TXT JACKF PsN: JACKF C O N T E N T S Page Hearing held on January 24, 2006 ......................................................................... 1 Statement of Senator Burns ................................................................................... 2 Statement of Senator Inouye .................................................................................. 31 Prepared statement .......................................................................................... 31 Letter and response, dated January 11–12, 2006, from David K. Rehr, President/CEO, National Association of Broadcasters to Mitch Bainwol 67 Statement of Senator E. Benjamin Nelson ............................................................ 39 Statement of Senator Smith ................................................................................... 36 Statement of Senator Stevens ................................................................................ 1 Statement of Senator Sununu ................................................................................ 41 WITNESSES Bainwol, Mitch, Chairman/CEO, Recording Industry Association of America ... 44 Prepared statement .......................................................................................... 46 Band, Jonathan, Counsel, American Library Association; on behalf of the Library Copyright Alliance.................................................................................. 7 Prepared statement .......................................................................................... 8 Harris, Leslie, Executive Director, Center for Democracy and Technology ........ 25 Prepared statement .......................................................................................... 26 Halyburton, Dan, Senior Vice President/General Manager, Group Operations, Susquehanna Radio Corporation; Chairman, Audio Flag Task Force, Na- tional Association of Broadcasters (NAB) .......................................................... 59 Prepared statement .......................................................................................... 60 Prepared statement of Preston R. Padden, Executive Vice President, Worldwide Government Relations, The Walt Disney Company; Member, National Association of Broadcasters (NAB) .............................................. 56 Patton, Thomas B., Corporate Vice President, Government Relations, Philips Electronics North America Corporation ............................................................. 17 Prepared statement .......................................................................................... 18 Setos, Andrew, President of Engineering, Fox Entertainment Group ................ 2 Prepared statement .......................................................................................... 4 Shapiro, Gary J., President/CEO, Consumer Electronics Association ................ 48 Prepared statement .......................................................................................... 50 APPENDIX Boxer, Hon. Barbara, U.S. Senator from California, prepared statement .......... 77 Broadcast Music, Inc. (BMI), prepared statement ................................................ 78 Dorgan, Hon. Byron L., U.S. Senator from North Dakota, prepared statement 77 Sohn, Gigi B., President, Public Knowledge, prepared statement and attach- ment ...................................................................................................................... 81 (III) VerDate 0ct 09 2002 15:35 Sep 19, 2006 Jkt 029917 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 S:\WPSHR\GPO\DOCS\29917.TXT JACKF PsN: JACKF VerDate 0ct 09 2002 15:35 Sep 19, 2006 Jkt 029917 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 S:\WPSHR\GPO\DOCS\29917.TXT JACKF PsN: JACKF BROADCAST AND AUDIO FLAG TUESDAY, JANUARY 24, 2006 U.S. SENATE, COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, Washington, DC. The Committee met, pursuant to notice, at 10 a.m. in room SD– 562, Dirksen Senate Office Building, Hon. Ted Stevens, Chairman of the Committee, presiding. OPENING STATEMENT OF HON. TED STEVENS, U.S. SENATOR FROM ALASKA The CHAIRMAN. Good morning. Our Co-Chairman will be along in a few minutes, but he has asked that we start. So, let me thank you all for coming today. Some time ago, a group of us joined together and asked the FCC to deal with the issues before us now, and this broadcast flag was developed to protect over-air digital television programming from piracy. The FCC adopted that broadcast flag rule, which the consumer electronics industry had begun to implement by developing devices that complied with its requirements. But the court has struck down that regulation and held that Congress had not given the Commission authority to promulgate the rule. And that’s what brings us here today, and we are trying to address the question of whether Congress should provide the FCC the authority to put the rule back in place. Groups like the American Library Association are concerned that if Congress gives the FCC the authority to enforce the broadcast flag, the rights of consumers and educators to copy, watch, and share programs the way VCR recordings are shared will be threat- ened. Likewise, some consumers want to make sure that they can continue to exercise their fair-use rights to record video programming for