from the Federal Government. As so often happens, the Federal Government sometimes strangles innovation.

Finally, Mr. Chairman, while we are quick to protect the investment of content owners, we must balance it out to be doubly sure we protect the rights of consumers. It is imperative that all parties continue to recognize consumers' rights to personal, noncommercial use of the legally purchased copyrighted materials.

Additionally, neither Hollywood nor manufacturers would be profitable without consumers. As such, we need to respect consumers' investment in such technology and ensure that their investments are not made obsolete with efforts to protect content. Mr. Chairman, I again commend you for your hearing. Mr. UPTON. Ms. Harman.

Ms. HARMAN. Thank you, Mr. Chairman. I have a statement for the record, but just want to summarize with a few points.

First of all, the issues we assess today have a huge impact on the digital world, and I am trying very hard to wrap my aging analog brain around them. Second, this is an excellent panel and a stellar group in the first row right behind it, and their spectrum of views is most welcome.

Third, what we do and, just as important, what we do not do really matters in this case. We have had a few hearings lately that I thought mattered a bit less than this one. This one will really make a difference.

So I would just set out a few principles we ought to think about. The first is that government should do no harm. That has been said often, but here we are in a position to do a great deal of harm if we do the wrong thing.

The second is that the transition to digital is not just a question. of supply. It is a question of demand, and the demand will not be there if high value content is not there, and high value content will not be there if we don't protect intellectual property. So we had better get that part right.

The third point is that the private sector has a great deal to offer here. There are market mechanisms and, as we have heard, crossindustry mechanisms that can do a lot of the hard work, and perhaps do it better than we can do it.

Fourth, government has a tendency to operate with a sledge hammer. In this case, operating with a scalpel is absolutely required.

So I look forward to the testimony today. I have got some questions for some of the witnesses. This is going to take hard work. We are going to earn our pay getting this thing right, and I look forward to being a part of the bipartisan solution on this committee. Thank you, Mr. Chairman.

Mr. UPTON. Thank you.

Mr. Shimkus.

Mr. SHIMKUS. Thank you, Mr. Chairman. I know this is a tough issue. I am going to listen to the panel. I just remind people who have been before this committee before, my first experience is with my wife, who is a church organist, when she went through the reams of music and took out all the Xeroxed copies of music and threw them in the trash can because she wanted to respect the intellectual rights of the folks who wrote the music.

It was not a positive thing for the members of the church to see, but it was the right thing to do, because those people who write the music, who prepare that, need to be compensated if we continue to want artists to flourish. But this is a hard issue. You all are the experts. We are going to ask a lot of questions. We look forward to your testimony.

I yield back my time. Thank you.

Mr. UPTON. Mr. Green.

Mr. GREEN. Thank you, Mr. Chairman. I want to commend you for holding this hearing today, but I want to start out by commending Chairman Powell and the FCC for their recent action on the HDTV transition. His letter outlining voluntary steps to broadcasters, cable companies, and consumer electronics folks each need to take and the steps each need to take was crucial to speeding the digital transition.

The subcommittee, I think, can and will impose a mandatory solution to move the digital transition forward, but I hope we do not have to go down that path. For all parties interested in the DTV transition, I fully support the goals outlined in Chairman Powell's letter. Then I want to see the goals implemented in a timely manner through good faith and cooperation, hopefully, of all the parties. However, if these goals cannot be reached on a voluntary basis and there is continuing dispute, then I would share in any action initiated by Chairman Powell.

Mr. Chairman, now I want to talk about the public policy purposely excluded from the Powell letter. The missing component was anything to do with digital rights management or DRM. DRM is the protection of digital content that flows to computers, high definition TVs, and various home entertainment systems.

Why is DRM important? Because without it, we have no protection for copyrighted works. Creative minds should be able to profit from their creations through the copyright system. Many American consumers, though, feel that digital is free and can be obtained through the many peer to peer sites operating around the world.

