SPEAKERS CONTENTS INSERTS
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COPYRIGHTED WEBCAST PROGRAMMING ON THE INTERNET
COURTS AND INTELLECTUAL PROPERTY
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
JUNE 15, 2000
Serial No. 119
Printed for the use of the Committee on the Judiciary
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For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON THE JUDICIARY
HENRY J. HYDE, Illinois, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR S. SMITH, Texas
ELTON GALLEGLY, California
CHARLES T. CANADY, Florida
BOB GOODLATTE, Virginia
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
ASA HUTCHINSON, Arkansas
EDWARD A. PEASE, Indiana
CHRIS CANNON, Utah
JAMES E. ROGAN, California
LINDSEY O. GRAHAM, South Carolina
MARY BONO, California
SPENCER BACHUS, Alabama
JOE SCARBOROUGH, Florida
Page 3 PREV PAGE TOP OF DOCDAVID VITTER, Louisiana
JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
STEVEN R. ROTHMAN, New Jersey
TAMMY BALDWIN, Wisconsin
ANTHONY D. WEINER, New York
THOMAS E. MOONEY, SR., General Counsel-Chief of Staff
JULIAN EPSTEIN, Minority Chief Counsel and Staff Director
Subcommittee on Courts and Intellectual Property
HOWARD COBLE, North Carolina, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
Page 4 PREV PAGE TOP OF DOCELTON GALLEGLY, California
BOB GOODLATTE, Virginia
WILLIAM L. JENKINS, Tennessee
EDWARD A. PEASE, Indiana
CHRIS CANNON, Utah
JAMES E. ROGAN, California
MARY BONO, California
HOWARD L. BERMAN, California
JOHN CONYERS, Jr., Michigan
RICK BOUCHER, Virginia
ZOE LOFGREN, California
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
BLAINE MERRITT, Chief Counsel
VINCE GARLOCK, Counsel
DEBBIE K. LAMAN, Counsel
ALEC FRENCH, Minority Counsel
EUNICE GOLDRING, Staff Assistant
C O N T E N T S
June 15, 2000
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Coble, Hon. Howard, a Representative in Congress From the State of North Carolina, and chairman, Subcommittee on Courts and Intellectual Property
Fritts, Edward O., president and CEO, National Association of Broadcasters
Kay, Dean, president and CEO, Lichelle Music Company on Behalf of the American Society of Composers, Authors and Publishers
Mccallum, Ian P., co-founder, iCraveTV.com
Miles, Peggy, chairman, International Webcasting Association and president, Intervox Communication
Moore, Charles P., vice president, Business Development RadioAMP.com
Ostertag, Thomas J., general counsel, Office of the Commissioner of Baseball
Peters, Marybeth, Register of Copyright, Copyright Office of the United States, Library of Congress
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Potter, Jonathan, executive director, Digital Media Association
Purcell, Scott, president and CEO, founder, WWW.COM
Rosen, Hilary, president and CEO, Recording Industry Association of America, Inc.
Valenti, Jack, president and CEO, Motion Picture Association of America on Behalf of the Copyright Assembly
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Berman, Hon. Howard L., a Representative in Congress From the State of California: Prepared statement
Conyers, Hon. John, Jr., a Representative in Congress From the State of Michigan: Prepared statement
Fritts, Edward O., president and CEO, National Association of Broadcasters: Prepared statement
Kay, Dean, president and CEO, Lichelle Music Company on Behalf of the American Society of Composers, Authors and Publishers: Prepared statement
Page 7 PREV PAGE TOP OF DOC Mccallum, Ian P., co-founder, iCraveTV.com: Prepared statement
Miles, Peggy, chairman, International Webcasting Association and president, Intervox Communication: Prepared statement
Moore, Charles P., vice president, Business Development RadioAMP.com: Prepared statement
Ostertag, Thomas J., general counsel, Office of the Commissioner of Baseball: Prepared statement
Peters, Marybeth, Register of Copyright, Copyright Office of the United States, Library of Congress: Prepared statement
Potter, Jonathan, executive director, Digital Media Association: Prepared statement
Purcell, Scott, president and CEO, founder, WWW.COM: Prepared statement
Rosen, Hilary, president and CEO, Recording Industry Association of America, Inc.: Prepared statement
Valenti, Jack, president and CEO, Motion Picture Association of America on Behalf of the Copyright Assembly: Prepared statement
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Material submitted for the record
COPYRIGHTED WEBCAST PROGRAMMING ON THE INTERNET
THURSDAY, JUNE 15, 2000
House of Representatives,
Subcommittee on Courts and
Committee on the Judiciary,
The subcommittee met, pursuant to notice, at 9:06 a.m., in Room 2141, Rayburn House Office Building, Hon. Howard Coble presiding.
Members present: Representatives Howard Coble, Howard L. Berman, Bob Goodlatte, Edward A. Pease, John Conyers, Jr., Rick Boucher, Robert Wexler, and Mary Bono.
Majority staff present: Blaine Merritt, chief counsel; Vince Garlock, counsel; and Eunice Goldring, staff assistant.
Minority staff present: Alec French, Minority Counsel, and Sam Garg, Minority Counsel.
Page 9 PREV PAGE TOP OF DOCOPENING STATEMENT OF CHAIRMAN COBLE
Mr. COBLE. Good morning, ladies and gentlemen. The subcommittee will come to order.
Now let me say at the outset, today is going to be an interesting day. We have five subcommittee hearings simultaneously being conducted. Mr. Berman, the ranking member from California, is going to have to go to another hearing subsequently. I am going to have to go to a transportation hearing subsequently. So when you see moving parties coming here and there, don't think it is a lack of interest in the subject. It is the fact that we just have many things happening simultaneously, but the hearing will proceed as planned, and I am pleased to welcome all of you here.
Today, the subcommittee will conduct an oversight hearing on copyrighted webcast programming on the Internet. With no legislation directly pending before us, the goal of this hearing is to examine the state of the marketplace today to see if and how programming is being streamed to the public over the Internet and what impact that has on copyright law and vice versa.
As many of you know, streaming involves the delivery of traditional broadcast programming over the Internet, including the signals of radio stations and other musical programming and perhaps the signals of local television stations. The delivery of this programming is also often referred to as webcasting.
Page 10 PREV PAGE TOP OF DOC Permit me to mention for a moment about what this hearing is not. That is the many complex and heated issues surrounding downloadable music and video files on the Internet which have spawned cases such as those involving MP3.com and Napster. Although it may be mentioned in passing, and it is certainly an area of critical importance to the copyright community, it is an issue this subcommittee will have to examine at a later time.
Today, three panels will discuss the current lay of the land concerning how copyrighted programming is being webcast to consumers. The Register of Copyrights should provide a vital perspective on the history of copyright law in this area. The video panel will closely examine the state of streaming to the public and may also look at whether this means of video delivery is a safe and viable method of fostering competition in the video marketplace. The music panel will examine a number of key issues, including the application of the various relevant provisions of the Digital Performance Right and Sound Recording Act of 1995 and the Digital Millennium Copyright Act of 1998.
One note of caution: Although there is no legislation before the subcommittee today, there is at least one rulemaking before the Copyright Office and at least one case pending in Federal court which address some of the issues that we will discuss today. Some of these parties, particularly those interested in the music issues, were concerned that this hearing would be used as a forum to litigate those proceedings and affect their outcome. While I am sensitive to that concern, I do believe it is important to include all of the issues in today's hearings so that the members would be given a complete picture of the marketplace.
That said, if a witness feels that responding to a particular question may involve too many ''verbal gymnastics,'' please feel free to so indicate, and I will ask my fellow members of the subcommittee to respect those particular sensibilities and resist the temptation to act as mediators.
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The digital environment of today allows users to transmit perfect versions of copyrighted material over the Internet on computers and televisions. As the deployment of technologies such as broadband make streaming more commonplace, we will see a positive exploitation of copyrighted works webcast over the Internet. With those evolutions in technology, the law must evolve as well to protect intellectual creations and to provide a convenient means of access to those creations for consumers.
I am now pleased to recognize my good friend, the distinguished gentleman from California and the ranking member of this subcommittee, Mr. Howard Berman.
Mr. BERMAN. Well, thank you very much, Mr. Chairman. When you indicated what the hearing is not about, the downloading of music, I thought you were going to end up saying, yes, that issue will be discussed in the crime subcommittee. [Laughter.]
I look forward to the hearing, Mr. Chairman, and I think the topic of webcasting is one of great importance to the future of the Internet. So it is quite vital that the subcommittee develop a thorough understanding of the policy and legal issues surrounding the webcasting of copyrighted material.
It has often been noted that despite all of its technological brilliance, the Internet is only as enriching an useful as the content that flows through it. The dream of logging on to the Internet from a cell phone or PDA to view a television program in real-time, download the latest pop hits in seconds, or work on one's taxes is just that, a dream, unless the desired television programs, music, or software applications are available online.
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This subcommittee has spent a great deal of time in this and the previous two Congresses trying to nurture the growth of the Internet by ensuring that the U.S. legal regime adequately protected copyrighted works online. However, there are several limits to what Congress can do, particularly in the Internet space. We can create the appropriate legal regime, but we cannot legislate content onto the Internet. For the Internet to reach its potential, creators and owners of copyrighted works must actually make their works available online.
In the context of the success of webcasting, this means that webcasters must be able to webcast the latest and greatest television, movie, and music programming. Many in the press and the Internet community assert that content creators and owners have been slow to embrace the Internet. They assert that content creators and owners are standing in the way of technological progress by refusing to make their content available online or by placing unreasonable conditions on its availability. Some even openly condone or facilitate out and out theft of copyrighted works online under the rationale that unreasonably high prices or lack of lawful availability justifies such theft.
Why I categorically reject the point of view that such copyright infringement is justified, I do believe that creators and owners of copyrighted works are perilously close to being swept aside by the technological tides. If they do not adapt to this new environment and accept the potential risks that come with the potential rewards, even the most draconian sanctions will not adequately protect them.
The potential advantages of webcasting, including cost, convenience, customization, and accessibility, seem to be so great that content creators that do not embrace it will be unable to compete with those who do. It is because I believe the future of the Internet and the availability of copyrighted works are inextricably linked that I am so interested to hear from our witnesses today. I understand they will be sharing with us their plans as either content owners or webcasters to make movies, television programming, and music available online, and I look forward to hearing about the opportunities that our witnesses see in the webcasting future and commit to help them capitalize on such opportunities.
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Mr. Chairman, I want to thank you, first of all, for changing the time of the hearing, because, as you know, there are two subcommittees of the judiciary that were scheduled to meet at the same time. You have moved yours up. They have moved theirs back, but at 11 o'clock, I will have to leave because I am heavily involved in the issue that is being discussed in the other subcommittee. I am very grateful for your consideration of my dilemma in shifting the time of this subcommittee, and I would like my full statement included in the record of the things that I don't want to take the time to say. I would rather hear from the witnesses. So thank you very much.
Mr. COBLE. Without objection, and when you depart, I will be in your wake shortly thereafter. The gentleman from Indiana will be at the same meeting for which I will attend.
[The prepared statement of Mr. Berman follows:]
PREPARED STATEMENT OF HON. HOWARD L. BERMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
I look forward to this hearing today. I think the topic, webcasting, is of great importance to the future of the Internet. Thus, it is vital that this Subcommittee develop a thorough understanding of the business, policy, and legal issues surrounding the webcasting of copyrighted material.
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As I said, I consider the webcasting issue to be vital to the future of the Internet. It has often been noted that, despite all its technological brilliance, the Internet is only as enriching and useful as the content that flows through it. The dream of logging onto the Internet from a cell phone or PDA to view a television program in real time, download the latest pop hits in seconds, or work on one's taxes, is just thata dreamunless the desired television programs, music, or software applications are available online.
This Subcommittee has spent much of this and the previous two Congresses trying to nurture the growth of the Internet by ensuring that the U.S. legal regime adequately protects copyrighted works online. We moved, and Congress enacted, the No Electronic Theft Act, Digital Millennium Copyright Act, Digital Theft Deterrence Act, Anti-Cybersquatting Act, and related bills.
However, there are severe limits to what Congress can do, particularly in the Internet space. We can create the appropriate legal regime, but we cannot legislate content onto the Internet.
For the Internet to reach its potential, creators and owners of copyrighted works must actually made their works available online. In the context of the success of webcasting, this means that webcasters must be able to webcast the latest and greatest television, movie, and music programming.
Many in the press or the Internet community assert that content creators and owners have been slow to embrace the Internet. They assert that content creators and owners are standing in the way of technological progress by refusing to make their content available online, or by placing unreasonable conditions on its availability. Some even openly condone or facilitate out and out theft of copyrighted works online under the rationale that unreasonably high prices or lack of lawful availability justifies such theft.
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While I categorically reject the point of view that such copyright infringement is justified, I do believe that creators and owners of copyrighted works are perilously close to being swept aside by the technological tides. If they do not adapt to this new environment and accept the potential risks that come with the potential rewards, even the most draconian legal sanctions will not adequately protect them. The potential advantages of webcasting, including costs, convenience, customization, and accessibility, seem to be so great that content creators that do not embrace it will be unable to compete with those who do.
It is because I believe the future of the Internet and the availability of copyrighted works are inextricably linked that I am so interested to hear from our witnesses today. I understand that they will be sharing with us their plans, as either content owners or webcasters, to make movies, television programming, and music available online. I look forward to hearing about the opportunities that our witnesses see in the webcasting future, and commit to helping them capitalize on such opportunities.
There have been recent, encouraging signs that content creators and owners are actively looking to make their content available online. At the end of last week, Warner Music and BMG Entertainment settled a highly publicized and acrimonious copyright infringement suit against MP3.com by cutting a deal to license the storage and performance of their music libraries by MP3.com. At least one small, independent film studio has recently cut a deal to make its movies available online. I hope that our witnesses will inform us about many other such examples of content creators and owners making their content available for webcasting.
Because this is Congress, I expect our witnesses may spend some time discussing the obstacles as well as opportunities they perceive in the webcasting future. One frequent obstacle raised, particularly by those who wish to webcast copyrighted programming, is the absence of compulsory licenses that would enable webcasters to pay statutorily-established fees to webcast certain content. Relatedly, I understand disputes exist as to whether current compulsory licenses cover certain webcasting activities.
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I might as well lay my cards on the table here: I am not a big fan of compulsory licenses, particularly for entertainment content. Access to entertainment content is not a right, and lack of such access does not appear to implicate core health, safety or welfare concerns. While I have said, and truly believe, that the availability of entertainment content online will spur the success of the Internet, let's be clear: availability of such content won't save lives, prevent crimes, or feed malnourished babies.
Therefore, proponents of compulsory licenses have a heavy burden to carry to convince me that the derogation of constitutionally-protected intellectual property rights implicit in such compulsory licenses is necessary. I will, as always, listen to such pleas with an open ear, but I consider it only fair, in return, to let folks know where I start off. And if the evidence shows that the market is working, albeit fitfully, to make copyrighted content available on the Internet, the case for compulsory licenses will be even weaker in my eyes.
Thank you for the time, Mr. Chairman.
Mr. COBLE. We are also pleased to welcome the lady from California and the gentleman from Indiana.
Our first witness today is likely unknown to no one in this room, but for the benefit for the limited uninformed, I will introduce the Honorable Marybeth Peters who is the Register of Copyrights for the United States. She has also served as acting general counsel for the Copyright Office and as chief of both the Examining and Information and Reference Divisions. She has served as a consultant on the copyright law to the World Intellectual Property Organization and all through the general guide to the Copyright Act of 1976. The subcommittee has copies of Ms. Peters' testimony which, without objection, will be made part of the record.
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It is good to have you back on the Hill, Ms. Peters, and you are aware of our famous and our infamous 5-minute rule. When that red light illuminates in your eye, that does not mean that Mr. Berman and I will spring from our chairs to administer punishment, but when that red light appears, that is your signal to begin winding down.
Good to have you with us.
STATEMENT OF MARYBETH PETERS, REGISTER OF COPYRIGHT, COPYRIGHT OFFICE OF THE UNITED STATES, LIBRARY OF CONGRESS
Ms. PETERS. Thank you, Mr. Chairman and members of the subcommittee for the opportunity to present the views of the Copyright Office with respect to copyrighted broadcast programming on the Internet. Because of the nature of the issue and our role in administering compulsory licenses, I will focus on the advisability of compulsory licenses of Internet retransmission of television broadcast signals. I will also briefly discuss the existing compulsory license for sound recordings on the Internet.
The Copyright Office has consistently opposed compulsory licenses. We believe copyright owners should be allowed to exercise the full complement of the exclusive rights granted them by the copyright law. We also believe that the marketplace should decide the price and terms of the licensing of those rights. These principles are fully applicable to retransmission of television broadcast stations over the Internet.
Page 18 PREV PAGE TOP OF DOC In our 1997 report on the cable and satellite carrier compulsory licenses, we discussed whether the compulsory license was appropriate for the Internet. We concluded that it was not expressing concerns over the potential for worldwide distribution of broadcast signals without protection of and adequate compensation for copyrighted programming. We also said that Internet retransmissions of broadcast signals were too negotiable to warrant a government-mandated compulsory license and pointed out that unlike the cable and satellite licenses, a compulsory license for the Internet would not only be limited to the performance right, but would also implicate the reproduction right since video streaming requires the making of a series of temporary copies of the programming.
Nothing has changed in the last 3 years to alter our views with respect to compulsory licensing for the Internet. In fact, recent events have underscored the concerns we raised in 1997. The uncontrolled instantaneous worldwide distribution of copyrighted materials over the Internet remains a paramount concern of copyright owners. A few months ago, those concerns became a reality when iCraveTV, operating out of the Toronto, Canada, offered Internet retransmissions of the signals of television broadcast station from Buffalo, New York. Although iCrave has tenably limited the availability of these retransmissions to recipients in Canada, they were, in fact, available to anyone who was willing, from a Canadian telephone area code, to certify that he or she was receiving the transmission from a computer terminal or display device located in Canada.
A number of firms are working on ways to restrict the distribution of information, including broadcast retransmissions, to specific Internet customers or to customers located in a specific geographic area, but no one has introduced a fail safe system, and if experience has taught us anything about technological controls, it is that it is not long before they are circumvented.
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There are also international considerations. The United States has obligations under the Berne Convention for the protection of literary and artistic works and the World Trade Organization agreement on trade-related aspects of intellectual property rights, TRIPs, and the WIPO Copyright Treaty not yet in effect but ratified by the United States.
Berne requires member countries to impose territorial limitations on retransmissions that are carried out under a compulsory license. In order to comply with Berne's limitation, a compulsory license for retransmission of broadcast television signals on the Internet could only permit such retransmissions for reception within the United States. If Internet retransmissions cannot be controlled geographically, a compulsory license would run afoul of Berne and, therefore, TRIPs.
In sum, there are significant practical and policy considerations that counsel against enactment of any compulsory license regime for Internet retransmission of broadcast signals. Technology and broadcast plans for Internet delivery systems are constantly changing, and I urge you to allow marketplace solutions to evolve.
Let me turn to the copyright status of sound recordings on the Internet. Unlike the retransmission of television broadcast signals, Internet transmission of sound recordings have been with us for quite a while, and in 1998 in the DMCA, you amended sections 112 and 114 to specifically address this issue. The compulsory license for the performance of sound recordings was expanded to include webcasters and section 112 was amended to allow transmitting organizations to make certain copies, i.e., ephemeral recordings to facilitate a webcast.
Page 20 PREV PAGE TOP OF DOC We are, as you noted, currently involved in proceedings concerning these provisions. The statutory royalty fees in terms of payment were not prescribed in these licenses and were left to a CARP, a Copyright Arbitration Royalty Panel. We have attempted to schedule these proceedings, but there have been delays. Most significantly, both the Recording Industry of America and the Digital Media Association have asked for separate rulemakings, interpreting different statutory provisions of these licenses, and we cannot start the CARP until these requests are addressed.
RIAA asked the Office to determine whether a broadcast retransmission of its over-the-air signal on the Internet is subject to or exempt from copyright liability under section 114. DiMA seeks a ruling on the meaning of the term ''interactive service'', asserting that webcasters who seek some information from subscribers, for example their musical preferences, are not interactive services. We have published and sought comment on these issues.
The most pressing issues that are related to section 112 and 114 are currently before the office in pending rulemakings and CARP proceedings, and therefore it would be inappropriate for me to express any views at this time.
[The prepared statement of Ms. Peters follows:]
PREPARED STATEMENT OF MARYBETH PETERS, REGISTER OF COPYRIGHT, COPYRIGHT OFFICE OF THE UNITED STATES, LIBRARY OF CONGRESS
Page 21 PREV PAGE TOP OF DOC Thank you, Mr. Chairman and members of the Subcommittee, for this opportunity to appear and present the views of the Copyright Office with respect to copyrighted broadcast programming on the Internet. Because of the nature of the issue and because of the Copyright Office's role in administering the compulsory licenses created by the copyright law, most of my testimony will focus on the advisability of compulsory licensing of Internet retransmissions of television broadcast signals. I will also discuss the existing compulsory license for sound recordings on the Internet.
I will not be addressing other related issues that have received a lot of attention over the past months, such as piracy and other unlawful copying and distribution of motion pictures, sound recordings, and music on the Internet. I understand that those subjects are beyond the scope of this hearing, which focuses on the streaming of broadcast transmissions.
I. INTERNET RETRANSMISSIONS OF TELEVISION BROADCAST STATIONS
Section 106 of the Copyright Act grants certain exclusive rights to the owner of a copyrighted work. 17 U.S.C. §106. Among these exclusive rights are the right to make or authorize the making of copies of the work, to distribute or authorize the distribution of the work and, in the case of television broadcast programming and other audiovisual works, the right to publicly perform or authorize the performance of the copyrighted work. As a result, unless a compulsory license is available, anybody who wishes to retransmit copyrighted broadcast programmingwhether over the Internet or by more established means of transmission such as cable or satellitemay do so only by obtaining the consent of the copyright owners.
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Compulsory licenses are abrogations of one or more of these exclusive rights and permit certain parties to use the copyrighted work without the consent of the copyright owner provided that the terms of the compulsory license are satisfied. Most of the compulsory licenses in the Copyright Act affect only the performance right. This is true of the cable (§111) and satellite (§119 and 122) compulsory licenses, which allow cable operators and satellite carriers to retransmit (and consequently perform) the programming contained on television broadcast stations. Cable operators and satellite carriers are guaranteed access to broadcast programming; the copyright owners of these television programs cannot say no, nor can they bargain the price and terms of a license agreement.
The Copyright Office has written extensively on the enactment and operation of the cable and satellite licenses, and I will not go into the details here. See The Cable and Satellite Carrier Compulsory Licenses: An Overview and Analysis (1992); A Review of Copyright Licensing Regimes Covering Retransmission of Broadcast Signals (1997). The reasons offered for enactment of the cable and satellite licenses, and compulsory licenses in general, are essentially economic ones. For the cable license, Congress believed that the transaction costs associated with a cable operator and copyright owners bargaining for separate licenses to all television broadcast programs retransmitted by the cable operator were too high to make the operation of the cable system practical. Unlike a broadcast station which negotiates directly with the copyright owners for the programs it transmits over-the-air, cable systems carry multiple broadcast stations, raising substantially the number of copyright owners the cable operator would have to bargain with for retransmission rights. The transaction cost problem was exacerbated by the cable industry's lack of market power in 1976.
Page 23 PREV PAGE TOP OF DOC Congress also determined that cable operators must have guaranteed access to broadcast programming, which might not occur under a negotiation scenario. A cable operator might successfully bargain with the copyright owners of most of the programs contained on a broadcast signal, but be forced to pay exorbitant fees (or denied access to the programming) by copyright owners of certain categories of programming, or those copyright owners who realized that a cable operator's retransmission of an entire broadcast signal hinged on its ability to obtain a license from that program owner. A compulsory license for the cable operator eliminates any holdouts among copyright owners by guaranteeing access to the programming.
The concern over transaction costs that led to enactment of the cable compulsory license in 1976 also led to the enactment of the satellite license in 1988. Again, because the satellite business was a fledgling industry without market power, it was believed unlikely that satellite carriers could negotiate retransmission licenses with broadcast programming copyright owners. In addition, it was believed that the satellite industry needed a compulsory license in order to compete with the entrenched cable industry, which already enjoyed the benefits of a compulsory license. Consequently, Congress passed the Satellite Home Viewer Act of 1988 and created a compulsory license for satellite carriers' retransmission of distant television stations. This license was expanded in the Satellite Home Viewer Improvement Act of 1999 to include retransmissions of local television stations by satellite carriers.
Although the cable and satellite licenses operate differently in terms of their royalty calculation mechanisms, their purpose is the same: a limitation on copyright owners' performance right by guaranteeing cable operators and satellite carriers access to over-the-air television broadcast programming at fixed terms and prices.
Page 24 PREV PAGE TOP OF DOCA Compulsory License for Internet Retransmissions of Broadcast Signals: Our 1997 Report
In 1997, at the request of Senator Orrin Hatch, Chairman of the Senate Judiciary Committee, the Copyright Office prepared an extensive report analyzing compulsory licensing of television broadcast programming. See, A Review of the Copyright Licensing Regimes Covering Retransmission of Broadcast Signals (1997). Although the report focused principally on cable and satellite retransmissions, we did consider the advisability of a statutory licensing regime for Internet retransmissions of both radio and television broadcast stations. We solicited comment from the public on the issue, including public hearings at which copyright owners, broadcasters, and certain webcasting pioneers testified.
We concluded, for several reasons, that a compulsory license specifically designed for the Internet was not appropriate. First, we were concerned about the Internet's ability to disseminate programming ''instantaneously worldwide'' without any territorial restrictions, and the intention of certain webcasters to retransmit to the widest audience possible. Unrestricted retransmission of copyrighted works could seriously compromise both the value and integrity of those works. 1997 Report at 99.
Second, the Office questioned whether retransmission of a broadcast signal over the Internet involved solely the performance right, and in fact did not implicate the reproduction right as well. Id. Unlike real-time cable or satellite retransmissions, Internet retransmissions require the making of temporary copies within the computer systems delivering the retransmissions, which allow the audio or video programming to appear to be played in real time to the end user. A compulsory license for Internet retransmissions would, consequently, require abrogation of not one but two exclusive rights granted under section 106 of the Copyright Act: the performance right and the reproduction right.
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Finally, because Internet retransmissions were still in their infancy, the Office determined that it was premature to consider a statutory licensing regime for broadcast retransmissions. The Office cited the President's Information Infrastructure Task Force's Working Group on Intellectual Property Rights, which concluded that licensing of copyrighted works on the Internet should be decided by the marketplace, rather than a government-imposed scheme. Id. The Office also cited a Federal Communications Commission paper advocating the same wait-and-see, anti-regulatory approach. See FCC Office of Plans and Policy, OPP Working Paper No. 29: Digital Tornado: The Internet and Communications Policy (March 1997).
Developments Since the 1997 Report
Following our 1997 Report, and as Congress worked on legislation to reauthorize the satellite compulsory license, compulsory licensing for Internet retransmissions received little attention. This changed dramatically, however, during the Senate and House conference on the Satellite Home Viewer Improvement Act of 1999.
Toward the end of the conference, an amendment was made to the satellite license reauthorization bill to clarify that the section 111 cable compulsory license did not apply to broadcast retransmissions via the Internet.(see footnote 1) The amendment appeared to us to be of little consequence, since we believed that the cable compulsory license could not reasonably be interpreted to include Internet retransmissions. Nonetheless, several Internet companies challenged the amendment as taking away their ability to use the cable compulsory license for new Internet retransmission activities they might soon commence. When it became clear that these objections might halt passage of the Satellite Home Viewer Improvement Act, I wrote a letter to you, Mr. Chairman, and to Mr. Berman, expressing our view that the proposed amendment was indeed a clarification, and not a change, of existing law. I stated:
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It is my understanding that some services that wish to retransmit television programming over the Internet have asserted that they are entitled to do so pursuant to the compulsory license of section 111 of Title 17. I find this assertion to be without merit. The section 111 license, created 23 years ago in the Copyright Act of 1976, was tailored to a heavily-regulated industry subject to requirements such as must-carry, programming exclusivity, and signal quota rulesissues that have also arisen in the context of the satellite compulsory license. Congress has properly concluded that the Internet should be largely free of regulation, but the lack of such regulation makes the Internet a poor candidate for a compulsory license that depends so heavily on such restrictions. I believe that the section 111 license does not and should not apply to Internet transmissions.
Letter of Marybeth Peters, Register of Copyrights, to the Honorable Howard Coble, November 10, 1999.
Because of the inability to resolve this issue in the remaining days of the last session of Congress, the amendment was removed before the legislation was enacted. Our view on this matter has not changed: if there is to be a compulsory license covering such retransmissions, it will have to come from newly enacted legislation and not existing law.
Is There a Need for a Compulsory License for Internet Retransmissions of Broadcast Signals?
The Copyright Office has long been a critic of compulsory licensing for broadcast retransmissions. A compulsory license is not only a derogation of a copyright owner's exclusive rights, but it also prevents the marketplace from deciding the fair value of copyrighted works through government-set price controls. In addition, we believe that a compulsory license for Internet retransmissions of television broadcast signals is not warranted, and such activity is not comparable to retransmissions via cable and satellite.
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Opposition to the cable compulsory license, and calls for its repeal, began not long after its enactment. In 1981, the Office recommended to this Subcommittee that the cable license be abolished, stating:
The general principle of the copyright law is that copyright owners are entitled to receive fair compensation for the public performance of their works, especially in the case of performances for profit. Cable systems perform copyrighted works for profit when they make secondary transmissions of such works. Copyright owners will be more confidently assured of rightful compensation if that compensation is determined by contract and the market rather than by compulsory license.
In the last five years, the cable industry has progressed from an infant industry to a vigorous, economically stable industry. Cable no longer needs the protective support of the compulsory license.
A compulsory license mechanism is in derogation of the rights of authors and copyright owners. It should be utilized only if compelling reasons support its existence. Those reasons may have existed in 1976. They no longer do.
Copyright/Cable Television: Hearings on H.R. 1805, H.R. 2007, H.R. 2108, H.R. 3528, H.R. 3530, H.R. 3560, H.R. 3940, H.R. 5870, and H.R. 5949 Before the Subcomm. On Courts, Civil Liberties, and the Administration of Justice, 97th Cong., 959960 (1981)(statement of David Ladd, Register of Copyrights, Copyright Office).
Page 28 PREV PAGE TOP OF DOC In 1989, the Federal Communications Commission issued a report arguing that the cable license undervalued broadcast programs and should be repealed in favor of marketplace negotiations. Report and Order in Docket No. 8725, 4 FCC Rcd. 6711 (1989). Nevertheless, shortly before issuance of that report, Congress added to the stable of compulsory licenses by passing the Satellite Home Viewer Act of 1988, creating the section 119 license for satellite retransmission of broadcast signals.
With each renewal of the satellite license, in 1994 and 1999, the Office has been asked by Congress to analyze the cable and satellite licenses, and each time the Office has questioned whether they should continue to exist. The Cable and Satellite Carrier Compulsory Licenses: An Overview and Analysis at 81, (1992); A Review of Compulsory Licensing Regimes Covering Retransmission of Broadcast Signals at 3233 (1997). At the same time, we recognized the economic and political considerations surrounding the retention of the cable license and the extension of the satellite license. Although the economic reasons for enacting the cable compulsory license have largely disappeared, as the Register recognized in 1981, the permanence of that license, and the expectations that it has created both for copyright owners and users, makes elimination of the cable license difficult. The permanence of the cable license directly affects the continued reauthorization of the satellite license. Congressional concern for competition in the video programming marketplace raises the likelihood that the satellite license will continue to be renewed. Moreover, we recommended in our 1997 compulsory license Report that the satellite license remain in existence for as long as the cable license continues. 1997 Report at 33.
Although we still firmly believe that the cable and satellite licenses ultimately should yield to a regime of exclusive rights and the free marketplace, we see a fundamental difference between Internet retransmissions and retransmissions via cable and satellite, a difference that I believe makes compulsory licensing for the Internet inadvisable. That difference is in the nature of the delivery platform for the retransmissions. Both cable and satellite provide a means of delivering broadcast signals that copyright owners cannot practicably do themselves. Copyright owners license broadcasters to perform their works via over-the-air broadcasting, which has certain important limitations. There are topographical limitations to over-the-air broadcasting which limit certain viewers' ability to receive a signal. There are also distance limitations to over-the-air broadcast signals that restrict how far a signal will travel. Cable eliminates these limitations by being a closed path transmission servicea wirethat not only allows clear receipt of nearby broadcast stations, but also allows receipt of stations far beyond the reach of any over-the-air signal. The same is true with satellite, which can deliver broadcast programming to subscribers who are not capable of receiving over-the-air broadcasting, and cannot receive a quality picture by other means.
