country and indeed the world will be more and more entertaining, compelling, rich media uses.

Those will be driven primarily not by consumers swapping things back and forth but by people going to places where content is created or aggregated and downloading it.

For our stake in this, we don't have-and I am talking now about AOL Time Warner, but I think I can speak more broadly for Mr. Chernin's company and the entertainment industry. No one has a real issue with consumers making copies of things for their use around their home, and that is using the extended definition of home.

So if you can download something legitimately and make numbers of copies so that you can play it in different rooms in your house or carry it to the beach in your portable player or put it in your car or make a copy for a friend, that has gone on for time immemorial and will go on going forward.

The problem is when you can take a digital copy, upload it, and send it not to a friend but send it to anyone in the world or, for that matter, to everyone in the world. You know, the nub of your question is do you continue to permit that until you find some way to differentiate between that individual who has a legitimate right to send a distinct copy to a specific friend and, in the meantime, let the In my statement that I skipped over because I was running out of time, we are looking at now probably-We looked at some of the Napster data about a million files being shared every hour.

About 90 percent of that was of copyrighted material, as opposed to material in the clear. So you know that the Internet is being used to facilitate kind of broadband piracy of protectable material.

Mr. MARKEY. Well, let me ask you this then. Is the Internet only broadband friendly for the purposes of commercial downloads but not for fair use downloads, or at least not yet ready for fair use. Help us to just understand where we are or where the industry is in terms of your perspective.

Mr. PARSONS. First of all, the Internet, which is sort of a network of connected computers, is indifferent to the bits that are being moved around it. So it doesn't know whether it is, let's call it for these purposes, a legitimate bit or an illegitimate bit. What broadband does is it simply enables people to move more around on the Internet more rapidly.

The issue, I think, that the industry is facing, and not just the entertainment industry but software and, in fact, the whole intellectual property establishment, is that it can facilitate the wholesale pirating of material in which people have lawful rights. So what we are trying to do is find ways to secure those rights at the place of publication, and then to make sure that the system honors that security after a protectable piece of intellectual property is put out from wherever it is being published. That's all.

Mr. MARKEY. Mr. Chernin, can you take a shot at that question? Mr. CHERNIN. Yes. First of all, I think you are, as Mr. Parsons said, getting to the heart of the issue, and it is a very complex and difficult issue. I think the first part of your question, I think nothing will speed up the adaption of broadband and the spread of broadband as much as copyright protection, because I think there

is no more attractive product than sort of high quality, rich media that is produced by Hollywood, produced by the sporting leagues, etcetera; and to the degree we are protected, I think that consumers will have tremendous desire to get broadband in order to get legally obtained, high quality product.

I think, when you get to the issues of fair use, these are complex issues that need tremendous debate, that need a lot of light shone on them in the new environment. I think guiding fundamental principles are that all of us in the media business acknowledge that people should have the right and the ability to shift content for their own personal use around their home, to multiple devices in their home, their cars, etcetera, etcetera.

I think where the common sense and the more complex part comes, what happens when they want to send it out of their home, and how do you allow them—I think Mr. Parsons is correct to say none of us would mind if they sent it to a friend or two or three friends. The problem is that, if they do that, how do we stop them from sending it to 10,000 friends, 1 million friends, 10 million friends, in perfect digital copies?

Now we do have the right and the ability, or we will have the right and the ability to instruct content to do certain things. For example, we can sell copyrighted movies to people and give them the right to transmit it over the Internet three times or for a day or for things like that.

So I think that working with technology partners, we can begin to put sets of instructions on this content which will ensure its fair use, which I don't think there is anyone on our side who is looking to restrict consumers' fair use, and yet at the same time restrict the unlawful, potential massive illegal copying.

I also agree with Mr. Parsons that the issue isn't the Internet. The Internet is agnostic and just sends stuff back and forth. The issue is how do we instruct content once it appears on the Internet for the first time, and how do we instruct it so that consumers are allowed to do lawful uses and not allowed to do unlawful uses?