The idea that this digital content is free or should be free will be a difficult mindset to break. However, it now goes directly to the heart of the DRM problem. My constituents have now placed a value on this type of content, and that value is free. Rightly or wrongly, declining music CD sales seem to indicate that consumers are no longer willing to pay $12 for a CD. So how do we work this consumer preference into the context of DRM?

One approach is the Hollings bill, and I oppose that approach. It is overly broad and penalizes consumers who have never or will never obtain illegally copied digital content. Piracy is a serious issue, and it should be addressed, but I am very hesitant for Congress to get too involved.

My hope is the broadcasters, content providers, and consumer electronics folks will move to develop a solution among themselves. It must be targeted, and it must only be in response to the new content distribution methods from the movie and the music industries. The software industry is already marketing their products over the Internet with full DRM protection, and they should be the model.

Mr. Chairman, at the end of the day, it is the consumer who has to benefit from any changes or agreements on this issue, and I hope to support legislation that has broad industry support and a tightly defined focus.

Again, I thank the chairman for this hearing today.

Mr. UPTON. Thank you.

Mr. Bass.

Mr. BASS. I thank the chairman for holding this hearing, and I also want to make note of the fact, this is actually my first hearing on this subcommittee, and it is a real honor to be here, especially with my friend from Massachusetts. Now we have a chance of really bringing a well deserved recognition to the Red Sox and the Čeltics and the Bruins and, of course, our Super Bowl Patriot champions.

Indeed, Mr. Chairman

Mr. UPTON. With a Michigan quarterback, I want you to know. Mr. BASS. I am also pleased to be participating in this hearing because of its significance. Digital content protection, as many have said before, is not a simple issue. It is not going to be resolved through a formula or a Federal law or regulation that will resolve this issue.

I think, although it is best that it be left to those who have created and those who will employ the digital infrastructure, content protection and so forth, and understand the complexities best, I also feel that Congress needs to ensure that excess consumer costs and unreasonable inhibition on personal use are kept to a minimum, as has been said by other members of this subcommittee.

These are very complex, and I am looking forward as the newest member of this subcommittee to gaining a better understanding and being an active participant in the resolution of these issues, and I yield back.

Mr. UPTON. Mr. Luther.

Mr. LUTHER. Thank you, Mr. Chairman, and I also want to thank you for holding this important hearing. As has been mentioned, the crux of the issue before us is really twofold. First, do market forces provide adequate incentives for the private sector to form constructive partnerships between content providers, the information technology industry, and electronics manufacturers to develop commercially viable encryption technology where the property rights of content providers are adequately protected, or do market forces make it difficult for all of the relevant industry players to come to some sort of meaningful consensus?

Of course, were market forces sufficient, then Congressional action would be largely unwarranted. I am interested in reviewing the perspectives of our panelists on this issue.

Second, if in fact market forces are insufficient in creating incentives for such technological innovations, the next question becomes exactly how forceful of a nudge does the private sector require from Congress? In this regard, I think we need to better understand to what degree a Congressionally mandated technological standard would inhibit the high tech community from adapting to a rapidly and ever changing digital environment.

Do the various parties require only strict government enforcement of existing copyright law or should the government step in

and involve itself in determining the actual baseline standard by which digital technology must abide?

It goes without saying that our deliberations today should ultimately serve the American consumer. After all, we are trying to aid the development and promise of digital television and facilitate the application of high speed data services, both of which should ultimately benefit the average citizen.

As long as keep the public in mind and avoid focusing on potentially factional disputes, I believe that our committee can be helpful in ushering in the promise of the digital age.

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

Mr. UPTON. Mr. Davis.

Mr. DAVIS. I am eager to hear the panel. I ask unanimous consent my statement go in the record.

Mr. UPTON. All members have that right. Thank you.

Ms. McCarthy.

Ms. MCCARTHY. Thank you very much for holding this hearing, Mr. Chairman, and I would ask unanimous consent that my statement be placed in the record, so we can get on to the substance at hand and the panels that have come before us today.

Mr. UPTON. Extra credit. Thank you.