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By building multi-billion dollar delivery systems, cable and satellite deliver broadcast programming in ways that the copyright owners of those programs and the broadcasters cannot. This is not true, however, for the Internet. Parties that wish to make use of the Internet to retransmit broadcast programming do not have to build the delivery platform; it already exists. The technology is readily available and is not particularly expensive. Copyright owners of broadcast programming do not need to turn to someone else to place their content on the Internet; they can do it themselves. In fact, certain television broadcasters have already begun to place portions of their signals on the Internet, demonstrating that there is no need for a third-party packager to do it for them. See, Hearings Before the Subcomm. on Telecommunications, Trade & Consumer Protection of the House Commerce Committee, 106th Cong. (2000)(statement of Paul Karpowicz). Or, copyright owners can freely decide to license others to transmit their programming over the Internet. But it should be their choice.
Additionally, although Internet transmissions of television broadcast signals presumably would be ''streamed'' using technology intended to prevent the making of copies of broadcast programs, apparently it is all too easy for recipients of such transmissions to find ways to circumvent those measures and download perfect digital copies, which then could be redisseminated without limit online. The resulting harm to copyright owners in a global market could be irreparable. Although this risk also exists when copyright owners stream their own programming on the Internet, in such cases they are voluntarily assuming that risk. Compulsory licensing permitting third parties to stream television programming gives the copyright owner no choice in the matter.
Because the Internet is available to copyright owners, unlike the delivery platforms for cable and satellite, and because of the potential of a devastating effect, we see no reason to create a compulsory license giving third parties permission to retransmit broadcast signals. Copyright owners should be allowed to determine when and under what circumstances they wish to make broadcast programming available over the Internet without concern that a third-party packager will make these decisions for them under the auspices of a government-mandated compulsory license.
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In sum, retransmission of broadcast signals over the Internet is very different from retransmission by cable operators and satellite providers. The free marketplace must be allowed to develop and operate. Copyright owners must be able to decide when, and under what circumstances, broadcast programming will be retransmitted via the Internet.
Should There Be a Compulsory License for Retransmission of Local Signals on the Internet?
Last year, during the House and Senate conference on the Satellite Home Viewer Improvement Act, the matter of delivery of local broadcast stations in smaller, rural markets across the country received great attention. The issue was raised when certain satellite carriers indicated that they would only provide local-into-local retransmissions of broadcast stations for approximately the top 70 television markets in the United States. This year, both the House and the Senate passed loan guarantee legislation to enable construction of delivery platforms to bring local retransmissions of broadcast stations to all 210 television markets.
Some have suggested that rather than encourage the construction of new delivery platforms for local broadcast signals, the government should authorize retransmission of local signals on the Internet. We think that this is not a good idea, for the following reasons.
Our principal concern is the extent to which Internet retransmissions of broadcast signals can be controlled geographically. The Internet is a worldwide system with the capability of transmitting, or retransmitting, copyrighted works to hundreds of millions of viewers within seconds. If a compulsory license were created for retransmission of local broadcast signals, it is unclear how the retransmission of those signals could be limited to their local markets. iCraveTV's feeble attempts to limit the retransmission of Buffalo television stations to Canadian viewers by requiring entry into a computer of a Canadian telephone area code and requiring the user to certify that he is receiving the transmission from a computer terminal or display device located within Canada, were ineffective. In response, copyright owners brought a successful copyright infringement suit that blocked iCraveTV retransmissions in the U.S. and, effectively, shut it down altogether. Some firms are working on software and hardware that would restrict the distribution of information, which could include broadcast retransmissions, to specific Internet customers or to customers located in a specific geographic area. But no one has yet rolled out a fail-proof system, and if experience has taught anything with technological controls to copying, it is that it is not long before they are hacked or circumvented.
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Because of the ease with which copyrighted materials can move around the world on the Internet, the defeat of a keylock system can spell instant disaster for these works. Broadcast programming intended for limited television markets within the U.S. could become available worldwide with no control or compensation for the copyright owner. Further, even if protection devices are in place to limit receipt of a broadcast signal from a source to a specific geographic location, there may be no control over the receiver of that signal that prevents him from further retransmitting the signal to others. Again, technological solutions may be developed to address these concerns, but until they are, and unless we can be confident of their reliability and security, enactment of a compulsory license for local signals would place broadcast programming in jeopardy.
Some have asserted that signal theft is signal theft, and that such activities on the Internet would be no different than signal theft of cable or satellite service. We disagree. Cable is a closed path retransmission service with little customer interactivity. While a consumer can obtain an illegal ''black box'' for cable, that consumer cannot use his or her equipment to defeat the encryption system for cable signals, nor can that consumer further retransmit the cable signals around the world. The same is true for satellite. One can obtain an illegal smart card to make a digital satellite box operate, but that equipment cannot make a satellite signal suddenly available to anyone with a television set. These activities can occur, however, on the Internet, which makes comparisons between retransmissions via cable or satellite and the Internet inapposite.
Page 32 PREV PAGE TOP OF DOC In addition to the domestic policy implications raised by broadcasting on the Internet, there are important international considerations as well. The U.S. has obligations under the Berne Convention for the Protection of Literary and Artistic Works (Berne), the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs), and the recently ratified WIPO Copyright Treaty (WCT) that relate to broadcasting and Internet transmissions. In particular, to the extent that Congress considers the option of compulsory licensing of broadcast television signals for retransmission on the Internet, Berne imposes specific limitations on member countries' ability to impose such licenses
The Berne Convention
Among the obligations to which the U.S. is subject as a member of Berne is the requirement that authors be granted the exclusive right of authorizing ''communication to the public by wire or by rebroadcasting of the broadcast of the work, when this communication is made by an organization other than the original one.''(see footnote 2) Under Berne, the retransmission of television programming, whether by terrestrial rebroadcasting, by cable, by satellite, or over the Internet, must be subject to the author's exclusive rights.
These exclusive rights are not absolute. Berne permits countries to ''determine the conditions under which the rights . . . may be exercised'' by national legislation. This includes the imposition of compulsory licensing in appropriate circumstances. The cable and satellite licenses under sections 111, 119, and 122 of the Copyright Act are examples of national laws that ''determine the conditions under which the rights'' of copyright owners in the content of broadcast television signals ''may be exercised.''
Page 33 PREV PAGE TOP OF DOC Berne establishes three express limitations on the conditions that a country may impose by national legislation: the conditions ''shall apply only in the country where they have been prescribed; [t]hey shall not in any circumstances be prejudicial to the moral rights of the author;'' and they must not prejudice the author's right to obtain equitable remuneration. The first of these limitations is directly relevant to any compulsory license in the Internet context.
This Berne limitation on compulsory licensing flows from the territorial nature of copyright laws. National copyright laws govern conduct within their respective territories. Authors and other copyright owners must look to the national laws of the country in which protection is claimed to determine their rights. A necessary corollary to this principle of territoriality is that the national copyright law of one country cannot authorize the exercise of exclusive rights in another country.
The limitation can be interpreted to be either a mere restatement of this territorial principle or as a positive limitation on ''conditions'' on the exercise of an author's retransmission right that a Berne member may impose. Under the first interpretation, it would be permissible for a Berne country to allow retransmission of works under a compulsory license in a fashion that permits their receipt in another country, although that conduct may violate the copyright laws of the recipient country and subject the retransmitting entity to infringement liability. Under the second interpretation, a Berne country may not, consistent with its Berne obligations, permit retransmissions outside of its borders under a compulsory license.
The view of the Copyright Office is that Berne requires member countries to impose territorial limitations on retransmissions that are carried out under a compulsory license. The alternative interpretation would require us to read the limitation as surplus verbiage, since it would merely restate what the principle of territoriality makes clear: the copyright law of one country does not govern conduct in another. In addition, the territorial limitation is one of three limitations on compulsory licensing, the other two of whichthat a compulsory licensing regime not prejudice an author's moral rights and right of remunerationare clearly positive limitations on the law of member countries.
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In order to comply with Berne's territorial limitation on compulsory licenses, a compulsory license for retransmission of broadcast television signals on the Internet could only permit such transmissions for reception within the United States.
With cable television, confining the application of the compulsory license provisions of the Copyright Act to the territory of the United States does not pose a major technical challenge: the wire must stop at the water's edge. Direct broadcast satellite poses a greater challenge, since the ''footprint'' on the ground where the satellite signal can be received often crosses national boundaries. However, since these signals are encrypted and require a special decoder for viewing, territorial limitations can be enforced by controlling the availability of the decoders.
Given the global reach of the Internet, the technical issue of whether a signal can be confined to the United States becomes critical to determining whether a Berne-compatible compulsory licensing regime is possible. It appears that the answer depends largely on the business model adopted by an entity that wishes to retransmit television signals on the Internet.
It is possible that certain signals transmitted on the Internet could be treated like signals emanating from a satellite that has a footprint covering the entire planet. In order to enforce territorial restrictions, this approach would require that the signals be encrypted and that the decoders be made available only within the United States. This approach requires, however, that those engaged in Internet retransmissions adopt a subscription model. In addition, extreme caution should be exercised not to overextend the analogy to satellite transmissions. Certain implementations of this approach may not be as technologically sound as existing systems for preventing unauthorized reception of satellite signals and, unlike satellite decoders, personal computers connected to the Internet are capable of retransmitting a signal once decoded.
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As the iCraveTV controversy demonstrated, limiting territorial distribution of signals in an open model, where signals are not encrypted, presents a much greater technical challenge. As far as we have been able to ascertain through our discussions with the industry, there is no technology at the present time that is one hundred percent effective at preventing reception of signals outside the boundaries of a particular country.
Given the present state of the technology, it appears unlikely that we could implement a Berne-compatible compulsory licensing regime that permits unencrypted retransmissions of television signals over the Internet. A compulsory licensing regime that required retransmissions to be encrypted, and prohibited foreign distribution of the decoding technology, could satisfy the territorial limitations of Berne, provided the technology was effective in preventing reception of the retransmitted signals outside the United States.
The WTO TRIPs Agreement
All of the substantive obligations of Berne (apart from the provision relating to moral rights) are incorporated by reference in the WTO TRIPs agreement. If a compulsory license does not pass muster under Berne, it does not pass muster under TRIPs either.
In addition, TRIPs includes a number of obligations that are independent of Berne. None of these, however, appear to be applicable to transmission of television broadcasts on the Internet.(see footnote 3)
Page 36 PREV PAGE TOP OF DOC Although TRIPs does not add any relevant substantive obligations, it does make the Berne obligations that are incorporated by reference subject to WTO dispute resolution. Consequently, a WTO member that concludes that a provision of our law is incompatible with Berne can request that a dispute resolution panel be convened to hear a case against the United States.
WIPO Copyright Treaty (WCT)
The WCT supplements the Berne Convention in several important respects. As this Subcommittee is well aware, several aspects of this agreement required changes to U.S. lawnotably those aspects of the agreement relating to circumvention of technological protection measures and tampering with copyright management information.(see footnote 4) Another provision of the WCT, which did not require any change in U.S. law, requires parties to grant copyright owners an exclusive right of communication to the public, including making a work available to the public on demand.(see footnote 5)
The right of communication to the public under the WCT is general in nature and not limited to a particular technology. It covers over-the-air broadcasts as well as digital transmissions and retransmissions of works through cable systems and over the Internet. The WCT communication right, however, is ''without prejudice'' to the broadcasting and communication rights under Berne. This indicates that those aspects of the broader communication right in the WCT that are covered under the more specific rights in Berne are covered by the provisions of the latter treaty. Since the retransmission of television signals on the Internet is already covered under Berne, the broadcast and communication rights under Berne, and not the communication right under the WCT, would govern. The WCT, therefore, does not appear to add any substantive obligation relevant to retransmissions of broadcast signals on the Internet.
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II. INTERNET TRANSMISSIONS OF COPYRIGHTED SOUND RECORDINGS
Unlike the retransmission of television broadcast signals, audio transmission of sound recordings via the Internet has been taking place for some time and continues to grow. Recent figures show an increase in the number of radio webcasters from a low of 56 stations in 1996 to well over 3,500 stations today. See www.brsradio.com/press000410.html (April 10, 2000). The Digital Millennium Copyright Act of 1998 amended portions of section 112 and section 114 of the Copyright Act to address transmissions of sound recordings over the Internet made by noninteractive, nonsubscription services and transmissions made by preexisting satellite digital audio radio services. The Copyright Office is currently engaged in several proceedings concerning these provisions, which are addressed below.
Most audio transmissions over the Internet involve the performance of music. Recorded music involves two distinct copyrights. First, there is a copyright for the underlying music itself. This copyright typically belongs to the songwriter. There is no compulsory license scheme in the Copyright Act for the performance of a copyrighted song; the licensing of these performances is typically done through one of the performing rights societies, ASCAP, BMI, or SESAC.
Second, there is a copyright for the sound recording itself, separate from the underlying music. As we discussed at another hearing three weeks ago, this copyright typically belongs to a record company. The performance right granted a copyright owner of a sound recording is more limited than that for the underlying music, and certain performances of sound recordings are exempt from copyright, while others are subject to compulsory licensing.
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For a long time in American copyright law, sound recordings enjoyed all of the exclusive rights granted by copyright, except for the performance right. A variety of reasons existed for this exclusion, including the fact that sound recordings did not even receive any copyright protection until 1972, and radio broadcasters' unwillingness to pay two copyright fees each time a music recording was played over-the-air. However, in 1995, Congress passed the Digital Performance Right in Sound Recordings Act, which created a limited performance right for sound recordings. Digital broadcasts of recorded music remained exempt, but interactive services providing subscribers with digital transmission of recorded music were subject to the performance right. In addition, certain noninteractive digital subscription services (typically music services delivered over cable and satellite television systems) were subject to the performance right, but were granted a compulsory license for their performances of sound recordings. To take advantage of this compulsory license, found in section 114 of the Copyright Act, one must comply with a number of limitations on the frequency and identification of the music performed by the service. These limitations are designed to discourage subscribers from engaging in home taping of the music performed in digital format. See 17 U.S.C. 114(d)(2)(C) (1995).
With the proliferation of music on the Internet in the latter half of the 1990's, Congress reconsidered and adjusted the status of the performance right in sound recordings. For reasons that I have already discussed, transmissions of sound recordings over the Internet are technologically different from similar transmissions via cable or satellite. In order to perform a copyrighted song over a computer, copies of that work must be made along the transmission path to deliver the work. These copies are typically ephemeral in nature, but are necessary to enable the work to travel from the computer server to the desktop computer. Use of a copyrighted sound recording in this context consequently may require a license for both the performance right and the reproduction right.
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After comprehensive negotiations between representatives of webcasters on the Internet and sound recording interests, Congress enacted the Digital Millennium Copyright Act of 1998. The DMCA created a compulsory licensing scheme for certain digital transmissions of sound recordings, again subject to conditions designed to discourage and prevent home copying of recorded music. Section 114 of the Copyright Act was amended by expanding the compulsory license for the performance right to a sound recording to include ''eligible nonsubscription services'' (i.e., webcasters), and section 112 was amended to address the reproduction right. The statutory royalty fees and terms of payment were not prescribed in either of these licenses, but, as with the more limited section 114 compulsory license established in 1995, instead were subject to the Copyright Arbitration Royalty Panel (CARP) process at the Copyright Office.
The setting of rates and terms for the new section 112 and 114 licenses is still pending at the Copyright Office. Procedural matters have delayed the start of the CARP proceedings. In addition to procedural delays, both the Recording Industry of America (RIAA) and the Digital Media Association (DiMA) have asked the Office to conduct rulemakings addressing the meaning of certain terms contained in section 114 of the Copyright Act. The RIAA petition seeks a ruling from the Office as to whether a broadcaster's transmission of its over-the-air signal on the Internet is exempt from copyright liability under section 114, or is subject to the licensing provisions of that section. A substantial number of the webcasters who have filed initial notices of digital transmission of sound recordings under the compulsory license are radio broadcasters or licensees of radio broadcasters who transmit radio broadcasts not only on the air, but also on the Internet. The Office recently published a Notice of Proposed Rulemaking (NPRM), seeking comment on the RIAA's proposal that the Office amend its rules governing this compulsory license to clarify that Internet transmissions of broadcasts are not exempt. 65 FR 14227 (March 16, 2000). We have received public comment on this NPRM and expect to issue a decision in the near future.
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There is another development related to our rulemaking proceeding on this matter. The National Association of Broadcasters (NAB) have filed a lawsuit against the RIAA in the federal district court for the Southern District of New York, seeking a declaratory ruling that broadcaster transmissions of over-the-air signals are exempt under section 114. RIAA has moved to dismiss the suit on a jurisdictional basis. The motion was argued a couple of weeks ago; and as of the date this testimony was submitted, it is our understanding that the court has not yet ruled. NAB has suggested that we should defer to the court rather than proceed with our rulemaking.
Additionally, DiMA seeks a ruling from the Office as to the meaning of the term ''interactive service'' under section 114(j)(7) of the Copyright Act. As noted above, an interactive service transmitting sound recordings over the Internet is not subject to compulsory licensing, and is governed by copyright owners' exclusive rights. DiMA asserts that webcasters who seek some information from subscribers as to their musical preferences are not interactive services and wants the Office to amend its rules to reflect this interpretation. The Copyright Office has published a Federal Register notice seeking public comment on DiMA's petition. 65 FR 33266 (May 23, 2000). The deadline for the first round of comments is a week from today.
It appears that the most pressing issues relating to this compulsory license are currently before the Office in pending rulemakings and CARP proceedings, so it would be inappropriate for me to express any views on them at this time. However, I am certain that many of the witnesses in the third panel today will have something to say about those issues.
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By contrast with transmissions of television programming, transmissions of sound recordings are not governed by the Berne Convention. The treaties to which the United States is a party that govern the treatment of sound recordings are the Geneva Phonograms Convention, the TRIPs Agreement and, once it becomes effective, the WIPO Performances and Phonograms Treaty (WPPT).
The Geneva Phonograms Convention addresses only duplication and dissemination of sound recordings, and contains no obligations with respect to transmissions. Similarly, the TRIPs Agreement grants no rights to performers or producers of phonograms with respect to transmissions of fixed performances. Consequently, the compulsory licensing regime for webcasting of sound recordings under U.S. law is unaffected by our Geneva and TRIPs obligations.
The WPPT grants performers and producers of phonograms what is called a ''right of remuneration'' for broadcasting or communication to the public of sound recordings. Unlike an exclusive right, a right of remuneration contemplates that the right holder may not have the right to prevent a given activity, but will be entitled to a payment.
The provision of the WPPT concerning the right of remuneration for broadcasting and communication to the public permits parties to make a declaration that they will not grant the right, or that they will limit its application. In its instrument of ratification of the WPPT, the U.S. made the following declaration:
Pursuant to Article 15(3), the United States declares that it will apply the provisions of Article 15(1) only in respect of certain acts of broadcasting and communication to the public by digital means for which a direct or indirect fee is charged for reception, and for other retransmissions and digital phonorecord deliveries, as provided under United States law.
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As a result of this declaration, the U.S. obligations concerning broadcasting and communication to the public of sound recordings do not extend to free transmissions of sound recordings on the Internet. Even if they did, however, the compulsory licensing regime adopted for webcasting in the DMCA, which provides for royalty payments to right holders, would qualify as a right of remuneration under the WPPT.
Once again, we thank you for the opportunity to address the Subcommittee on important issues relating to copyright law and policy. As always, we are pleased to offer our assistance to the Subcommittee in any way that you find to be helpful.
Mr. COBLE. Thank you, Ms. Peters.
Ms. Peters, some will argue that the utilization of the cable compulsory license for the Internet is no more of a stretch than the extensions made for SMATV, Satellite Master Antenna, and MMDS, the Multi-point Microwave Distribution. What say you to that?
Ms. PETERS. First, let me start with saying that cable, SMATV, satellite all limit retransmissions to local areas or defined areas. The Internet does not. Certainly, the cable compulsory license, when the balance was struck, and it is also reflected in the satellite license, have certain components that you have to abide by like must-carry and exclusivity rules.
Page 43 PREV PAGE TOP OF DOC Congress has determined that the Internet remains free. You don't have those kind of limitations. So I see no way that you can argue that the cable compulsory license, as it exists, can apply to Internet retransmissions.
Mr. COBLE. There are no central collection agencies for the collections of royalties under section 114 licenses. The RIAA Collective currently handles this matter. Do you believe that the RIAA can adequately address this issue for non-RIAA members, and do you think we all would be better off if a new CARP was legislatively created?
Ms. PETERS. That is a difficult position. When the 114 license agreement was struck ,there were only three services that were involved. In the CARP proceedings, we actually got in trouble when we tried to impose some limitations on how the CARP would operate to make sure there was efficiency and fairness, and we are still dealing with those issues. I think that it remains to be seen how this works.
RIAA volunteered. The scene is changing. There are many, many more players. So I think we will have to wait and see whether or not that system is the most efficient and the fairest system possible. I think it is too early to make a determination one way or the other.
Mr. COBLE. Now, before my red light appears in my eye and before I recognize Mr. Berman, I am going to assume the risk of asking the sort of question that one is always uneasy about asking. Are there particular issues, Madam Register, at this time that you would like to see this subcommittee address concerning the music compulsory license under section 114?
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Ms. PETERS. I will just do it off the top of my head.
Mr. COBLE. And that door is ajar. You could make life difficult for Mr. Berman and me, but I would be interested in knowing.
Ms. PETERS. At this point in time, I think we have two issues with regard to definitions. I think it is going to depend on how that ultimately is resolved on whether or not you need to do anything. I think it is a bit premature.
Mr. COBLE. I thank you, and I am pleased to recognize the gentleman from California, Mr. Berman.
Mr. BERMAN. Well, thank you very much, Mr. Chairman, and the part of my opening statement that I didn't read, I whined for a while about the compulsory license and my concerns about it.
You state in your testimony that a compulsory license for Internet retransmission of television broadcast signals is not warranted, and such activity is not comparable to retransmissions via cable and satellite. Mr. Potter will testify for DiMA. I don't know if it is on the next panel or the final panel, but he seems to disagree with this statement. In his testimony, he considers that webcasters can qualify for the cable compulsory license and will also argue that different rules for cable, satellite, Internet broadcasting are nonsensical because webcasts are increasingly transmitted through cable or satellite systems.
Page 45 PREV PAGE TOP OF DOC What is your perspective on whether webcasters can qualify for cable compulsory licenses and, secondly, whether the convergence of cable and satellite television with the Internet makes different rules for each medium nonsensical?
Ms. PETERS. At this point, I would say that it is premature to reach such conclusions. What I pointed out was
Mr. BERMAN. On it being nonsensical or on
Ms. PETERS. Well, it is premature to basically determine that you must do something about Internet retransmissions and that there is, in fact, conversions to the point where you need to address it.
Mr. BERMAN. What about whether webcasters can qualify for cable compulsory licenses?
Ms. PETERS. I basically said that the way that I understand it operated, they could not, but I think the issue would be whether or not the way they do business they can argue that they fall within it. One of the critical components is whether or not the limitations with regard to controlling who receives the signal is met. If you cannot effectively control the receipt of the signal, then I think there is a huge problem, because with regard to the Internet, you have really got a digital signal that if it comes through on a computer can be down loaded. You now have a digital copy that has no restrictions on it that now can be sent throughout the world.
Page 46 PREV PAGE TOP OF DOC You don't have that with cable and satellite. With cable and satellite, you get the signal. You don't start sending it all over the world.
Mr. BERMAN. Television broadcasting over the Internet raises a related question such as the ability of an Internet television consumer to record that television broadcasting. A Web site called RecordTV.com apparently will record television programs at the request of a Web surfer and then allow that Web surfer to view the programming over the Internet at a later time or date. The founder of RecordTV.com has claimed that his service is no different than an Internet VCR and thus should be entitled to the same legal exemption that presumably was given by the infamous Betamax case.
What is your perspective on whether or not the recording of television webcast is legal under current law?
Ms. PETERS. I am not a judge, and so I am not sure how this would come out before the courts. I would argue that it is not the equivalent of just selling equipment that is subject to substantial non-infringing uses. What you have is a business here, a business that really is trying to make money by allowing the making of copies.
The part that you can try to argue or someone might try to argue is fair use, is that you are allowing time shifting. That is the piece of the Betamax case that went to an individual. An individual has the right to use that machine to copy a program for purpose not of librarying, but for time shifting, but that went to equipment that had many purposes.
You have a service that I think goes beyond what was the equivalent.
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Mr. BERMAN. RecordTV.com doesn't record and tape home movies for you, I guess.
Ms. PETERS. No.
Mr. BERMAN. Okay. On page 9 of your testimony, you state you see a fundamental difference between Internet transmission and retransmissions via cable and satellite, a difference you say that you believe makes compulsory licensing from the Internet inadvisable. This difference, you say, is that unlike cable and satellite systems, copyright owners of programming broadcasting do not need to turn to someplace else to place their content, that they will do it themselves.
This is what you wrote, and this is what you just talked about a few minutes ago. Do you believe a compulsory license might become advisable if after some finite period of time copyright owners do not take advantage of this difference and place broadcasting programming online?
Ms. PETERS. Could you say the end again?
Mr. BERMAN. Do you believe a compulsory license might become advisable if after some finite period of time copyright owners do not take advantage of this difference and place their broadcasting programming online?
Ms. PETERS. I can't believe that we are going to have to get there, that the marketplace isn't really going to work and that we are going to get theif the American people want television broadcasting over the Internet, I think the marketplace is going to deliver that programming.
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Mr. BERMAN. Thank you, Mr. Chair.
Mr. COBLE. I thank the gentleman from California.
The gentleman from Indiana, who is not happy man this morning after the Pacers' tragic loss last night.
Mr. BERMAN. Oh, yes. We could talk about that for a while.
Mr. COBLE. I forgot I am flanked here. I shouldn't have gotten into that.
The gentleman from Indiana, Mr. Pease.
Mr. PEASE. Thank you, Mr. Chairman. I do not have any questions for Ms. Peters. I would like to thank you for your professionalism and the support that you have provided to me and my staff during the time that I have been here. The very capable assistance, you personally and your staff, that you have given to us has been greatly appreciated.
I feel just as I am preparing to leave here that I am finally catching up with the knowledge that I need to have to be effective here, but I couldn't be at that point were it not for the work that you and your staff have done in a very professional manner, and I am very grateful for that.
Page 49 PREV PAGE TOP OF DOC Mr. BERMAN. Would the gentleman yield?
Mr. PEASE. Of course.
Mr. BERMAN. Let me suggest that I would be happy to join you, but one way to show your appreciation is that we go talk to the Legislative Appropriation Subcommittee which is trying to emasculate their budget at this very moment.
Ms. PETERS. We would love that.
Mr. PEASE. Thank you, Mr. Chairman.
Mr. COBLE. I thought Mr. Berman was going to revisit the ball game last night. I am happy he didn't.
Mr. BERMAN. There is a time to be just gracious.
Mr. COBLE. The gentleman from Florida, Mr. Wexler.
Mr. WEXLER. Nothing Mr. Chairman. I am just here to listen.
Mr. COBLE. Thank you, sir.
The gentle woman from California, Ms. Bono.
Page 50 PREV PAGE TOP OF DOC Ms. BONO. Nothing, Mr. Chairman.
Mr. COBLE. Well, Ms. Peters, it looks as if you have made it through unscathed today. It is always good to have you with us. Come back any time.
Ms. PETERS. Thank you.
Mr. COBLE. And I will introduce the members of the next panel.
Many of the members of the panel, not unlike Ms. Peters, and certainly our first witness, are known to all of us. Jack Valenti, who is the president and chief executive officer of the Motion Picture Association of America, testifying on behalf of the Copyright Assembly.
Mr. Valenti has led several lives: a wartime bomber pilot, advertising agency founder, political consultant, White House Special Assistant, and movie industry leader. He holds a B.A. from the University of Houston and graduated from Harvard with a MBA.
Our next witness is Mr. Thomas J. Ostertag, who is general counsel for the Office of the Commissioner of Baseball. He was named general counsel in 1990 and was placed in charge of the commissioner's office 4 years later in the absence of a New York-based commissioner.
Our next witness, Mr. Jonathan Potter, who is the executive director at the Digital Medial Association. In that role, he represents companies that develop and deploy digital technologies to perform, direct, promote, market, and protect music and video using the Internet and other digital networks. He attended the New York University School of Law and earned his B.A. from the University of Rochester.
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Our next witness is Ian Mccallum, who is one of the founders of iCraveTV. Mr. Mccallum established the first profitable pay television network in Canada, purchasing film and television product from a wide variety of suppliers. He is also the president of the Peat Marwick Entertainment Group in Toronto. Mr. Mccallum was formally special assistant to the Canadian Federal Minister of Justice at the Canadian Department of Communications. He dealt with provisional governments of both telecommunications and broadcasting matters. He has also written, directed, and produced documentaries and television public affairs programs.
And our final witness on this panel is Ms. Peggy Miles, who is the chairman of the International Webcasting Association and president of Intervox Communication, a leading digital broadcasting consulting company based here in Washington, DC that provides interactive project management implementation and electronic commerce solution to webcasters.
Ms. Miles founded the International Webcasting Association in 1996 and chairs its board of directors. The IWA has been instrumental in helping to define uniform methods for webcast audience measurement and metrics, as well as setting industry-wide policies and procedures.
We have written statements from all the witnesses on this panel, and I ask unanimous consent that they be submitted into the record in their entirety.
You witnesses will recall each of you were advised that we would appreciate the 5-minute rule, so I hate to straight-jacket any of you, but in the interest of time, if you could do that, we would be appreciative.
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Good to have all of you here, but we will start with you, Jack.
STATEMENT OF JACK VALENTI, PRESIDENT AND CEO, MOTION PICTURE ASSOCIATION OF AMERICA ON BEHALF OF THE COPYRIGHT ASSEMBLY
Mr. VALENTI. Thank you, Mr. Chairman.
I stand by every word of my written testimony, but I do want to expand a little bit on what I had put down on that piece of paper, because I think it is important to do so. And if I seem, today, to speak with some undiluted passion, it is only because I have never felt so strongly about anything in all my career as I do about the protection of copyright in this country. Attached to my written testimony is listing of a number of great American enterprises whose whole life depends on the preservation and the guarding of copyright.
They comprise the Copyright Assembly. We speak as one voice in urging the Congress not to allow copyright to be degraded or shrunk or ignored. A copyright industry really represents America's most valuable trade export. Incredible. We gather, in particular, more international revenues than any other industry in this country, more than agriculture, more than aircraft, more than automobiles and auto parts. No wonder that American's copyrighted industries, Mr. Chairman, are the envy of all the other countries in the world.
Now, we believe that Internet has some glorious potential for dispatching our movies to families in American and, indeed, all over the world. But there is danger out there. Even as we meet here, you will probably hear later on this morning this music industry is being pillaged. Far too many people seem to think that it is okay, just fine, to go to the Internet and collect music by the wagon load and not pay for it or ask anybody's permission use it. The only word for this kind of behavior is stealing. I just don't know any other word that fits.
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Already just over the horizon is an increasing capability to do the same thing with movies that is now being done with music. Once broadband access becomes more universal, and it surely will, this same pay-for-nothing mindset will prevail. Hey, if it is up there, it is free, and it is fair, let us take it down, what a wonderful country, only in America.
What this Nation and this government and particularly the courts and the Congress really have to confront on the Internet is what the inventor of the thing of software called Freenet, what he called, ''Near perfect anarchy.'' I kid you not. That is what he said and what Andrew Sullivan in last week's New York Times Magazine called ''dot communism.'' That is what he called the Internet today, where everything is free to everybody.
Now, the question is not how to dismantle the Internet, of course not. It has a great potential. The question is how to preserve copyright, how to construct a digital environment that is safe and secure for deploying of valuable creative works so that people can use it without the invasion of their privacy, so that creative artists and directors can transport movies, their valuable works without having them burglarized, so that there is reinstalled in the daily moral grind the assumed social contact, Mr. Chairman, in which thievery in any form is wrong. All the more reason why this Congress and the courts have to stand guard over copyright to protect it from those who steal copyrighted works on the Internet.
Copyright has to be protected no matter how derisive the intruders mantra that copyright is old fashioned, a decaying relic of the non-Internet world. That is why even as we speak the Web sites where nearly perfect anarchy reigns continue to multiply. These sites have convinced too many who ought to know better that there truly is a free lunch, and they are indulging, but none of these take-down folks seem to understand that if copyright is exiled, if everything is free to everybody, who then will make the investments necessary to produce this material? Who will spend huge amounts of artistic labor to create these works? Who will compensate the people whose funds and energy and artistry made available what most people in this country want to see?
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By the way, here is the cruel contradiction, a bizarre contradiction. All these Web sites, who by inference and design proclaim thievery is okay, take what you want, it is all free, they are going to make money out of it or else why would all these venture capitalists be pouring millions of dollars into funding these sites? If Charlie Brown was still around, he would have an apt summation of this new age moral core which says, ''We will steal your stuff, and guess what? We are going to make a profit doing it. God it truly is a wonderful country, isn't it?''