The final thing, if you will indulge me for one more moment, is that I think we have to be careful about allowing business model arguments to get into this. There are people who say our content is too expensive and, therefore, it is right for people to steal it. Well, in my opinion, it is never right for people to steal and, furthermore, I think those of us certainly in the movie and television industry work very hard at making our content available in multiple ways.

You can see a movie for $10 in a movie theater. You can rent it for $2 on video. You can see 60 of them a month on HBO for a $10 subscription. You can see them for free on broadcast networks. So there's lots of ways for consumers to get our product and get it at reasonable prices and, even if there weren't, there is no pricing that suggests that theft is a viable or a legitimate usage. Mr. MARKEY. Let me just conclude. Mr. Chairman, I thank you. I appreciate the two of you helping us to analyze the issue. We have got a conundrum in our country, on our committee. People are not subscribing to broadband. Sixty, 70 million Americans have access to some form of broadband, but only 8-10 percent are sub

scribing to it, and it is $70 a month, you know, $50 more than narrowband. There's got to be something there.

So one of the ways you can deal with it, of course, is to have commercial goods on it, but another way is to have a fair use policy where, if I want to send something to one friend of mine online that I find interesting-I don't have 10 million friends-that I would be able to just do that and not have to go over to FedEx and pay $15 to mail the same thing to them. Otherwise, I should be investing in FedEx stocks, not in broadband stocks, because you are not giving me the flexibility I need just as an individual to send something to my family, to my friend, and just do one thing.

So we need to telescope the timeframe, in other words, that we resolve the issue so that we can give some instructions to the American people so that they can use broadband, because that is a big part of this puzzle that we have that we have yet to solve. Mr. Parsons. I'm sorry, Mr. Chairman.

Mr. PARSONS. Just because I now have a clearer fix on your question, people are not not taking up broadband because they are limited in their right to send things to other people. They are not subscribing to broadband, those who aren't, because they don't see the value proposition. They don't see what they are going to get out of it.

What Mr. Chernin just said, I think, is almost irrefutable. Until we get to the point where you can get something different on broadband than you can get on narrowband-that is to say, different programming, media rich program-the mass market is not going to be there. The only way you are going to get to that point is if people who create content can put it out and believe that it is protected.

Mr. JACOBSON. Can I jump in on this, Mr. Markey? Just from the technology side and our working in the marketplace with content holders, what we are seeing-and we have to realize that this industry is really just born in some respects. Yes, the numbers are big, but the use of the Internet in a mass way to consume media that we all know and love on broadcast and cable and satellite is just beginning.

We are seeing what you are alluding to, which is a different experience for rich media in broadband for people to subscribe. So everything from your Red Sox game so you can watch on a condensed basis after they are played, which doesn't interfere with the live signal on broadcast, to Fox sports material to CNN is all coming now in a very rich way into the broadband market.

What we are finding is that part of the solution, which I have not heard yet today, is a more active approach to creating a system wrapped in digital rights management technology for people who want to stay on us to have legitimate content through broadband, and that is everything from the music to the video business.

I think that the report is that we are getting started here and that there are legitimate music services that are available. They have problems associated with them which relate to things like getting all the music aggregated so that they can compete with these pirated sites, and also that the movie industry is coalescing and licensing digital rights management to release their movies via

broadband, we are told by the Movie Link organization, hopefully, sometime during the year.

So we are beginning to find that this mix of broadband accessibility from the home matched with technology that protects content on an affirmative basis and putting those business models into place with the media companies is starting to grow.

Mr. UPTON. Congressman Markey, I just want to say we have Mr. Chernin, and he has got to leave shortly. I know Mr. Tauzin is ready as well. So we have gone long overdue. So we will come back to you, if you need. Mr. Tauzin.

Chairman TAUZIN. Thank you very much. Mr. Chernin, I particularly want to thank you for appearing in this fashion interactively with us. I was noting the technology.

This is technically a broadband connection, although it is not yet the really great broadband connections we are eventually going to have in this committee room, but what is interesting is it still sort of looks like a Korean movie, you know, where your lips are moving and we hear you a little later.

