Senator SPECTER. Mr. Parsons, we understand you came by air. If you had been on Amtrak, you would have been here on time.

Mr. PARSONS. If I had walked, I would have been here closer to the time than coming by air this morning.

Chairman LEAHY. I would tell the Senator from Pennsylvania and the Senator from Delaware, who are both strong supporters, as they should be, of Amtrak, that I had already put in a plug for Amtrak even earlier.

Senator SPECTER. We may have some problems with the Hollings bill, but we have no problem with funding Amtrak, Mr. Parsons. [Laughter.]

Mr. PARSONS. I think the proper response is message received.

I think, Senator, that the question you are raising about whether there is a helpful and useful role for the Congress here is the right one. Our view-and if I am going to be permitted in a minute to give my statement, I will expand on this a bit, but our view is that this is primarily an area that should be worked out in the marketplace; that the entertainment industry, the information technology industry, the consumer electronics industry and the software industry have got to get our act together and we have got to work hard to deal with these problems because it requires that degree of suppleness and flexibility.

There are, we believe, a few areas where discreet, incisive help from the Government in the form of taking-we can take the ball to the five-yard line in some instances, and I will explain a little bit more of that in a minute, and to get it over the goal line we may need some help from the Government. But I don't think that this is a situation where government action should try, with a sword as opposed to a scalpel, to administer the surgery.

I think we have work to do. We are doing a lot of work right now on a cross-industry basis, but there are a few discreet areas where some governmental assistance could prove helpful.

Senator SPECTER. Well, thank you, Mr. Parsons. We are ready, willing and able to help out, but I think we have to know what the technology is if we are to legislate.

I would like to come back later, Mr. Barrett, to this issue of the $12 billion which high-tech is losing. That is an intolerable situation. We want to protect your property interests so that you can continue to produce, and I think that if we can find the technology Mr. Kraus suggests we may be able to protect the consumer interests as well.

Thank you very much. Thank you, Mr. Chairman.
Chairman LEAHY. Thank you.

I know Senator Biden wants to leave. Do you want to say something?

Senator BIDEN. Sixty seconds.
Chairman LEAHY. Sure.

STATEMENT OF HON. JOSEPH R. BIDEN, JR., A U.S. SENATOR FROM THE STATE OF DELAWARE

Senator BIDEN. I want to explain that I promised the National Conference of Mayors I would meet with them at 11:30, and I will try to come back and I would ask that my questions be submitted to the panel if I am not back and just state that it seems to me

there is a philosophical divide here. I want to make sure I understand it.

It is one thing for us to be in a position where we make a distinction between what is inappropriately and illegally copied and what is legally and appropriately copied. That is a heck of a dilemma, but also in the case that we were faced with in the bad old days when I was chairman it was about whether or not we were going to force the consumer to have to listen to something, force them to listen to ads.

This is about balancing equities here, consumers versus what is obviously an aggrieved party here. Whose responsibility it is remains to be seen, but I suspect just so you know, we do have laws. If you all in the software industry and the computer industry were to manufacture those little wands and you could go up to the Texaco station and illegally get gas out at two o'clock in the morning, we would arrest you for that.

If you were making keys that I brought in to you to get into other people's homes, we would arrest you for that. If you were taking little clickers into garages and me getting a hold of one and asking you to produce one with the same frequency, knowing it wasn't my garage, we would arrest you for that. We should think of arresting you maybe for some of the things you don't do, but that is a much larger question here and there is a balancing of equities here, unlike before. But I have an open mind on the Hollings bill and I will try to come back and hear what you all have to say.

Thank you, Mr. Chairman. I know you have questions. By the time you finish, maybe I will be able to get back. Thank you. Chairman. LEAHY. Thank you. That was 60 seconds. Senator BIDEN. No. It was probably 120, but it was close. Chairman LEAHY. Mr. Parsons, we are delighted that you are. here, and I do appreciate the fact that you went through a great deal to get here. Having sat frustrated on runways before, I know what that feels like. Jill Loesser has made sure that we knew you were coming, and you can feel free to give your statement now and then we will resume the questions, first with Ms. Cantwell and then Senator Hatch, and then I will ask my questions.

STATEMENT OF RICHARD D. PARSONS, CHIEF EXECUTIVE OFFICER DESIGNATE, AOL TIME WARNER, INC.

Mr. PARSONS. Thank you, Mr. Chairman. Again, apologies to you and the other members.

Chairman LEAHY. None necessary. There isn't a single member of this committee that hasn't been stuck on a runway at some time or another.

Mr. PARSONS. I want you to know that I have scrubbed off the side of our plane the logo, "Leave time to spare, travel by air." It is Amtrak all the way.