So the central nerve edge question which this Congress has to ponder is how in this new rapidly changing technological magic world are you going to protect copyright which in turn is the platform from which springs America's most valuable trade export today.
Now, I could go on, but I see that red light staring me in the face, and I will reluctantly pass the baton.
Mr. COBLE. Mr. Valenti, I thank you for, well, responding to the red light, and I thank you as well for you mentioning the importance that the intellectual property community plays in the trade arena. I was talking to a member of the administration and some of our appropriators up here, and they didn't appreciate the impact that the intellectual property community has upon our trade, but I appreciate your inserting your oars into those waters.
[The prepared statement of Mr. Valenti follows:]
Page 55 PREV PAGE TOP OF DOCPREPARED STATEMENT OF JACK VALENTI, PRESIDENT AND CEO, MOTION PICTURE ASSOCIATION OF AMERICA ON BEHALF OF THE COPYRIGHT ASSEMBLY
To the honorable members of this Committee, let me tell you about the freshly formed Copyright Assembly. It enlists into its membership the vast array of American enterprises involved in sports (professional football, basketball, baseball, hockey, NASCAR, NCAA), music, song-writing, advertising, software, broadcasters, both networks and stations, cable, movies, publishing, television programs, home video. These are the enterprises which are America's most wanted exports, in addition to being the favorites of the viewing, reading and listening public.
Why form a Copyright Assembly? Because we are deeply concerned about the future of creative works in a digital world where theft is easy, protection hard to come by, and too many people are seemingly unaware that stealing is wrong. All these valuable creative assets, protected by copyright, the roots of which are in the Constitution, are indispensable to both the culture and the economy of the United States.
Why this concern? All the members of The Copyright Assembly and are actively embracing new Internet opportunities for consumers and are developing new, inventive business models to deliver our creative works to homes, businesses, schools, universities. Many of us are licensing our creative material to Internet companies. Millions of dollars are now being invested by our members to develop this new economy, which along with Gutenberg's movable type and the invention of television, ranks as one of the great seminal entrants into the human society. We are all eager to be part of this revolutionary technological magic. But we worry lest what we have created at great cost of energy and investment becomes the victim of overt and covert theft of copyrighted material.
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Why is there a problem? As legitimate businesses emerge on the Internet, thieves find the Internet a haven. There is no other word except ''thief'' to apply to those who take and use what does not belong to them. To put it bluntly, they steal copyrighted works. These burglars come in all sizes, ingenuity and motivation. Which is why at this moment we confront thievery by those who (1) profess to defend technological advancement but treat Copyright with a brazen disregard for laws and rules which guide and govern the daily labors of Americans (2) simply grin and say ''Hey, if it's up there, it's okay to take it down for free. Why not?''
Moreover, it is a fact of life that no one rides the Internet to enjoy the routers, the packets, the chips or the entrails of a computer. Not at all. They are on the Internet to receive that which they want and need. Today, most of those who are Online want information, facts, data, email, etc. But tomorrow they all will want entertainment which through the expansive hospitality of Broadband reception will be dispatched to millions of homes all over this land and around the world, with pure fidelity to sight, sound and color. It is the creative ingenuity of what is called ''Content'' that people want above all else. It is Content's copyright shield that must be guarded and preserved. This is the responsibility of Congress and the courts.
Why should the Congress care? The Congress should hugely care because these creative works do not spring from a void. The source bed of this creativity lies within the imagination, artistry and ingenuity of a community of artists, craftsmen, athletes and others who provision Americans with most of what they read, hear and watch. It is the summation of massive infusion of risk capital that must be recouped else risk becomes too large, capital too cautious, and creative works dry up.
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We should remind all who read this testimony that the members of The Copyright Assembly comprise the greatest trade prize available to any country on this planet. Intellectual property comprises 6.5% (as of 1997) of the nation's Gross Domestic Product ($530 Billion). It gathers in some $67 Billion annually in international revenuesmore than automobiles and auto parts, more than aircraft, more than agriculture! It produces new jobs at three times the annual rate of the economy as a whole. Moreover America's intellectual property revenue curve is rising all over the world. No wonder it is an engine of real growth for this nation.
Why this overture to the Congress? We want the Congress to understand clearly the economic and cultural worth of those enlisted in The Copyright Assembly. It's a value that cannot be cloned. It is a massive asset that must be guarded and preserved. As the Congress considers public policy issues which connect to the new technologies and the delivery of creative works to American consumers, we urge the Members to put intellectual property concerns at the top of their priorities.
The simple fact is this: Creative works must be able to be dispatched from the Internet to homes all over America in a safe, secure environment. If those creative works can't live on the Internet without thieves seizing them, it is a huge loss for this country. Or to put it starkly, if we cannot protect what we invest in, create and own, then we don't own anything.
Mr. COBLE. Mr. Ostertag, good to have you with us.
Page 58 PREV PAGE TOP OF DOCSTATEMENT OF THOMAS J. OSTERTAG, GENERAL COUNSEL, OFFICE OF THE COMMISSIONER OF BASEBALL
Mr. OSTERTAG. Thank you, Mr. Chairman. I am grateful for the opportunity to testify before you and the subcommittee. I am here today representing baseball, but the views I am presenting are shared by an impressive list of other major sports interests, including the NBA, the NFL, the NHL, Major League Soccer, the NCAA, the PGA Tour, and NASCAR.
As you know, Mr. Chairman, baseball and the other sports leagues already provide the America public with a very large amount of sports programming. In baseball alone in 2000, we will approach and may even exceed 4,000 telecasts of regular season and post-season games on broadcast television, cable, and satellite. These telecasts are the product of arms-length transactions, freely negotiated in the marketplace between willing buyers and willing sellers.
We believe that these free market agreements have been beneficial to us, to our broadcast partners, and to our fans who today have access to more sports programming than ever before, and the online world provides even more opportunities to increase the amount of programming data and other sports materials we offer our fans. Indeed, we have already begun to make extensive use of the Internet.
For example, virtually every baseball radio broadcast can be accessed or MajorLeagueBaseball.com, our Web site. The other sports are also making very effective use of the Internet, and all of us are expanding that use almost month by month. The American consumer benefits from all this growth without the need for governmental intervention.
Page 59 PREV PAGE TOP OF DOC The Internet also raising many concerns, however, that are not present with our communications technologies. It permits one to copy, archive, alter, compile, and further retransmit digital transmissions throughout the world instantaneously, all without payment to the copyright owner and with no regard whatsoever to licensing arrangements we may have with others. These concerns require caution by us as deal makers and by Congress as lawmakers.
Mr. Chairman, baseball and the other sports interests share what we understand are this subcommittee's objectives, to protect the right of copyright owners while developing the Internet to supply copyrighted works to the American public. We have three recommendations that we believe would help achieve these objectives.
First, we urge that Congress allow baseball and other copyright owners to continue licensing Internet rights in free market negotiations without governmental intervention. Second, we urge that Congress not extend government-mandated compulsory licenses to the retransmission of copyrighted programming over the Internet; and, third, Congress should not weaken copyright laws that prevent the unauthorized reproduction and transmission of programs over the Internet, regardless of whether or not those programs originate on free over-the-air television or another communications mediation.
Thank you, Mr. Chairman. I look forward to working with you and your subcommittee in this area which is critically important to baseball and the other sports interests.
Mr. COBLE. Thank you, Mr. Ostertag.
Page 60 PREV PAGE TOP OF DOC [The prepared statement of Mr. Ostertag follows:]
PREPARED STATEMENT OF THOMAS J. OSTERTAG, GENERAL COUNSEL, OFFICE OF THE COMMISSIONER OF BASEBALL
Good morning, Mr. Chairman. I am Thomas J. Ostertag, General Counsel of the Office of the Commissioner of Baseball. I appreciate the opportunity to appear before you and your Subcommittee to discuss the intellectual property issues related to the transmission of copyrighted programming over the Internet. I am presenting this testimony on behalf of the thirty clubs engaged in the sport of Major League Baseball (''Baseball''). However, the views that I express are shared by other professional and collegiate sports leagues that provide the American public with a vast array of sports programming. This includes the National Football League, the National Basketball Association, the National Hockey League, The National Collegiate Athletic Association, Major League Soccer, the PGA TOUR and the National Association for Stock Car Auto Racing.
Baseball agrees with what we believe are the Subcommittee's objectivesto protect the rights of copyright owners in a digital world while promoting the development of the Internet as a secure, efficient and reliable means for the delivery of a wide variety of copyrighted works to the American public. To achieve those objectives, we believe that:
1. Congress should permit sports leagues and other program suppliers to continue licensing Internet rights in a free marketplace.
Page 61 PREV PAGE TOP OF DOC2. Congress should not extend government-mandated compulsory licensing to the retransmission of video programming over the Internet.
3. Congress should not weaken copyright laws that prevent the unauthorized reproduction and transmission of programs over the Internet, regardless of whether those programs originate on free over-the-air television or another communications medium.
1. Sports and the Internet Marketplace
Like other sports interests, Baseball has a long history of dealing with new communications technologies and increasing the amount of sports programming available to the American public. We have successfully negotiated licensing agreements with numerous broadcast stations, broadcast networks, national and regional cable television networks, cable systems and satellite distributors, both C-band and DBS. Virtually every one of Baseball's more than 2400 games is televised each yearoften by more than one source. DBS subscribers, for example, now have access to an average of 78 different telecasts of Major League Baseball games each day during the baseball season. All of these licensing arrangements are the product of arms-length transactions freely negotiated in the marketplace between willing licensors and willing licensees.
I am confident that we will enter into similar licensing agreements for the transmission of Baseball telecasts over the Internet. These arrangements will benefit not only Baseball and its Internet licensees but Baseball fans as well. Indeed, we already have licensed a webcaster to stream radio broadcasts of our games. Millions of fans with access to the World Wide Web thus are able to listen on Baseball's Web Site to the radio broadcast of almost any baseball game that is played by any club throughout the seasonas well as to receive an enormous amount of Baseball information, news, statistics and video highlights.
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Our efforts to make use of the Internet have been very popular with our fans. Currently, the Baseball Web Site receives more than 2 million hits per dayup from fewer than one million hits just one year ago. But we do not intend to become complacent with that success. Our clubs recently voted to centralize in Baseball all Internet telecasting rights. We are actively exploring opportunities to exercise those rights in a viable manneragain, through a variety of marketplace negotiated agreements, with the goal of expanding the availability of Baseball to our fans. We believe that the end product of those negotiations, which we hope to conclude either this season or before the start of next season, will be to provide our fans with a wealth of exciting and entertaining options to experience Baseball.
Baseball is not alone in developing Internet business opportunities. The other professional and collegiate sports leagues have also been active in developing Internet ventures. The Internet marketplace for sports programming is, therefore, developing without governmental intervention or the need for such intervention.
2. Compulsory Licensing
Some have urged Congress to afford webcasters (like cable operators and satellite carriers before them) a compulsory license to retransmit broadcast television programming. The Internet, however, is different. Unlike cable and satellite, the Internet permits digital transmissions that can be instantaneously reproduced, stored, altered, compiled and further retransmitted throughout the world. A government-mandated Internet compulsory license is the antithesis of a free market. It would undermine Baseball's local, national and international contractual relationships; would impair Baseball's ability to pursue successfully legitimate business opportunities both on and off the Web; and inevitably would decrease the incentives for Baseball to license its telecasts to free over-the-air television.
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In fact, an Internet compulsory license might have the unintended consequence of harming consumers by compelling the teams to migrate their telecasts from free over-the-air stations to services not covered by the compulsory license. To avoid placing Congress between a sports fan and his or her television set, program suppliers should be permitted to deal in marketplace negotiations with the myriad number of issues that arise from the unique nature of the Internet. The Internet marketplace should be allowed to function without a government-mandated compulsory license.
3. Unauthorized Copying and Transmissions
Some consumers believe that if a product is available on the Internet, whether it be video programming, music or software, the product should be free for the taking, exploitation and unlimited distribution without payment to the copyright owner. Because the Internet permits exact duplication of original works without a loss in quality, such an attitude can undermine our entire structure of protecting the rights of copyright owners.
These unique characteristics of the Internet highlight the need for effective digital copy protection standards for material placed on the Internet. These standards should ensure the protection of all copyrighted programming without discrimination, including programming broadcast on over-the-air television. We understand that certain technology companies are in the process of developing standards that would permit the unlimited copying and retransmission of broadcast television programming via the Internet, but not other forms of programming. We firmly believe that such an approach, which ultimately will reduce the availability of programming on free television, is wrong. All copyrighted programming, without regard to the medium in which it is first transmitted, should receive the same level of protection against unauthorized reproduction and retransmission.
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In this regard, Baseball strongly supports the recent decision of a federal court to enjoin iCraveTV from retransmitting broadcast television programming over the Internet, without the consent of affected copyright owners. The court correctly concluded that iCraveTV's activities are contrary to U.S. copyright laws. Congress should be vigilant to ensure that it does not weaken those laws that are critical to encouraging Baseball and other program owners from working with legitimate Internet companies to provide consumers with a vast array of programming choices.
Thank you, Mr. Chairman, for the opportunity to express Baseball's views on issues related to the delivery of programming over the Internet. Baseball is embracing the digital world. Our goal is to satisfy the demands of our consumers, the fans who have an unbounded love for the game. We are working diligently to develop strategic relationships that will enable us to provide our games to our fans, wherever they are located. But these relationships should be developed in the free market and not on terms dictated by the government. We look forward to working with you and your Subcommittee in this area, which is critically important to Baseball and the other sports interests.
Mr. COBLE. Mr. Potter.
STATEMENT OF JONATHAN POTTER, EXECUTIVE DIRECTOR, DIGITAL MEDIA ASSOCIATION
Mr. POTTER. Thank you, Mr. Chairman. On behalf of the Digital Media Association's 54 members in 12 States, thank you for inviting me to testify today regarding one of the most exciting technologies of the digital age, delivery of video and television broadcast content over the Internet.
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DiMA was formed 2 years ago by seven companies on the cutting edge of digital music and media. Today, our 54 members sell, promote, protect, and account for the use of digital audio and video over the Internet, and we build the technologies that enable those services. DiMA's board of directors includes senior officers of RealNetworks, CMGI, E Music, CDNow, Liquid Audio, LAUNCH Media, and others.
Since our inception, DiMA's efforts have been guided by two core principles: Copyright owners should be paid fair and reasonable compensation for commercial uses of their content and copyright, and commercial law should not discriminate against new media companies or favor established media industries based merely upon the technology used to deliver content to consumers.
Occasionally, these values conflict, such as when existing media industries have gotten a Congressional pass from paying royalties that DiMA companies have to pay. Over time, DiMA members are hopeful that this subcommittee will recognize that consumers and content owners are indifferent, or should be, to which technology transmits their content, and rather they are concerned with getting fair value and fair payments, respectively. Rather than having laws which focus on fiber or satellite or copper wire or coaxial cable, let us focus on ensuring that artists get paid, that consumers have choice, and that there is a level playing field so that innovative and established technologies can compete fairly.
Now on to the specific subject at hand, Internet video. In 1997, RealNetworks released the first software for performing or streaming video over the Internet. Back in the early days, the transmission was choppy, and the picture on your computer monitor was small, but last month RealNetworks announced RealVideo8 which promises near DVD quality video over broadband networks, and near VHS quality over dial-up narrow band. Not withstanding Ms. Peters suggestion that media convergence may not yet be apparent, RealVideo8 makes clear that mainstream consumer-quality Internet video has arrived. We are asking whether the content is going to meet us at the doorstep to the future.
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Today, Internet video is full of rich original content and locally-produced broadcast television. Short films, shareholder meetings, movie trailers, music videos, and even Congressional hearings can all be found online. Some cable networks generate Internet programming daily, but broadcast networks do not.
DiMA believes that the lack of broadcast programming on the Internet is a missed opportunity. Studies document that Internet audiences are better educated, more affluent, and balanced between men and women, all of whom are prepared to make impulse online purchases when the offers are compelling. With this type of an audience, Mr. Chairman, DiMA members are anxious to serve program owners with more opportunities than they get from cable and satellite systems today, delivering content to the people, eyeballs to the advertisers, and also e-commerce revenue.
So why are content owners waiting to put their best on to the Web? It seems that there are three issues: security, program and advertiser integrity, and geographic limitation of the webcast distribution. As to security, webcasters are prepared to work toward secure systems with video owners, just as we work today with sound recording and music copyright owners. If the content is easily stolen, we all lose. Content owners and webcasters alike, we are all in business. We all want to make money.
Program integrity concerns, such as the ability of Internet re-transmitters to strip out broadcast advertisements and replace them with new ads are legitimate, but can be addressed by contract or by regulation in the worst possible scenario.
Geographic limitations are at the heart of the problem, particularly as concerns local broadcasters and network programming. As the technological matter, DiMA acknowledges that it is not possible today to control with certainty the location of Internet distribution, but we should be mindful that 5 years ago the Internet was not a viable video at all. Additionally, Mr. Chairman, technology has often been the driver of change, even dramatic turbulent change, particularly in distribution models. Let us not lock in today's business models if it results in quashing technological and consumer opportunities, and DiMA would argue creative opportunities.
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So what should the technology and the fear and the innovation mean for this subcommittee? I hope it means that you will ask a very fundamental question. With technological convergence and media convergence inevitable, what is an appropriate framework for our laws and perhaps our business practices?
It may be helpful for the subcommittee to view the future as consumers will. We, as consumers, are indifferent as to whether we receive content via satellite, cable, fiber, copper wire, or the Internet. Thirty years from now, our children won't call it the Internet. They will just find their favorite device and access their favorite content when they want it, how they want it, where they want it; and we will care only about program quality, signal quality, and price.
In truth, Mr. Chairman, the technological orientation of the broadcast compulsory copyright license and other copyrights and obligations make very little sense as technologies evolve. If our laws continue to assign rights and obligation based on the technologies rather than on the value of the use and the content, how will we distinguish Roadrunner, the cable Internet service, from TCI, the cable television service that carries Roadrunner, when Roadrunner carries DVD quality video using the RealVideo8 system? The consumer doesn't care.
I think it was only 3 days ago, in fact, that Web TV announced a major deal with Direct TV. So you now have an Internet service joining with a satellite television service. How are we to distinguish which of these services falls under which regulatory and statutory regime when they are merging their business practices and consumers are using a single remote control and a single display device? As long as content owners are fairly paid, why should our laws care about which pipe transports the content?
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In addition to the practical definitional issues, Mr. Chairman, there is an unfair competition concern implicated. If cable and satellite television services are competing directly with Internet services, and even terrestrial broadcasters are planning to do so with the public digital spectrum granted to them by Congress, what is the principled basis for Internet media companies to be precluded from competing in the market for television service?
Mr. COBLE. Mr. Potter, I see an amber light glowing. If you can
Mr. POTTER. I am wrapping it up.
Let me be perfectly clear. DiMA is not before the subcommittee asking for changes in the broadcast compulsory license laws. In fact, we may return at some future date to suggest that all broadcast compulsory licenses be eliminated and that the marketplace be allowed to prevail.
What we are asking is this: For you to consider whether there are principal reasons for our laws to distinguish between technologies that are or will soon be directly competitive, or, rather, should the Congress set the rules and let all who can play by them compete on a level playing field. That result would be pro-consumer, pro-competition and pro-innovation.
Page 69 PREV PAGE TOP OF DOC Mr. COBLE. Thank you, sir.
[The prepared statement of Mr. Potter follows:]
PREPARED STATEMENT OF JONATHAN POTTER, EXECUTIVE DIRECTOR, DIGITAL MEDIA ASSOCIATION
Mr. Chairman, Representative Berman, and Members of the Subcommittee:
I am Jonathan Potter, Executive Director of the Digital Media Association (''DiMA''). On behalf of the members of DiMA, thank you for inviting me to testify today about one of the most exciting technologies of the digital agedelivery of video and television broadcast content over the Internet and other broadband digital networks.
Seven (7) companies formed DiMA in June 1998 to assist a new industry that digitally performs, markets, delivers and protects music and video online. DiMA now has 54 members located in twelve (12) states across the country, and we recently launched an affiliated organization in Europe with 15 companies. DiMA members, large and small, are leaders in developing new technology, infrastructure and business models for the digital economy, in three primary industry segments:
New Media companies like RealNetworks, America Online, Sputnik7 and Listen.com enable producers and artists to deliver audio and audiovisual content to consumers in new and compelling ways.
E-commerce retailers like CDNow, Liquid Audio, barnesandnoble.com and EMusic.com sell music online by the song or by the album, through digital and physical delivery.
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Media portals like LAUNCH Media, NetRadio.com, KnitMedia and The Eclectic Radio Company offer diverse experiences to listeners who have never heard or seen ''their'' music on broadcast media, and online means for consumers to purchase recordings and videos by their favorite artists.
Core Values. From its inception, DiMA's efforts have been guided by two core principles:
1. Copyright owners and performing artists deserve fair and reasonable compensation for commercial uses of their content.
2. Copyright and commercial law should not discriminate against new media companies or, conversely, favor existing media companies, based upon the technology used to deliver content to the consumer.
Occasionally these values conflict, such as when existing media companies do not pay copyright royalties for certain actions that trigger royalties for DiMA members. Over time, we are hopeful that this Subcommittee will recognize that consumers and content owners are indifferent, or should be indifferent, to the technological means by which content is delivered, so long as the content is of a high quality, is reasonably priced, is secure, and is accounted for. Rather than focusing on fiber versus satellite versus copper wire versus coaxial cable, the law should ensure fair payment based on the value of the work and the use.
Internet Video is New, but Technology is Quickly Advancing. In 1997, RealNetworks fired the Internet video revolution's first shot when it releasedfree to consumersRealVideo software. Since the early days, when consumers relied on slow dial-up connections to watch choppy video on a small screen, today's broadband connections allow users to watch full-screen, full-motion video programming with stereo sound. And the excitement is only beginning.
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Two weeks ago I was fortunate to witness RealNetworks' CEO Rob Glaser and the great film director Francis Ford Coppola releasing RealVideo8, the latest innovation in video streaming technology. Messrs. Glaser and Coppola demonstrated that on a standard broadband connection of 1 megabyte per second (or 1 million bytes per second) a movie can be streamed to consumers in DVD quality. On a typical dial-up narrowband connection of only 37 kilobits per second (or 37,000 bytes per second), movies can be streamed at near VHS quality. Mr. Chairman and members of the subcommittee, Internet video is here, it is high-quality, and we can only hope that the marketplace is ready because consumers are. Northstar Interactive reports that approximately one-third of the 90 million RealPlayer software users watch video on the Internet each week.
Technology Improving Rapidly; Programming Less So. Today, the Internet buzzes 24/7 with streaming video broadcasts of all kinds of original video content: Internet-only news programs and talk shows, original short films, trade conferences, educational courses, shareholder meetings, movie trailers, live concerts, music videos, health programsand this only scratches the surface. Internet users can wake up to a panel discussion or keynote from an industry conference, catch the latest business and technology news throughout the day, join a shareholders meeting or press conference, watch an instructional video on technology, health issues or a favorite hobby, and end the day enjoying live concerts from night clubs and concert halls around the country and, indeed, around the world.
As consumers join the webvideo revolution so are some content owners. Scores of television stations transmit their own news and local programming, and some cable networks, such as CSPAN, CNN Headline News and Court TV broadcast live programming daily. Other cable networks provide news, sports and entertainment clips, and occasionally major networks experiment with Internet video, such as ABC's live webcast of the Drew Carey Show, or the Turner Classic Movie Network's broadcast of ''Casablanca.'' While this comprises tens of thousands of hours of weekly programming, it is not a fully rounded programming schedule. Over the Internet you can hear the latest North CarolinaNC State basketball game, but you cannot watch it. What is missing, Mr. Chairman, is the network television programming that your constituents most want to see.
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By contrast, Mr. Chairman, look at the state of radio on the Internet. Right now, on the Internet you can listen for free to thousands of radio stations broadcasting live from around the world. Thanks to the compulsory license enacted by Congress in the Digital Millennium Copyright Act of 1998, consumers can enjoy broadcasts of copyrighted sound recordings over these radio stations over the Internet, and the artists and copyright owners are being paid. You cannot do the same with television.
The lack of broadcast programming on the Internet is a missed opportunity for both Internet companies and content owners. Studies show that the fast-growing Internet audience is an advertiser's dream: better educated and more affluent than users of any other popular media, equally balanced between men and women, and rapidly accustomed to making immediate impulse online purchases if the programming and marketing is compelling. Unfortunately, this Internet audience is still waiting for the curtain to go up on Internet television.
Why are Content Owners Waiting? Mr. Chairman, DiMA members are anxious to serve program owners in the future just as cable and satellite systems serve them todaydelivering content to the people and eyeballs to the advertisers. So what is the hold up?
When discussing Internet distribution with program owners, Internet companies hear three primary concerns: security, program and advertiser integrity, and geographic limitations. For your consideration, here are the responses of Internet companies:
Security: This is an issue that Internet companies also care deeply about, because if copyrighted content becomes freely available all participants in the business fall together. Internet companies look forward to working with content companies to improve network security in the future, and we anticipate that any authority to distribute Internet video will include security standards.
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Program integrity: Content owners are legitimately concerned that Internet retransmitters can undermine the original broadcast advertisers by swapping the Internet system's own advertisements for the originally broadcasted advertisements, or by ''framing'' the broadcast programming inside the Internet distributor's advertising. This risk is real, but the issue is a red herring as the risk can be vitiated by negotiations or, if those fail, by regulation.
Geographic Limitations: The most frequently stated concern of video program owners and local television broadcasters is that the global Internet undermines existing industry players' positions in the value chain. This concern ignores radio's Internet success, however, which suggests that global localism expands audiences for local broadcasters, which can monetize the new audience. DiMA members encourage video content owners to work jointly toward new business models that embrace the technological opportunity.
There is a danger, Mr. Chairman, in allowing the Internet video market to remain unserved much longer. While DiMA companies have worked within the system to perform and market sound recordings under copyright licenses, the dearth of popular music offerings over the Internet created an opportunity for uncompensated trading of music files. Because of the recording industry's reticence to proactively and cooperatively create legitimate Internet delivery systems, the pirates got there first. So instead of capitalizing on the technology, recording industry lawyers playing Whack-A-Mole, sending cease and desist letters and filing lawsuits to shut down every new unlicensed site that rears its unauthorized head.
No matter what opinion one may have of the concept and execution of iCraveTV.com, that service demonstrated that the technology and the public demand for Internet video are ready for prime time, and of course the technology is only improving. Nature abhors any vacuum, Mr. Chairman. Unless licensed network video content begins to flow over the Internet, soon my fellow panelists may hear that giant sucking sound of an iCraveTV that is transmitting from a country with laws that do not require it to be shut down.
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Existing Law Regarding Internet Video Compulsory Licensing. Notwithstanding Congressional attention to laws and public policy, DiMA members do not view compulsory license laws as the most significant impediment to full network programming on the Internet. Rather, we view technology and consumer readiness as larger impediments, though we anticipate those problems will quickly recede. According to The Industry Standard, cable modem access is expected to double this year to 2.4 million households, and an estimated 53 million adults will use the Internet this year for entertainment. We are a giant step closer to the transition of Internet television from a novelty into a media outlet capable of competing effectively against cable or satellite video services.
Given the technological advances and consumer demand, DiMA was pleased that the Congress decided against modifying the Satellite Home Viewer Act (SHVA) in 1999 to explicitly deny Internet media companies the right to apply for compulsory licenses to carry broadcast signals. Today's SHVA, as concerns the Internet, remains as it was: It neither discriminates against nor prevents Internet companies that wish to serve digital television signals to the public. To the extent that an Internet service can satisfy the criteria for compulsory licensing set forth in the Copyright Act and Communications Actincluding geographical restrictions, must carry, syndicated exclusivity, sports blackouts and retransmission consentour understanding is that the law permits them to do so.
To our knowledge, no Internet company yet has sought the compulsory license to carry network television programming. Yet, with improvements in technology and the burgeoning new Internet market, the first Internet license cannot be far away.
Page 75 PREV PAGE TOP OF DOC In truth, Mr. Chairman, the technological orientation of the broadcast compulsory licenses make less sense as the technologies evolve. For example, are RoadRunner and @Home cable services or Internet services? What is WebTV particularly after announcing a deal with Direct TV? How does the law distinguish between technologies when they all carry the same encrypted digital video data? The set-top box with a cable or satellite service is really a limited purpose computer. And if we put a tuner and smart card authentication into a personal computer, and deliver an encrypted conditional access signal to that PC, then there is no meaningful distinction between the functions of a cable or satellite television service and an Internet-based television service.
Mr. Chairman, we have seen cable and satellite television services competing to offer Internet access to their video customers. Traditional over-the-air broadcasters are considering using their digital spectrum to offer Internet content to the public. In light of the convergence of traditional media into the Internet space, there is no principled basis for Internet media companies to be precluded from competing in the market for providing television service over the Internet.
Marketplace Licensing is Best. Let me be perfectly clear: as young, entrepreneurial companies, DiMA members believe that video content licensing likely is best left to the marketplace. Accordingly, DiMA believes that the Internet video marketplace should be given time to mature and work, so as to allow content owners and webcasters to strike commercial licensing deals that bring high-value video content to the Internet audience.
However, DiMA members also recognize that audio and video compulsory licenses are part of the fabric of U.S. copyright law, and that video compulsory licenses have served notable and useful purposes: first, by ensuring that rural Americans could access traditional network and local television through cable systems; and second, by ensuring satellite competition to the limited channels and market dominance of cable distribution. Thus, where the music and video content marketplace has failed, either because the parties are too numerous or, conversely, the industries too concentrated, the Congress has employed compulsory licensing to promote consumer interests, including to encourage the development of pro-consumer competitive entrepreneurs.
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Ensuring the Future of Competitive Consumer Choice. While DiMA members believe that marketplace licensing provides the best opportunity to bring video programming to the Internet, we also should ask ourselves what the scope of any licenses could be. One model to consider is whether broadcast television retransmitted over the Internet should emulate the model of Internet retransmissions of broadcast radio, which seems to be working equally well for consumers and content owners.
Initial concern that Internet radio might diminish localism has simply failed to materialize. Surveys taken by Arbitron and Edison New Media suggest that most listeners to Internet radio retransmissions tune in their favorite local stations. Other listeners look for specific sporting events (such as games played by their favorite college or professional teams) or musical genres otherwise unavailable in their local markets. Many listeners use the Internet to connect with radio stations in places they used to live, or places they are about to visit. Still others listen for major news events as reported by local stationsa flood in Grand Rapids, a home town sports team winning a state championship, or election results back home.
The proven benefits to consumers and broadcasters from the nationwide availability of radio retransmissions suggests that a similar regime could be equally appropriate for licensing of broadcast television retransmissions over the Internet. Clearly consumers would prefer full access to local and network television programming from any station, anywhere in the country. From the broadcasters' and content owners' point of view, major obstacles will include how to assure reasonable compensation for these retransmissions, how to avoid signal piracy and other unauthorized retransmissions.
Page 77 PREV PAGE TOP OF DOC DiMA members do not pretend that these issues are simple. We do suggest that there are licensing and technical negotiations that are well worth having. And, again, in light of the recent experiences of the recording industry, if we do not constructively engage in finding legitimate ways to enable public Internet access to high-value network programming, we risk being overtaken by the innumerable noncompensable threats that such programming will find its way onto the Internet. DiMA members clearly favor legitimate means to meet marketplace demand.
Thank you again, Mr. Chairman, for the opportunity to testify today. I will be pleased to answer any questions that you or the Members of this Subcommittee may have.
Mr. COBLE. Mr. Mccallum.
STATEMENT OF IAN P. MCCALLUM, CO-FOUNDER, iCraveTV.com
Mr. MCCALLUM. Mr. Chairman, members, thank you for inviting iCraveTV to come and share its experience with you. I hope that our contributions are of some help to you in your deliberations.
iCraveTV is an important component in the chain that flows revenues
Mr. COBLE. Mr. Mccallum, could you pull your mike a little closer to you, sir?
Page 78 PREV PAGE TOP OF DOC Mr. MCCALLUM. Okay.
Mr. COBLE. Thank you, sir.
Mr. MCCALLUM. iCraveTV is an important component in the chain that flows revenues from the advertisers and consumers to the creators and the rights holders for television and for Internet-specific content. An investment banker said again to me the other day, What I like most about iCraveTV is that you are not a dot com company, but you have a dot com upside potential, and iWall gives you a mammoth head start. He is absolutely right in that both the investment and the program industries seem to be responding to that reality. So watch for the SEC filings.
When we created iCraveTV, we knew that we were the only cable on the Internet. We were just within Canada, and within Canada, we were fully compliant with all applicable laws, including those applying to copyright, which includes making payments according to a tariff established by the Tariff Board of Canada.
