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I would first emphasize and mention that the so-called audio flag proposal in substance bears no resemblance to the video flag that will be discussed by the panel later today. The video flag seeks to prevent mass and discriminate redistribution of content over the Internet. Our products already prohibit such redistribution. Our transmissions are encrypted at the source. In contrast, the audio flag proposals take as their primary target consumer home recording, conduct long considered to be fair use. Moreover, the video flag proposal is the result of years of open multiindustry negotiations. Nothing similar has occurred in connection with the audio flag proposal to date, although the NAB and the RIAA as we have heard have begun discussions.

To be clear, the issue here today certainly with respect to satellite radio is not piracy or mass redistribution. It is about the very first copy a consumer makes in his or her own home of lawfully received broadcasts. Let me tell you a little bit about one of our innovative products, our portable hand-held device called the S50. The S50 is a traditional satellite receiver that allows users to listen live to our programming. It also allows them to save our programming for listening later while commuting, exercising, or simply exercising at a time when you can't receive our satellite signal. The S50 also allows the user to save individual songs from Sirius broadcasts manually with a push of a button.

Contrary to some reports, the S50 does not provide for any kind of automated searches, cannot program the device to seek an individual song or artist. It is our firm view that this ability to record individual songs and to play them back in any order is nothing more than a convenient form of the kind of home recording from radio that the public has been doing lawfully for decades. In the past, Congress has consistently affirmed and reaffirmed the rights of Americans to make copies of music they receive over the air. This right was expressly codified in the Audio Home Recording Act of 1992, at the urging of the recording and the music industries. The S50 was designed to comply with that Act. Songs recorded from the broadcast are encrypted and can't be taken off the device.

Royalty payments required by the Audio Home Recording Act are paid for each device and these royalties are shared by the recording industry and its artists and by the music industry and its songwriters. Those payments are in addition to the enormous royalties Sirius pays to those parties for the right to make its satellite transmissions. Moreover, as you may be aware, despite our rights under the Audio Home Recording Act, Sirius has sought good relations with these industries and we negotiate in good faith and resolve issues related to the S50 with recording companies.

Mr. Chairman and subcommittee members, Congress should not enact legislation unless and until the recording and music industries clearly identify what they seek to prevent with this legislation, carry the burden of demonstrating that they face a concrete and significant threat, and make the necessary showing that the technology exists to implement the solution and it will reduce the threat without unreasonably harming consumers' values, rights, and innovation, and we are far from that point as we sit here today. The law as it now exists has been beneficial to consumers, innovators, and copyright owners. Consumers have rights to record lawfully acquired content for non-commercial purposes in their homes.

We have a legislative framework in the Audio Home Recording Act that protects content and consumers, compensates copyright owners, artists, and writers, and provides some certainty to technology companies. There is no justification at this time in our view to change the successful formula. Thank you for the opportunity to speak with you today.

[The prepared statement of Ruth A. Ziegler follows:]

PREPARED STATEMENT OF RUTH A. ZIEGLER, DEPUTY GENERAL COUNSEL, SIRIUS
SATELLITE RADIO, INC.

Chairman Upton, Representative Markey and Members of the Subcommittee, my name is Ruth Ziegler, and I am Deputy General Counsel of Sirius Satellite Radio. I very much appreciate the opportunity to appear today on behalf of Sirius, its employees, stockholders and more than four million subscribers.

Technological innovation and furthering consumer enjoyment are the core of our business. In less than a decade, we have developed and launched the infrastructure necessary to deliver a national satellite service and we now broadcast over 125 digitalquality channels, including 67 channels of 100% commercial-free music, plus over 60 channels of sports, news, talk, entertainment, traffic, weather and data to consumers across the country. We already pay the music and recording industries millions of dollars to make these performances.

The audio flag proposal that we discuss today is part of a multi-front legal assault by the recording and music industries on innovation, on well-settled and Congressionally recognized consumer fair-use home recording rights, on legislative agreements that they made (and Congress enacted), and, specifically, on satellite radio.

Further, the so-called audio flag proposal, in its substance, bears no resemblance to the video broadcast flag that also is being discussed during today's hearing. The video flag seeks only to prevent mass, indiscriminate redistribution of digital broadcast television over the Internet. Home recording is not affected. Our products already prevent Internet redistribution. The audio flag proposal targets private consumer home recording, long considered to be fair use.

Congress has consistently affirmed and reaffirmed the rights of Americans to make copies of music that they receive over the air. This right was expressly codified in the Audio Home Recording Act, legislation negotiated by the recording and music publishing industries with the consumer electronics industry and strongly advocated by all three of those industries as a complete, forward-looking “generic solution that applies across the board to all forms of digital audio recording technology."