personal use. It’s our task in this Committee to consider industry and fair-use concerns and to try to find the proper balance between them. De- termining how to protect audio content in the age of digital radio and satellite has only recently gained greater attention. The FCC has not yet acted on that front. The creative-content side and the distribution side of the music industry should seek mutual ground that supports business models for both. Whether it is an audio flag or an alternative, we seek to balance between them and encourage innovative digital services that spur jobs, economic growth, and consumer options like the iPod against ensuring that the creative genius that brings us all (1) VerDate 0ct 09 2002 15:35 Sep 19, 2006 Jkt 029917 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 S:\WPSHR\GPO\DOCS\29917.TXT JACKF PsN: JACKF 2 the great pleasure to earn a return on creative investment is en- couraged. Now, Senator Burns, do you have an opening statement? STATEMENT OF HON. CONRAD BURNS, U.S. SENATOR FROM MONTANA Senator BURNS. I do not, Mr. Chairman, but I appreciate you having this hearing today, and your insight on this issue. With the advent of digital technology, what we thought would uncomplicate our world now is complicating it. Before, as you know, we always talked about a lot of things, but we tend to talk more about bandwidth than anything else when we went to digital, because we could do some things, but we couldn’t identify signals. And now we are finding that ones and zeros are hard to identify, whether it’s voice, data, or video, and now we’re getting in a new era of really branding whose signal it is now, that is moving, rather than the technology. So, this is a timely hearing. It is something that the industry itself should come to some sort of a conclusion that would be of benefit to everybody, and with the consumers always in mind. But it seems as though that hasn’t been done yet. And I would wonder, when government wanders into this area, there are always unin- tended consequences. And so, this hearing is timely, and I thank you for having it. The CHAIRMAN. Thank you very much. I should state that, coming from a State like Alaska, as I do come from Alaska, one-fifth the size of the United States, we have tried to implement our education system utilizing distance learning to the maximum extent possible. So, that’s one of our greatest concerns in this hearing today. Our first panel is Andy Setos, President of Engineering, Fox En- tertainment Group, Los Angeles; Jonathan Band, Counsel at the American Library Association; Thomas Patton, Corporate Vice President for Government Relations at Philips Electronics North America Corporation; and Leslie Harris, Executive Director for the Center of Democracy and Technology, in Washington. Mr. Setos, we’ll call on you first. STATEMENT OF ANDREW SETOS, PRESIDENT OF ENGINEERING, FOX ENTERTAINMENT GROUP Mr. SETOS. Good morning, Mr. Chairman and Members of the Committee. My name is Andrew G. Setos, and I am the President of Engineering of the Fox Entertainment Group and the co-inventor of the broadcast flag. Thank you for inviting me to make a contribution to this hearing. As the great promise of the Internet blossomed several years ago, I became alarmed at the simultaneous phenomenon of abuse to copyrighted works. Digital works, such as music on CDs, that were, by necessity, distributed without the protection of encryption, were vulnerable to looting, on a global scale. The wisdom of protecting digital content with encryption is all around us—in such Internet appliances as Apple’s iPod, Sony’s PlayStation Portable, and the new RCA Lyra by Thomson. Tradi- tional multichannel media, such as satellite and cable, and their VerDate 0ct 09 2002 15:35 Sep 19, 2006 Jkt 029917 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 S:\WPSHR\GPO\DOCS\29917.TXT JACKF PsN: JACKF 3 new competitors from the telecom sector are also encrypting their digital transmissions. The reason is simple: the threat of piracy un- dermines every legitimate distribution business model. However, born in a more naive age, digital broadcast television had not contemplated such protection. This committee had already put the DTV transition in motion, and millions of consumers, such as myself, had started enjoying high-definition broadcasts of our favorite programs and sporting events. This was a dilemma of seri- ous proportions. Here I was aggressively participating in the roll- out of DTV within FOX, yet had come to realize that, as formu- lated, it had a fatal weakness. What to do? Changing the DTV standard to employ encryption was simply unthinkable, as it would introduce a dangerous delay in the DTV transition and disenfranchise the most fervent believ- ers in high-definition television. However, without some technical form of content protection, we all would be guilty of unwittingly in- stitutionalizing the slow demise of local TV broadcasting. The ulti- mate reason was clear in my mind. Without such protection, producers of high-value content would become leery of licensing to local digital TV broadcasters, and that would jeopardize the viability of this unique American institution. To meet this challenge, our goals were clear, if daunting. One, we could do nothing that would obsolete or change, in any way, the features of a single DTV product that had