I also knew that later we would be adding other promising Internet-specific kind of content, but to start, we would be exhibiting proven content television shows and be using segments of proven technology, the Internet. We took steps on a streaming basis to prevent copying. We used the best available technology in terms of security, which we have subsequently thrown out and have replaced with our own.
We also, in the process, created what we came to call the extension market. That is we were delivering programming into areas where television was not available, mostly in offices and university residences and the like. We also discovered that our audience was primarily a companion television market, that is the image was placed in the upper corner of the screen while people multi-tasked, that is while they went about doing their office work or surfing the net or answering e-mails.
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When we started, what we did not realize is just how we would become a much needed outcomist, if you will, not once, but twice. It seems that we have the knack for leveraging value out of program assets that are locked up in a Gordian knot of rights problems, and nobody else has the key at the moment.
For many program assets, the worldwide Internet rights don't exist in the hands of a single agent or decision maker; however, with our technology, the country area network rights do exist, and they exist already for satellite, cable, broadcast, MMDS, and our technology, iCraveTV, but some have asked will these former adversaries provide you with content. It is a valid question.
Is it enough that we can do what they can't do? No corporation with limited inventory can command the audience an aggregator can command. A theatrical exhibition, cable television, video stores are examples of program aggregators that provide an important value-added service. Furthermore, the aggregators with the highest favorable brand recognition, like iCraveTV, can provide the most service to the rights holders, but really will they sell us their programming.
It turns out in our discussions, it seems a bit like, you know, last year's pirates is this year's brother-in-law. In the discussions with more than 50 specialty channels and distributors, the answers are yes, no, and maybe, but the answers are moving clearly in our direction.
It appears that money talks. Recently, I was approached by a Hollywood studio to see if I would license the iWall for its use. I said, Well, we will be licensing iWall-plus for use in e-commerce, but we haven't given much thought to licensing iWall to other webcasters. He then said, Would you license iWall to us if we give you all of our content for free. We are assessing how win-win that proposal is, but it looks very interesting at this point.
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And from your perspective as well as ours, the copyright exploitation system, if I can you use that term, seems to be a kind of self-levelling system of the marketplace. Some of us just seem to be faster at adapting than others. Carpe diem.
Mr. Chairman, members, thank you very much for your attention.
Mr. COBLE. Thank you, Mr. Mccallum.
[The prepared statement of Mr. Mccallum follows:]
PREPARED STATEMENT OF IAN P. MCCALLUM, CO-FOUNDER, ICRAVETV.COM
1 THIS IS NOW
The base business, the core programming and the market for iCraveTV are television; the technology is the Personal Computer (PC) and selected parts of the IP communications infrastructure servicing it. Growth will come from the products and services developed from the technological and creative resources of both. iCraveTV licenses its content from program owners.
The re-launched iCraveTV will have the proven programming content of cable television and DTH satellite combined with the reach and power of the Internet. As well as being ''cable on the Internet'', iCraveTV also will add the new media upside by selectively adding content that has been developed for the Internet using its functionality.
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iCraveTV will generate revenues from local, regional, national and global markets. With investment from operating companies, passive investors and the public capital markets iCraveTV will be able to adapt quickly to an evolving multi-billion market. iCraveTV will offer the best available delivery of proven video contentcommercial television programs. In 2000, programming expenditures for cable systems will exceed $10 billion (US) for the US and Canada. iCraveTV will also add new entertainment and e-commerce content developed specifically for the interactive potential of the Internet. It will work extensively through partnerships and by buying relationships with companies important to the development of the iCraveTV portal.
iCraveTV developed the concept of ''companion television'' is designed to be part of the on-line computer experience. It converges continuous live and archival television onto the computer screen. Sitting 18 inches from the screen most people watch iCraveTV in the ''small window format'' (3''x5'') of the three screen size options (including full screen) that we provide. We are offering ''best available image quality'' will grow to better quality and increased screen size as thru put of the on-line world improves. iCraveTV has created a new ''extension market'' for the release of television programming by taking television programming to places where it has not existed beforeto computer screens in the office, in student residences, in bedrooms of youths, in in-home officesanywhere there is an on-line computer. This is much of our existing market.
TVRadioNow, Corp, a privately held company, operating under the trade name iCraveTV.com, is in discussion with investment banks and venture capitalists in the major technology financing centers of North American putting in place partners to work with the management and existing owners to help the company to relaunch and grow rapidly. The company is acquiring video content and partners to grow it from the dominant TV aggregator retransmitter, to a broader video aggregator, and on to become either the dominant video based portal or a major media rich portal.
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iCraveTV has developed a proprietary technique that will effectively isolates any Country or area. That is to say, it can exhibit programming country-by-country. It is a technique that is patent pending and has been trade marked ''iWall.'' In effect ''iWall'' will create Country Area Networks (CAN) rights. CAN is a right that is an extension of the live television non-broadcast rights that has evolved over the last couple of decadescable television distribution rights initially expanded to MATV (master antennae) then to SMATV (satellite master antennae), to C-Band satellite reception to MMDS (multipoint microwave distribution) to DBS (direct broadcast satellite), to ISPs (Internet Service Providers). ISP All are extensions of the original cable distribution rights enjoyed by services such as ESPN, CNN, MTV, Much Music, and YTV. Today they all extend their rights into these extension marketsCAN would be the latest extension right over this expansion of rights. iCraveTV is negotiating for this CAN rights with the specialty and closed circuit video channels and with the satellite channels around the world and the owners of program inventory. Just like the previous rights extensions, CAN will require explanation but should prevail because the rights holders increase the depth of their markets and increase their revenues through iCraveTV without depleting their other markets. iWall unlocks additional value from existing assets. Those that do not take advantage of this technique are like those swimming holding two gold bricks.
As a result, our ability to protect the rights holder will free up a tremendous amount of programming content for on line computer usersall with video screens that today can not access the tens of billions dollars in programming content available to the NTSC market segment.
This makes available to iCraveTV, for web cast on a country-by-country basis, television content that cannot be licensed for exhibition on the World Wide Web because the rights are unavailable. This is freeing up valuable video programs. To this end we are negotiating with specialty channels and owners or distributors of inventorywith a range of responses. Like cable television, iCraveTV is creating nation wide tiers of specialty channels for on-line computer users in Canada, the United States and other countries. Like our ownership, our content and our business will be multi-national, but predominantly American.
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In addition to our English language entertainment and business information channels and tiers, we are in discussions with potential partners from around the world to introduce channels in many different languages and cultures. Advertising supported and subscription based tiers are all part of our mix. We are even discussing private label networks that are interest group based. After all, the Internet is a community of communities.
As an aggregator of content, we have the ability to motivate consumers around the world to move iCraveTV and its video streams to their first choice at time of log-on to the Internet. We can reinforce this choice by providing additional non-video content to our web site in addition to our artificial intelligence (AI) based RobotQ search engine (e.g., valued consumer data such as local weather and news; business and general news highlights; e-commerce opportunities; free e-mail and chat facilities; and channel and program listings guide). Our RobotQ partners also have the ability to provide an AI based website design that learns individual consumer patterns and shapes the website accordingly. While we have identified and addressed some of these needs and opportunities, we are mindful that we will most rapidly perceive our potential and leverage our marketplace position by employing selective partnership and joint venture relationships to create or participate in a market dominant portal.
The Internet market will continue to evolve for some years to come. Like television before it, the millions of web sites that now populate the Internet will evolve into a few preferred portals each with their own character that will appeal to consumer subsets who will return to that preferred site out of habitvisiting other sites to meet specific needs, taken there by search engines. Program suppliers will lease their services to multiple web sites. In many respects, the consumer clicks environment will resemble the existing broadcast environments.
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2 THAT WAS THEN
iCraveTV has one of the fastest and broadest established brands on the Internet. In its previous incarnation, approved by the Canadian regulatory and copyright authorities, iCraveTV was the first to market with full television on the Internet. It retransmitted to the Canadian market the 17 US and Canadian television stations available off air in Toronto Canada. In its second hour of operation iCraveTV was receiving 350,000 hits an hour. Its first month saw 80 million impressions and 800,000 visitors. Its first three month's press clippings are over 9'' thick with two front page articles in US Today, major articles in the New York Times, the Wall Street Journal, the Financial Times of London, Newsweek Magazine, Wired Magazine. There was extensive coverage on the Internet electronic ''zines'' such as Wired and CNET was well as coverage on CNN and PBS. While it received extensive press coverage within its Canadian market, befitting its first to market status it also received extensive coverage world wide.
iCraveTV went from idea to operations 6 months later, November 30, 1999.
iCraveTV was launched to provide TV retransmission to Canadian viewers, to pay royalties to copyright holders, including Buffalo, New York broadcasters and international program producers, with payments to be made according to tariffs to be established by the Canadian Copyright Board and to generate revenues based on banner advertising. Except for the latter point, it was similar to Canadian cable companies. By this means the Canadian government had established a technology independent means to cut through the Gordian Knot of conflicting, dispersed or ill defined rights and thereby to provide what no contracts could providethe flow of revenue from the viewers/advertisers, through iCraveTV to broadcasters and program producers.
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For decades programmers have released conventional television and movies on a sequential release basis to allow rights holders to maximize and control their rights in higher paying market segments before extending into the next area. These segments are either defined by geography or competing level of service.
Initially iCraveTV was established using best available techniques to contain the service within Canada. However, US rights holders were very concerned that these techniques were inadequate to stop their programming from entering the US. iCraveTV agreed to stop retransmission of any television until it could meet certain conditions set out in the agreement. It has no plans to re-enter the retransmission market.
For additional historical information, I refer you to iCraveTV's submission to the House of Representatives Commerce Committee Sub-committee on Telecommunications, the Internet and Consumer Protection. Subject: iCraveTV and other Recent Developments in Web Casting, February 16, 2000.
Mr. COBLE. Ms. Miles?
STATEMENT OF PEGGY MILES, CHAIRMAN, INTERNATIONAL WEBCASTING ASSOCIATION AND PRESIDENT, INTERVOX COMMUNICATION
Ms. MILES. Thank you. Good morning. I am Peggy Miles. Thank you. I am chairman of the International Webcasting Association, IWA. I would like to thank you, Chairman Coble, Ranking Member Berman, and other subcommittee members for inviting me to testify. I intend to outline briefly some of the issues facing webcasters, discuss the ways in which Congress can provide an environment in which this increasingly important industry can fully benefit the Nation.
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Webcasting, as you know, is audio video media streaming. It allows consumers to view television programming and/or listen to radio over the Internet. Our association's directors represent leading streaming media companies, including Apple Computer, Microsoft, and RealNetworks, among others, as well as the Wall Street firm of Morgan Stanley Dean Witter.
Our membership, however, covers a far wider spectrum of enterprises content providers such as television and radio broadcasters, companies that use webcasting for internal corporate communications, producers of webcasting software and hardware, Web portals, content aggregators, or service bureaus. This broad-based membership, I believe provides us with a unique perspective on the issues facing the webcasting industry.
Now webcast can be easily accessed over the Internet, whether through phone lines, cable, modems, satellites, or wireless technology. This has opened the door to an array of new uses for the Internet, creating fresh communications horizons and potentially large gains for U.S. consumers and the businesses alike.
Streaming differs from other methods of delivering audio and video over the Internet in that it allows for real-time access to programming, rather than requiring users to download files before viewing or listening to the broadcast. One result, for example, is that businesses can deliver the latest in training or flow department products to their entire work force simultaneously.
Now webcasting can also serve a variety of public safety, security, and other purposes. Breaking news, as you know, can be broadcast immediately to anyone carrying an Internet-capable device. This makes delivery of emergency service reports much more effective and allows for broadcasts that otherwise would not be available. Milosevic suppressed the broadcast signal of radio stations during the war in Syria. For example, the station was able to webcast its programming in order to stay on the air.
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In addition, parents can check in on their children through window webcast of their day care facilities, and homeowners can use webcasting to verify the security of their homes while traveling. These and other new benefits for individuals and commercial enterprises promise to grow rapidly. In part, this growth will stem from a wide range of expected new Internet appliances that will allow consumers to gain Internet access from almost any location, not just from the stationary computers or PCs.
Our long-time goal and one long time goal of the International Webcasting Association is to ensure universal worldwide access of permanent audio and video connections via the Internet or any other digital network. Now, this has led some of the largest U.S. entertainment content providers to take a close look at this medium.
The annual market for consumer expenditure on entertainment on communications exceeded $330 billion in 1999. It is estimated to more than double to $720 billion by 2008. As the webcasting share of the lucrative market continues to grow, the medium will take on greater urgency for broadcast and recording companies that wish to remain industry leaders.
Now despite all this promise, the reality is that American businesses and consumers are unable to presentto reap the full benefits of the streaming medium technology right now. Now this is chiefly because of two reasons, two impediments that have hindered the industry's development, copyright laws that have not yet been updated to take a full account of webcasting, and adequate bandwidth connections to the Internet to the last mile to the home.
Current copyright laws provide cable and satellite providers with a compulsory copyright license that enables them to retransmit local television broadcast signals without the need to negotiate with each individual copyright holder of the material transmitted or retransmitted. This has enhanced the development of these industries at critical junctures in their histories, providing the ability and the acquisition of the content that serves as the core of their services.
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Internet webcasters, however, are not specifically covered by a compulsory licensing agreement. Instead, they are required to negotiate with each individual copyright holder before retransmitting a television broadcast signal over the Internet. To level this playing field, webcasters should have access to compulsory license. Now, the IWA is willing to work with broadcasters to assure that Internet transmissions of TV broadcast stations will be received only in areas in which such transmissions will not infringe on the exclusive rights of others.
The second major impediment to the growth of the webcaster industry is the insignificant bandwidth that is available to the average home. We do not have full frame rate, also known in television as 30 frames per second. We are now at 10 to 12 frames a second, but we hope in the near future that broadband opportunities there allow us to do so, and it looks like it will.
However, presently none of these new broadband technologies has been applied widely enough, especially not regarding the last mile to the American home, to put Internet webcasting on an equal footing with cable and satellite television. We have no preference for which kinds of carriers within industries are able to provide the nationwide increase in bandwidth. Our sole concern is to see increased bandwidth technologies promoted across the Nation and especially for last mile to the American home.
Our intent is not to make a specific recommendation on this issue at this time, only to highlight the grave importance of this matter as Congress examines overall telecommunications policies and in the context of this truly amazing pace at which new technologies continue to emerge and the profound impact they are having on our lives. Internet webcasting is among the most vital of these new technologies, one that can greatly enhance the life of the Nation, and we hope that it will receive due consideration in your deliberations.
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Thank you again for the invitation to testify before your subcommittee today, and we would all be pleased to answer any questions. Thank you.
Mr. COBLE. Thank you, Ms. Miles.
[The prepared statement of Ms. Miles follows:]
PREPARED STATEMENT OF PEGGY MILES, CHAIRMAN, INTERNATIONAL WEBCASTING ASSOCIATION AND PRESIDENT, INTERVOX COMMUNICATION
Good morning. My name is Peggy Miles, and I am Chairman of the International Webcasting Association (IWA). I would like to thank Chairman Coble, Ranking Member Berman and other subcommittee members for inviting me to testify today. I intend to outline briefly some of the issues facing webcasters and to discuss ways in which Congress can provide an environment in which this increasingly important industry can fully benefit the nation.
Webcasting, which also is known as video, audio or media ''streaming,'' allows consumers to view television programming and/or listen to radio over the Internet. Our association's directors represent leading streaming media companies, including Apple Computer, Microsoft and Real Networks, among others, as well as the Wall Street firm of Morgan Stanley Dean Witter. Our membership, however, covers a far wider spectrum of enterprises: content providers such as television and radio broadcasters, companies that use webcasting for internal corporate purposes, producers of webcasting software and hardware, and Web portals, content aggregators or service bureaus. This broad-based membership, I believe, provides us with a unique perspective on the issues facing the webcasting industry.
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I. WEBCASTING: THE PROMISE
Webcasts can be easily accessed over the Internet, whether through phone lines, cable modems, satellites or wireless technology. This has opened the door to an array of new uses for the Internet, creating fresh communications horizons and potentially large gains for U.S. consumers and businesses alike.
Streaming differs from other methods of delivering video and audio over the Internet in that it allows for real-time access to programming, rather than requiring users to download entire files before viewing and/or listening to broadcasts. One result, for example, is that businesses can deliver the latest in training or employee development products to their entire workforce simultaneously, while retaining the benefits of interactivity. Similarly, it is easy to see the benefits for the growing field of online education, as well as for individual viewers and broadcasters. On-demand webcasts give increased control to viewers, and they make it easier for broadcasters and advertisers to target programs and messages to specific audiences without the rigid time constraints associated with traditional television and radio programming.
Webcasting also can serve a variety of public safety, security and other purposes. With streaming media, breaking news can be broadcast immediately to anyone carrying an Internet-capable device. This makes delivery of emergency service reports much more effective and allows for broadcasts that otherwise would not be available. When Slobodan Milosevic suppressed the broadcast signal of a radio station during the war in Serbia, for example, the station was able to webcast its programming in order to stay ''on the air.'' Similarly, when the National Public Radio satellite feed was interrupted due to a transponder malfunction, NPR was able to convey its signal across the country to its affiliate stations using RealAudio.
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In addition, parents can check in on their children through video webcasts of their day care facilities, and homeowners can use webcasting to verify the security of their homes while traveling.
These and other new benefits for individuals and commercial enterprises promise to grow rapidly with the continuing explosion of the Internet. Just this month, the Department of Commerce issued a report noting that Internet access nearly doubled in 1999, with more than 300 million people around the world connected as of March of this year.(see footnote 6) Recent estimates also show that consumers are likely to spend more than 72 hours a month on the Internet by 2002.(see footnote 7) In part, this growth will stem from a wide range of expected new ''Internet appliances'' that will allow consumers to gain Internet access from almost any location, not just from stationary computers. One long-term goal of the IWA is to ensure universal, worldwide access of permanent audio and video connections via the Internet or other digital networks.
Many consumers are already taking advantage of webcasting, with RealNetworks, the leading supplier of streaming software, now uploading more than 100,000 copies of its free streaming ''players'' every day.(see footnote 8) This has led some of the largest U.S. entertainment content providers to take a close look at this new medium. The annual market for consumer expenditures on entertainment and communications exceeded $330 billion in 1999, and is estimated to more than double, to $720 billion, by 2008.(see footnote 9) As webcasting's share of this lucrative market continues to grow, the medium will take on greater urgency for broadcast and recording companies that wish to remain industry leaders.
Page 92 PREV PAGE TOP OF DOC Webcasting, I should add, also is reasonably priced and almost universally available through a simple Internet connection. A 1999 study by the Federal Communications Commission found that more than 90% of the U.S. population has access to several Internet Service Providers (ISP's) by making a local phone call, and an additional 5% have access to at least one ISP in their local calling area. Therefore, U.S. consumers are well positioned to enjoy the benefits of webcasting technology.(see footnote 10)
II. WEBCASTING: THE PROBLEMS
Despite all of this promise, however, the reality is that American businesses and consumers are unable at present to reap the full benefits of streaming media technology. This is chiefly because of two impediments that have hindered the industry's development: (1) copyright laws that have not yet been updated to take full account of webcasting, and (2) inadequate bandwidth connections to the Internet in the ''last mile'' to the home.
1. Copyright Law
Current copyright laws provide cable and satellite providers with a compulsory copyright license that enables them to retransmit local television broadcast signals without the need to negotiate with each individual copyright holder of the material retransmitted. The cable and satellite providers pay fees into a copyright pool, and the proceeds are distributed to the copyright holders. This has enhanced the development of these industries at critical junctures in their histories, providing stability in the acquisition of the content that serves as the core of their services. Internet webcasters, however, are not specifically covered by a compulsory licensing arrangement. Instead, they are required to negotiate with each individual copyright holder before retransmitting a television broadcast signal over the Internet.
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2. Insufficient Bandwidth
The second major impediment to the growth of the webcasting industry is the insufficient bandwidth available in the average American home. Most homes currently connect to the Internet using a phone line and a modem with a capacity of 28 kilobits per second (Kbps), which allows for television broadcasts at a speed of 1012 frames a second. This falls far short of the approximately 30 frames a second at which the average television broadcast is delivered, and this difference becomes even more pronounced when viewing a program with significant action or movement, such as a sporting event. The clear result is that Internet webcasting cannot now provide video quality approaching that of cable and satellite television.
A number of methods for delivering greater bandwith have been developed in recent years, including the following:
Digital Subscriber Lines. DSL technology vastly increases the bandwidth of the local copper phone loop without the need for substantial new infrastructure deployment. The FCC has indicated that DSL can increase the bandwidth of the average analog local loop connection from about 40 kbps to 1.5 mbps or higher.
Cable. Cable modem technology can also provide high-speed Internet access, with the FCC estimating access at speeds up to 100 times faster than dial-up service.
Satellite. Satellite providers have also developed technology to provide Internet access directly to homes.
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Terrestrial wireless. This technology presents a final option for high-speed Internet access. Both multichannel multipoint distribution service (MMDS) and local multipoint distribution services (LMDS) were originally envisioned by the FCC as technologies that would be used to provide wireless cable television services. However, since that did not prove to be economically feasible, these services are now viewed as a means to provide wireless broadband access to the home for use in delivering Internet applications.
At present, however, none of these technologies has been applied widely enough, especially not regarding the ''last mile'' to the American home, to put Internet webcasting on an equal footing with cable and satellite television.
III. WEBCASTING: THE NEEDS
Congress clearly can do something about the current flaw in copyright law. We, therefore, believe that Internet webcasting should gain equal access to the compulsory licensing system, thereby eliminating the transaction costs entailed in negotiating with individual copyright holders. Such a step would provide a level playing field, allowing webcasting to become a viable alternative to cable and satellite television providers. We are not advocating any new scheme specific to webcasting. Rather, we recommend a medium-neutral arrangement that simply allows all providers of video content to take advantage of the same compulsory licensing system.
The IWA recognizes that the worldwide nature of the Internet raises the potential for infringing on the exclusive rights of broadcasters in other markets. The IWA is willing to work with broadcasting representatives to assure that Internet transmissions of television broadcast stations will be received only in areas in which such transmissions will not infringe on the exclusive rights of others.
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Promoting greater bandwidth is a far larger and more generalized issue. Our association, I should emphasize, has no preference for, and no vested interest in, the technologies that are competing to provide greater bandwith, just as we have no preference for which kinds of carriers within industries are able to provide the nationwide increase in bandwith. Our sole concern is to see increased bandwith technologies promoted across the nation, and especially for the ''last mile'' to the American home.
Our intent is not to make a specific recommendation on this issue at this time, only to highlight the importance of this matter as Congress examines overall telecommunications policies in the context of the truly astonishing pace at which new technologies continue to emerge and the profound impact they are having on our lives. Internet webcasting is among the most vital of these new technologies, one that can greatly enrich the life of the nation, and we hope that it will receive due consideration in your deliberations.
Thank you again for your invitation to testify before your subcommittee today, and I would be pleased to answer any questions you may have.
Mr. COBLE. Now, for the benefit of those who came in late, I said earlier that there are five or six hearings being conducted simultaneously, and that explains why there are some vacant chairs up here. I don't want anyone to think that the vacant chairs indicate a lack of interest on the part of this subcommittee. That is not the case at all. These other folks are attending other meetings and hearings.
Mr. Valenti, one of the issues mentioned in your statement concerning the protection of copyrighted material on the Internet is that either they don't know or they don't care that they are violating the copyright law. I guess stealing it is a less tangible product, perhaps, than a shirt or a pair of shoes.
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What is the copyright assembly doing to better educate the public?
Mr. VALENTI. Well, we are doing our darnedest to try. It is a herculean task, and the dimensions of this task were never more fully illuminated than in the Washington Post just a week ago where it says ''Web Pirates Unearth Treasure, Hit Films'', and it recounts and it namesI won't give the name of this 21-year-old University of Maryland senior who says he doesn'twhen he wants to see a movie, he doesn't need to go to the multiplex or his local Blockbuster. He goes to his computer.
He can search the University of Maryland Internet Web, find the best files of Hollywood's best and most recent films. If he wants to see Matrix, click; the art film, Dogma, click; U571, Gladiator, Mission Impossible, Shanghai Noon, click, click, click. And this is what the young man says. This is why the task is not difficult. Most of the time, you can get stuff that is still in the theater says this young man who is majoring in guess what, Mr. Chairman? In government and politics. Hello.
Mr. COBLE. I was afraid of that, Jack.
Mr. VALENTI. ''As soon as a new movie comes out, my friends will sit there at their computer and search for it instead of shelling out money to go see it.'' Now, here is the breakdown in what used to be an impenetrable moral code. He says, Am I stealing? Well, it is only technically stealing; basically, I feel if movies weren't so expensive, there would be no need to steal them.
Page 97 PREV PAGE TOP OF DOC He is confusing the budget of a film with the admissions price to a theater, for goodness sakes, five or six dollars. That is the problem we have. I don't know, and I will be honest, I am not sure that any kind of ''public relations campaign'' is going to be able to turn around what I think is this avalanche that is taking place, particularly among young people and particularly on the campuses of the various colleges and universities. It is a job, but we are going to try.
As a matter of fact, even as I speak, we are working on what you and I prefer to call it an educational enterprise where we are going to try to get to young people, particularly, to let them know that this is not right, and this is not what they want to teach their children.
Mr. COBLE. Well, as you point out, many don't know, but also many don't care, which compounds the problem.
Mr. VALENTI. Alas that, I think, is the terrifying and terrorizing part of the issue.
Mr. COBLE. Mr. Ostertag, I am told that Major League Baseball's Web site offers users the opportunity to listen to numerous transmissions of live games. Why is there no such offering of video telecasts?
Mr. OSTERTAG. Mr. Chairman, baseball is currently involved in a major business effort to increase the capacity of our Web site and to develop essentially a portal that will have all sorts of devices, games, data, information, and video for our fans. Today, the technology doesn't quite exist very well for effective transmission of video to most of the country; however, we do plan someday to have video on our portal. It is not clear at this point what the details of that will be, but we don't think that there will be a wide array of video available to our fans, whether it is live, highlights, interactive games, all sorts of things that we believe our fans will be very, very excited about.
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Mr. COBLE. Thank you, sir.
Mr. Potter, let me put this question to you, and jointly to you, Ms. Miles, and Mr. Mccallum. What is preventing your companies from clearing the rights to copyrighted works you wish to transmit? We will start with you, Mr. Potter.
Mr. POTTER. Fear, time, process, education. It is just a learning curve. We spentas you know, we were here 2 years ago with the Recording Industry Association, and there were bullets flying, and people were calling each other names, and everybody was talking about piracy on the Internet, and the Recording Industry Association, as you will hear in the next panel, and our member companies have started to do a tremendous amount of work together to put copyrighted program on the Internet.
I think a lot of it has to do with time, and hopefully we will get over that hurdle.
Mr. COBLE. Ms. Miles?
Ms. MILES. Let us take a local broadcaster. If they wanted to retransmit their 24-hour programming, they really couldn't. They would have to get their right from every single program that is on the air, except, perhaps, their 2 hours of local news. So for a local broadcaster to be able to get those rights, it is incredibly difficult because it would take more resources than they ever, and even some of the national broadcasters have that problem.
Page 99 PREV PAGE TOP OF DOC Mr. COBLE. Mr. Mccallum?
Mr. MCCALLUM. I would second the comments that have just been made. In addition to that, there are the problems that for many programs, the Internet rights per se, that is the global rights, don't exist in the hands of one decision maker of the way that the programs were financed and produced. On a country area network basis, like delivery to satellite and so on, the rights do exist, and the contentthe response for content owners that we are getting varies with their sophistication and knowledge about the Internet.
It also deals with their ability as corporations to be able to get their minds and exploiting the assets that they have got, and for many of them, they don't know what to do, so they are kind of constipated by fear of being ripped off, fear of this, fear of that, and they are making no decisions. They are not doing anything with their content, and they are not licensing it to others.
Mr. COBLE. I see my red light up here, so I will yield to the gentleman from California, Mr. Berman.
Mr. BERMAN. Well, thank you very much, Mr. Chairman. So many questions, so little time.
Just to sort of take the Andrew Sullivan theme, who speaks flamboyantly about the dot communists, it seems to me, first, you have the dot anarchists, the people who essentially think you are entitled to everything for nothing, that theft of intellectual property using the Internet medium is fine; but then you could be a good marxist leninist and still think people have to pay, but the government sets the price.
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And Comrade Potter[Laughter.]You are not actually a good marxist leninist, because you raise an interesting question here, which is access to the compulsory license from a parity point of view, but also recognizing the extent to which maybe one should revisit compulsory licenses, and instead go with a marketplace solution. You take the position that the webcaster should have a level playing field with cable and satellite broadcasters, and then argue, as I think DiMA is, that webcasters should be eligible for an equivalent of a cable and satellite compulsory license or else all compulsory licenses should be scrapped, but if you could take advantage of those compulsory licenses, that would really only guarantee you access to network and superstation broadcasts and only in certain situations.
If webcasters want to broadcast in their programs all the ESPN, CNN, all the cable programming, you still have to get a market-based license from the content owners. There is no compulsory license on that.
Are you only interested in webcasting free over-the-air network programming? If you have greater ambitions than thatyou know, to webcast all the hundreds of program channels that cable and satellite broadcasters do, and then you have to negotiate a market-based license with all of those program owners. Adding the networks and the superstationswhen you look in that contextis really just a pretty small accretion to your existing obligation.
I am wondering if you could clear that up for me.
Mr. POTTER. Well, I will start by telling you that I am not going to share the secret handshake in public and by calling you in kind, because the Republicans would use that against you in your next campaign.
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With regard to the value of being on equal footing with cable and satellite and appreciating, and our members appreciate the moving target that is out there, about how much content do we need and what types of content do we need to attract consumers and create commercially viable, profitable businesses and add value to the consumers and to the creators, and it is a struggle that we deal with, and that is one of the reasons why we actually have not concluded in favor of compulsory licenses.
We think that the underlying foundation for original compulsory licenses may go away as the Internet reaches universal service, and we may all be back here talking about very different discussions a year or two or 5 years from now. So the short answer is you are right. It is only one piece of the puzzle, and we would like to get as much content as we can to as many people as we can and to make as much money as we can for the creators as well as the distributors as well as the artists.
Mr. BERMAN. So on some philosophical levelI don't want to deflate anybody herewe have really distinguished people, and entertainment is really important, and what comes into people's homes for broadcasting is both educational and enjoyable and a big part of people's lives, but the notion that this is where government chooses to set the price, rather than food or gasoline or drugs that people need for health care, is a very funny notion to me in terms of wacky priorities, and that is why, I mean, I wonder if this isn't an opportunity to re-examine the whole question and look for reasonable kinds of marketplace solutions, rather than go further in the direction.
I keep complaining about it, and we keep expanding it because we don't have any easy feasible alternative, but it seems like we are always taking the easy way out here. My time is expiring.
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Mr. COBLE. And I will give you additional time, Mr. Berman, when we come back. We have a vote on now. So I would ask the panel to rest easy for 10 minutes, and we will return, and if you have other questions, we can resume them when we come back. The subcommittee will stand in recess.
Mr. COBLE. The subcommittee will come to order. Thank you for your patience, folks. We just finished a vote, and I think there will be a second vote tentatively scheduled for about an hour. We can pretty well get into our second panel by that time.
The gentleman from Virginia, Mr. Boucher, is recognized.
Mr. BOUCHER. Thank you very much, Mr. Chairman. I want to join with you in thanking the witnesses who have appeared this morning for their carefully prepared and well-presented testimony.
I understand that no one is suggesting that we legislate today or this year or perhaps even in the next Congress to affirmatively apply a new licensing arrangement for the Web, but that is the subject that we are talking about, and Congress is obviously being asked to give early consideration to how licensing on the Web should be accomplished. And what I hear from witnesses, generally, is that as we undertake that task, at whatever point we do it, we need to make sure that the Web is treated in a way that is no less advantageous than other media, and so if we were to legislate a license for the Web, we would want for the license to be no less generous than the licenses that apply to satellite and the cable TV.
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And that leads me to a discussion of the licenses that apply to both satellite and cable TV and to ask how those licenses might, in a way that is effective, be transported to the Web. So let us take a look at each one.
If the satellite license were applied to the Web with regard to local television broadcasts, it appears to me that, as practical matter, the only thing that could be put up on the Web by the local TV station would be locally-originated content, and then if a way could be figured out to do it, network programming could be delivered to people who live in white areas. That is essentially what the satellite license provides today.
If the cable compulsory license were applied to the Web, then network programming would be covered. In fact, all programming that is broadcast by the local television station would be covered by the license, but as a practical matter, the cable compulsory license doesn't fit the Web very well because the cable compulsory license, by its very nature, is limited to a local geographic area, and it happens to be the area in which television signals that are transmitted and marks immediately adjacent to that.