Mr. Terry.

Mr. TERRY. I will submit my statement, since I have an eight o'clock flight.

Mr. UPTON. Tomorrow or today?

Mr. Sawyer.

Mr. SAWYER. I will submit mine as well, Mr. chairman.

Mr. UPTON. Ms. Eshoo.

Ms. ESHOO. I am not leaving until 7:30 tomorrow morning. Thank you, Mr. Chairman, and first of all, welcome to our very impressive panel that is here today, and most especially to Joe Kraus, who is the founder of Excite.com. He is from Palo Alto, which is the heart of the most distinguished Congressional district in the country, and he has made significant contributions to the Internet age through his companies and now through the organization that he founded, DigitalConsumer.org. Thank you for being here, and we are proud that you are a witness.

This hearing gives our committee the opportunity to discuss the status of protection and distribution of digital content. Various technology associations have called for a national broadband policy with goals of having broadband in 100 million homes in 10 years. If we are going to achieve these lofty goals, we need to examine what the barriers are that prevent consumers from getting the content they prefer.

At times, the promise of broadband and digital television seem really farther off than we would have hoped. I wish myself I had at least a quarter for every time we have had a hearing here on digital TV and have all the reports from the industry, but we can attribute at least part of the lagging pace, in my view, to the complexities that are associated with protecting content.

So finding a solution to this problem, in my view, is not going to happen quickly, and I think that it really necessitates the concentrated efforts of all the affected industries. If there was ever a

market that would force companies to come together and find a solution, I think this is it.

Content creators lose hundreds of thousands of movies to illegal downloads over the Internet, and the software industry loses $11 billion annually to piracy. So there is one heck of an economic incentive in this for people to come together. This is a huge problem, and the industries, obviously, have a vested interest in solving it. The economic impact has resulted in the formation, as several of my colleagues have pointed to, of working groups that have used the combined expertise of many engineers to find methods of protecting digital content. I think the government should be monitoring that progress very closely from the sidelines, rather than inserting itself into the process.

Legislation that could result in a single technological mandate brings with it numerous problems. First, it will stifle, in my view, the progress made by the inter-industry working groups by imposing unnecessary bureaucratic procedures and injecting the Federal Government into engineering decisions. We are not good at that. We don't know how to do that.

Second, once a particular technology is selected through this process, it could create a single point of vulnerability, making it susceptible to hackers and cumbersome to correct.

Finally, rather than finding a workable market solution, an imprudent mandate could require millions of dollars in engineering changes that, in the end, would obviously be passed on to con

sumers.

So let me say last that I think that Mickey Mouse and Silicon Valley have to create a yellow brick road to hold hands and walk down together, and I look forward to the testimony that we are going to hear today. I think it is going to be very, very important for us to, obviously, take into consideration as we look to see what policies, if any, the Congress should be making in this area. Thank you.

Mr. UPTON. Thank you. That concludes the opening statements. You can tell, because of the interest-appearance of the members as well as the length of the statements, the keen interest on this topic, and we are delighted to now let the witnesses speak.

[Additional statements submitted for the record follow:]

PREPARED STATEMENT OF HON. TOM DAVIS, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF VIRGINIA

There were two salesmen driving around in the country when their car broke down. It was late in the evening, so they decided to walk over to a nearby farmhouse and ask if they could spend the night. A recently widowed woman answered the door. When they told her of their plight, she told them it would be inappropriate to let them sleep in the house since she had just recently lost her husband. However, she did offer to let them sleep in the barn.

About a year later, the two salesmen were driving in the same vicinity when one turned to the other and asked, "Do you remember the time that widow let us sleep in the barn?"

His partner replied that he did.

"Did you sneak up to the house that night?"

His partner, now blushing, replied that he had.

"And did you give her my name?"

Once again, the other partner confessed his guilt. "Why do you ask?" he replied. "Well," said the first salesman, "she died last week and left me $1 million."

The moral of this story: take credit for your work. That is the central issue we are discussing today. The creators of music and video products are struggling to