UNITED STATES OF AMERICA
DEPARTMENT OF COMMERCE
TECHNOLOGY ADMINISTRATION



UNDERSTANDING BROADBAND DEMAND
DIGITAL RIGHTS MANAGEMENT WORKSHOP

WEDNESDAY, JULY 17, 2002

The Workshop met in Room 4830 in the Herbert Hoover Building, 14th Street and Constitution Avenue, N.W., Washington, D.C., at 1:00 p.m., Phillip J. Bond, Chief of Staff & Under Secretary of Commerce for Technology, presiding.

PRESENT:

C-O-N-T-E-N-T-S

INTRODUCTION:

STANDARDS:

TOPIC II:

NEXT STEPS:

P-R-O-C-E-E-D-I-N-G-S

MR. BOND: Let me begin by saying good afternoon to everybody, and thank you for coming out. My name is Phil Bond. I'm privileged and honored to serve as the Under Secretary for Technology here at the Department of Commerce, and also serve as the Chief of Staff to Secretary, Don Evans. I want to welcome you on behalf of the Commerce Department and the Technology Administration.

Welcome to our second Digital Content Roundtable, really the third event in this subject area that we've done in the Technology Administration. We also had a NIST Roundtable on DRM technical standards that we'll be hearing more about.

Our first roundtable was exactly seven months ago, in December of last year, where we began to address digital rights management and the potential that further deployment of online content might have to stimulate demand for more broadband deployment.

Back then, I think it's fair to say we heard nearly universal agreement that the private sector was aggressively addressing technical solutions. And we heard about marketing approaches that would help deliver high-quality and legitimate digital content to consumers.

Now, seven months later, we convene to look for a report from some of those participants on progress on the effort, and determine what appropriate steps might be taken next.

Specifically today, we hope to accomplish a handful of objectives, including to hear about the progress made in the technical standards processes. We heard about a great deal of activity in December, and we'll attempt to create a status report this afternoon in that space.

Secondly, we seek to define the important perspective of consumers, and how the market is working to meet those expectations. Third, we want to hear about technological developments in business approaches that are shaping the market for online content. And finally, we hope to leave with a better understanding of the proper role for the government as a facilitator moving forward.

I think on behalf of my colleagues with the Department of Commerce, we certainly hope to hear of progress, but it is difficult in the current environment to be terribly positive. Piracy continues, and continues to impact the music industry, in particular, where sales have dropped this year by about 5 percent. We're seeing jury trials in Los Angeles involving popular file-sharing services. Demand for broadband continues to be weaker than most of the public and the industry sectors would like to see.

The U.S. telecom sector, of course, is in full scale depression. We have headlines of continued IT layoffs, and less dramatically but importantly, users of LINUX still cannot legally buy DVDs and watch them on their computers, so it's clear that we still face challenges. We will certainly hear divergent perspectives that are difficult to overcome and reconcile.

The environment that I think we all want to pursue, is one that will be supported with continued innovation, one that will provide a consistent, and reliable, and predictable level of legitimate copyright protection, and will, importantly, be responsive to consumers.

In my view, these objectives are equally important, and meeting them in the marketplace is, indeed, possible, but not easy. Visionary technology leaders have continually exceeded our wildest expectations, and indeed since seven months is a relatively long period in technology, we'll look forward to hearing about technological developments even since December. And, of course, consumers' influence has always been really the first and last voice in the marketplace.

While piracy remains a major problem, estimates are that about one-fifth of the U.S. population has downloaded music from file-sharing services. The market for the legitimate sale of content certainly seems to exist. One source has pegged that at about a 2.7 billion dollar market by the year 2007.

When the Technology Administration announced this workshop on July 3rd, we invited public comments on our website, and we've received close to 150 responses from individuals and groups since that point in time. And we have heard a number of very thoughtful comments. I think it's a testament really to the Internet's unprecedented ability to reach broadly to garner input and communication and to empower individuals.

I want to share with you one comment that we had, in part, because it summons up an interesting image, but also because of the point it makes. We're reminded by one commentator that the Internet was created "by the military, crazed anarchists, visionary scientists, and engineers." And while that is certainly an interesting imagine it speaks, I think, to the essence of the media, its innovative legacy, and the responsibility that we all share for its future.

I look forward to the discussion. I'm glad to see an overflow crowd. We are going to continue to take comments through the website, so we will look forward to everybody in the room having an opportunity, and even those not here to have an opportunity to comment.

We're going to ask Mike Miron, the CEO and Co-Chair of Bethesda-based ContentGuard to introduce our visit session, but before I do that, I want to introduce and welcome my Co-Chair here, the Under Secretary for Intellectual Property at Commerce, the Honorable Jim Rogan. Jim.