The Web, by its nature, is global, and so there would be no such restrictions, at least in a direct application, of the cable compulsory license to the Web. Now, I don't think anybody is arguing, or I haven't heard it today that we should treat the Web more generously than we treat either cable systems or satellite systems, and so I would assume that if we were to borrow from the cable compulsory license, that we would have to place some kind of geographic restriction on its application with regard to the Web, and the technology to do that today is not readily apparent.
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So a lot of this lies in the future, but I would simply like to get a statement from the witnesses today about the underlying principle that as we legislate in this area at whatever point it is appropriate to do it, that the goal of that legislation simply be to promote equality and to make sure that the Web is treated no less generously than and no more generously than we would treat either cable or satellite. Is that the proposition that we should hold in our minds as we have the early discussion of the subject?
Mr. Potter, let us begin with you.
Mr. POTTER. I think DiMA would agree with the proposition that Web program distribution services should be on equal footing with other program distribution services. I am not sure if that means we want to rise up in the patchwork quilt to where this license is with regard to this geographic area or this type of program, and then over here we are going do it this way, and it is a bit convoluted to try to match up with all the different types of licenses with all the rules and regs.
Mr. BOUCHER. That is the patchwork quilt we have today.
Mr. POTTER. That is correct, and that is one of the reasons why I suggested that instead we might want to revisit the entire compulsory license system, the viability of it at the appropriate time, but equality is what we are seeking.
Mr. BOUCHER. All right. Ms. Miles?
Page 105 PREV PAGE TOP OF DOC Ms. MILES. You put it quite succinctly yourself, that we do not want to have above anybody else. We would like to be on equal parity to be able to deliver the content, whether or not to a single household, which is a one-to-one broadcast of a third grade soccer team, which may not have rights issues, up to someone that wants to purchase content to redistribute it on perhaps some other sites or reedit some materials. So we are not sure, and I can't talk because I am not an attorney, on this point, but we would like to have some sort of parity. We don't know if it has to be a license or any other means, but parity with others.
Mr. BOUCHER. All right. Mr. Mccallum, would you agree?
Mr. MCCALLUM. I can't speak as clearly about American copyright law and compulsory licenses. I can speak about one of our markets, however, which is Canada, and under which we were originally operating under retransmission where there is a form of compulsory license. It is technologically indistinct in that it doesn't differentiate between the various delivery mechanisms already, and the industry then goes before the copyright board and negotiates a tariff that is appropriate under the circumstances.
Mr. BOUCHER. Well, you are commenting on the American legal structure, because it does effect the business that you have, but would you agree that to the extent that it is appropriate for us to legislate in this area that we should not favor the Web in comparison to the other media, nor disadvantage it?
Mr. MCCALLUM. I would agree with that.
Mr. BOUCHER. Okay. Thank you very much.
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Mr. Chairman, my time has expired. Thank you.
Mr. COBLE. I thank the gentleman.
The gentleman from Florida, Mr. Wexler.
Mr. WEXLER. Thank you, Mr. Chairman.
I would like to follow what I think are the comments of most of the panelists, but particularly Mr. Valenti's, and particularly in the sense that he highlighted the newspaper article. I think, Mr. Chairman, respectfully, that it raises a sense of obligation upon this committee to examine what our role is in terms of the potential changing of attitudes, particularly of young people across the country, as they determine what is in their degree of morality, what is stealing, and what may be ''pseudo-stealing.''
I was at my son's little league game this last Sunday, and I heard a comparable story. It wasn't about movies, but it was about CDs, and it was followed by what would otherwise seem to be a very responsible parent's comments. The catchall wasn't that movies were too expensive, but that CDs are too expensive. The issue isn't whether movies are too expensive or CDs are too expensive. Even if they are too expensive, most Americans, to make an analogy, probably feel that gasoline is too expensive right now, but would never dream of driving up to Exxon, pumping their gas, and driving off, saying, ''Goodbye, I am entitled to take this now because gasoline costs too much.''
Page 107 PREV PAGE TOP OF DOC The cost of a CD or a movie is irrelevant to the issue as to who owns it and who has a right to use it, and it would seem to me that there is a role for this Congress to play beyond simple legal protection of copyright. I mean, when our beef manufacturers have a problem, we get all riled up. When our steel manufacturers have a problem, we get riled up. When our agricultural producers feel that they are being flooded in terms of markets, well, the issue is different here.
This is, to a certain degree, about the attitudes of American consumers, and I think it may be more akinand I appreciate that Mr. Valenti talks with some skepticism about whether attitudes can change, but attitudes have changed about seat belts. Attitudes have changed about smoking. Attitudes have changed about drinking. Attitudes have changed about a whole host of things, but they only change because of the combination of interest, both from the private industry that was affected and also by government. I would argue that while the private sector has a role to play here, to a certain degree, the public may look at the private sector as having a self-interest in terms of its own protection.
And I would argue that maybe this is a misplaced argument at a time when we are apparently considering cutting budgets in the copyright and patent field, but it would seem to me the more appropriate argument given, as Mr. Valenti pointed out, the international trade aspects of how or not copyrighted materials are to America, that this Congress ought, in the very near future as a part of a long-term strategy, to consider what its role is financially and otherwise in helping to create and persuade American public opinion that going on the Internet and stealing a CD is no differentor stealing a song is no differentthan stealing a sweater or stealing gasoline, even though you may think that the supermarket or the department store or the gasoline company is charging far too much.
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And I would hate to think that the end result of hearings like this will be that the Congress will take the attitude that it is simply an obligation of the private sector to keep suing and suing and suing and think that our obligation stops at just creating the best laws that we can.
And I apologize for being so lengthy, but to the extent that anybody on the panel would seek to add to my thought, is there an appropriate role, do you think, for Congress to play in terms of creating or helping to create a different attitude, particularly amongst younger people?
Mr. VALENTI. Mr. Wexler, I subscribe to everything that you have said. I want you to know, as I said earlier, that along with the music industry and othersome other copyright industries, we are, at this moment, trying to design and fashion and deploy an educational campaign, trying particularly with younger people to assert this age-old homily that stealing is wrong, and there has to be a better way.
The second thing we are trying to do is to be able to use technology to wrap a protective shield on our movies so that when we put them on the Internet, they will be as invulnerable as technology can make them, even though we know that hackers, if you can invade the Pentagon and the CIA files and everything else, that I presume you can break almost any encryption, but we are looking very, very hard at that, of how we can join with other enterprises in this country, the IBMs and the MITs and other companies that are involved in inscription technology to use that as a way to protect ourselves.
Page 109 PREV PAGE TOP OF DOC So we are trying to do education, particularly with young people to use technology to help us combat technology, and if we believeand I have said this beforethat if we think that the DMCAwhich I must congratulate the Congress. It is a wonderful achievement. It has been our principal weapon in protecting ourselves.
If, however, in the future, we can bring to this Congress sufficient evidence that even the DMCA, with its great new superiority of judgment in the marketplace, is not suitable for the future, then we have to come to you and say please help us here, we need more help.
I do not come to you at this time, because I am not sure what it is that I would be asking for, but there may be a time shortly when we will do that.
Mr. WEXLER. Thank you, Mr. Chairman.
Mr. COBLE. I thank the gentleman.
The gentleman from Florida presents a provocative and interesting idea, and that is why I asked Mr. Valenti earlier what, if anything, the copyright assembly was doing as far as educating the public is concerned. Mr. Wexler extended my analogy, Jack, when I said earlier that stealing a shirt or a pair of shoes involves a tangible product, as opposed to a copyrighted work.
Now, to extend Mr. Wexler's idea even further, the infringer at the University of Maryland, Mr. Valenti tells us is majoring in politics and government. He may can have some on the job training by joining us here on the subcommittee, Jack. It appears he needs much training.
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I appreciate those comments, Mr. Wexler.
Mr. Berman was caught in the middle of that vote, and I want to give him an additional minute or two if he has a question.
Mr. BERMAN. I thank you very much, Mr. Chairman.
One other thing raised by Mr. Wexler's question is the issue of enforcement. The irony is it is hard for me to conceive of quite how Congresswithin Mr. Valenti's organization are some of the most creative people working for them, and their associates are some of the most creative people in the world. They could probably design a far more effective education program, perhaps, than we can from this area. But the issue of enforcement, fear of getting caught is a pretty good deterrent, and if there are consequences for getting caughtand I think there are people who might take the gasoline if they could get away with it.
So I don't think we should neglect the role of the Executive Branch in enforcing our criminal laws and moving ahead on private parties, enforcing the Digital Millennium Copyright Act and all the other legislation we have passed.
But, Mr. Valenti, you were eloquent on the subject of this whole question of theft of intangible intellectual property and the consequences of it. Move for a second to the compulsory license issue, and if you would just speak to that. You have had extensive experience with the compulsory licenses in cable and satellite. Is what we are seeing now with the Internet any different than what we saw with cable and satellite? Is there any justification for Congress to follow a similar template with respect to Internet delivery of copy programming? How difficult will be the job of crafting an appropriate statutory license for the Internet if Congress wanted to undertake it?
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I would be interested in your thoughts on those issues.
Mr. VALENTI. Well, first let us establish one thing, that cable is to the Internet what the lightening bug is to lightening. They are two vastly different enterprises. One is global. With one click on a keyboard of a computer, you can reach billions of people simultaneously at 186,000 miles per second. You can't do that in cable. You can't do that in satellite even.
So we are dealing with a different breed of cat that never existed before, and I think a compulsory license would be totally unsuitable and would give the Web sites an enormous advantage over everybody else.
Number two, keep in mind that today what is the cable copyright license about? Most cable systems have, what, 80, 90 channels. Only five or six are distant television stations, and they are the only ones to which the cable copyright license applies. The other 912 channels are bargaining forthe programs on those channels are bargaining for in the marketplace. If anybody on the Web wants to have programming, they can bargain for it. Discovery Channel, HBO, Show Time, all the channels on cable go out on the marketplace bargaining with the owners, pay a fair price negotiated price, and put it on the air. Well, can we do that today? There is nothing to prevent it.
So when we talk about a license, you are talking about a minuscule number of channels under the canape of a compulsory license on any cable system today.
Page 112 PREV PAGE TOP OF DOC Mr. BERMAN. Thank you, Mr. Chairman.
Mr. COBLE. Thank you, Mr. Berman.
And, folks, let me conclude this panel with this question: I want to extend what the gentleman from Virginia said regarding geographic confinement.
Mr. Mccallum, how do you respond to critics that say that iWall or similar technology will never be able to limit Internet transmission to specific geographic areas? You may want to define iWall first and then talk about the geographic confinement.
Mr. MCCALLUM. Thank you, Mr. Chairman. I think anybody that says that that is not doable really didn't understand the history of the evolution of technology, specifically with respect to the Internet, but also in other areas. It is just a matter of time and need, and we came up with it out of need, our development. We are going through a certification process.
We will have a major professional services firm provide certification that the system works effectively, and it is a combination of technologies, because as everybody has said, the Internet was not designed with the idea of being able to containerize it. It was designed with the idea of being able to survive under nuclear attack.
What we have had to do there is to take a bunch of different technologies, some of them hardware, some of them software to make a server-dependent technology that can identify the user each time they make a connection to the system, and in our system, as we negotiate with the program suppliers, they are quite comfortable with the notion that in the subscription component, as opposed to free component, that we would be offering that we would be able to identify 100 percent of the users, and therefore make sure that the payments flowed through to the rights holder.
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They are also comfortable with the notion that our system could achieve in excess of 90 percent efficiency in terms of what geographical territory they came from. At this point, we are limited to national territories, but in the next version of iWall, it will be able to identify down to DMAs, we believe. Therefore, it would be consistent with the local broadcaster, for example.
So the technology is there. The certification is there. The discussion with the program suppliers, they are comfortable with the fact that we will be able to provide them with a letter of certification saying it is efficient. They are comfortable it becomes in excess of 90 percent, because they say that they can only achieve less than 70 percent at the moment by other ways.
We believe the system is, in fact, in the 95 to 98 percent efficiency range at this point.
Mr. COBLE. Well, this exercise will continue.
I thank the members of the panel, and you are now excused, and I must go to my other meeting, and I am going to ask Mr. Goodlatte, the gentleman from the Roanoke Valley of Virginia, if he will take the gavel and bring on the next panel.
Mr. GOODLATTE. [Presiding.] For those who didn't hear, the chairman said let the old boy get in here.
Page 114 PREV PAGE TOP OF DOC I would like to welcome our next panel. Our first witness on this panel is Hilary Rosen, president and chief executive officer of the Recording Industry Association of America. After being with the organization for more than 12 years, Ms. Rosen became the first female CEO of the RIAA in January 1998. Prior to joining the RIAA in 1987, Ms. Rosen operated her own consulting firm.
Our next witness is Edward O. Fritts, who is president and chief executive officer of the National Association of Broadcasters. In November 1999, Mr. Fritts was inducted into the Broadcasting and Cable Hall of Fame and was honored with the 2000 Golden Mike Award by the Broadcasters Foundation on March 27, 2000. Mr. Fritts is a graduate of the University of Mississippi.
The next witness is Dean Kay, who is president and chief executive officer at Lichelle Music Company, who is testifying on behalf of the American Society of Composers, Authors, and Publishers, or ASCAP. Mr. Kay has successfully participated in the music industry as both a creator and business person. Prior to his involvement in publishing, he was a successful song writer and a recording artist for RCA Records. He appeared daily as a featured entertainer on the nationally televised Tennessee Ernie Ford Show and produced dozens of phonograph records and radio and television commercials.
Our next witness is Mr. Charles P. Moore, who is vice president of business development for RadioAMP, an Internet audio solutions company in Cambridge, Massachusetts. Previously, Mr. Moore served technology companies in many capacities, including as vice president of business development with Meridian Technology Marketing. Mr. Moore also spent several years at North Point Software Ventures, a venture capital firm focused on developing early stage software businesses. Mr. Moore holds a B.A. from Union College and a MBA from Babson College.
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Our final witness on this panel is Scott Purcell, who is president and chief executive officer of WWW.COM. Mr. Purcell has been in the Internet industry since the inception of the browser, founding Epic Internet in 1994 and building it into the largest privately held ISP in the country with 240 pops and a national tier one backbone. WWW.COM is based in Los Angeles and is the Internet's leading music application service provider and the largest provider of turnkey solutions for Web sites worldwide. The company broadcasts over 240 original program stations all under signed copyright agreements. He received his B.S. in entrepreneurship from the University of Southern California.
We have written statements from all of these witnesses on the panel, and I would ask unanimous consent to submit into the record those statements in their entirety.
Without objection, so ordered, and I ask each witness to limit his oral statement to 5 minutes or less.
Ms. Rosen, welcome. We are glad to have you with us.
STATEMENT OF HILARY ROSEN, PRESIDENT AND CEO, RECORDING INDUSTRY ASSOCIATION OF AMERICA, INC.
Ms. ROSEN. Thank you, Mr. Goodlatte. I am going to beg the committee's indulgence. Am I projecting well enough?
The Internet is clearly the center of a revolution for the music industry. There has been a lot of talk today about
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Mr. GOODLATTE. We have a problem with the court reporter. If you could just hold that microphone, that would probably help us.
Ms. ROSEN. Okay.
Mr. GOODLATTE. Thank you.
Ms. ROSEN. There has been a lot of talk today about, as my friend Jack says, how we are getting pillaged in the music industry. Mr. Wexler mentioned this as well. I really, though, want to talk about how exciting this business is and how exciting this opportunity is and particularly in the online music area today. There is an awful lot of new things that consumers are getting in the music space.
So I will just go with a quick sort of view of thiswhy don't we move through this quicklyInternet to the home PC. Songs are obviously transferred easily from the net to the home. We are playing back now through computer speakers and moving into a portable world.
In a legal, licensed environment, we are moving from the Internet to a PC, burning on recordable disks, taking it to your car, using it on a home stereo. A lot of things to do, and obviously into this next space now of using music on portable digital audio devices which are essentially mini hard drives that look like Walkmans.
The next and most exciting wave, though, is real portability. We are bypassing home PCs. Right now what the industry is really focused on is thinking about how we move from these spaces into individual hand-held devices. Whether they are cellular phones, whether they are palm pilots. I am getting on a plane to New York later. I have got my hand-held device. I am stopping at a kiosk at the airport. I am downloading the next song I want to hear on the airplane.
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Today, I just wanted to just briefly outline for members sort of what the basic music delivery models are right now online and a little bit what we are anticipating. We have radio webcasting, and we have radio-style webcasting. Essentially, when broadcasters are retransmitting their signals, I call that radio webcasting. Radio-style webcasting is new programs being created specifically for the Web. We also have on demand a personalized streaming which are maybe I want to hear a whole radio show of only Carly Simon, Tori Amos, and Sara McLaughlin, don't play me anything else, and I want it within a 3-hour period. That is sort of a personalized streaming.
And then the next obvious area are downloads. When I want to actually take a song with me, move it to a portable device, travel with it, that is a reproduction. The thing that this committee may be most interested in are these two areas which are eligible for in the music space, what we call the compulsory license or the statutory license, and I thought it would be useful to go through just a few of the sites that are out there now. There are so many sites, but it is probably useful to just get a feel for what consumers currently have online.
We are not talking about even a future business. This is what is currently available. Listen.com, a site that is sort of known as a little bit of a Switzerland, they have a little of everything. They have radio in these areas. You can go it by genre. You see it by electronica, country, jazz, folk. They have also have downloads that you can get tour dates and other things. So every site is trying to find extra value for the consumers that are going to their site. You go to the radio site for Listen.come under oldies, you get even more detail. You getif you like the Beach Boys, you click on this station, and you are going to get similar artists to the Beach Boys, the Beatles, Brian Wilson, others, same with theif you like the Doors, you are going to get these other artists. So it provides consumers with lots of information. Click it on, the player comes up in your computer, and you are set to go, you are listening to music.
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GetMusic is also a multiple use site. It is actually owned by two major record companies, Universal and BMG. It is a store where you can actually order music online and have the CD sent to you. There are radio programs. There are promotions for new artists. If you go to the download section of this site, they actually will give you the song to download, and most of these are promotional. So that means for Hansonit is a good example. Hanson has a new album out. Hanson and their record company has chosen to put a single out on the GetMusic site, test this music, see if you like it, we hope you will by the record if you do.
E-Music is another download site where they are essentially offering a series of genres, music for sale that you can take with you. Amazon.com probably has one of the largest music businesses now in the world. Their book business gets most of the attention, but their music business probably makes them more money. There is a significant number of promotions that artists and record companies do with Amazon. You can see there a lot of unknown artists in this area, and Amazon is promoting those artists on a regular basis.
Yahoo is another site. Significant music space, select a genera, go to rock and pop, go to country, go to classical. They are doing reviews on their featured site, and there is also sort of advertizing. Anyone who thinks that this is just what the guy on Amazon thinks is the best record that week is kidding themselves. They charge people marketing and advertising dollars to have things on their site. So most of the companies are doing that as well.
This is Yahoo broadcast. Broadcast.com is probably the largest re-transmitter of existing radio signals that there are. So if you go to the radio section of Yahoo Broadcast, you can pull up stations fromI don't know. Eddie, how many are there on here? Lots, a couple of hundred. Anywhere in the country you can pull up individual stations from there. So Yahoo has contractual arrangements with those individual stations to rebroadcast and retransmit those sites, those radio stations on their site.
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Let us go to one. This is a good example, KISFM.com. This is a radio station, KIS FM in Los Angeles. It is a rock and pop station, and this is a fabulous radio station that has been extraordinarily popular. They moved to the Web, and all of a sudden, they have all this new consumer information. They are re-purposing their music. They are reciting chats with their listeners. They are offering concert tickets. They are offering videos. They are doing little comedy shows. They have got new places to advertise. So the Web is really a tremendous new opportunity for existing broadcasters as well, and this is just one example of how they are taking advantage of it.
MTV.com, MTV continues itsI sound like a commercial for all these companies. MTV continues pushing music aggressively. They own a significant webcast company called Sonicnet, a very big site. Sonicnet has radio stations by genre, and they have got some funky names for it. If you go into the Christian area, there is a station called Celebration. There is a station called Praise. In the blues and folk area, we are indigo for deep blue, and if you go to one of these individual sites like jazz, that is what we get.
Did we go on to jazz here? Oh, here we are. This is the Sonicnet player, and you essentially push this little button. That is push play. What is happening is that the artist Chuck Loeb is playing. That is the station that you have got, and soand all around here, you know, Sonicnet and MTV are adding new advertising. So there is a lot of opportunity there for everybody, both the consumers and the people who are putting out there music.
Spinner.com, a company owned by AOL, is doing the same thing. This is Spinner's player, and again you can see in these areas they have got advertising here. Amazon.com is advertising on Spinner.
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This is an entrepreneur, small company called Radiomor. It is not obviously just the big guys.
Mr. GOODLATTE. Ms. Rosen, I think we need to
Ms. ROSEN. Okay.
Mr. GOODLATTE. Our tour deforce is very interesting, but we are well in excess of our time limit.
Ms. ROSEN. Okay. Let us just go to the last one. Okay. Well, those four other sites were essentially small companies, entrepreneurs paying licenses, looking for new ways to deliver music services and compete in the marketplace, and we are spending a significant amount of time helping those companies get into business by granting them licenses.
I think that is the essential point, although I think there are some distribution issues that got raised by the register earlier, and I would be happy to answer questions on that.
Mr. GOODLATTE. Great.
Ms. ROSEN. Thank you.
Ms. GOODLATTE. Thank you very much.
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[The prepared statement of Ms. Rosen follows:]
PREPARED STATEMENT OF HILARY ROSEN, PRESIDENT AND CEO, RECORDING INDUSTRY ASSOCIATION OF AMERICA, INC.
My name is Hilary Rosen, and I am the President of the Recording Industry Association of America, Inc. (''RIAA''). I would like to thank Chairman Coble, Representative Berman and the other members of this Subcommittee for holding this hearing today. As you know, RIAA member labels are responsible for producing and distributing over 90 percent of the legitimate sound recordings sold in the United States. This Subcommittee has always been in the forefront of these cutting edge Internet issues and I commend you for continuing your work with this hearing today.
There is no longer any doubt that the Internet is at the center of a revolution in the way consumers enjoy copyrighted works. We think this is a great thing. The Internet opens up so many opportunities for the public's enjoyment of music that were never imagined before. Even just a few years ago, the Internet was simply a marketing and promotional tool for the music industry. The business models have changed, are continuing to change, and businesses have been both proactive and reactive regarding the constantly evolving technology. With technologies like the streaming of music over the Internet and the ability to download songs directly onto a computer, consumers have access to more copyrighted works each day, and record companies are working with webcasters and other Internet businesses to facilitate consumers' access to these works in a legal and equitable way.
Page 122 PREV PAGE TOP OF DOC The music community's challenges on the Internet have been in the news lately. There is a significant piracy issue and we are testing areas of the copyri ght law in some cutting edge ways. While I would be happy to respond to any specific questions about the piracy issue, my purpose today is to inform the Subcommittee about all of the positive opportunities being created by the Internet for consumers, technology entrepreneurs and the music community alike.
For music, the Internet is particularly important. Since the early days of the record business, artists and record companies could essentially make a return o their investment only one wayby selling a packaged recording. This was a historic anomaly created by the lack of a public performance in sound recordings. In 1995, after consideration for over 20 years, Congress determined that a right of public performance would benefit consumers, artists and record companies, and created the Digital Performance Right In Sound Recordings Act. The thinking was that the rules of the road had been written for analog, but new digital distribution models would open up so new many avenues that sound recording copyright owners should be encouraged to take risks in the new digital arena. What an act of foresight by this Committee and the Congress! For it was exactly that legislation that now allows us to give the consumer new and varied choices in their music consumption.
Instead of only selling a full album of packaged goods, artists and record companies are looking at subscription services, singles and compilation downloads, artist packages, on-line jukeboxes and so many more. Prices, in my view, will be cheaper for the consumer because consumers will get exactly what they want, and the opportunities for the industry and artist will grow as volume increases.
Page 123 PREV PAGE TOP OF DOC Webcasting is a perfect example of a new consumer service made possible by the new public performance right. As you may already know, with webcasting, or ''Internet radio,'' a user can visit a webcaster's site, click on a button and receive a stream of music through his or her PC. In general, webcasters do not charge the user any fee to receive the music, and the user has a huge amount of genres and stations to choose from that far exceed what is currently available on over-the-air analog radio. In addition, some radio stations are transmitting their own stations over the Internet, therefore expanding their reach and service to listeners and advertisers. Other webcasters serve as aggregators and retransmit the signal of many over-the-air broadcast stations.
THE DPRA AND THE DMCA
The revolution of the Internet and the proliferation of webcasters have raised a large number of questions, many of which are relevant to this hearing: whether and how copyright law should be changed to accommodate this new reality. When the 1995 Act was passed, we did not anticipate the volume of licensing issues the recording industry would face. Nor did we anticipate the rapid growth of this new business now called ''webcasting.'' Because so many webcasters were faced with the need to have easy access to thousands of songs requiring complex licensing mechanisms, new rules were created and implemented in the Digital Millenium Copyright Act (''DMCA''). The DMCA thus provided for efficient licensing mechanisms for webcasters and others.
While we, like other copyright interests, as well as the US Government, have historically been opposed to compulsory licensing, we thought that the blanket license model made sense in this unique environment for this specific purpose. We think the process set up by Congress and currently in place is a good one. The statutory license in the DMCA has worked to help all sides. It allows us to negotiate rates with webcasters on both an individual and industry-wide basis, and if an industry-wide agreement is not reached an arbitration panel will decide rates for qualifying webcasters based on rates already in the marketplace rates. We look forward to participating in this new process and watching it develop.
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BUILDING THE NEW MARKETPLACE
RIAA strongly believes the steps Congress has taken in the past five years are essential to the future of recorded music, and that the structure Congress has established is the right one. We are grateful to you, Chairman Coble, and to this Subcommittee, for your leadership in this regard. The goal of Congress, the RIAA on behalf of its members, webcasters, and others should be to build a legitimate marketplace for the music industry, and the current process is working to accomplish such goals.
For example, we have been successfully negotiating licenses with webcasters for more than a year. The process is not easy because many webcasters have a steep learning curve before understanding the ground rules. But marketplace negotiations afford the parties the opportunity to create flexible and mutually beneficial agreements. We try to tailor the licenses to meet the needs of each individual company. Given the variety of business models employed by creative entrepreneurs, we realize this is not a one-size-fits-all business and our ability to negotiate with different entities in different ways works to the benefit of everyone.
Of course, the royalties flowing from these licenses must be distributed. In addition, the Copyright Office has appointed us to collect and distribute certain other royalties. So we've been hard at work to set up a means to get the money to those who deserve it, the creators of the recordings. Royalties will be distributed based on reported performance information and a board made up of a cross section of the industry will oversee the process. We look forward to providing this service to all copyright owners, including the hundreds of independent record labels that have signed up with us.
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More important than what RIAA is doing, individual record companies and artists have also worked with a variety of new technology companies to develop fresh and exciting ways for consumers to enjoy copyrighted sound recordings. They are planning to work with webcasters to create even more personalized programmingartist specific channels or customized radio with a high degree of consumer interaction. They are redefining business models and forming unprecedented business relationships to develop legitimate ways to access copyrighted music online. All of the major labels have announced plans to start selling music as digital downloads this summer. EMI is working with Preview Systems and Supertracks; BMG with IBM, InterTrust and Microsoft; Warner with Sony's ATRAC3; Universal with Magex; and Sony with music distributor Alliance Entertainment's 35 retail accounts, including Peaches and National Record Mart. Major independent label Zomba will also sell downloads this summer, and independent label TVT will sell their music through MusicMaker.com's custom compilation CD service.
With regard to webcasting and streaming, BMG has licensed almost all of its sound recordings to MusicBank.com, a service that allows users to store, manage, and listen to music over the Internet. Sony and Universal have announced plans to develop a subscription music service where users pay a monthly fee to access their sound recordings. The value of reaching fans has not been lost on Warner Music Group, along with other labels, who have invested in consumer music sites ArtistDirect.com (a fan community and artist merchandising site) and Listen.com (a directory for legitimate downloads and streams).
On the artist front, Todd Rundgren has re-launched his music subscription service, where fans pay a monthly or annual fee to access his new music, to include other artists wanting to do the same. Chuck D runs the rap and hip-hop Web site Rapstation.com, which gives exposure to artists as well as digital music issues. And many more artists have used the Internet on their own and with fan community Web sites like Fanscape.com to build strong relationships with their fans, sell merchandise, and promote upcoming tours and releases.
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THE CHALLENGES AHEAD
But we still have work to do. Although marketplace negotiations have worked with many webcasters, industry-wide agreement has not yet been produced. Thus, it is likely that an arbitration panel will determine the rates for the other webcasters. One issue that has arisen in the course of negotiations is whether radio broadcast stations that webcast their local over-the-air AM/FM signal to Internet users throughout the world should be granted special treatment among webcasters. While there is no question that over-the-air transmissions of broadcast stations are exempt from the digital performance right in sound recordings, RIAA believes the law is just as clear that Internet streaming of that signal is subject to the digital performance right. In fact, Congress made clear that third parties such as Yahoo! Broadcast that retransmit over-the-air signals on the Internet are covered, so it would make no sense to allow the identical streaming to be exempt merely because a broadcast station performed the webcasting itself. A different result would give broadcasters a competitive advantage in an entirely new medium merely because they hold an FCC license that has no application to the Internet. RIAA has asked the Copyright Office to decide this issue.
The Digital Media Association (''DiMA'') has also filed a petition with the Copyright Office asking for a ruling concern ing certain types of webcasting services that allow listeners to personalize the music they receive. DiMA claims that such services qualify for the statutory license as noninteractive services. In RIAA's view, these services fall squarely within the definition of ''interactive service'' as revised in the DMCA, and thus they require individually negotiated licenses from the copyright owners. In any event, RIAA believes that the personalization issue is highly fact-specific and inappropriate for rulemaking. As was discussed by the first panel of witnesses, it is very rare for Congress to grant compulsory licenses. Congress has not done so for webcasters that run a personalized service, and it should allow record companies to negotiate with these entities for individual licenses in the marketplace.
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In sum, the ongoing negotiations are complex and challenging due to the many business models employed by webcasters and the lack of a single representative for all entities. But the marketplace is working. The system is working. And we believe that the current course of action is the correct one.
Thank you again for the opportunity to appear today. I hope this background has been helpful, and I would be pleased to answer any questions you might have.
Mr. GOODLATTE. Mr. Fritts, welcome.
STATEMENT OF EDWARD O. FRITTS, PRESIDENT AND CEO, NATIONAL ASSOCIATION OF BROADCASTERS
Mr. FRITTS. Thank you, Mr. Goodlatte.
Broadcasters believe strongly in copyright laws as we are both creators and users who purchase copyrighted materials. So we have it coming to us from both directions. I might say that every time somebody clicks on the net, they are moving away from a radio or a TV station so that they are not watching or listening to their local station when they are doing that, and most of those services just offered are, although some repeats of broadcasts, they are licensed through an arrangement with the host company.
Page 128 PREV PAGE TOP OF DOC But there are really two aspects I would like to speak about today. One is television streaming on the Internet, and the other is radio streaming on the net. So let me begin first with television.
I think you know that the hallmark of broadcast television is that it is locally delivered, and so in order to make sure that free over-the-air television continues to serve all American consumers, rules such as retransmission consent, net non-duplication, and syndicated exclusivity were created to make sure that the local station signals were not taken and misused by others. These rules protect the exclusive rights for programming that stations purchase, and they prohibit other retransmissions such as cable and satellite from invading those markets with the same programming.
Exclusivity is in large part what attracts advertisers to local television stations, and the advertising resulting from this exclusivity is the engine that provides services of local news, sports, weather, and other public interest programming such as campaign and election coverage.
Now, last year when iCraveTV.com began taking transmissions from Buffalo, New York stations and putting banner ads around them and distributing them on the Internet, serious violations of copyright law occurred and the Federal court in Pittsburgh quickly stepped in to stop the illegal use of these signals. U.S. laws and FCC regulations do not allow cable or satellite to violate this exclusivity, nor should they permit the Internet to do so.
We strongly believe that third parties on the Internet should never be allowed to retransmit the signals of local stations without their consent.
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Let me turn now to the radio industry, which I think we all know operates on the different economic model. Here the discussion revolves around the streaming of radio stations duplicated programming on the Internet. Radio signal streaming is increasingly becoming widespread. I think there are over 20,000 radio stations that currently duplicate their programming on the Internet.
Now, there are two kinds of audio presence for radio stations on the Internet. The first is when a station simply takes its over-the-air signal and streams it. In essence, it simulcasts or duplicates that signal over the Internet. Now, a listener to this service hears exactly what they would hear if they were listening to the local radio station.