As somebody commented, we can't even tell if you are wearing pants over there, you know. But I do appreciate your coming in this fashion. I think it is beginning to demonstrate the capabilities of the technology, even as we consider issues relating to the new technology. So thank you for that.

I would like your attention and perhaps Mr. Parsons' and Dr. Liao's attention to an issue, and I apologize if you may have covered it before I returned. I have been on the Senate side celebrating prematurely the victory in the Senate for an energy bill that this committee is, obviously, very invested in.

I wanted to get to the broadcast flag issue with you very quickly. We were told at one of the roundtable discussions that there would likely be a resolution and an agreement on the broadcast flag issue by March 31. That obviously did not happen. Another meeting, we know, is scheduled for April 29. I know that you came this close to getting an agreement before this hearing, because you wanted to announce it at this hearing, and I appreciate all the effort you made to try to do that.

You obviously, are not quite there. But the questions I have is, once you do have such an agreement, absent all the other agreements that must come, would it be appropriate at that point for us to have very specific legislation that would enforce that agreement to ensure, in fact, that digital receivers would be built with the broadcast flag technology built in, so that we could at least begin to move this part of the digital transition forward?

Perhaps anyone of you-Mr. Chernin, you may want to start. Are you of a mind that that would be appropriate?

Mr. CHERNIN. Yes, Chairman Tauzin. First of all, I suggest you study the expression on my face to see whether I am wearing pants and draw your own conclusions.

Chairman TAUZIN. I want you to know, I am wearing them, too. Mr. CHERNIN. I think we actually covered this briefly. We are hoping our schedule to be done by May 17 to be there with a full recommendation. I guess my point of view is that we should keep legislation as narrowly targeted as possible. We shouldn't burden it with trying to solve everything, and to the degree we have a via

ble broadcast flag solution, which I am highly, highly optimistic that we are days away from, we should have narrowly focused legislation, hopefully, drafted and passed quickly. Then we can check that off and get on with putting as much rich digital content on broadcast terrestrial television and, hopefully, speed up the rollout of digital TV.

Chairman TAUZIN. I am glad you take that view. I will ask Mr. Parsons and Mr. Liao the same question, but I want to comment quickly. The reason I like that view is that gets the content into play, and that gets more broadcaster networks interested in doing more and more digital production and, obviously, studios doing more digital production as well. I think that advances the ball significantly when it comes to content. But perhaps, Mr. Parsons, Mr. Liao, you would like to also comment.

Mr. PARSONS. Same answer. We think that proceeding incrementally here as matters get resolved and issues become clarified, taking steps is better than waiting for all the issues to be resolved, and it will begin to create some momentum here.

Chairman TAUZIN. Mr. Liao. And I will also ask you, Mr. Blanford, on behalf of Philips, to give us a similar response. Mr. Liao.

Mr. LIAO. I agree with Mr. Parsons and Mr. Chernin that we are getting closer, and I am very hopeful that by May 17 that we will have a final report that the entire industry-the cross-industry groups can agree to.

My personal opinion is that the government will have a role, but we need it to be a very specific role. In general, government I see having many-well, has a role in two respects. First, sometimes the government needs to step in when there is no marketplace mechanism in place that could really enforce something of this complexity.

The second place where government intervention is often needed is to assure there is a level playing field. Often in that case, it is because of past government mistakes.

Chairman TAUZIN. I follow that, but in this specific case, if flag technology is agreed upon, would you support targeted legislation to ensure that the technology is built into all digital receivers that go out to consumers?

Mr. LIAO. Yes.

Chairman TAUZIN. Thank you. Mr. Blanford, would you comment for us?

Mr. BLANFORD. Yes. Philips supports the flag. I think the question, Congressman, is what happens after the receiving equipment sees the flag? That gets into then the whole DRM issues that we have been talking about. That is where we are struggling.

Chairman TAUZIN. Yes, I understand that. But at least you would support the notion of ensuring through legislative requirement that the flag technology was in every digital receiver, would you not?

Mr. BLANFORD. We support the flag technology.

Chairman TAUZIN. Would you support the requirement that it be in every digital receiver, once you agree upon flag technology?