MR. ROGAN: Well, thank you. First, thank you for the introduction, but especially I want to thank you and your team at TA for all the work that you put into this, and for inviting us to co-chair this event.

Good afternoon, everybody. I'm Jim Rogan. I'm the Under Secretary of Commerce for Intellectual Property. I just have a few comments, and I will keep them brief because looking around the table, I think virtually all of you I know, and have worked with in various capacities. And so having said that, I make a couple of preliminary observations.

First, none of you are strangers to this issue. You've all been working on this in a variety of capacities for a number of years, and this truly is an area where there are no villains involved. Everybody has legitimate interests.

(Laughter.)

MR. ROGAN: They must be former constituents of mine. The point that ?- please don't interrupt. I'm making my remarks. I'm going to be listening for three hours to everybody else's comments, but I do expect that over the next couple of minutes, I will have the attention of the audience.

As I was saying, I've worked with everybody around this table. There are no villains here. People have a variety of interests, and all of them are legitimate. From the content-owners' perspective, they fear an environment where their property rights can be stolen with the click of a mouse in a worldwide capacity. From the manufacturers, they have grave concerns about government stepping in and imposing standards upon their industry. From the user community, they worry about whether their legitimate fair use rights will be affected by some agreement that might be reached, and so there are broad interests here at the table, all of them legitimate.

Phil and I are very interested in hearing the comments, and hearing what kind of progress has been made in trying to reach an accord that will satisfy everybody. From the Administration's perspective, we continue to believe that the best solution would be for the various stakeholders to work it out. But I will just tell all of you, for what it's worth, as a former member of Congress, and knowing my former colleagues as I do, I just do not believe that my former colleagues will sit idly by forever and watch billions of dollars of American economic assets fall victim to worldwide piracy. So I say that as an encouragement for those of you who are trying to work to a solution that is acceptable. I look forward to hearing what progress has been made.

Phil, thank you once again for inviting me to co-chair this meeting with you.

MR. BOND: Thank you, Jim, and thanks for being here.

We want to move right into the first session here. I'm trying to achieve a snapshot of Standards Activities since we last met, and will turn to Mike Miron to give us an overview and kick that discussion off. Again, reminding everybody that we're thrilled to have a capacity crowd, and that you are able to comment, not only after the fact, but to revisit, we will have a transcript. You'll be able to go back and look at specific comments folks made, if you want to offer your opinion or comment. And you can find that on the web at technology.gov. So, Mike, go ahead.

MR. MIRON: Thank you. I'm going to spend about five minutes or so introducing the subject of Standards, which would actually take many hours to go through to really understand what each group is doing. But as you'll see, there is a lot of activity. I'm just going to do a small sampling of it. Apologies to those of you who have to turn around.

Also, Chris Israel does have a copy of this, so don't feel constrained on having to write down every acronym, because it gets blurry in a hurry, and I've asked him for those of you who wanted to fully share it.

For those of you who don't know ContentGuard, we are a small, privately held company based in Bethesda, and our exclusive focus is to promote worldwide inter-operable DRM Standards, to promote the growth and development of a DRM enabled marketplace that I think would be a lot bigger than anything anybody would credibly say today.

With that as an introduction, let's just talk about where standards exist in the digital supply chain, because it's more than just DRM. If you look at participants in the marketplace from the creation stage all the way through to consumption and use, and you'll see there are a number of synonyms there because DRM applies not only to media entertainment, but also to healthcare records, and medical records, and military secrets, and financial filings, and clinical trials to the FDA, and personal office documents, so there is a huge expansive enablement to everyone who is a content creator, to be able to determine the proper use of what it is they create, so let's just remember that.

There are a whole bunch of technologies that exist at various steps of the value chain, from authoring and editing tools, to publishing and production tools, asset management packages, to content hosting and packaging, to store fronts and rights clearing operations, as well as rendering devices and applications that consume the content.

I want to talk about five standards, and then focus in on DRM itself. The first one is obviously the digital formats themselves. The products and services exist in a variety of formats. There are a number of video formats, audio formats, publishing formats. There are things that exist on the web, and there are a whole bunch of them. Each of them does require certain technologies to be able to create them and consume them, and they exist at various steps of the value chain.

The next thing is how to identify a piece of digital content, or a service or a resource. And there are a number of activities around the world aimed at creating something called "Digital Object Identification." How do I know if Content exists, and is there a tag to refer to it, so I can go access the content if it sits on a remote server somewhere? So there's a set of standards around identification.