The second is when stations actually create a second programming service that is Internet only, and the distinction between the two is important. In the first instance, the economics work exactly as they do on over-the-air broadcasting. There is a symbiotic relationship in this case between the station and the record companies where the songs are played just as their over-the-air radio stations promote these songs to 75 percent of Americans who listen to radio each day and 59 percent of Americans who listen each week.
In fact, one prominent recording company executive once was quoted as saying, ''Without air play, we would all be in the door-to-door aluminum siding business.'' Now, these stations also provide public service, including local music, weather, traffic reports, coverage of local events, and a myriad of other local activities, all of which help fulfill the condition of public interest obligations for broadcast licenses.
Page 130 PREV PAGE TOP OF DOC I am pleased to report that broadcasters provided over $8.12 billion in public service activities last year. There are no subscription fees for this radio streaming. We remain advertiser supported. It simply offers radio listeners another way to access their favorite station, complete with all the local news, information, and community programming.
In the second instance, stations act like other Internet-only programmers, and this is a different service altogether. The law recognizes that the rules for this service can be different. Regardless of how listeners hear us, broadcasters pay about $300 million a year in royalties to the copyright licensing groups representing song writers and composers, and we see no change in that system any time soon for either over the air or Internet services. Thus we have a radio broadcasting system that is the envy of the world. The symbiotic relationship with the music industry benefits both industries. As we go forward into the world of Internet, I would suggest that the system continues to operate well.
In conclusion, broadcasters believe the Internet holds many opportunities, threats, and challenges. Copyright laws, as they currently exist, should be applied no differently to the Internet. TV stations ought not to have their programming and signals stolen and distributed worldwide to compete with our own operations, and radio stations ought to remain the recording industry's best salesman of their music.
We appreciate your interest in the subject. Thank you for this hearing. We look forward to the questions.
Mr. GOODLATTE. Thank you, Mr. Fritts.
Page 131 PREV PAGE TOP OF DOC [The prepared statement of Mr. Fritts follows:]
PREPARED STATEMENT OF EDWARD O. FRITTS, PRESIDENT AND CEO, NATIONAL ASSOCIATION OF BROADCASTERS
Thank you, Mr. Chairman, for the opportunity to appear before you today. I am Edward O. Fritts, President and CEO of the National Association of Broadcasters (NAB). Our trade association represents radio and television broadcasters, including many of the networks. The topic of this hearingInternet copyright implications for radio and televisionis an important one, and we are pleased to provide our thoughts to you and your committee here today.
In my remarks, I want to focus on two issues relating to Internet streaming: one from the perspective of radio and the other from television. Let me begin with television.
TELEVISION ON THE INTERNET AND COPYRIGHT LAW
Our U.S. television service is a result of the uniquely American partnership between national networks and local TV stations. Under this system, local TV stations in markets large and small across the United States provide a unique combination of national TV programming (such as NFL football and ''60 Minutes''), syndicated programming (such as ''Oprah Winfrey''), and local news, weather, and public affairs programming.
The network/affiliate system provides the solution to a problem that Congress has long tried to solve: how to ensure that as many communities as possible have their own local TV ''voices,'' rather than accepting a world in which viewers in Greensboro, Baton Rouge, or Boise must rely solely on programming originating in New York or Los Angeles. The network/affiliate system has also ensured that virtually all Americans have access to free, over-the-air television, rather than forcing viewers to pay intermediaries (such as cable systems or satellite companies) to provide them with TV programming.
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In short, the network/affiliate system has been a tremendous American success story. But the continued vitality of this system depends on local stations enjoying a substantial degree of exclusivity in providing network programming to local viewers. Local stations make much of their revenues by selling advertising time during popular network programs, particularly primetime programs. During these same programs, local stations run promotional spots designed to attract viewers to local news programs; these spots are a key way that stations build audiences for their news programs. If local viewers are able to watch network programs on distant stations imported by third partieswhether cable systems, satellite carriers, or Internet companiesthe basic economics of network affiliates are put in grave jeopardy.
Exclusivity in providing local audiences with syndicated programming is also important to the continued viability of local stations, both network and independent. Our stations simply cannot continue to pay large fees to program syndicators to keep high quality syndicated shows on free over-the-air television, if the same programs are being imported day and night into our local markets by cable, satellite, or the Internet.
Protection of stations from importation of duplicative programming into their markets is thoroughly woven into the fabric of our legal system. Since the 1960s, for example, the Federal Communications Commission has adopted and enforced network non-duplication, syndicated exclusivity, and sports blackout rules that bar cable systems from importing duplicative programming from distant stations. Congress acknowledged and supported these rules when it created the cable compulsory license in 1976, and reaffirmed its strong support of those rules in the Telecommunications Act of 1996.
Page 133 PREV PAGE TOP OF DOC When satellite television appeared on the scene, Congress created a similar set of rules in 1988 to protect the network/affiliate relationship. Congress reaffirmed those rules last year in the Satellite Home Viewer Improvement Act, and directed the Commission to apply syndicated exclusivity and sports blackout rules to satellite carriers as well. In doing so, Congress ''reassert[ed] the importance of protecting and fostering the system of television networks as they relate to the concept of localism,'' and pointed out that ''television broadcast stations provide valuable programming tailored to local needs, such as news, weather, special announcements and information related to local activities.'' SHVIA Conference Report, 145 Cong. Rec. at 11792 (daily ed. Nov. 9, 1999).
INTERNET TRANSMISSIONS OF TV BROADCASTS AND THE ICRAVETV CASE
Although this Subcommittee is very familiar with the harm (and resulting consumer complaints) caused by satellite industry importation of distant network stations, the threat posed by unauthorized Internet delivery of broadcast television programming is vastly worse.
Most of you are already familiar with the case involving iCraveTV. iCraveTV is a company based in Toronto, Ontario that late last year began picking up over-the-air TV signals from 17 stations in Buffalo, New York and Toronto and retransmitting them throughout the world via the Internet. iCraveTV's business plan was simple: use broadcasters' copyrighted product, in which broadcasters have invested billions of dollars, and then ''frame'' it with iCraveTV's own advertisements. In the process, iCraveTV also degraded the quality of the signals, omitted the part of the signal required for closed captioning and parental advisories, and made it appear that iCraveTV was itself the author of the programming. iCraveTV did not obtain permission from any TV station or any other copyright owner before pirating their programming.
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iCraveTV pretended that its service was limited to Canada, where it claims it is permitted to retransmit TV programming through the Internet. (We strongly disagree with that claim about Canadian law, and iCraveTV was sued in Canada as well.) The reality is that iCraveTV was available throughout the United States and throughout the world.
As soon as they learned of iCraveTV's unlawful activities, American broadcasters and copyright owners immediately demanded that iCraveTV stop infringing their copyrights. When iCraveTV refused, a coalition of TV networks, motion picture studios, and sports leagues filed suit in federal court in Pittsburgh on January 20, 2000 against iCraveTV and its principals.
Judge Ziegler of the United States District Court for the Western District of Pennsylvania instantly saw through the ''only in Canada'' sham. As Judge Ziegler explained, the evidence showed that the iCraveTV web site ''was established, used, promoted, advertised and sold to attract users in the United States to circumvent the trade[mark] and copyright laws of the United States and to circumvent the trade[mark] and copyright rights of the plaintiffs.''
The Court also found that by transmitting TV programming through the Internet into the United States, iCraveTV was ''publicly performing'' those programs in violation of the plaintiffs' exclusive rights under the Copyright Act. Notably, iCraveTV did not argueand could not arguethat it is allowed to transmit TV programming through the Internet to U.S. viewers without obtaining permission from the copyright owners. As the Register of Copyrights made clear in letters to Congress last fall, U.S. law simply does not permit such transmissions, and Internet companies are not entitled to transmit TV programming under any existing compulsory license.
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Judge Ziegler issued a permanent injunction barring iCraveTV from transmitting the plaintiffs' copyrighted programming into the United States. To comply with that court order, iCraveTV terminated its online transmissions of TV programming.
WHY INTERNET RETRANSMISSIONS OF TV STATION PROGRAMMING IS SO DANGEROUS
The very substantial harm that stations have experienced as a result of unlawful retransmissions by satellite companies would be incalculably worse if Internet infringers such as iCraveTV were allowed to continue to stay in business, or if Congress were (mistakenly) to create a new Internet compulsory license that would override the rights of stations and other copyright owners. The reason is simple: unauthorized Internet transmissions of TV broadcast programming can reach everyone in the United Statesin fact, everyone in the worldwho has a computer and a modem. In the United States alone, there are 110 million Americans with Internet access, and there are hundreds of millions of Internet users worldwide. These figures are, of course, growing every day, as is access to broadband that makes delivery of video over the Internet even more appealing to consumers. As local stations have lost millions of local viewers to unlawful retransmission of distant TV stations by satellite companies, they would now face unauthorized Internet companies delivering the station's own product to more than 100 million local viewers in the United States, including those in many of the most affluent households that are the most appealing to advertisers.
And it is not just the national programming that is at issue here. American stations invest billions of dollars every year in producing top quality local news programming, of which they are the sole copyright owner. Having invested the money and hired the talent to produce this programming, these stationsand not some third party who has invested not a penny in our programmingare entitled to decide how to deliver that programming to viewers.
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These stations also buy syndicated programming, and often pay top dollar to ensure that only they can offer a particular program in its local market. FCC rules ensure that those contracts must be respected by cable systems when they import out-of-town stations. Unauthorized Internet transmissions would, of course, make those contractual protections meaningless, since TV stations carrying the same programming in distant cities would be available to every viewer in Buffalo with an Internet connection.
Nor is this just a domestic issue. By delivering U.S. television programming throughout the world on the Internet, unauthorized Web transmissions of TV stations would sabotage the ability of U.S. broadcasters and other copyright owners to sell their programming in foreign markets. That is, owners of valuable U.S. television programming would find themselves ''scooped'' in selling their own programming by third parties who could simply appropriate the entire output of the U.S. television programming and deliver it instantaneously throughout the world.
It is not an exaggeration to say that unauthorized Internet transmissions of TV stations would cripple, if not destroy, our spectacularly successful system of free, local, over-the-air television. Exclusivity would become a meaningless concept, since dozens, if not hundreds, of stations would offer the same programming that local stations once used as their calling card. Local weather emergency information would go unheard by many local viewers, since there would be no reason to watch network or syndicated programming on a viewer's local station rather than on a station imported from some distant market. And with those viewers lost to local stations, the revenues needed for stations for local stations to provide this programming would be diminished. And local political advertisements, along with local news coverage, would go unseen by many local viewers for the same reasons.
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Let me be clear: broadcasters are not opposed to technological change, and we are eager to harness the extraordinary power of the Internet in ways that are consistent with our roles as providers of free, over-the-air local television. To exploit the magic of the Internet properly, however, requires that local television stations maintain their ability to secure and enforce program exclusivity in their local market and retain retransmission consent rights with respect to their signals.
Broadcasters are already taking advantage of the power of the Internetand benefiting consumersthrough purely voluntary, marketplace transactions. For example, many TV stations today offer their own local newscasts throughout the United States on their Web sites, thereby enabling interested viewersincluding former residentsto keep on top of local news developments. Of course, these Webcasts feature (and are financed in part by) advertisements sold by the station that created the programming, not ads placed by third party parasites. Other broadcast TV programs may soon be offered through the Internet, through normal, marketplace transactions, if arrangements can be made that do not conflict with stations' needs for program exclusivity in their local market.
Although authorized Webcasts of TV broadcast programming are an exciting new development, unauthorized Webcasts pose one of the most devastating threats that over-the-air television has ever faced. We should take to heart the lesson that the satellite experience has taught us: it is crucial to stop unauthorized transmissions of TV programming before they become widespread and viewers become accustomed to receiving illegal programming. Just as Congress does not want to hear complaints from viewers about another round of turnoffsthis time from an illegal Internet servicestations do not want to field the complaints that will inevitably result if this type of piracy becomes widespread and is then halted by the courts.
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For now, the laws appear to be working well to permit TV broadcasters and other copyright owners to protect themselves against this new, ultra-high-tech form of piracy: the iCraveTV court correctly found that Internet transmissions of TV programming in the United States, without the permission of the broadcaster and copyright owners, are against the law. We will keep you closely advised of developments, and will let you and other concerned members of Congress know immediately if it turns out that there needs to be some adjustment to U.S. law to prevent iCraveTV or anyone else from engaging in this outrageous form of theft.
I should add that iCraveTV is now touting a new system that it claims will block Americans from accessing its web site. I have two quick reactions. First, based on iCraveTV's past promises versus its performance, I am highly skeptical of these claims. Second, my understanding is that under the court orders in Canada and the U.S., iCraveTV can only retransmit stations' signals with their consent or if Canadian copyright law is changed.
RADIO STATION STREAMING AND THE INTERNET
The other issue I would like to discuss concerning broadcasters' use of the Internet relates to radio stations using the Internet to stream their audio signals.
As you know, Mr. Chairman, a disagreement has arisen between radio broadcasters and the recording industry about whether or not this streaming of our over-the-air signals gives rise to a claim that would trigger performance rights payments from broadcasters to the producers of sound recordings.
Page 139 PREV PAGE TOP OF DOC You will recall that when Congress approved the Performance Rights in Sound Recordings legislation in 1995, it took great pains to exclude radio broadcasters from liability for such payments. Nevertheless, the RIAA has taken the position that radio stations streaming their over-the-air broadcast signals on the Internet must pay the producers of sound recordings that are part of those broadcasts. We respectfully and strongly disagree. While at present, this issue is before both a U.S. District Court and the U.S. Copyright Office, let me nevertheless explain our views.
WHY STREAMING OF RADIO STATIONS' SIGNALS IS EXEMPT FROM PERFORMANCE RIGHTS IN SOUND RECORDINGS
The plain language and legislative history of Section 114(d)(1)(A) of the Digital Performance Rights in Sound Recordings Act of 1995 (DPRA) are clear. Broadcasters that stream their broadcast programming over the Internet are exempt from the digital sound recording performance right. The plain language of the statute, on its face, exempts non-subscription, non-interactive transmissions and retransmissions of over-the-air programming broadcast on the Internet by FCC-licensed broadcasting stations. Moreover, the legislative history of the Act manifests Congress's clearly expressed desire not to affect the long-standing, mutually beneficial relationship between radio broadcasters and the record industry.
Any other construction of the exemption would lead to absurd results directly contrary to the language and intent of the Act. As set forth below, Congress recognized that over-the-air radio broadcasts frequently might not meet the conditions for the statutory license of Section 114(d)(2). Thus, under the recording industry's interpretation of the statute, many radio broadcasters seeking to transmit their broadcast programming on the Internet would be faced with three untenable choices: (i) radically alter their broadcasting practices; (ii) negotiate separate licenses with each and every record label (an utterly impractical, if not impossible, task for broadcast programmers, who select their programming to meet the needs of their local audience); or (iii) desist from streaming altogether. These choices would directly thwart Congress's repeatedly expressed intent not to affect the mutually beneficial relationship between the radio and recording industries. The choices also would contravene the Act's goal of facilitating non-subscription webcasts, would serve no public purpose, and, anomalously, would leave broadcasters at a significant disadvantage to third party retransmitters of broadcast programming.
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Even if a broadcaster were to change its over-the-air programming practices to qualify for a statutory license of some sort, the absence of the exemption would leave the broadcaster significantly disadvantaged in relation to Internet-only webcasters, who are able to program their transmissions for their Internet audience, free from the constraints imposed by an FCC license or the need to structure programming to satisfy the needs of their over-the-air audience. Such a result was not, and could not have been, intended by Congress.
The history of copyright protection for sound recordings reflects a dominant, recurring theme: Congress repeatedly took pains to ensure that the grant of copyright protection did not affect the symbiotic relationship between the radio broadcasters and the record industry. Congress recognized both that the record industry reaps huge benefits from the public performance of their recordings by radio stations, and that the granting of a public performance right could alter that relationship to the detriment of both industries.
In the 1920s and for five decades following, Congress regularly considered whether to grant any copyright rights in sound recordings. See Subcomm. on Courts, Civil Liberties, and the Admin. of Justice, House Comm. on the Judiciary, Performance Rights in Sound Recordings 2858 (Comm. Print 1978) (30-page summary, prepared by Register of Copyrights, of congressional consideration of performance right in sound recordings between 1925 and 1977). Congress repeatedly rejected those proposals.
Thus, when Congress first granted copyright protection to sound recordings, less than 30 years ago, in 1971, it decided not to grant any public performance right. Congress again decided not to grant a sound recording public performance right during the comprehensive revision of the Copyright Act in 1976. In 1995, in response to particularized concerns unrelated to the broadcast industry, Congress created, in the Digital Performance Rights in Sound Recordings Act (''DPRA''), an extremely narrow performance right in sound recordings encompassing a limited category of digital transmissions. In so doing, it explicitly rejected the notion of a comprehensive new performance right. S. Rep. No. 104128, at 34, 7 (1995) (hereinafter ''1995 Senate Report''); accord H.R. Rep. No. 104274, at 25 (1995) (hereinafter ''1995 House Report'').
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Adoption of a narrowly framed performance right in sound recordings only occurred when the evolution of digital transmission technologies raised concerns that interactive and subscription digital transmissions could evolve in a way that might directly displace record sales. Thus, Congress granted sound recording copyright owners only (i) an exclusive right to control ''interactive'' digital transmissions (including transmissions in which the recipient paid a fee to receive a particular recording); and (ii) a right to receive compensation under a statutory license scheme for subscription digital transmissions of sound recordings, reaffirming its intention that the DPRA's limited public performance right in sound recordings ''should do nothing to change or jeopardize the mutually beneficial economic relationship between the recording and traditional broadcasting industries.'' 1995 Senate Report, at 9; accord 1995 House Report, at 6.
Just three years after enactment of the DPRA, the record industry voiced dissatisfaction with the new performance right and complained that it did not adequately apply to certain categories of nonsubscription performances originating on the Internet. At the same time, a newly formed association of Internet-only webcasters (the ''Digital Media Association'' or ''DiMA'') approached Congress seeking clarification of the status of the webcasting activities of its members with respect to sound recording performances on the Internet. DiMA and RIAA, neither of which represented the interests of FCC-licensed terrestrial broadcasters, negotiated amendments to the DPRA, which were put into the House version of the Digital Millennium Copyright Act of 1998 (''DMCA'') literally on the eve of passage, and which were enacted without any hearing or debate.
The only real connection NAB had with these negotiations was an explicit understanding with RIAA that none of the DMCA amendments to the DPRA would in any way affect or influence the existing dispute over whether the DPRA imposed performance rights in sound recording liability on radio stations that streamed their signals. Accordingly, I am saddened to see RIAA now arguing to the Copyright Office (in breach of that agreement) that the DMCA amendment did somehow strengthen their argument that radio stations are subject to performance rights in sound recordings for streaming.
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The RIAA/DiMA deal removed certain exemptions that had previously been available under the DPRA, including the exemption for ''a [digital] nonsubscription transmission other than a retransmission,'' while expanding the scope of the available statutory license to include certain ''eligible nonsubscription transmissions.'' Of critical importance, however, the DMCA did not disturb the DPRA's broad exemption for ''a nonsubscription broadcast transmission,'' which, as indicated below, comfortably includes the simultaneous transmission over the Internet by radio stations of their broadcast programming.
There is nothing in the language or history of the DMCA to indicate that, after assiduously preserving the mutually beneficial relationship between the record and radio industries, Congress suddenly decided, without careful consideration, to reverse course and alter that relationship. To the contrary, Congress made clear that it did not intend to alter the scope of the exemption for nonsubscription broadcast transmissions.
The resulting digital sound recording performance right continues to distinguish among (i) exempt transmissions, (ii) transmissions that are subject to a statutory license, and (iii) transmissions that require the permission of each sound recording copyright owner whose recordings are performed as part of the transmission. As before, ''nonsubscription broadcast transmissions'' and certain other transmissions are exempt. Transmissions that do not qualify for an exemption or for the statutory license, including interactive transmissions and others, such as the transmission of archived programs under certain circumstances, require consent from each record company. Subscription and certain nonsubscription transmissions that meet specified conditions are entitled to a statutory license.
Page 143 PREV PAGE TOP OF DOC The DMCA did, however, expand significantly the conditions required for the statutory license, limiting its practical availability. These conditions, negotiated by DiMA and RIAA, were specifically directed at Internet-based webcasts. However, the negotiating parties recognized that some DiMA members also based their Internet business on aggregating and retransmitting radio broadcasts, and that many of the conditions were incompatible with common radio broadcasting practices. These third party retransmitters were granted relief from those conditions.
Thus, for example, radio broadcasts sometimes feature a single recording artist or multiple cuts from an album, all of which benefit the record industry and promote record sales. However, that practice would violate the so-called ''sound recording performance complement,'' thereby precluding the broadcaster from invoking the statutory license. See 114 U.S.C. §114(d)(2)(C)(i). Radio stations, particularly those with classical music formats and other noncommercial stations, often publish advance program guides. Other types of stations frequently announce in advance the recordings they will be playing. These practices would violate another condition of the statutory license. See 114 U.S.C. §114(d)(2)(C)(ii). Radio stations also sometimes replay predefined programs that they have announced in advance. This practice also could, under certain circumstances, violate a condition of the statutory license. See 114 U.S.C. §114(d)(2)(C)(ii). By contrast, third party retransmitters that are not affiliated with the radio broadcaster are excused from satisfying these conditions under most circumstances.
Although the amendments to the DPRA contained in the DMCA were negotiated between Internet-only webcasters and RIAA to resolve their mutual differences, RIAA and DiMA are now asking the Copyright Office to amend its regulations and construe the Act to prejudice radio broadcasters who stream their programming in digital format onto the Internet.
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RIAA and DiMA's proposed construction is contrary to the plain language and legislative history of the Act and would seriously undermine Congress's repeatedly expressed intent not to disturb the traditional, mutually beneficial relationship between record companies and radio broadcasters. DiMA also has argued that because the deal it made with RIAA subjects its members' activities to performance rights in sound recordings, Congress must have intended under some notion of establishing a ''level playing field'' to make radio stations subject to the same right. We hope the Copyright Office, the court and this committee will reject RIAA's and DiMA's arguments
Whatever liability DiMA agreed with RIAA to impose on DiMA's members in a smoke-filled room in the waning hours of the 104th Congress, it is not relevant to broadcasters' liability. What is relevant are the words of the House Judiciary Committee, which said:
''Copyright owners of sound recordings should enjoy protection with respect to interactive and certain digital subscription performances. By contrast, free over-the-air broadcasts are available without subscription, do not rely on interactive delivery, and provide a mix of entertainment and non-entertainment programming and other public interest activities to local communities to fill a condition of the broadcaster's license. The Committee has considered these factors in concluding NOT to include free over-the-air broadcast services in the legislation.'' 1995 House Report at 13. (emphasis added)
As you know, Mr. Chairman, the majority of the revenues songwriters and music publishers receive comes from broadcasters, which are now beginning to include additional revenues from the streaming of radio signals. Those writers and publishers, by comparison, receive relatively little from the recording industry that records their songs. While the recording industry, in turn, gets no remuneration from broadcasters, it gets to keep almost all of the revenues from record sales. This system has helped create American broadcasting, recording and music industries that are the envy of the world. Should broadcasters now be required to start paying performance rights royalties to record companies, that whole delicate and mutually-beneficial balance will be upset and will have to be re-evaluated from the perspective of all parties.
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In summary, Mr. Chairman, let me reiterate our basic positions:
There is no right to retransmit local TV stations without their permission. Changing this fundamental rule would fracture the entire network/affiliate system and station/program syndicator relationship. Because of the worldwide nature of the Internet, it is also clear that any sort of compulsory copyright license will be untenable and unenforceable.
Moreover, the experience of iCraveTV shows that the potential is there to disrupt the marketplace by using a station's own programming to compete with that station. The economic relationship between networks and their local affiliates would also be jeopardized, thus jeopardizing the local service those stations provide.
As for radio stations streaming their own signals, we believe that the Digital Performance Rights in Sound Recordings Act of 1995 clearly exempted stations from any public performance right in sound recordings, and that nothing in the DMCA altered that status.
Again, I thank you for the opportunity to appear here today to express our industry's views.
Mr. GOODLATTE. Mr. Kay, we are pleased to have you with us.
STATEMENT OF DEAN KAY, PRESIDENT AND CEO, LICHELLE MUSIC COMPANY ON BEHALF OF THE AMERICAN SOCIETY OF COMPOSERS, AUTHORS AND PUBLISHERS
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Mr. KAY. Yes. Thank you very much. My name is Dean Kay. I have been a member of the board of directors of ASCAP since 1989, and I am currently chairman of the board's new technologies committee.
I am proud to say that I am both a music publisher and a song writer, having found somewhere in this brain that came popping out Frank Sinatra's hit ''That's Life.''
ASCAP's almost 100,000 song writer and music publisher members very much appreciate the subcommittee's sensitivity to an understanding of copyright issues. Time and again, your subcommittee, including members on both sides of the aisle, has shown how its deep expertise in copyright has so well served our Nation and our copyright community. For example, in the enactment of the Sonny Bono Copyright Term Extension Act and the Digital Millennium Copyright Act, your hard work and that of the ranking member, Mr. Berman and all the members and your colleagues have done great good.
Today, I welcome the opportunity to speak to you about ASCAP's successful efforts to license on the Internet the nondramatic performing rights of our members' and foreign affiliates' vast repertory of over four million copyrighted works. The right of public performance is the largest single source of income for song writers, most of whom are not performers and do not benefit from concert ticket sales or from recording contracts.
From the time ASCAP was founded in 1914, one constant in our business has been technological change. Beginning with radio and commercial phonograph records in the twenties through the development of background music services television cable and satellite television and now the Internet, ASCAP is faced with the challenge of licensing new industries which rely on the music we create as their principal source of revenue-generating entertainment. When each of these new technologies was developed, there occurred, of course, a bumpy period of marketplace give and take before the parties ultimately put, but inevitably reached a settled and mutually acceptable licensing arrangement.
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The fact is that each new technology exploiting copyright music presented both challenges and opportunities for those who developed the technology and those whose copyrighted property made the technology profitable. We must always keep in mind without the music which my writer and publisher colleagues at ASCAP, BMI and CSAC create and own, and without all the over creative works such as movies, sporting events, computer programs, and books, technological marvels would be empty and unprofitable shells.
The public, the audience the consumer wants to enjoy what we create. Please understand that the last thing we want to shut down is new uses of music. From our perspective, the more music performed in the public, the better. We simply want a fair price for the use of our musical properties.
Let me now turn to ASCAP and the Internet. In 1995, ASCAP set out to license performances of our members' music on the Internet by creating a department of new media and technology and formulating an experimental license agreement for Internet sites on the Worldwide Web. By the end of 1997, only 125 Web sites had been licensed, but by December 1999, the number had grown to over 1,500. These include some of the largest entertainment Web sites, as well as the most popular aggregators of streamed musical entertainment.
As part of our licensing efforts, ASCAP sought early on to make use of new technologies. For example, our Web site license was made available on ASCAP.com where the potential licensee can find an interactive program that calculates the license fee based on information he or she provides. The ASCAP licensing team, many of whom are with me today, is meeting continually with industry groups, including the Digital Media Association and the operators of major music using license Web sites to discuss the issues and perhaps an industry-wide license agreement just as we have industry-wide licensing agreements with other groups.
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Many Web site operators, including radio stations, the bulk of the country's commercial television broadcasters have requested ASCAP licenses for their Internet performances. The important message from these facts is that the free marketplace is working exactly as it should. Certainly, we watch with great interest and some trepidation the battles being fought today between our colleagues in the record and picture industries and their adversaries. These are clearly no more than the types of growing pains with which we are familiar from our own past experience, but more importantly, our experience reflects the ability of reasonable people to work out negotiated solutions to difficult business problems.
Compulsory license legislation is neither necessary nor desirable. The marketplace works even though it produces bumps along the road to maturity. That is only to be expected in the free market. So let me conclude by urging great caution in considering whether to enact more legislation regarding copyright on the Internet. We remain confident that as has been ASCAP's experience in the past, reasonable men and women can agree on a free market, a free market which is the very core of America's values on arrangements that will produce fair prices for the use of valuable property, the copyrighted works of America's creative community.
Thank you very much.
Mr. GOODLATTE. Thank you, Mr. Kay.
[The prepared statement of Mr. Kay follows:]
PREPARED STATEMENT OF DEAN KAY, PRESIDENT AND CEO, LICHELLE MUSIC COMPANY ON BEHALF OF THE AMERICAN SOCIETY OF COMPOSERS, AUTHORS AND PUBLISHERS
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Mr. Chairman and members of the Subcommittee, my name is Dean Kay. I am, and have been since 1989, a member of the Board of Directors of ASCAPthe American Society of Composers, Authors and Publishers. I am proud to say that I am both a songwriter and a music publisher. Some of you may have heard of one of my songs, That's Life, which was an enormous hit and signature song for the late Frank Sinatra. In addition, I have been in the music publishing business for over 25 years.
Mr. Chairman, let me begin by telling you how much ASCAP's almost 100,000 songwriter and music publisher members appreciate this Subcommittee's sensitivity to and understanding of copyright concerns. Time and again, your Subcommittee has shown how its expertise in copyright has so well served our nation and our copyright community. I need only to point to your hard work, Mr. Chairman, and that of Mr. Berman and your Subcommittee colleagues in the enactment of the Sonny Bono Copyright Term Extension Act and the Digital Millennium Copyright Act. We in the copyright community rest easy knowing that, because this Subcommittee has jurisdiction over our concerns, we will get a full and fair hearing.
ASCAP licenses, on behalf of its members, the nondramatic performing rights in their music. ASCAP's repertory exceeds four million copyrighted works, including the works of thousands of foreign composers and songwriters with whose foreign performing right societies ASCAP is affiliated. Our principal licensing tool is the blanket license for which the user pays a mutually agreed upon fee to perform any or all works in the ASCAP repertory.
Page 150 PREV PAGE TOP OF DOC One constant in our business has been technological change, from radio and commercial phonograph recording in the 1920's, background music services in the '30's, television in the '40's, cable and satellite television in the '60's and '70's, to the Internet today. ASCAP has faced the challenge of licensing these new industries, which rely on music as a principal source of entertainment to generate their revenues. Each new technology has presented opportunities for those who developed the technology and those whose copyrighted property made the technology profitable. When these new technologies developed there was an inevitable period of marketplace give and take before the parties finally reached a settled and mutually acceptable licensing arrangement. That's the way new marketplaces develop.
Given this background, in 1995, ASCAP set out to license the performance of our members' music in the new and evolving medium of the Internet. By the end of 1997, we had only 125 Web sites licensed. By December of 1999, however, the number of licensed Web sites had grown to more than 1,500.
This past December, based on comments from many licensees and prospective licensees, we made a major modification in the new license, which provides for simplified music use reporting, which we use in distributing royalties to our members. The Web Site License is available on ASCAP's Web site, where the potential licensee can utilize an interactive program to calculate his or her fee. In addition, we employ ''ASCAP EZ-Eagle,'' a service that searches the Internet for Web sites that are transmitting music files and, therefore, are potential licensees.
ASCAP's licensing team is continually meeting with industry groups, including the Digital Media Association (DiMA) and operators of the major music-using Web sites, to discuss the issues and, perhaps, an industry-wide license agreement, just as we have industry-wide agreements with other user groups.
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The important message is that the free marketplace is working exactly as it should. Our experience reflects the ability of reasonable people to work out negotiated solutions to difficult problems. Compulsory license legislation is neither necessary nor desirable. The marketplace works.
Thank you, Mr. Chairman.
My name is Dean Kay. I am a member of the Board of Directors of ASCAPthe American Society of Composers, Authors and Publishers. I am proud to say that I am both a songwriter and a music publisher. Some of you may have heard of one of my songs, ''That's Life,'' which was an enormous hit and signature song for Frank Sinatra. I have been in the music publishing business for over 25 years. I served as COO of the Lawrence Welk Music Group, a major independent company, then as President of the U.S. division of the PolyGram International Publishing Group. I am now President and CEO of my own company, Demi Music Corp., and its affiliated music publishers, including Lichelle Music Company.
Mr. Chairman, let me begin by telling you how very much ASCAP's almost 100,000 songwriter and music publisher members appreciate this Subcommittee's sensitivity to and understanding of copyright concerns. Time and again, your Subcommittee, including members on both sides of the aisle, has shown how its expertise in copyright, developed over many years, has so well served our nation and our copyright community. In, for example, the enactment of the Sonny Bono Copyright Term Extension Act and the Digital Millennium Copyright Act, your hard work Mr. Chairman, that of the ranking minority member, Mr. Berman, and that of all your colleagues, has done great good. We in the copyright community rest easy knowing that, because this Subcommittee has jurisdiction over our concerns, we will get a full and fair hearing.