already been sold to consumers. Two, we could not interfere with the consumer’s right to make time-shift recordings in their homes. Three, our approach could add virtually nothing to the real cost of the consumer product. Four, the proposal had to be flexible and efficient to stimulate innovative technologies and take advantage of existing commercial architectures. Five, it had to be flexible enough to embrace the Internet. And, finally, six, since government regulation would be needed, something that we always try to avoid, it had to be ade- quately focused to be practical. It took a month for my colleague Scott Hamilton and I to concep- tualize and diagram our idea, but what ensued was a 5-year odys- sey that brings me here before you today. On the way, Intel made an important technical contribution. We built consensus, first, one on one with companies such as Thomson, IBM, Sony, and Panasonic. We petitioned the Advanced Television Systems Com- mittee to standardize the technical details of the flag itself, which they did. The Broadcast Protection Discussion Group was formed, which I had the privilege of co-chairing, along with representatives from Intel and Mitsubishi. This open forum attracted dozens of members from worldwide industry and other interested parties. I met, for over a year, with meetings lasting into the wee hours of the morning, and delivered a consensus document to the FCC for their consideration. At the FCC, an intensely public process of review transpired, which resulted in the FCC adopting the broadcast flag regulation. Unfortunately, the Federal court struck down the regulation, solely on jurisdictional grounds. Along the way, there have been many critics. Most of the concerns were due to misunderstandings. My favorite was that the flag would ban home recording of television. Of course, it does not. And VerDate 0ct 09 2002 15:35 Sep 19, 2006 Jkt 029917 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 S:\WPSHR\GPO\DOCS\29917.TXT JACKF PsN: JACKF 4 to those who would say that high-definition content is too cum- bersome to indiscriminately redistribute over the Internet, two points to ponder. Twelve years ago, it took 8 hours to download a single song from the Internet. Now it takes but moments. And the CEO of Verizon, Ivan Seidenberg, recently declared his target vision for broadband into the homes of his subscribers is 100 megabits a second, a blinding speed that could download a looted one-hour high-definition episode of FOX’s ‘‘24’’ in a convenient four- and-a-half minutes. The legislation we are seeking ratifies the billions of dollars that local TV broadcasters have spent to do their part to make the DTV transition successful. Local TV broadcasts, offered free to the consumer, deserve and need to have content protection in order to be competitive with the national pay-television offerings, such as HBO, ESPN, video iTunes, and MovieLink.com, in obtaining high- value content. No other digital media has emerged that has dedicated itself to localism. Even those consumers that subscribe to pay television rely heavily on local TV broadcasts for their news of local events, local political races, and local high-school sports. Local television broadcasts are part of our heritage. They are uniquely American. It is essential that the television shows we transmit have protection against the indiscriminate redistribution across networks such as the Internet. The broadcast flag is the mechanism that will achieve that goal without any unwanted side effects. Thank you, once again, for the opportunity to address you on this important matter. I look forward to answering any questions you may have. [The prepared statement of Mr. Setos follows:] PREPAREDSTATEMENTOFANDREWSETOS, PRESIDENTOFENGINEERING, FOX ENTERTAINMENTGROUP Good morning, Chairmen and Members of the Committee. My name is Andrew Setos, and I am the President of Engineering of the Fox Entertainment Group. Thank you for inviting me to participate in this hearing. As this Committee is well aware, Congress will soon mandate that broadcast television stations abandon the analog spectrum and begin broadcasting exclusively in digital form by 2009. This final step in the DTV transition will bring many benefits to consumers, by eliminating the current confusion that is inevitable in a mixed analog/digital world. However, the benefits of the digital transition will be meaning- less to those same consumers unless we can also assure them that high-quality content will continue to be available to them on free over-the-air broadcast. This re- quires that DTV stations themselves be able to assure content providers of a reason- ably equivalent level of protection to that provided by cable and satellite—and even the Internet. At the moment, DTV stations cannot provide this assurance, because DTV is legally obligated to broadcast content in-the-clear with no protection, while cable, satellite and Internet service providers offer content providers a wide variety of conditional access- and DRM-based content protection systems. This imbalance places the long-term viability of free over-the-air digital television in doubt and is certainly not in the public interest. To correct this imbalance, it is essential that DTV stations be able to offer content providers some level of protection against indiscriminate redistribution across