There are also standards around metadata. This is information that describes the content, who is the author, what's the version, when was it last edited, and so on. These are things you find on the book jacket, or the album cover, and they're equally relevant in determining how it is I go find the content I want, and which version is it, anyway.

The one I'm going to talk about is digital rights, and what we see, I use the word "language" here, because the way to get inter-operability is generally thought to be using a language to allow various different digital participants in the value chain to properly interpret and enforce the rights as determined by he who owns the content.

And lastly, we have something that is called the "Trust Model." That is, I might be able to identify this content, and I might know something about who wrote it and when it was last edited. I might know what the rights are, but do I know that you are authorized to grant me those rights? And if I'm granting you the rights, do I know that you are a trusted device? So there are various and sundry ways to authenticate and trust who it is you're doing business with online.

The last two of these things are the foundation for DRM inter-operability. If I have a way to express and enforce rights, and if I have a way to authenticate the next participant in the value chain, I have the guts of inter-operability, at least as it relates to DRM, which expresses particular business models.

Now with apologies to those of you in the back of the room, I'm going to do a fast helicopter trip over a bunch of standards bodies. Let me start in the middle, and the color-coding is deliberate, because some of these, as depicted in the pink, are attempting to create broad inter-operable standards that cross wide varieties of industries.

The ones in the blue are more focused on specific needs of particular industries, or particular business problems that industries or companies face. The ones in the green don't actually try to write standards. Their professed desire is to make use of standards that exist around the world, and create, in essence, a profile for implementation. And the ones in the pale orange are other interested parties. Some of them are doing studies, some of them are doing metadata, but they have certain needs for rights and make references to them. And I would say this just scratches the surface, and there's a little note on here that says if you'd like a more comprehensive inventory, Dr. Gordon Lyon of NIST is assembling one, as is a group in Europe under the ?- at the direction of the European Commission, also going to publish a report on what is the state of play of various standards activities.

Let me just make a quick comment on a few of these. In the center, you have a stack called "MPEG-21". This is the moving picture experts groups. It's part of the International Standards Organization, which is a treaty-based standard set of activities. It has a variety of countries involved in it, and they have something called "MPEG-21", basically it's a delivery architecture for digital media in the 21st Century.

There are a number of pieces of it, the first two of which are what's called the "Rights Expression Language", or REL. Right behind it is something called, the "Rights Data Dictionary", or RDD. IPM is "Intellectual Property Management Protection." So there are various modules associated with how one gets a digital delivery system, and there are some others. They are about to go to a committee draft on a specification on rights, and one would expect a formal standard to be issued by MPEG under the aegis of ISO at the end of 2003.

If I can go to the left and talk about the various ones in the blue, these are very content-oriented groups, mostly FORA, not necessarily International Standards bodies, but writing specifications to fit specific needs. So, for example, TV Anytime forum is about next generation set-top boxes. The DVB, which is in the lower left, Digital Video Broadcasters, is a 300 member group that's looking at digital television transmission standards. OMA is the newly renamed Open Mobil Alliance, which used to be known as the Wireless Application Protocol Forum. They have a very simple digital download spec, and are looking at more sophisticated comprehensive wireless digital rights management, because in order to justify third generation wireless expenditures, you'd like to be able to take and inter-operate with that which is coming from the major movie studios and music houses.

3GPP is Third Generation Partnership Project. They work together with OMA. SMPTE, Society of Motion Picture Television Engineers - Digital Cinema is another variant on the need to transmit digital content, this to exhibitors and others. CPTWG, the Copy Protection Technical Working Group is probably most familiar with most of the folks in this room. And in particular, the Broadcast Protection Discussion Group is aimed at working on the broadcast flag and the digital television hole.

CTCP, otherwise known as the Five C Group, addresses how one gets copy protection on high bandwidth connections in the home, specifically Firewire 1394. The IEEE and the IMS forum is aimed at E-Learning and Distance Learning Standards for education. OeBF is the Open E-Book forum. They will probably take a cue from MPEG because it doesn't make sense to duplicate the work. A number of these others may do the same.

ISMA is the Internet Streaming Media Alliance. They will probably also look at what comes out of MPEG, because their professed desire is not to write a standard and duplicate effort.

Down at the bottom, PRISM is a metadata standard for the publishing industry. They need rights to determine who gets to do what, and they have a placeholder and make references to work going on. CEN/ISSS is the European Committee for Normalization. At the directive of the European Commission, they are assembling a report on the state of play of digital rights management. And their professed desire is to have a globally inter-operable standard, and not re-invent the wheel.