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Now, Mr. Chairman, to the subject at hand. For the past eight years, I have immersed myself in the workings of computers and the Internet in an effort to understand how these new technologies interact with music. It has been my intention to use my extensive experience in the music industry to create a bridge between the industry's past and its future. On behalf of the talented songwriters and recording artists with whom I work, I have spoken at many events and consulted with those who are leading the way in the use of new technology to enhance the opportunities available to all in the music business.
I have been a member of ASCAP's Board of Directors since 1989 and I am currently Chairman of the ASCAP Board's New Technologies Committee. I welcome the opportunity to speak with you today about ASCAP and its successful efforts to license Internet performances of its members' vast repertory of copyrighted musical works.
First, let me give you some information about ASCAP. As I am sure most of you know, ASCAP is one of three performing rights licensing organizations in the United States, the two others being Broadcast Music, Inc. and SESAC, Inc. Today, ASCAP has almost 100,000 writer and publisher members and a repertory in excess of 4 million copyrighted works. ASCAP licenses, on their behalf, the nondramatic performing rights in their music.
The ASCAP repertory also includes the works of thousands of foreign composers and songwriters, members of foreign performing rights organizations with which ASCAP is affiliated. Last year, ASCAP collected over 560 million dollars in license fees (including more than 137 million from abroad) and distributed more than 85% of that sum to its members (and foreign societies) as royalties. You should know, Mr. Chairman, that we collect from abroad about four times what we pay out to our foreign colleagues. That is because American music is an export product. Indeed, if our nation's overall balance of payments mirrored that in musical performing rights, we would have a huge trade surplus rather than a deficit.
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The right of public performance, granted to copyright owners by Section 106(4) of the Copyright Law, is one of the most important of all the copyright rights. It is the largest single source of income for songwriters, most of whom are not performers and do not benefit from concerts and recording contracts. From the time ASCAP was founded in 1914 by the leading songwriters, composers and music publishers of that era, including Victor Herbert, John Philip Sousa, Irving Berlin and Jerome Kern, our main objective has been to find those who are performing music publicly and to offer them licenses, at reasonable and fair fees, to perform our members' music. Our principal licensing tool is the blanket licensea license to perform any or all of the works in the ASCAP repertory for which the user pays a license fee calculated on a mutually agreed upon basis.
One constant in our business has been technological change. With the advent of radio and commercial phonograph recordings in the 1920's, then background music services in the 1930's, television in the 1940's, cable and satellite television in the 1960's and 1970's, and now the Internet, ASCAP has faced the challenge of licensing new and ever-expanding industries which rely on musicthe ''raw material'' that we create and ownas a principal source of entertainment to generate their revenues. When each new technology using copyrighted music developed, there was, of course, a period of marketplace give and take before the parties ultimately and inevitably reached a settled and mutually acceptable licensing regime.
I would be less than candid if I told you that all music users obey the Copyright Law or even cheerfully pay license fees for the property they use. Songwriters and publishers have been forced to fight courtroom battles with the background music, radio, television and cable industries, among others. While this has not been the course that we wished to follow, this history has produced a framework within which most license fees are negotiated between ASCAP and representatives of user industries, or sometimes determined by a federal court. This model for license fee dispute resolution is established by a consent decree, the Amended Final Judgment entered in United States v. ASCAP. Under the ASCAP Consent Decree, any user may obtain a license to perform the works in the ASCAP repertory merely by written request to ASCAP, and ASCAP can never say ''no,'' as long as the user is willing to pay a reasonable license fee. If ASCAP and the user cannot agree on a license fee, the user may apply to the court for a determination of a reasonable license fee.
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The fact is that each new technology using copyrighted music has presented not merely challenges, but opportunities both for those who developed the technology and those whose copyrighted property made the technology profitable. We must always keep in mind that, without the music which my writer and publisher colleagues at ASCAP create and own, and without all the other creative works such as movies, sporting events, computer programs, and books, technological marvels would be empty and unprofitable shells. Our creativity, our property, fuels their engines. The publicthe audiencewants to enjoy what we create. When a technological development comes along which can provide our works to the public in a new way, we applaud it, and we want it to grow and prosper. Please understand that, the last thing in the world that we want is to shut down new uses of music; to the contrary, from our perspective, the more music that is performed for the public, the better. We simply want to be paid a fair fee for the use of our musical property, because, after all, our creative property is what makes these new technologies succeed. Therefore, we must all prosper, or none of us will.
Let me now turn to ASCAP and the Internet. In 1995, ASCAP set out to license the performances of our members' music in that new and evolving medium. We did so by creating a Department of New Media and Technology and formulating an Experimental License Agreement for Internet Sites on the World Wide Web. In its earliest form, the ASCAP Web Site License was a blanket license, granting the operator of a Web site that employed music access to the entire ASCAP repertory. The fee for the license was calculated as a small percentage of either revenues or operating expenses. In addition, for Web sites that could track and account for their transmissions of music, or ASCAP music, there were alternative fee rates that could result in reduced license fees.
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As I have said, ASCAP began its efforts to license Internet performances of its members' music in 1995. By the end of 1997, we had only 125 Web sites licensed. But by December, 1999, the number of licensed Web sites had grown to over 1500. These include some of the largest entertainment Web sites, as well as the most popular aggregators of streamed music sites. Last year, for the first time, collections from Internet licensees reached almost one million dollars. And, importantly, ASCAP is the only performing rights society in the world that makes regular distributions of royalties to its members for Internet performances.
This past December, ASCAP began offering a new form of license agreement for Web site operators. Based on comments from many licensees and prospective licensees, we made a major modification in the new license, eliminating the operating expense-based fee calculation and replacing it with a fee that is based on Web site traffic. The new license also provides for simplified music use reporting, which we use in distributing royalties to our writer and publisher members for Internet performances of their music.
As part of our licensing efforts, ASCAP sought early on to make use of the new technologies. For example, the Web Site License was made available on the ASCAP Web site, www.ascap.com, where the potential licensee can also find ''ASCAP RateCalc,'' an on-line, interactive program that calculates the license fee based on information provided by the licensee. In addition, we employ ''ASCAP EZ-Eagle,'' a program that searches the Internet for Web sites that are transmitting music files and, therefore, are potential licensees.
The important message from these facts is that the free marketplace is working exactly as it should. ASCAP's licensing team, many of whom are with me today, is meeting continually with industry groups, including the Digital Media Association, and the operators of major music-using Web sites to discuss the issues and, perhaps, an industrywide license agreement, just as we have industrywide agreements with other user groups. We've had what we believe are some promising meetings with DiMA, and we hope they share our desire to continue in that vein.
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In addition, many Web site operators, including radio stations and the bulk of the country's commercial television broadcasters, have requested ASCAP licenses for their Internet performances. We will use our best efforts to agree on license fees for these uses; if we and they cannot agree, the court will set reasonable fees under the consent decree. ASCAP has also entered into a number of partnership arrangements with leading players in the Internet world, designed to benefit our members by increasing exposure to their music and providing them with reciprocal services such as advertising and web pages.
What lies ahead both for the near term and the future for ASCAP's members and the Internet? Certainly, we watch with great interest and some trepidation the battles being fought today between our colleagues in the record and motion picture industries and their adversaries. These are the types of growing pains with which we are familiar from our own past experience which I mentioned earlier. But, more importantly, our experience reflects the ability of reasonable people to work out negotiated solutions to difficult business problems. Compulsory license legislation is neither necessary nor desirable. The marketplace works.
ASCAP's Board of Directors, its management and its members do not fear the new technologywe welcome the challenges it brings to us as the world's leading performing rights organization, to continue our efforts to protect the rights of creators and to ensure that they are fairly compensated for the use of their copyrighted works, and to benefit the public by ensuring the availability of the world's greatest music.
Let me conclude my remarks, Mr. Chairman and members of the Committee, by urging you to proceed with caution in considering whether to enact more legislation with respect to Copyright and the Internet. Certainly from the point of view of creators and copyright owners, I believe that in this arena, which changes from minute to minute, less is more. I remain confident that, as has been ASCAP's experience in the past, reasonable men and women can agree in the free market, a free market which is at the very core of America's values, on arrangements that will produce fair prices for valuable propertyfair license fees for performances of copyrighted music on the Internet.
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Mr. GOODLATTE. Mr. Moore, I welcome you. I am going to have toI was going to use the words ''slip out'', but I don't like to use those words anymore. So if you will excuse me, I have to go testify before the Commerce Committee on my Internet gambling legislation. I am going to ask Congressman Pease to take over the chair while I do, as gracefully as possible, exit.
STATEMENT OF CHARLES P. MOORE, VICE PRESIDENT, BUSINESS DEVELOPMENT RADIOAMP.COM
Mr. MOORE. Thank you, Mr. Goodlatte. My name is Charlie Moore. I am the vice president of business development at company called Radioactive Media Partners or RadioAMP as we are better known. We are a Cambridge, Massachusetts based company that provides innovative audio streaming solutions to Internet portals, online retailers, and media companies. We create what has been commonly called private label radio.
RadioAMP was founded in mid-1999, and I am proud to say that since then, we have developed radio programs that reach up to 30 million people each month through partnerships that we have established with such well-regarded companies as Barnes & Noble.com, NBCI, Altavista, and CD Now. We have also created dozens of jobs in Massachusetts with many more to come. We have developed exciting new technologies that we are only beginning to deploy, and perhaps most importantly, we have stimulated sales of recorded music, generating royalty payments to song writers, music publishers, record producers, and performing artists.
I am glad to be able to speak with you today on behalf of my company and the Digital Media Association, also known as DiMA and DiMA's 54 member companies. John Potter, DiMA's executive director, spoke with you about Internet video earlier, and my role is to report to you on the progress of Internet music since the 1998 enactment of the DMCA, particularly the provisions that require sound recording companies to make their music available to Internet radio firms like RadioAMP.
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I am pleased to report that the music-related compulsory and statutory licenses which essentially require recording and music publishing companies to make their works available to Internet broadcasters have worked very well. They benefit all participants in the music value chain, artists and recording companies as well as Internet music companies. Using the music and sound recording made through these licenses, RadioAMP and our DiMA member colleagues produce exciting Web radio programs and create new markets for music that is not otherwise heard on traditional radio and is rarely available for sale through brick and mortar record stores.
Internet webcasts are driving sales of recorded music. This conclusion is supported by DiMA research released this morning which documents a poll of more than 4,000 online consumers. The research found that 48 percent of online listeners seek out music on the Internet that they cannot hear regularly on traditional radio. More than 40 percent of online music listeners have purchased music online that they first heard online, and almost 60 percent of online music listeners have purchased music off line that they first heard online. Additionally, nearly 80 percent of consumers say that they would purchase more music if they could get artist and album information as the song is being performed, which is always the case with Internet radio.
As outlined in my written testimony, there are a number of reasons why Internet radio creates new markets. First is the overmigration of broadcast radio to standardized programming formats that focus on the broadest possible markets with the best demographics. The result is that many popular niche formats such as jazz, folk, or reggae are rarely if ever heard in most media markets. By filling this void, Internet radio supports the discovery of new music for consumers.
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Second, Internet radio informs consumers about the music they are hearing. Our service, along with most other Internet radio services, provides consumers with the name of the song, the artist, and the title of the CD while they are listening.
Third, Internet radio makes buying music easy. Most Internet radio services include a buy link that takes a consumer straight to a retail partner that can process an order for the CD they are listening to right then and there, dramatically shrinking the gap that most of us consumers experience between hearing new music and buying it.
It is important to note that PCs are beginning to look like radios, and radios are beginning to look more and more like PCs. So the distinctions that we can now draw between these devices and the type of signal they can receive goes away, becomes transparent to the consumer. That is why we think it is critical to maintain an even playing field.
To summarize, the existing music-related compulsory and statutory licenses generally work. They work to the benefit all of participants in the music industry value chain. As a result, RadioAMP and our DiMA member colleagues are achieving the goal of bringing enjoyment to consumers and new sources of revenue to the creative community.
Thank you very much.
Mr. PEASE. Thank you, Mr. Moore.
[The prepared statement of Mr. Moore follows:]
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PREPARED STATEMENT OF CHARLES P. MOORE, VICE PRESIDENT, BUSINESS DEVELOPMENT RADIOAMP.COM
Mr. Chairman and Members of the Subcommittee, I am Charlie Moore, Vice President for Business Development of Radioactive Media Partners, a small company in Cambridge, Massachusetts that provides innovative audio solutions to Internet portals, online retailers and media companies. RadioAMP, as we are known, was founded in mid-1999, and I am proud to say that in the ensuing year we have established significant partnerships with such well-regarded companies as Alta Vista, barnesandnoble.com, NBCi, and CDNow.
I am pleased to speak with you today on behalf of the Digital Media Association (DiMA). DiMA's 54 member companies develop and deploy digital technologies to perform, market, sell and protect audio and audiovisual content over the Internet and other digital networks. DiMA's members include prominent public companies such as RealNetworks, EMusic, Liquid Audio, CMGI and LAUNCH Media, as well as startups and well-funded private companies, including Listen.com, TuneTo.com, iGroove.com, and RadioWave.com. As leaders in the performance and delivery of Internet music, DiMA members affirm our commitment to engage in legitimate businesses that create a compelling experience for the public while compensating artists and producers for the use of their creative works.
In today's testimony I have been asked to report to the subcommittee on progress in Internet music since the 1998 enactment of the Digital Millenium Copyright Act (''DMCA''). In particular, I would like to share with the subcommittee the benefits realized by webcasters as a result of the sound recording performance license that was included in the DMCA, as well as the broader benefits of music-related compulsory licenses to consumers and creators.
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To summarize, the existing music-related compulsory and statutory licenses generally work. Notwithstanding DiMA members' concerns regarding certain aspects of the licenses and the relevant antitrust consent decrees, and regarding specific provisions of the Copyright Act that apply to webcasters and competing entertainment program services, compulsory licenses benefit all participants in the music industry value chain by enabling companies like RadioAMP to create and bring to the marketplace innovative legal ways of delivering and selling music to consumers.
Background. As members of the subcommittee know, the right to publicly perform musical works has generally been subject to compulsoryor requiredlicensing for decades. The original compulsory licenses resulted from antitrust consent decrees entered into by the U.S. Department of Justice and, respectively, the American Society of Composers, Authors and Publishers (''ASCAP'') and Broadcast Music, Inc. (''BMI''). More recently, Congress granted to sound recording producers the right to be paid for public performances of sound recordings by digital means, but also subjected that right to compulsory licensing with regard to traditional broadcast-like Internet radio services.
We at RadioAMP, along with many DiMA member webcasters, have relied on these compulsory licenses to publicly perform music and sound recordings. Pursuant to the respective consent decrees and the relevant provisions of the Digital Millennium Copyright Act, RadioAMP lawfully performs musical works and sound recordings through the Internet radio services that we develop and provide to our partners. We have leveraged these licenses into web radio solutions that have the potential to reach over 30 million unique visitors to our client sties, each month. We have created dozens of jobs in Massachusetts (with many more to come), developed exciting new technologies that we are only beginning to deploy, andperhaps most importantly for my recording industry friendsstimulated sales of recorded music that generate royalty payments to songwriters, music publishers, record producers and performing artists.
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As this subcommittee reviews the music marketplace that Congress and the courts have helped create, and whether the appropriate balance has been struck between consumers and creators, my small business from Massachusetts offers the following points for your consideration:
1. Without the existing compulsory licenses RadioAMP and most other webcasting services might not exist.
2. Without compulsory licenses Americans' exposure to and love of music would, over time, be muted and suppressed
3. Without compulsory licenses the alternative poorly-financed artists and musical genres that are occasionally heard in the broadcast spectrum, but available broadly over Internet radio services, might never be heard from.
4. Without compulsory licenses consumers worldwide would have very limited legal opportunity to satisfy their music demand using the Internet, and would instead satisfy their music curiosity and ultimately their purchasing with illegal music services.
Absent compulsory licenses RadioAMP would not exist. When RadioAMP meets with prospective investors and clients, they ask the same two questions: do we have lawful access to the sound recordings that comprise our programming; and if the answer is ''yes'', do we know how much that access to music costs, or otherwise how to price our products and services.
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Because of the compulsory licenses discussed previously the answer to the first question is an unambiguous '' yes.'' RadioAMP is fully licensed to utilize sound recordings to build webcasting services within the confines of the DMCA strictures. Without the existing compulsory licenses RadioAMP and other webcasters would spend months or perhaps years negotiating content licenses with record labels and music publishers. The administration and transaction costs alone would absorb much of our financing and creative energy, and the delay and uncertainty of whether the licenses would be renewed would inhibit our ability to succeed at all.
Unfortunately the answer to the second questionhow much do our music licenses costremains uncertain. As you may know, the DMCA contemplates binding arbitration to set a royalty rate if the parties or industries cannot negotiate an agreement. At this time RadioAMP and most of the webcasting industry are awaiting the beginning of that arbitration, and we are anxiously awaiting the final result that will provide some definition as to our operating costs into the future. Similarly the antitrust consent decrees that affect ASCAP and BMI licenses are difficult to negotiate and often lead to rate litigation, but these uncertainties are acceptable to our company and our investors.
Compulsory Licenses Benefit Consumers. As members of this subcommittee know, broadcast radiofor rational economic reasonshas for many years been abandoning programming formats that do not reach the broadest audiences with the most economically favorable demographics. An unfortunate result has been a diminution in the amount of non-mainstream music programming on broadcast radio, such as jazz, classical, blues, bluegrass and folk music.
Page 164 PREV PAGE TOP OF DOC For webcasters and music lovers, however, radio's limitations create our opportunity. Internet radio reaches a nationwide niche audience for virtually any genre of music. But this opportunity would be severely inhibited without the compulsory licenses referenced above. How would a start-up webcaster with minimal financial capital negotiate licenses with hundreds of jazz labels whose music is necessary to satisfy jazz-lovers' eclectic tastes? With compulsory licenses those administrative hassles are not necessary.
Equally important, compulsory licenses assure any competitor the right to get in the game. With compulsory licensing, the Internet is teeming with start-up companies and entrepreneurial businessmen and women who turn their passions and dreams into viable businesses. Without compulsory licensing, licenses might be more selectively awarded only to major media outlets, or to entities vertically integrated with the owners of the copyrighted music content. Compulsory licensing levels the playing field, so that everyone can compete.
Compulsory Licenses Benefit Creators and Copyright Owners. As I noted previously, Internet radio exposes many more artists and musical genres to the public than broadcast radio. In addition, and in contrast to traditional radio which has limited capacity to inform consumers, virtually every music webcaster includes artist and album information as a song is performed, provides hyperlinks to at least one site with information about the artist and album, and includes a ''buy'' button on the screen that leads directly to a legitimate purchase opportunity for the listener. These capabilities of Internet webcasting provide obvious benefits to the recording industry and performing artists. By enabling the public to conveniently learn about the music and buy it with a click of the mouse, Internet music services are turning Internet users into music consumers.
Page 165 PREV PAGE TOP OF DOC Although the conclusion is intuitive and the statement axiomatic, permit me to share with this subcommittee the results of empirical consumer researcha poll of more than 4,000 online consumers: Internet webcasts drive sales of recorded music, and thereby put money in the pockets of creators and copyright owners even absent the payment of performance licenses. As DiMA research released this morning documents:
48% of online music consumers seek out music they cannot hear regularly on traditional radio;
More than 40% of online music consumers have purchased music online that they first heard online; and almost 60% of online music consumers have purchased music offline that they first heard online;
One third of online music consumers say they are more likely to purchase CDs in stores if they have heard it performed online;
Nearly 80% of consumers would purchase more music if they could get artist and album information as the song is performed, which is always the case with Internet radio.
One Request for Assistance. Perhaps the Congress can, directly or indirectly, assist small businesses in this industry in one vexing part of compulsory licenses. While the DMCA sets forth reasonable timetables, e.g., 180 days, for ratemaking proceedings to conclude once underway, the ASCAP and BMI consent decrees offer no such deadlines. The ASCAP rate court has been known to require many years of process before reaching trial courtjudgments, and this is the very uncertainty that undermines the otherwise reasonable certainty offered by compulsory licenses. If the Congress can see fit to impose a reasonable time deadline on the proceedings of the ASCAP or BMI rate court (and I am not a lawyer so I do not have a specific suggestion), this would enhance both the music industry and our industry even more.
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Compulsory Licenses Enable Legitimate Entities. As we know, the broad scale of the Internet presents challenges for enforcement of copyright. In many nations the copyright laws or their enforcement are less rigorous than in the United States. Even within the United States, absent compulsory licensing our strong laws and effective legal systems would be like a finger in the dike against a flood of unlicensed music. Without legitimate Internet music supported by compulsory licenses, there would be a massive opportunity for unlicensed music programmers to grab consumers' attention and permanently capture significant market share. This would harm creators, and also legitimate programmers and retailers such as RadioAMP and our DiMA colleagues.
Our goal is to bring the music to the peoplehow they want it, when they want it, and where they want itand to couple it with song and artist information and community and the opportunity to buy or lease or license so that creators are compensated fairly and incentivized to continue their creative efforts. Compulsory licensing has enabled us to achieve all of these goals, bringing enjoyment to the public and new sources of revenue to the creative community.
As this Subcommittee and the Congress generally look at Internet music, we at RadioAMP and our colleagues in DiMA hope that you reflect what we believe are the mutually beneficial goals of artists and consumers, and those of us who enable both groups to attain those goals.
Thank you very much.
Page 167 PREV PAGE TOP OF DOC Mr. PEASE. Mr. Purcell.
STATEMENT OF SCOTT PURCELL, PRESIDENT AND CEO, FOUNDER, WWW.COM
Mr. PURCELL. Mr. Chairman, thank you for the opportunity to be here today and the opportunity to testify. I am hear to tell you that the system that Congress had the foresight to enact in 1998 has worked well for my company, and in particular, I would like to cover four points today: a little bit about who we are, the revenue model that we in the Internet broadcasting industry share, about our discussion and agreement with the RIAA, and a touch on the competition.
Quickly, about who WWW.COM is, we were founded in October 1998 as a broadcast company. Previous to that, I had built one of the largest privately held ISPs in the country, but rather than continue giving people a way to get online, I wanted to give them a reason to be online, and with that passion, I moved into a content company.
Thus far, we have raised $45 million in venture funding. We have hired over 115 music-loving employees. ASP focus, the Web should have music everywhere, and our job is to be an application service provider and make that available for otherfor audiences of other Web sites in the same way that related competitors in the Internet does, like critical path with e-mail or Map Quest with mapping software.
We have several offices around the world. As a matter of fact, one of our endeavors is to be global. We have a joint venture in Europe with Carlton, PLC, next to the BBC is the largest communications company, or media company in U.K. Also joining that is TF1 in France, and joining that are other media companies across Europe. We are exploring and entering into other ventures in India, Australia, and Asia and other places. So we are very much a U.S. company, but we are expanding globally and taking what is the best in the United States and bringing it into other cultures and countries, and then adopting to their music, bringing it back here for U.S. audiences as well.
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Why people use us, we have a great technology infrastructure. We have all the licensing. We are legal. People are not likely to, from a legal point of view, be sued or have injunctions served on them the same from a moral and ethical point of view. They are not stealing. Every time we play a song, we pay a royalty on it to every single person that listens to it. We have live customer service. We have in-stream audio ads and a variety of other things that make it compelling for a lot of different people to work with us.
Who is listening? The webcasting market is very large. Today, it stands at about 31 million people listening to radio via the Internet. That is projected to grow to 118 million over the next few years. These people are generally college educated. They earn money. They are good consumers, and they are right on the bubble of what is a perfect market for not just the recording industry, but all people who utilize our services, advertisers and things like that.
In fact, talking about the commerce model there is a lot of talk about e-commerce. We drive CD sales, as we probably do computer sales. We drive all kinds of sales. So what? It is a misplaced model.
Where do we make our money? We make our money, yeah, a little bit on e-commerce. But it is very overrated. When somebody buys a CD through our site, we get a small piece of it. It is not enough to run a business on by any stretch of the imagination. Subscriptions can you want commercial-free radio, you can pay us a monthly fee and receive commercial-free radio.
And audio ads, an audio adevery 20 minutes, an audio ad comes up and plays, and we sell those at varying prices to advertisers, and, in fact, along with the gentleman from the NAB, we too give a lot of our ad inventory away to charities on any given day. For instance, right now we are doing a lot with the Make a Wish Foundation, and you will continue to hear public service announcements across our network as well.
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And sponsorships, right there, we have a windows media, sell those to Coca-Cola and anybody else that wants to place a sponsorship on a page, and banner ads. And, in fact, we even have a zero ad model available for our ASP clients that is beyond the subscriptions where they actually do some programming themselves. So that is an overview of whoI Am trying to stay on timeof what we are and what the revenue model is, not just for WWW.COM, but, in fact, what the revenue model is for industry and what we are creating.
In approaching this business and building it, for a lot of reasons I wanted to make sure that we were legal and compliant across the board, morally and ethically. People should be paid for the product that we build businesses on. In the same way that auto manufacturers have to pay cost to goods sold for metal and parts and things like that or a book retailer has to pay for their books, we have to pay the cost to goods sold.
We wanted to be legal out of the gate. Congress passed the DMCA. We did not want to stand up and say, no, we are not going to do that, so we entered into discussions with the RIAA. Those discussions were as difficult as any business negotiation is, but we found them to be a very good group of people who had a driving interest to see a deal get done, not prevent a deal, and we are business oriented, and at the end of the day, we approved and agreement that worked well for my company, and by well, I mean math, accounting, so that we could create a profitable business model around it and yet fairly compensated the artists, the labels, the copyright holders on whose works we are building a large worldwide profitable business.
So those agreements were reached, and we have moved forward without any form of uncertainty in our business model, which for our customers and our investors is very, very positive.
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That builds into competition. I stand here as one of the people who are in compliance with the industry and with the act which was passed in 1998. There are a lot of people that aren't, and there are a lot of people who argue that they shouldn't be, they should be free because we make CD sales happen, so we should be able to build a multibillion dollar business with 50 percent gross margins on the backs of somebody and not pay them anything because they are going to sell MP3s or they are going to sell some CDs.
I stand here competing with these people, and that makes it difficult. So there needs to be clarity here for all of our business models to be on an economic level playing field, at least in terms of what our costs of doing business are and the certainty in the future, and upon this we are buildingwe are revolutionizing an industry, and we are going to build a very large, thriving, growing business.
Mr. PEASE. Thank you, Mr. Purcell.
[The prepared statement of Mr. Purcell follows:]
PREPARED STATEMENT OF SCOTT PURCELL, PRESIDENT AND CEO, FOUNDER, WWW.COM
Chairman Coble, Ranking Member Berman, and Members of the Subcommittee, I am Scott Purcell, President, CEO and founder of WWW.COM. WWW.COM is the world's largest Internet webcast network and is the number two webcasting site worldwide.
Thank you for giving me the opportunity to testify today. I am here to tell you that the system for webcaster licensing that Congress had the foresight to enact in 1998 has worked well for my company. I would like to begin, Mr. Chairman, by telling you and the Members of the Subcommittee about me and my business. Then I would like to describe the process by which WWW.COM entered into a webcasting license agreement with the Recording Industry Association of America.
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I have been in the Internet industry since the inception of the browser. In 1994, I founded Epoch Internet and had the good fortune to build it into the largest privately-held Internet service provider in the country. I left Epoch in 1999 to start WWW.COM with twelve million dollars in venture capital. WWW.COM is located in Los Angeles and San Francisco and plans to open offices in Miami, New York and Nashville, as well as in Europe and Asia.
I started this business because I love music, think it should be available anytime, anywhere and want to give people a reason to be online. Webcasting is the means by which I've made this vision possible. Webcasting involves the use of cutting edge technology and software, but in its essence is simply the transmission of music entertainment over the Internet so that listeners can tune in with readily-available players. WWW.com delivers stereo-quality music to about three million people each month. We have more than 200 stations categorized by every imaginable music genre featuring recordings from our 350,000 plus song library.
WWW.COM webcasts music to individuals who visit our Web site directly, as well as through other Web sites through syndication agreements. Indeed, our company enjoys the unique position of being the music industry's first and largest business-to-business (''B2B'') webcast network. Our products enable e-tailers, media companies, web portals, and other online properties to integrate music entertainment, e-commerce, and banner and audio advertising services into their site's core product offering.
To bring this all down to earth, an example may be helpful. One of our clients is Cool.com. Cool.com is a community or portal site that offers visitors a wide range of entertainment and information. Cool.com's Web site includes a feature that permits its audience to choose to listen to music while they explore the site. This music entertainment is seamlessly delivered to Cool.com's audience by our webcasting service.
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Our business and its success are clearly built on the use of the sound recordings created by recording artists and record companies. An important part, therefore, of WWW.COM's corporate culture is our respect for the creators whose works make our business possible. We think it is important that recording artists and record companies receive a fair return for the investment they make in producing the music we all enjoy every day. For that reason, I am proud to say that we were one of the first in the webcast industry to sign a webcasting license agreement with the RIAA on behalf of the thousands of sound recording copyright owners it represents.
Not only does our agreement with the RIAA represent our commitment to the rights of artists, but it makes good business sense and represents what I think is an ideal, market-based solution. Make no mistake about itour negotiations with the RIAA were as tough as any marketplace negotiations. But the negotiations provided us the opportunity to craft a license agreement that recognized the unique nature of our business and surrounding circumstances. The RIAA had a clear understanding of our business and the issues we face, and worked in a cooperative way to accommodate our needs. Our negotiated agreement also permitted us to minimize risk and obtain certainty for our business in what has become, more than ever, a competitive, fast paced industry.
The result was an agreement that marked the beginning of what I hope will be a longstanding mutually beneficial business relationship. To me, it demonstrates that webcasters can build profitable businesses while rewarding those who make their business possible. I recommend that others follow our lead.
Page 173 PREV PAGE TOP OF DOC In sum, I want to convey to you, Mr. Chairman and the Members of this Subcommittee, that in the ever-changing online business world, market-based solutions such as our licensing agreement with the RIAA play an essential role in our success. Again, Mr. Chairman, thank you for this opportunity to share my experience and thoughts with you and this Subcommittee.
Mr. PEASE. As members of the committee are aware, Mr. Conyers of Michigan was here earlier but had to leave and has left a statement, and without objection his statement will be entered in the record.
[The prepared statement of Mr. Conyers follows:]
PREPARED STATEMENT OF HON. JOHN CONYERS, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
We are here today because some webcasters want the government to intervene into the private marketplace, and order copyright holders to sell them their products at fixed rates. That type of government regulation known as a compulsory licenseis anathema to copyright law, and is given only in the rarest of circumstances when marketplace failure is clear.
No one cherishes the growth of the web more than this Committee or this member. No one sees the democratizing opportunities of more channels for more content more clearly. But the phenomenon of the web is not a license to take someone else's property which a compulsory license for ''over-the-air'' TV signals surely would be.
Intellectual property is property just like someone's real property. Even more important, according to some, because the creativity it unleashes enriches so many lives.
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Government regulation of intellectual property occurs almost never. In the 1970s, the cable industry was able to get a compulsory license for ''over the air'' signals only because it was a fledgling industry. In the 1980s the license was extended to the nascent satellite industry so as to set ground rules to protect against unfair duplicative distant network signals. Neither rationale exists for webcasting today. And both industries were required to adopt a series of government imposed regulationssuch as must carry and educational broadcastingin return.
The situation before us today is completely different. Internet companies may be new, but they are not struggling. They say they are competing against cable, satellite, and broadcasters, but it's the Internet companies that bring in billions from venture capitalists, advertisers, and the stock market. People are climbing all over themselves to invest in the Internet; getting in on an IPO for a high-tech company is the ultimate investment dream. In fact, one of the biggest Internet companies, AOL, was worth $160 billion, and that's before it agreed to buy Time Warner. Together, they're worth $350 billion. Another, Yahoo, is worth $90 billion. Clearly, these companies can buy the content they want, just as AOL bought Time Warner.
In any event, there's no evidence the free market is not working. If the Internet companies want content, they should negotiate for it the same way NBC negotiates for television shows or Ford negotiates for steel. And even if we did give Internet companies a license, we'd have to be certain we didn't let them copy the content they were rebroadcasting, or they'd have even more rights than cable and satellite do.
We're often asked not to regulate Internet companies, to lot the market drive them. But now we're being asked to take someone else's private property for the benefit of those same companies. It can't go both ways: less regulation when it hurts, but more regulation when it helps. Giving Internet companies a compulsory license would be like the government storming someone's house and turning it into a hotel. Both involve the government requiring people to give up their property to everybody else, and I would oppose them both.
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Mr. PEASE. Thank you to all of the members of the panel for your presentations, and for your written statements which are a part of the record, and for your willingness to respond to questions, and we begin with our colleague, Mr. Boucher of Virginia.
Mr. BOUCHER. Thank you very much, Mr. Chairman, and thanks to these witnesses for their informative testimony this morning.