networks such as the Internet. The broadcast flag regulation promulgated by the FCC in 2003, after a years-long process of discussion and debate, is the one mechanism that can achieve that goal, and accordingly, we urge you to reinstate the regulation as soon as possible. The past decades have seen an explosion in consumers’ options to enjoy audio- visual content. Focusing on television alone, where there were once just three broadcast television networks, we now have hundreds—if not thousands—of cable, sat- VerDate 0ct 09 2002 15:35 Sep 19, 2006 Jkt 029917 PO 00000 Frm 00008 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\29917.TXT JACKF PsN: JACKF 5 ellite, cable-like and Internet-based services. It seems that every day there is news of a new and innovative way for consumers to enjoy television programming, such video-on-demand services (VOD), video iPod and even watching shows on cell phones. All of these ‘‘television services’’ compete by offering consumers something that they want to see. Unfortunately, the digital revolution has also created the opportunity for theft of that content on an unprecedented scale. Millions of users of so- called ‘‘peer-to-peer file-sharing services’’ upload and download copies of ad-free favorite television shows, like The Simpsons, House, American Idol, and 24, as well as popular sporting events, over the Internet. These programs are, of course, the lifeblood of over-the-air broadcast television stations, which rely on high quality content to attract viewers. Currently, digital free over-the-air broadcasts are legally required to be transmitted ‘‘in the clear,’’ with no protection whatsoever from being redistributed. The process to upload content to the Internet—formerly a process that could be per- formed only by a relatively sophisticated and motivated pirate—is far easier, and more accessible today than it was even a few years ago. And for those who point out—admittedly, correctly—that DTV signals take a long time to be captured, com- pressed and redistributed over the Internet today, here is a cautionary tale: Twelve years ago, it took eight hours to download a single song; today, an individual with no computer savvy can do it in less than a minute with a click of the mouse. Cable, satellite, ISP/telco, and other distributors of television programming have already recognized how important this issue is to ensure the digital future by voting with their dollars. These companies have spent millions on the design, deployment and maintenance of increasingly sophisticated content protection systems based on conditional-access, link protection or software DRM-based technologies. By contrast, DTV stations, at present, are legally barred, and from a practical standpoint are un- able to offer content providers anything comparable. It is not hard to predict that without additional measures to safeguard high-value digital content, broadcast stations will soon find it difficult or even impossible to attract high-value programming. Sports leagues and entertainment programming producers will, naturally, choose to offer their programs on a service that can offer protection against indiscriminate redistribution. Although some so-called ‘‘consumer groups’’ state that the enactment of broadcast flag legislation would be detrimental to the viewing public, which we believe it does not, the real threat to consumers who currently enjoy and benefit from watching their local broadcast channels is the slow demise of free over-the-air broadcast. Without national content, local broadcast stations would struggle to attract viewers and ultimately to stay in business. For millions of Americans, local broadcast stations are the sole source of news and entertainment. But even for consumers who subscribe to a cable or satellite service, local broadcast stations are the only source of televised local news coverage and editorial content. They televise local sporting events, weather reports (including emergency weather reports), and traffic updates. They are the source of information about community issues and local political races. Local television broadcasts are part of our heritage. They are uniquely American, and they are democratic (small ‘‘d’’) at their essence. Foreseeing these challenges and understanding the value of local television, I, along with my engineering colleague, began to look at how we could protect in-the- clear digital broadcast. As we looked at possible solutions we set up a basic set of criteria: 1. The regime should be invisible to the consumer. 2. The regime should allow consumers to make time shifted-copies of free over- the-air television programs. 3. The regime should be flexible enough to allow for the competitive market place to develop innovative protection technologies as well as allow for content to be transmitted securely in a network environment. 4. The regime should be of de minimis cost to the manufacturer and thus to the consumer. 5. The regime should work at the smallest component part of the digital ATSC receiver to ensure that it had no impact on any other component part of a computer or consumer electronic device. 