Chairman Leahy, Ranking Member Hatch, and members of the committee, I am actually very grateful for the opportunity to discuss an issue of great importance to my company, and I believe to our country. As the world's largest producer of information and entertainment, we at AOL Time Warner are also a leader in developing and utilizing digital technologies for the delivery of content

in innovative ways. So we really sit on both sides of the issues that are being discussed today.

Whether it is in the journalism of Time, Inc., Time magazine, CNN, or a movie like "Harry Potter" or in our music or our television programming, compelling content, we know, is what consumers want. But the continued availability of high-quality content cannot be assured unless we can do it in a manner that is safe from piracy.

This committee has a special awareness, and I believe a special competence, for not only understanding how essential it is to protect intellectual property, but for understanding the role that the Congress can play in that regard. Through the Digital Millennium Copyright Act, you helped establish needed and balanced legal protections for our industry.

Digital technology offers significant benefits to content creators, to distributors, and above all to consumers. It makes possible a new level of reliability, variety and quality in the delivery of content. But this silver lining comes with a cloud. Along with breakthrough benefits, digital technology enables users to make unlimited, perfect copies, and distribute them globally with the click of

a mouse.

If I may, Mr. Chairman, I would like to show you an example of what we are talking about. This is a high-quality pirated version of "Lord of the Rings" that was available on the Internet literally hours after the theatrical release of the movie.

[Video shown.]

Chairman LEAHY. I liked it better watching it at the Uptown Theater, but I got your point. I understand.

Mr. PARSONS. So did I, but it gives you some sense of the quality and vitality of what digital piracy can do in terms of capturing images and sounds and music, and enabling people to see it without having to go to the Uptown Theater.

I read a story in the Times this morning that suggests that this is a battle between the entertainment industry and the tech industry, and that it is all about the entertainment industry's business model. I would submit that what is at stake here goes beyond copyright protection. It is a far broader question of property protection and notions which are fundamental to the functioning of free markets generally.

If we as a society decide that there are certain areas where the rules against taking someone else's property without permission don't apply, we are not merely destroying the livelihood of a relatively few creative artists, or even subverting the economic rationale of a few large businesses. We are opening the door to economic anarchy that can undermine our markets.

Now, at AOL Time Warner we have vigorously pursued the legal remedies that exist, but I must tell you litigation alone isn't enough. We need to protect intellectual property at the source and at all places where consumers have access to it, and to do so in a way that reflects the commitment of everyone involved to the development of meaningful protection for intellectual property even in the face of technological advance.

Our goal is both to stop piracy and to offer consumers the easiest, most convenient access to digital content. We have worked

with our colleagues in the information technology and consumer electronics industries over the past six years to develop content protections. And we have done a lot. We have accomplished a great deal in this cross-industry voluntary process and we are continuing to work together to meet new challenges.

Sitting beside me today is Craig Barrett, whom you have already heard from, from Intel, which is one of the most committed and productive partners in our quest to protect content in the digital environment. Indeed, Intel along with other companies has spent considerable resources developing technical solutions which we have enthusiastically embraced. We look forward to continuing to work with Intel. In fact, we are collaborating with Intel to develop a written statement that articulates common principles to guide us. We hope to release that statement very soon.

Some have asserted that new digital protection technologies will hamper consumers' ability to enjoy content in legitimate ways. The basic economics of our business plan plainly contradict such an assertion. The easier and more convenient we can make legitimate access, the greater the financial return. If we deny that access or make it burdensome or overly restrictive, consumers will either stay away or go elsewhere.

We want those who purchase our products to be able to enjoy them in flexible, personalized and portable ways, and we believe in fair use. Under the content protection licenses negotiated to date, consumers will not only be able to continue to make analog home copies, but also to make protected digital copies of over-the-air broadcasts, basic cable, satellite and pay-TV offerings.

We continue to make real progress in cross-industry content protection and are not calling for a broad government mandate of design requirements. Instead, it has become clear to us that some gaps exist that cannot be closed solely through license-based voluntary protection systems, as I was saying to-he is gone nowSenator Specter. These gaps are treated at length in my written testimony and I won't burden the committee with a recitation of them here, but just touch on them quickly.

There are really three, and on the first two I think we have made a lot of progress. The first is how to protect digital over-the-air signals that are in the clear and can be captured and copied. We think that we are working toward a definition of a broadcast flag that will mark those signals and keep them from being digitally reproduced, and that is an area where some government assistance may prove necessary.

The second, which is the so-called analog hole or a situation where analog content which is in the clear can be then converted into digital unprotected content, we are working on and think we are making great progress in terms of watermarking techniques that once again might require some congressional legislation to enable us to get over the goal line. We have still got a little work to do.

The third area, which is the most troublesome, is misuse of peerto-peer file-sharing to traffic in copyrighted materials. This is the most difficult problem to solve. Indeed, to call it file-sharing is a misnomer. It really isn't sharing; it is the equivalent of online shoplifting.