Nor has a clear audio flag proposal been offered. Rather, the proponents have offered vague buzz words, like “disaggregation," or have tried to redefine previously well understood terms, like “distribution." However, it is reasonable to predict that any audio flag regime will result in the imposition of new encryption obligations on all in-home consumer devices designed to receive or playback radio-not only receivers, but complete stereo systems to which those receivers are attached, recording devices, playback devices, and even speakers.

It is not appropriate to leave the hard public policy decisions to the FCC, which is not an agency that traditionally has concerned itself with copyright law or with consumer fair use rights. Congress should not enact audio flag legislation unless and until the recording and music industries (i) clearly identify what they seek to prevent, (ii) carry the burden of demonstrating that they are facing a concrete and significant threat that outweighs the threat to consumer fair use rights and innovation, (iii) propose a clear, definite solution and (iv) make the necessary showing that technology exists to implement the solution and can be applied in a way that is likely to reduce the threat without unreasonably harming consumers and innovation. We are far from that point today.

The law as it now exists has been beneficial to consumers, innovation, and copyright owners. There is no justification for changing this successful recipe.

Chairman Upton, Representative Markey and Members of the Subcommittee, my name is Ruth Ziegler, and I am Deputy General Counsel of Sirius Satellite Radio. I very much appreciate the opportunity to appear today on behalf of Sirius, its employees, stockholders and more than four million subscribers. I am testifying on behalf of Sirius as a company that is bringing exciting technical innovation to American consumers. We are doing that while at the same time opening enormous new opportunities for the music and recording industries, paying them millions of dollars in royalties and, in addition, applying strong technological measures to protect their content. Sirius takes great pride in presenting our millions of listeners with a breadth and depth of musical programming that is unparalleled on radio and in providing a means for our listeners to discover—and rediscover-music and artists. Such a rich and diverse offering of musical choice benefits all segments of the music industry - today and in the future.

Technological innovation and furthering consumer enjoyment are the core of our business. In less than a decade, we have developed and launched the infrastructure necessary to deliver a national satellite service and we now broadcast over 125 digitalquality channels, including 67 channels of 100% commercial-free music, plus over 60 channels of sports, news, talk, entertainment, traffic, weather and data to consumers across the country.

Unfortunately, the recording and music industries have declared a multi-front legal assault on innovation, on well-settled and Congressionally recognized consumer fair-use home recording rights, on legislative agreements that they made (and Congress enacted) in the past, and, quite frankly, specifically, on satellite radio. In addition to lawsuits and threats of lawsuits, this anti-consumer, anti-competitive front includes advocacy of three different proposed bills.

In addition to the misnamed audio flag proposal that is the subject of this hearing, the equally misnamed "PERFORM" Act and important sections of the Section 115 Reform Act, each seeks to outlaw long-accepted and permitted consumer recording, for which the music and recording industries are already paid a royalty. Each seeks to give the recording and music industries veto power over technological innovation. Each would renege on the Audio Home Recording Act deal, made by the recording and music industries and sold to Congress in 1992 as “a generic solution that applies across the board to all forms of digital audio recording technology." And on the promise that

"Congress will not be in the position after enactment of this bill of having to enact subsequent bills to provide protection for new forms of digital audio recording technologies."

It is equally important to emphasize that the so-called audio broadcast flag proposal, in its substance, bears no resemblance to the video broadcast flag that also is being discussed during today's hearing. As I will discuss in greater detail, the video flag seeks only to prevent mass, indiscriminate redistribution of digital television broadcasts over the Internet. Our products already prevent all Internet redistribution of SIRIUS broadcasts. In contrast, the audio flag proposals take several ill-defined forms, each of which uses recording and music industry buzz words like "disaggregation" or “distribution," and all of which have as their primary target consumer home recording; conduct long considered to be fair use. The battlefield here today is not piracy or mass redistribution, it is the very first copy a consumer makes in their own home of lawfully

received broadcasts.

Sirius and Innovation

Sirius has built its business on innovation. The company began with the invention of a new, miniature antenna technology that, for the first time, permitted the receipt of low power satellite radio transmissions in vehicles. In the late 1990s, the company paid almost $90 million to the U.S. Treasury for spectrum rights auctioned by the Federal Communications Commission. Since then, our company has invested nearly $3 billion in the complex infrastructure necessary to run a state-of-the-art satellite radio company from satellites to transmitters to innovative new receivers to the programming of our channels by our skilled and creative employees.

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There is no question that Sirius is changing the way people listen to music, and for that matter sports, news, and entertainment. Operating from our corporate headquarters in New York City's Rockefeller Center, Sirius broadcasts over 125 digitalquality channels, including 67 channels of 100% commercial-free music, plus over 60 channels of sports, news, talk, entertainment, traffic, weather and data.