6. The regime should not obsolete the digital television receivers that were already in the market place and in consumers’ homes. After settling on a solution that met all of these goals that we now call the broadcast flag, we presented this regime to a group of CE and IT manufacturers. Thus began the long process which evolved into a large and more diverse group of con- VerDate 0ct 09 2002 15:35 Sep 19, 2006 Jkt 029917 PO 00000 Frm 00009 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\29917.TXT JACKF PsN: JACKF 6 sumer electronics, computer technology, and video content companies known as the Broadcast Protection Discussion Group. That conceptual framework developed by the Broadcast Protection Discussion group was the seed for the FCC’s broadcast flag regulation. But it took time to get there, and it took a great deal of work—almost three years. Indeed, in preparing for this hearing, I was reminded that four years ago, the President and Chief Oper- ating Officer of News Corporation, Peter Chernin, sat before this very Committee and expressed his hope that cross-industry negotiations would yield a solution ac- ceptable to all of the participants. I am pleased to sit here today and report that they did. Over the years since Mr. Chernin’s testimony in 2002, the members of the working group crafted the basic outline of the regulatory regime. Even so, the FCC didn’t accept it whole cloth, but following still more discussion and debate—a process in which took into account the views of many consumer groups—ultimately con- structed a regulation that most of the parties to the negotiations viewed as an ac- ceptable compromise of interests. Those that continued to disagree with substantive details of the regulation filed motions to reconsider and appeals. These were held in abeyance pending the outcome of an appeal based on a challenge to the FCC’s jurisdiction. Unfortunately, in May of 2005, the D.C. Circuit ruled that the FCC lacked jurisdiction to enact the broadcast flag regulation. The Court did not offer any view on the substance of the flag, for that issue was not before it. Nor did the Court offer any view on the wisdom of the broadcast flag as a matter of policy, for that issue is not within its purview. Rather, the Court held merely that the FCC could enact such a regulation only if Congress authorized it to do so. The broadcast flag legislation that we support does just that: it reinstates the FCC’s broadcast flag regulation, thereby reinstating the carefully crafted multi-industry pact. It also reinstates the pending motions to reconsider and the substantive appeals, leaving all parties exactly where they were before last May’s ruling. Although the regulation has drawn criticism, that criticism is, in my view, mis- guided or misinformed. Much of it can be dispensed with by focusing on what the flag will not do: • It will not restrict home recording of DTV. • It will not restrict the movement of recorded DTV shows in the personal digital network, no matter if you are upstairs at home, in your car or boat, or at a per- manent or temporary vacation spot. The FCC has already approved some flag- compliant technologies to enable that movement. • It will not restrict the making of multiple physical copies. It does not restrict the unending physical copying of those copies. And it does not restrict where such physical copies may be played or to whom they are lent or given. • It will not render obsolete or change the feature set of even one DTV product that has been sold to consumers to date. Not one. • It will not affect the viewers’ experience as they view their televisions or make their home recordings. • It will not stifle innovation. Nor will it establish the FCC as the ‘‘Federal Com- puter Commission.’’ The FCC’s role under the regulation is simple and narrow: to consider proposals for specific protection methods for DTV content containing the broadcast flag and to approve those that provide a reasonable level of protection. Prior to the decision striking down the regulation, the FCC has already proven its ability to ably exercise this simple, well-defined role by approving 13 different protection methods—many of them developed precisely for the purpose of protecting DTV. This is stimulation of innovation—not stifling of it. Indeed, a broad range of digital devices, including digital recorders and personal digital networking devices, already comply with the flag’s rules. Examples include PVRs, D–VHS, DVD recorders, and computers and related technologies. Many other devices that do not even exist yet can be made to comply with the flag’s rules. Wired or wireless, software or hardware, any future innovation complying with the flag can receive, record and otherwise process digital television signals. Ultimately, the broadcast flag regulation will have little or no impact on consumers’ legitimate consumption and enjoyment of free over-the-air digital television. It will not interfere with a consumer making unlimited copies in a variety of media; it will facilitate a variety of home networking technologies and a variety of reasonable remote access technologies, as well as new technologies that have not yet even been conceived. In addition to protecting local broadcasting and helping to ensure the viability of the digital transition, the broadcast flag regulation will stimulate American technological prowess in content protection and management technologies. VerDate 0ct 09 2002 15:35 Sep 19, 2006 Jkt 029917 PO 00000 Frm 00010 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\29917.TXT JACKF PsN: JACKF