ICE is a syndication standard for, again, publishing. In order to syndicate, this is really more of a B2B application. You have to determine rights for who gets to syndicate what. IRTF and IDRM is the Internet Research Task Force and Internet Digital Rights Management Group. They are basically, I think, in study mode. We hope that MPEG will provide guidance for a lot of these groups.

Now let me move to the right-hand side of the page. You see something called OASIS, the Organization for the Advancement of Structured Information Standards. This where you see a lot of XML inter-operability activity going on. And you see something here called the Rights Language TC. This is a recently started home for a general purpose rights language, and we anticipate that it will work with MPEG such that one can assure inter-operability with a number of venues.

Behind it are other OASIS Standards, the recently constituted Web Services Security, because we have services that are coming into the mix, and there's a whole big set of standards related to web services. And we believe that the combination of services and content delivery will open the door to new business models.

SAML, behind it, is something called "Securities Authentication Markup Language." That's about how to authenticate users, and we expect to be able to work with that.

Down at the lower right you have something called the Web Services Inter-operability Alliance. It is probably going to refer to the Web Services Security group in OASIS and make use of that spec as it assembles an implementable stack. And in the dotted lines are some things that are coming. They don't quite do DRM yet, but when you understand what they do, you'll see why.

Legal XML. This has several groups that just kicked off, how you do court reporting, how you do electronic contracts online, and there are certain rights to do that. eNotary is another one. They don't do DRM yet, but we would expect that's coming.

Under the joint sponsorship of OASIS and the United Nations, there's something called ebXML, which is about how businesses around the world could do business with each other using XML messages. And, of course, there will be certain needs to say control RFPs and who gets to see them. If a time expiration is needed we would expect that to happen, as well.

And finally, XBRL, Extensible Business Report Language, began actually as a financially focused thing. But again, to do financial reporting both in and outside companies using XML messages.

I've just scratched the surface here, but there are a lot. Of course, the great risk is fragmentation. If you don't have inter-operability, the whole great benefit of Internet distribution will create islands that are inaccessible, so what we believe is possible, and what we, as a company, are trying to do, is to promote inter-operability through the extensibility of a common language. And I won't spend time doing that here, but perhaps that may come up in the discussion, or in some other venue.

Finally, given our participation standards, let me leave some thought-starters with all of you, that a successful DRM standard requires an open and public process. Anything done behind the doors tends to rule out the needs of certain constituencies, and will end up being not used, even if you can jam it through. It does need broad participation, but obviously, the pragmatic elements suggest you have to break up into working groups, because if it's too big, you don't get anything done.

We also believe that inter-operability is paramount across devices, platforms, media types, formats, and business models. It shouldn't confine activity to one; otherwise, you'll curtail most of the upside. And going along with that is the necessary flexibility to experiment and adjust to a market that is in its infancy. And none of us really knows what the successful business models or systems will be, but what we don't want to do is to create a set of standards that curtails the experimentation necessary to go find out.

In many cases, standards have intellectual property and patents behind them, so clarity on what those positions are to the companies involved is important. And finally, some early reference implementations, either by the standards group itself, or by certain companies, and in some cases, public sector, because the needs of the public sector can make use of a lot of this technology, even if it's not for sale.

So with that as an introduction, let me stand back and let's have a discussion.

MR. BOND: Please identify yourself for everyone here.

MR. SCHWARTZ: Sure. I'm Bob Schwartz, General Counsel of the Home Recording Rights Coalition. As Mike said, you know, it's a survey that just kind of scratches the surface. It struck me as kind of like one of those big signs you might see in Grand Central Station, where you look at it from one angle and it's a sign about one thing. You look at it from another angle and it's a picture of something else.

It actually didn't touch on the control from a technical point of view of the one really broadband wire that comes into the home today, which is from your cable company for, you know, about 70 percent of consumers.

From strictly a standards point of view, there's the Society of Cable and Television Engineers, which is a due process standards organization, so it's possible for committee members from other industries to play very important roles, and they have to follow the ANSI protocols for standards activities.

Then there's Cable Labs, the research consortium of the cable industry, so if we're talking entertainment content, we're talking Set Top Boxes, where Cable Labs Technology, even though it's subject to proceedings at the FCC, is really directed by the cable industry itself, and has raised a number of issues that have caused concern as a matter of intellectual property, as well as from other public policy perspectives.

With respect to the more conventional ways of getting Internet access through the so-called DOCSIS Modem, DOCSIS is something developed by Cable Labs. And I believe it has also gone through SET standards procedures, and that is a much more open gateway, in that just about anybody ?- they do have to go through a certification process, but can build a DOCSIS modem.