Mr. Fritts, I think that the Web offers to local television stations an enormous opportunity to place their locally-originated programming online and potentially dramatically expand the audience that they have for whatever they have locally created. I am wondering how many local TV stations have done that today, created a Web site where they have webcasting of their programs, and I am wondering to what extent most local television stations in their long-range business plans the creation of a webcasting component for their transmission.
All of this can be done today completely consistently with existing copyright laws, and it just strikes me as a really interesting opportunity for broadcasters. Maybe you could comment on the extent to which broadcasters agree.
Mr. FRITTS. Certainly, Mr. Boucher. I will comment to the extent that think I am knowledgeable about that. I think virtually every television station has a Web site, but I am not sure how many television stations, in fact, are streaming their programming at this point in time, even their local programming for which they hold the rights. As you know, when they purchase the licensing agreements or when they purchase the rights to a program, they generally purchase it for their immediate area, and therefore they don't have the right, because there is a different copyright holder, and they are just licensed that for that DMA or their immediate area. And so they don't have the rights to retransmit that on the Internet across the world because the rights belong to someone else.
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Mr. BOUCHER. But for locally-originated programming, they create themselves. They are the copyright owner.
Mr. FRITTS. That is correct.
Mr. BOUCHER. So they are able to put that programming on the Web without any copyright restriction, and my question really is directed to that practice. Maybe I have a little bit of a selfish motivation. I spend a whole lot of time on the road, and there is nothing I would like better than to be able to take my laptop computerwhich by the way is just like Mr. Purcell's over here. It is a great little piece of equipmentand be able to call up the local TV stations when I am in California or even in Europe and find out what the news is at home. It would be a terrific opportunity to actually see those broadcasts.
Well, I take it that the TV stations haven't undertaken that in large numbers today. I hope that will change.
Mr. FRITTS. Not to my knowledge, but I will certainly attempt to talk to some major groups and get back to you and find out what the current practices are.
Mr. BOUCHER. Okay. Ms. Rosen, similarly, it occurs to me that the Web offers an enormous distribution opportunity for recorded music, and it also occurs to me that perhaps the major labels are not taking full advantage of that at the present time, and I am just wondering to what extent that might change. In your presentation, you mentioned E-Music, which I am told does have a significant variety of recorded music on the site, but if you look at it in detail, what you basically see is older tracking, developing artists, things that might fall into the general classification of oddities. You don't really see the major labels putting their hits on the site, and they are not available for download.
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Now, GetMusic is another site that you mentioned, and that one is primarily limited to promotional kinds of materials. So you might be able to download one cut, but you don't have access to the whole album.
So my question to you is when does the time come when the major labels adopt an entirely new markets strategy utilizing the Web and realizing the really tremendous distribution funds that the Web makes available to you? I am making a speech here I guess. That wasn't my intent, but let me just add to it that I am afraid that if you don't do this, you are simply going to drive more and more of your customers to Napster. They can get the music there. They are not phasing for it. I will bet a lot of those people would be very willing to pay a reasonable price, maybe a dollar a song. I am not going to suggest the right place to you, but people would be willing to pay a reasonable price to be able to download a song from the Web and do it in a very straightforward and lawful way, and the best defense that you are going to have against Napster, in my opinion, is that new kind of market approach, utilizing the Web and making it your friend instead of seeing it as your enemy.
Ms. ROSEN. Your knowledge of the technology area is evident once again, Mr. Boucher. I completely agree with you, and virtually every one of the major record companies and many, many smaller companies are actively now developing their download business. In some respects, the Napster situation has made decisions like Universal Music's recent announcement where they were going to test with 150 songs. Now, they hope to get, you know, 5,000 online by September. So there is clearly a drive toward that. Obviously, the back room operations of some of these systems are quite complex, and there have been a lot of efforts associated with them, but I think we have to find the value quotient for the consumer, and we have to make them want the legitimate business.
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I absolutely agree. Litigation is not our business strategy. Litigation is simply a tool to try and facilitate the legitimate marketplace as it develops.
Mr. BOUCHER. Well, thank you. I hope we will see the major labels deciding that the time has come to put the real hits up on the Web and let people download those for a reasonable price.
Let me ask you one other question. I noted with interest in the Trade Press last week that some of the major labels, and my question is going to beis in all of them have entered into an agreement now with MP3.com to essentially sanction the practice of MP3.com of putting something like 80,000 recorded songs on a server and then making those songs available to people who can demonstrate that they independently own that particular recorded song. It is a way that people can get that song in a mobile way from the Web, not having to carry it with them everywhere they go.
It strikes me as a pretty interesting and legitimate business. I know that your industry was able to get an injunction that in the U.S. District CourtI think in New Yorkbecause the initial recording of those songs on server had occurred without the permission of the copyright owner. No doubt you were entitled to that relief, but I understand now that at least some of the labels have decided that this actually is a pretty good business proposition and a pretty good way to direct music and to benefit the customers who have actually purchased those recorded songs and have agreed to license this business practice to MP3.com.
Is that just some of the labels? It is all of the labels, and if it is just some of them today, do you think that the others are going to follow?
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Ms. ROSEN. Well, obviously I can't speak for individual companies doing licensing deals, but I think the central issue about MP3.com has been that this is not a pirate site of a pirate company. This is a company that created a new and innovative business practice. The only problem was that the use of the materials were not licensed. There are a significant number of other people who they do not have settlements with.
Dean might want to speak for publisher side of that, and there are a significant number of small independent companies who have filed claims against them, but I think the key thing here is that in the open marketplace, they can find a way to have licenses that bring innovative business models to consumers, and that is the goal for all of us.
Mr. BOUCHER. So it is moving in that direction.
Ms. ROSEN. I think it is absolutely there.
Mr. BOUCHER. And you see labels accepting at least this particular business practice as being legitimate pursuant to a license they would negotiate?
Ms. ROSEN. I would just say on the labels' behalf, MP3.com never sought licenses prior to launching the service, and that was really a key part of the issue. So they didn't have the opportunity to say yes in advance.
Mr. BOUCHER. Right. Thank you very much.
Page 180 PREV PAGE TOP OF DOC Thank you, Mr. Chairman.
Mr. PEASE. Thank you, Mr. Boucher.
Ms. Rosen, continuing on with Mr. Boucher's question, and I apologize to you for missing your oral testimony. So if I am going the ask you something you have already discussed, stop me and I will read the record.
RIAA's experience with Mr. Purcell, obviously, was eventually productive for both. Would you characterize that as a typical experience in dealing with webmasters? Is that an exception for your experience to date?
Ms. ROSEN. I think it is actually fairly typical experience. There are license agreements with many webcasters currently and many more in negotiation. When Congress set up this system, what it said was let us find a way to have relevant parties negotiate in the market place, and as a last resort, if they can't come to terms in the marketplace, go to an arbitration proceeding in at the copyright office. It looks like we may be headed toward an arbitration proceeding with a certain portion of the webcasting community, but I think that, frankly, there are enough deals in the marketplace that it is an awful goodit will be good guide posts for arbitrators as they look at the right setting for the other users.
Mr. PEASE. Of course, all this assumes that the webcasters are going to come to you to begin negotiations. How do you deal with those that don't?
Ms. ROSEN. Yes. This is a very important part here. People who are familiar with the copyright world of the music industry know that licensing is extraordinarily complex. It is not just only the sound recording side. On the song writer and publisher side, there are multiple organizations administering multiple rights so that there has been, I think, a lot of work that we have tried to do and outreach that we have tried to do and potentially others that have been as well in trying to educate people about how to weave their way through these systems.
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Mr. PEASE. Has there beenthat raises another question for mehas there been any discussion or is it even feasible to consider sort of a one-stop clearinghouse for all of the various licenses that will be necessary when you start up an Internet site, a cooperative venture among the various entities?
Ms. ROSEN. Yes. I have been a little bit out front on this issue in that I long have called for some collective action on the part of the music community. The issue is not so much on the sound recording side because RIAA has significant major members, but in this collective, we have run hundreds of independent record companies. So the sound recording side is actually pretty together. The music publisher and song writer side with different entities licensing different uses, I think it is a little more cumbersome, but clearly a one-stop shopping model in the future has some value.
Mr. PEASE. Thank you.
Mr. Fritts, many of the arguments you make regarding the need to protect local television stations stress concerns which, to my understanding, have not materialized with the large number of radio stations that are on the Internet now. How do you respond to that observation?
Mr. FRITTS. Help me out with a little more detail please, Mr. Pease.
Mr. PEASE. Well, let me give you an example. CBS owns Infinity, and it prohibits its shows to be simulcast over the Web. At least that is my understanding. First, is that accurate; and, secondly, if it is accurate, why the hesitation?
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Mr. FRITTS. Infinity is a radio company. They have numerous syndicated nationwide personality hosts that are very popular, and it is my understanding that Infinity does not stream their programming for that reason, because they want and they sell and have affiliates who carry those personalities in various markets. Don Imus is one. Howard Stern is one. There is a whole stable of nationally known featured programs that in addition to the Infinity stations that are carried by different radio stations all across the country on an affiliate basis, and if they were streamed, that would negate the opportunity to be able to sell those programs in those individual markets around the country.
Mr. PEASE. Okay. Thank you.
Well, I again want to thank all of the members of the panel and of the previous panel for being with us. This concludes the oversight hearing on copyrighted webcast programming on the Internet. The record will remain open for 1 week.
Thank you for your cooperation. The subcommittee stands adjourned.
[Whereupon, at 11:53 a.m., the subcommittee was adjourned.]
A P P E N D I X
Material Submitted for the Hearing Record
To: Subcommittee on Courts and Intellectual Property
From: The Recording Industry Association of America, Inc.
Re: RIAA Position on Broadcaster Liability for Internet Simulcasts of AM/FM Singals
To ensure that the Subcommittee's record is complete, RIAA submits this memorandum outlining its position on the Broadcaster AM/FM Webcast issue. In addition, we have attached a memorandum from Robert A. Gorman, Kenneth W. Gemmill Professor of Law at the University of Pennsylvania Law School, which analyzes the relevant statutes and their legislative history. This opinion was submitted with RIAA comments in the Copyright Office rulemaking on this issue.
RIAA submits this memo in response to the National Association of Broadcasters' (''NAB'') written testimony from the June 15 hearing on ''Copyrighted Webcast Programming on the Internet.'' Although participants were asked not to use that hearing as a forum to make arguments that are currently before the courts and the Copyright Office, the NAB submitted detailed arguments that it and other broadcasters have made in those proceedings.
I. SUMMARY OF POSITION
When Congress created the new digital performance right for sound recordings in 1995 DPRA, it sought to preserve the status quo for existing technologies, such as traditional local AM/FM broadcasts, but ensure that recording artists and record companies have rights in the new digital world. With the rise of Internet-based music services known as ''webcasters'' shortly thereafter, Congress had to revise the new right in the Digital Millenium Copyright Act of 1998 (''DMCA''). As the House Judiciary Committee explained:
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At the time the [DPRA] was crafted, Internet transmissions of music were not the focus of Congress' efforts. Thus, while the [DPRA] created a statutory license for certain subscription services that existed at the time, not enough was known about how nonsubscription music services would evolve on the Internet or in other digital media.(see footnote 11)
The DMCA made clear that these new Internet music services were subject to the digital performance right and eligible for a new statutory license addressing these services. Congress recognized the importance of protecting sound recording copyrights being used by these new Internet services. NAB apparently recognizes the importance of protecting its members' copyrighted works when they are used by new Internet services: its June 15 testimony rightfully complains about ICraveTV's plan to ''use broadcasters' copyrighted product'' by ''transmitting [it] throughout the world via the Internet.'' NAB Testimony at 3. NAB refuses to recognize, however, that the DMCA addresses this new ''use'' of copyrighted sound recordings on the Internet, and created rules to accommodate the interests of all parties involved through a new statutory license.
These new rules apply to all types of webcasters, and the DMCA even specifically provides that services that retransmit AM/FM broadcasts, such as Yahoo! Broadcast, are subject to the digital performance right. We believe the DMCA made clear that the same ground rules apply to everyone using sound recordings in the new Internet world. The new statutory license allows services to have access to sound recordings for their programming so long as they pay a reasonable, fair market rate and comply with certain conditions. This ensures a level playing field for all entrants in the new webcasting marketplace.
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Broadcasters, however, would like a competitive advantage in this marketplace, and argue that the exemption designed to preserve the status quo for traditional AM/FM broadcasts exempts themand them alonefor any activity in the new digital world, such as transmitting their local AM/FM signal over the Internet to listeners worldwide. It makes no sense that Congress would make the same transmission subject to the digital performance right when made by Yahoo! Broadcast but not when made by the broadcaster itself. Broadcaster AM/FM webcasts, like all other webcasts, are subject to the digital performance right and eligible for statutory licensing, and sound recording copyright owners should be fairly compensated for the use of their copyrighted works by all new Internet services, even those operated by broadcasters.
II. RESPONSE TO BROADCASTER TESTIMONY
In repeating its Copyright Office comments in its hearing testimony, NAB relies on an exemption from the digital performance right for a ''nonsubscription broadcast transmission.'' 17 U.S.C. §114(d)(1)(A). As Professor Gorman explains, the Section 114(d)(1)(A) exemption reflects Congress' intent to preserve the status quo for traditional, FCC-regulated over-the-air local broadcasts when those broadcasts switch to digital over-the-air format, which was anticipated but has not yet occurred widely. The NAB's arguments distort the text, structure, legislative history and purposes of the DPRA and DMCA, which were specifically intended to protect sound recording copyright owners in new digital environments like webcasting. There is no justification for extending an exemption that is rooted in traditional, FCC-regulated activity to the ''new entertainment medium'' of webcasting merely because the webcaster also happens to be a broadcaster.
Page 186 PREV PAGE TOP OF DOCA. The Legislative History Cited by the Broadcasters Confirms that the Section 114(d)(1)(A) Exemption is Limited To Their Traditional Over-the-Air Broadcasting.
The NAB testimony does not mention the legislative history that reflects Congress' two-fold objective in enacting DMCA:
First, to further a stated objective of Congress when it passed the [DPRA] to ensure that recording artists and record companies will be protected as new technologies affect the ways in which their creative works are used; and second, to create fair and efficient licensing mechanisms that address the complex issues facing copyright owners and copyright users as a result of the rapid growth of digital audio services.
H.R. Rep. No. 105796, at 79 (1998) (hereinafter ''DMCA Conference Report''); House Manager's Report at 49; see Gorman Memorandum at 1215, 31. Instead, the broadcasters point to bits of legislative history for the notion that Congress historically has treated broadcasters as special; thus, they argue, the broadcasters should be treated differently than all other webcasters. See NAB Testimony at 1112.Virtually all of that history, however, concerns legislation that predates the DMCA. As the House Judiciary Committee has recognized, Congress did not address Internet transmissions of sound recordings until it enacted the DMCA in 1998. See House Manager's Report at 50; see Gorman Memorandum at 13.
Furthermore, that legislative history consistently refers to broadcasters' ''traditional,'' ''historical,'' and ''local'' ''over-the-air'' activities, not to their future business opportunities over a new worldwide entertainment medium such as the Internet. For example:
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The House and Senate Reports accompanying the DPRA stated that the DPRA should not change the relationship between ' ''the recording and traditional broadcasting industries.' ''(see footnote 12)
The DPRA House Report justified the exemption for traditional broadcasts by noting that ''free, over-the-air broadcasts . . . provide a mix of entertainment and non-entertainment programming and other public interest activities to their local communities to fulfill a condition of the broadcaster's license.''(see footnote 13)
See also Gorman Memorandum at 3233 (citing DPRA legislative history that refers to the ''traditional'' broadcast industry). Thus, the very legislative history on which the broadcasters rely (as well as the legislative history they have overlooked) shows that Congress intended to exempt only the traditional over-the-air activities of broadcasters, and not every business venture in which the broadcasters decide to engage.
The only DMCA legislative history alluded to by the NAB testimony is a passage from the DMCA Conference Report, which states that deletion of two DPRA exemptions ''is not intended to affect the exemption for nonsubscription broadcast transmissions.'' NAB Testimony at 30; DMCA Conference Report at 80. As Professor Gorman explains, that legislative history supports the conclusion that AM/FM Webcasts are not exempt from the Section 106(6) digital performance right. See Gorman Memorandum at 2, 1516, 33 n.106In any event, the fact that AM/FM Webcasts must be treated like other webcasts does not ''affect the exemption for nonsubscription broadcast transmissions;'' that exemption will continue to apply to the broadcasters' traditional over-the-air business.
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B. The Broadcasters' ''Plain Language'' Argument Ignores The Plain Language Of Section 114(j)(3) Of The Copyright Act.
The NAB argues argue that the ''plain language'' of the Section 114(d)(1)(A) exemption shows that Congress intended to exempt worldwide digital transmission of local AM/FM Webcasts over the Internet. NAB's ''plain language'' argument overlooks several key terms that directly contradict its interpretation. Unlike Professor Gorman's analysis (see Gorman Memorandum at 2030), the broadcasters' ''plain language'' argument rewrites key provisions of the text, and thus avoids terms whose meaning the broadcasters cannot explain.
Section 114(d)(1)(A) exempts a ''nonsubscription broadcast transmission,'' as long as it is not part of an ''interactive service.'' 17 U.S.C. §114(d)(1)(A). A ''broadcast'' transmission is defined in Section 114(j)(3) of the Copyright Act as ''a transmission made by a terrestrial broadcast station licensed as such by the Federal Communications Commission.'' Id. §114(j)(2) (emphasis added). The broadcasters would like this definition to read ''any transmission made by an FCC-licensed broadcaster,'' but that is not what it says. They would like this definition to turn on the entity making the transmission, rather than the nature of the transmission. But that is not how the definition reads. Instead the definition contains key terms''terrestrial,'' ''broadcast station'' and ''licensed as such by the [FCC]''that the broadcasters fail to explain.
As Professor Gorman explains, these terms limit the application of the exemption to the traditional over-the-air signal of the broadcast station. See Gorman Memorandum at 2830. First, the transmission must be ''made by a terrestrial broadcast station,'' not any broadcast station. The use of the term ''terrestrial'' indicates an intent not to include nationwide transmission services like satellite. Gorman Memorandum at 29. If Congress had intended to provide an expansive definition of ''broadcast''especially one encompassing an entirely new entertainment medium like the Internetit would not have used a term associated with traditional over-the-air broadcasting like ''terrestrial.''
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Second, Congress specifically identified the entity that must make the transmission when it used the term ''broadcast station.'' It did not use ''broadcaster,'' ''licensee,'' or any other term referring to the corporate entity that holds an FCC license. ''Broadcast station'' is not defined in the Copyright Act, but it is defined in the Communications Act as a ''radio station equipped to engage in broadcasting as herein defined,'' 47 U.S.C. §153(5). A ''radio station'' is defined in the Communications Act as ''a station equipped to engage in radio communication or radio transmission of energy.'' Id. §153(35). Neither of these definitions includes transmission via computer networks like the Internet. See also Gorman Memorandum at 28 & n.90.
Finally, the Section 114(d)(1)(A) exemption does not apply to any ''terrestrial broadcast station.'' It applies only to terrestrial broadcast stations ''licensed as such by the [FCC].'' This limiting clause indicates that Congress wanted the definition to apply only to those activities within the FCC regulation of broadcast stations. See Gorman Memorandum at 29. The FCC licenses broadcast equipment and facilities that make radio transmissions, not computer equipment that makes Internet transmissions. If the broadcasters were correct that Congress was merely identifying those persons (i.e. broadcasters) who can avail themselves of the exemption, there is no need for the ''licensed as such'' language; Congress would have simply said ''a transmission made by an FCC-licensed broadcaster.''
C. The Broadcasters' Interpretation Contradicts Other Provisions Of The DPRA and DMCA And Leads To Absurd Results.
A ''cardinal rule'' of statutory construction is that statutes must be interpreted as a whole and each part must be viewed in light of its relation to the other provisions to produce a ''harmonious whole.'' Gorman Memorandum at 20, quoting 57 Fed. Reg. at 3292. Consistent with that ''cardinal rule,'' Professor Gorman considers how the competing interpretations of Section 114(d)(1)(A) fit with other provisions of the DPRA and DMCA and the statutory framework. For example:
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Professor Gorman notes that retransmissions of broadcast signals over the Internet are not exempt; he concludes that it would make no sense to subject retransmissions of a signal to liability while exempting transmissions of the very same signal.
Professor Gorman notes that webcasters are clearly subject to liability and that there is no evidence that Congress in the DMCA intended to exempt any particular category of webcaster.
Professor Gorman notes that several provisions in Section 114 evidence an intent to exempt only localized, and not worldwide, transmissions of broadcast stations; he concludes that exempting AM/FM Webcasts would be inconsistent with the Congressional intent underlying these provisions.
Professor Gorman notes that several provisions in Section 114 imply that a broadcaster is eligible for the statutory license, and not an exemption, because it controls its programming.
Professor Gorman examines the interrelationship between the DMCA amendments to Sections 112 and 114; he concludes that that relationship would be inconsistent with a finding that AM/FM Webcasts are exempt.
See Gorman Memorandum at 2027. In arguing for their construction of Section 114(d)(1)(A), the broadcasters fail to take account of any of the above considerations (as well as key terms in Section 114(d)(1)(A)); thus, their interpretation violates the cardinal rule of statutory construction noted above.
Page 191 PREV PAGE TOP OF DOC Furthermore, the broadcasters' interpretation leads to absurd results. The broadcasters have argued before the Copyright Office that, under their reading of Section 114(d)(1)(A), ''it is the nature of the transmitter (an 'FCC-licensed broadcast station'), rather than the nature of the transmission, which determines whether a transmission (or retransmission) qualifies as a 'broadcast' transmission.'' Comments of NAB in Copyright Office Docket Number RM 20003 (filed April 17, 2000) at 20. Under that reading, the Section 114(d)(1)(A) exemption would apply to webcasting that goes well beyond the webcast of an AM/FM signal. It also would encompass Internet-only webcasting that a broadcaster originates, unrelated to any FCC regulation governing the broadcast station. To escape copyright liability, Viacom/MTV, for example, would simply need to locate its webcasting operation (SonicNet.com) at a co-owned CBS radio station and transmit SonicNet.com from that station. Not even the broadcasters are brazen enough to propose such an interpretation directly. However, that result flows naturally from their flawed construction.
D. There Is No Legitimate Reason That Broadcasters Should Not Be Required To Comply With The Same Statutory Conditions As Other Webcasters.
To be eligible for the Section 114 statutory license, a webcaster must comply with the various conditions set forth in Section 114(d)(2); if it fails to do so, the webcaster must seek licenses directly from the relevant sound recording copyright owners. The broadcasters argue that it would be ''absurd'' to conclude that Congress intended that broadcasters must comply with these conditions because Congress has considered broadcasters to be special and because these conditions would impose serious hardships on broadcasters. The broadcasters also argue that it would be ''absurd'' to conclude that Congress expected broadcasters to have to negotiate licenses directly. See NAB Testimony at 1011 & 15.
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There is no question that, if the broadcasters offered an interactive service, they would be required to negotiate individual licenses, notwithstanding the ''mutually beneficial relationship'' that has existed between record companies and broadcasters. See 17 U.S.C. §114(d)(1) (providing that no exemption, including the broadcast exemption, applies when the transmission is part of an interactive service). It is, therefore, entirely reasonable for Congress to have expected broadcasters to meet similar requirements when they venture into the new digital entertainment medium like webcasting.(see footnote 14)
As to the alleged burdens of the statutory conditions, the broadcasters make only vague and unsupported allegations. There are no facts or data in their testimony (and certainly no facts or data in the public record of the DMCA) to substantiate their claims that complying with the statutory conditions would require them to ''radically alter their broadcasting practices.'' See NAB Testimony at 10. Indeed, hundreds of broadcasters filed Initial Notices with the Copyright Office stating that (if not exempt) they would take advantage of the Section 114 statutory license, thus indicating that they are ready, willing and able to comply with the statutory conditions.
Even if the broadcasters' allegations were true and factually supported, the alleged burdens would not befall a broadcaster for making traditional, local over-the-air broadcasts;(see footnote 15) they would arise only where, if at all, the broadcaster (like other webcasters) seeks to exploit the unregulated new Internet medium. As Congress recognized in both the DPRA and DMCA, the advent of new digital technologies requires that sound recording copyright owners receive a performance right applicable to those technologies; webcasting was specifically identified as one such technology. DMCA Conf. Report at 79. It would severely undermine that Congressional purpose to exempt one category of webcasters based on their status as a participant in an unrelated, traditional transmission technology.
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Indeed, it should be clear that the broadcasters are not seeking parity with non-broadcasting webcasters. Rather, they seek an outright exemption that would give them a decided advantage over their competition. As Professor Gorman explains, this conclusion finds no support in the DMCA, and would be antithetical to the principle that exemptions in copyright law be construed narrowly and to Congress' expressed intent of protecting sound recording copyright owners in new digital media like webcasting. See Gorman Memorandum at 1921, 24. Where broadcasters engage in webcasting, they raise the same concerns for sound recordings that prompted Congress to create a statutory license for webcasting and other nonsubscription transmissions.
E. The Broadcasters' Attempt To Seek A Competitive Advantage Over Aggregators Is Based Upon A Misreading Of The Law.
The broadcasters concede that third parties which retransmit AM/FM signals over the Internet, such as Yahoo! Broadcast, are not entitled to any exemption from the Section 106(6) sound recording performance right. See NAB Testimony at 15. As Professor Gorman explains, there ''is no logical reason why the same radio webcast should be exempt if the broadcaster makes it and not exempt if a third party does it on behalf of the broadcaster. There is certainly nothing in the DPRA or DMCA to suggest that the right of a sound recording copyright owner to compensation should turn on whether the same transmission is made by the broadcaster or the broadcasters' agent.'' Gorman Memorandum at 23 (footnote omitted); see also David J. Wittenstein & M. Lorrane Ford, The Webcasting Wars, 2 J. INTERNET L. 1, 8 (1999) (suggesting the same conclusion).
Instead of addressing this point, NAB claims that aggregators need not comply with all of the statutory conditions with which broadcasters and other webcasters must comply for statutory licensing. Thus, the broadcasters argue, they would be competitively disadvantaged if they were required to comply with these conditions. Their solution is to exempt themselves (while subjecting aggregators and all other webcasters) to the Section 106(6) sound recording performance right, i.e., to give themselves a competitive advantage over aggregators and all other webcasters.
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Obviously, the broadcasters' ''solution'' makes no sense. In any event, the broadcasters are wrong when they claim that aggregators will not have to meet the conditions for the statutory license. Every one of the exceptions to the conditions applicable to aggregators contains ''exceptions to the exceptions'' that allow a sound recording copyright owner redress against the aggregator to prevent transmission of programming that persistently violates the conditions of the license. See, e.g., 17 U.S.C. §114(d)(2)(C)(i)(I) & (II) (requiring aggregator to comply with the sound recording performance complement where the broadcast transmission ''regularly exceeds'' the performance complement and the copyright owner has given notice); see also id. at §114(d)(2)(C)(ii), (iii), (vii) & (ix). Thus, a ruling that broadcasters (like aggregators) are subject to the Section 106(6) sound recording performance right will not competitively disadvantage the broadcasters (or the aggregators).
Furthermore, the various exceptions about which the broadcasters complain apply only because the aggregator does not have the right to control the broadcast programming that it retransmits. As Professor Gorman (and counsel to one of NAB's members) explain, the right to control language in these provisions provides further support that AM/FM Webcasts fall outside the Section 114(d)(1)(A) exemption. See Gorman Memorandum at 2526; Wittenstein & Ford, supra, at 89.
The NAB testimony obscures what broadcasters really seek through their interpretation of the DPRA and DMCA: to turn an exemption aimed at a traditional, FCC-regulated local medium into an exemption for new, unregulated, worldwide medium of the Internet, so that broadcasters have a business advantage in this new competitive marketplace. All of the NAB's discussion about the long-standing, mutually beneficial relationship between radio and record companies is true but irrelevant; Congress intended for that relationship to continue in the ''old world'' of radio broadcasts, but broadcasters, like every other new digital webcasting service, must compete under the same rules in the ''new world'' of the Internet. Those new rules require that sound recording copyright owners receive fair compensation for the use of their copyrighted works in that new world.
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Page 196 PREV PAGE TOP OF DOC66178l.eps
Hon. RICK BOUCHER,
|Washington, DC, July 5, 2000.|
House of Representatives, Washington, DC.
DEAR MR. BOUCHER: At the hearing on Internet copyright issues held on June 15th, you asked me how many TV stations around the country are currently streaming their local programming on the Internet.
According to information from Digital Broadcast and Programming/Webcast Track, there are about 500 TV stations that either stream themselves or link back to a network site for streaming video. I am also informed that there are about 250 TV stations that stream local programming, and that number continues to grow. This source also indicates that stations are increasingly likely to stream shorter segments, rather than entire newscasts.
Page 197 PREV PAGE TOP OF DOC I hope this information is useful to you. I appreciated the opportunity to testify at the hearing, and I hope you found the discussion of interest. Clearly, these copyright issues are important ones, and I pledge to work with you and other members of the Judiciary Committee as you look at the Internet and its impact on copyright law.
Should you have other questions, please do not hesitate to call me.
|Edward O. Fritts, President & CEO.|
Chairman Howard Coble
Ranking member Howard Berman
(Footnote 1 return)
Actually, the first amendment on this point was to the section 119 satellite license to clarify that it did not cover Internet retransmissions of broadcast signals. The section 111 amendment came shortly thereafter.
(Footnote 2 return)
Berne, Art. 11bis(1)(ii). Article 11bis(1)(i) grants authors an exclusive right of broadcasting or communication to the public, but it is limited to wireless means.
(Footnote 3 return)
The subject of broadcasting is covered in TRIPs Art. 14(3). The first sentence requires Members to grant broadcasting organizations the right to prohibit certain activities with respect to their transmissions. The second sentence provides that where countries do not provide such rights to broadcasters they must provide copyright owners in the content of broadcasts with such rights. The U.S. fulfills its obligation under Art. 14(3) by means of the second sentence.
(Footnote 4 return)
See the Digital Millennium Copyright Act of 1998, Pub. L. No. 105304, 112 Stat. 2860 (1998).
(Footnote 5 return)
WCT, Art. 8.
(Footnote 6 return)
Digital Economy 2000, U.S. Department of CommerceEconomic & Statistics Agency, June 2000, p.7
(Footnote 7 return)
Technologies and New Business Directions for Broadcasters, speech delivered by Marcia De Sonne, Director of Technology AssessmentNational Association of Broadcasters, to the Brazilian Association of Broadcasters, August 23, 1999.
(Footnote 8 return)
Trends, Issues, Concepts Impacting Convergence Media in a Digital Economy, Business/Information Brief published by Marcia De Sonne, Director of Technology AssessmentNational Association of Broadcasters.
(Footnote 9 return)
Figures provided by Paul Kagan Associates, Inc.
(Footnote 10 return)
Inquiry Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a Reasonable and Timely Fashion, and Possible Steps to Accelerate Such Deployment Pursuant to Section 706 of the Telecommunications Act of 1996, Report, 14 FCC Rcd 2398, 64 (1999), (citing Reply Comments of the Commercial Internet Exchange Ass'n at 23 & accompanying footnotes, citing Tom Downes & Shane Greenstein at 4, Universal Access and Local Commercial Internet Markets, at 21 (June 8, 1998).
(Footnote 11 return)
House Committee on the Judiciary, Section-by-Section Analysis of H.R. 2281 as Passed by the United States House of Representatives on August 4, 1998, 51 (Comm. Print, Serial No. 6 1998) (hereinafter ''House Manager's Report'').
(Footnote 12 return)
NAB Testimony at 1213, quoting S. Rep. No. 104128, at 9 (1995) (hereinafter ''DPRA Senate Report''); H.R. Rep. No. 104274, at 6 (1995) (hereinafter ''DPRA House Report'')
(Footnote 13 return)
NAB Testimony at 16 (citing DPRA House Report at 13) (emphasis added).
(Footnote 14 return)
This conclusion is buttressed by the fact that broadcasters may seek additional advertising revenue for AM/FM Webcasts based on their reach to markets outside their FCC-licensed markets. See ''RealNetworks Debuts Sophisticated Ad Service for Radio, TV'', Webnoize (April 10, 2000) <http://news.webnoize.com/item.rs?ID=8031> (describing RealNetworks software that allows advertisement insertion into AM/FM Webcast streams). As one Kansas radio broadcaster, with an apparent affinity for the Wizard of Oz, boasted, the ability to webcast AM/FM radio signals means ''we're not in Kansas anymore.'' Communications Daily at 2 (Apr. 12, 2000) (quoting Jerry Hinrikus of KSALAM in Salinas, Kansas).
(Footnote 15 return)
The broadcasters also complain about the disadvantage they allegedly suffer because of compliance with FCC license regulations which do not apply to webcasters. See NAB Comments at 1314. Of course, by complying with those regulations, the FCC-licensed broadcasters receive valuable broadcast spectrum to which webcasters are not entitled.