SIRIUS' music channels cover nearly every genre - from heavy metal and hip-hop to country, dance, jazz, Latin, classical and beyond. The music on each channel is selected, arranged, prepared and hosted by SIRIUS staff, all of whom are recognized experts in their music fields, along with contributing musicians and performers who lend their talent and expertise. This ensures that SIRIUS subscribers can regularly listen to unparalleled music selections, insights and perspectives.

This unique listening experience is available to subscribers from coast-to-coast in the United States. Our service can be used in cars, trucks, RVs, homes, offices, stores, and even outdoors. Boaters around the country, and up to 200 miles offshore, can also hear Sirius. For a monthly subscription fee, Sirius provides premium quality programming delivered by three dedicated satellites orbiting in special orbits to maximize their time directly over the United States.

The nerve center for SIRIUS operations is at Avenue of the Americas and 49th Street in New York City, where the company's state-of-the art studios are located. Artists including Burt Bacharach, The Beach Boys, Emmylou Harris, Dolly Parton, YoYo Ma, Phoebe Snow, The White Stripes, Mary J. Blige, Sting and Randy Travis have visited the studios for performances and interviews.

1 Audio Home Recording Act of 1991: Hearing Before the Subcomm. on Patents, Copyrights, and Trademarks of the S. Comm. on the Judiciary, S. Hrg. 102-908, 102nd Cong., 2d Sess. 111 (Oct. 29, 1991) (statement of Jason S. Berman, President, Recording Industry Association of America). Mr. Berman also argued “[m]oreover, enactment of this legislation will ratify the whole process of negotiation and compromise that Congress encouraged us to undertake." Id. at 120. There could be nothing more deleterious to that process than allowing the recording industry to renege on the legislative deal that it made.

Sirius and Innovative Consumer Recording

In addition, responding to the demands of our subscribers, Sirius has developed a portable, hand-held device called the S50. The S50 is an intelligent leap forward in Satellite Radio technology providing integration of both live content and up to 50 hours of time shifted content storage. The device provides our subscribers with the ability to enjoy their favorite music on a time-shifted basis while traveling, exercising, commuting or simply relaxing.

The S50 includes several different capabilities. While attached to its docking station and connected antenna, the S50 receives live SIRIUS broadcasts and includes a shortterm buffer that allows the listener to pause and replay those broadcasts.

Apart from the replay buffer, most of the recording performed by the S50 consists of recording the subscriber's three most-listened to channels, while the device is tuned to one of the channels, so that the subscriber can have the full SIRIUS experience while traveling or otherwise away from his or her docking station. These channels are refreshed on a first-in/first-out basis.

In addition, the subscriber can program timed blocks of programming to record and save. These blocks cannot be broken into individual songs or programs. The device also allows the subscriber to upload his or her own collection of digital music files, including MP3 files, from a home computer.

Finally, the device allows the user to save individual songs from SIRIUS broadcasts, while they are playing. The device includes a one-touch record function, to make convenient the kind of home recording that the public has been doing for decades—the kind of recording recognized by the Audio Home Recording Act to be wholly lawful. It is this function that has drawn the attention and ire of the recording and music industries.2 The S50 was designed to comply with the Audio Home Recording Act. Songs recorded from SIRIUS broadcasts are encrypted and cannot be removed from the device. In other words, there is no threat of Internet redistribution, let alone “mass, indiscriminate Internet redistribution."

And, of course, the royalty payments required by the AHRA are made for each device. These royalties are shared, under a statutory formula, by the recording industry and its artists and by the music industry and its songwriters. Those payments are in addition to the enormous royalties SIRIUS already pays to the recording industry for the right to make public performances of the record companies' sound recordings and to ASCAP, BMI and SESAC for the right to make public performances of musical works. Moreover, as I am sure you have seen in the press, despite its rights under the AHRA, SIRIUS has sought good relations with the recording and music industries. Thus, we have negotiated in good faith over the S50, and reached an agreement with the record companies.

The Audio Flag Proposals Advocated by the Recording and Music Industries Seek To Renege on the AHRA and Ban Conduct Long Permitted to the Public. Congress has consistently affirmed and reaffirmed the rights of Americans to make copies of music that they receive over the air. This right was expressly codified in the Audio Home Recording Act, legislation negotiated by the recording and music publishing industries with the consumer electronics industry and strongly advocated by all three of those industries as a complete, forward-looking resolution of home recording issues.

When Congress first granted copyright protection to sound recordings in the 1970's,

it confirmed consumers' historical right to record radio transmissions:

2

Contrary to what some may have heard, the S50 contains no automated search function. You cannot program the device to seek individual songs or artists, period.

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