But certainly, we shouldn't forget that for all of these things that are described as so-called DRM in a digital domain or electronic domain, there's always going to be a border where it intersects with more conventional entertainment technologies, and also with the analog world. And it's also there, when you have to translate it away from very sophisticated labeling nomenclature and control mechanisms that you can do in software, that you get a lot of the very tough issues. And I think the word "DRM" kind of applies to both of these things. And as, you know, Preston Padden has pointed out, if content wasn't protected in the first place, then DRM isn't what we're really talking about as far as some of the entertainment industry issues.

MR. SETOS: To amplify on what Mr. Schwartz says, I think DRM ?-

MR. BOND: Identify yourself, please.

MR. SETOS: Oh, yes. I'm Andrew Setos from the Fox Entertainment Group.

DRMs are progressing nicely, as we've seen, in terms of development, in terms of availability, in terms of efficaciousness. But by the same token, we are in a situation where we need to protect content in a way that wraps around the DRM situation, such that we have persistent protection. For instance, and our most biggest concern is that the way the audio/visual content is enjoyed in the homes of the United States is through analog television sets. There are approximately a quarter of a billion analog television sets, and they continue to be purchased at the rate of 20 million units a year. These are fundamentally analog only television sets, so all of this content that's been protected by DRMs or any other traditional conventional crytopgraphic approach needs to be translated into analog form.

When that occurs, we currently do not have any sort of mechanism to continue to protect that content. Even though legitimate rights have been granted and paid for, from that point on, it's a free-for-all. And so, therefore, for us, this is the precedent to DRMs being effective, because DRMs won't be effective at all if the so-called analog hold continues to exist. And one of the major distribution mechanisms of audio/visual content in the United States that we seem to be at the cutting edge of here in the United States is digital television. We need to make sure this isn't closed off, as well. So that, in fact, we can in an orderly fashion, grant rights for fair compensation. Failing to address digital television and the analog hole, and then other activities on the Internet means the DRM efforts that everyone has put a large amount of energy into, as you can see from that viewgraph, as well as some of the companies around the table, go for naught. And I think we should keep that in mind when we worry about the blooming of a whole new industrial or economic infrastructure based on DRMs.

MR. BOND: Okay. And I think we're going to circle back and touch on that again when we talk about the market place, as well, in the second session. I want to try to maintain as much as we can, the discussion for right now on the standards activity and the progress we've seen since we last got together. We have a number of standards experts here, so I want to try to hone in on some issues that might be touched on there, in terms of those bodies that have been working this and what progress we've seen in the last seven months, where some of the talks are and some of the key groups which you identified.

MR. ROGAN: If I can just make a suggestion, Andy was referring to the analog hole. As Phil said at the beginning of the meeting, this is going to be up on a web site, so maybe if we're using terms like that, we might just explain it for the record. Analog hole is basically where digital material has been transferred to analog broadcast, and then is re-transferred to a digital format, and therefore, not protected. Is that a fair ?-

MR. SETOS: I mean, to be more precise, in everyone's home today there's an analog television set, virtually every home in the United States. Nielsen tells us 99.99 percent of households.

Our content, to be enjoyed, and of course, to be sold in whatever economic business model or mechanism needs to be converted to analog form. Period. End of story. That may change over time, but today, as I said, there's a large body of devices that require us, for our own interest, to convert to analog.

Once converted to analog, while we have ideas, and we're working on mechanisms for further protecting that content, there are none to-date. And we believe that it's a combination of industry consensus, technology, and possibly focused legislation that causes devices that potentially could re-digitize that content with no rules, be in some form mitigated so that the content isn't abused.

MR. BOND: I appreciate it, and I would hazard a guess based on our last discussion, that we've got a pretty decent common language on some of these things having defined some terms last time. But let ?- I want to ask again, has there been any progress in the standards setting process, since we got together in December? Some of the most relevant group that Mike outlined.

MR. MIRON: Well, do you want me to comment again in greater depth?

MR. BOND: Well, I'm waiting for some of your fellows to join you here, so go ahead and see if you can solicit something.

MR. MIRON: Well, for our participation, which again as a subset tends to be in the areas in which the new digital technologies will see. What we participate in does not specifically address the analog hole, but we see the most progress in MPEG. It's a process that's been underway for well over a year. They have a specification. They go ?- if you're familiar with the MPEG process, they go to something called Committee Draft, which is imminent. That's a near final specification that then goes to the various countries and national bodies for approval or comment. And they're nearing that, and that's a pretty rigorous process that's driven heavily, actually, by the rights-holders, with a combination of technology players and so on. It's international in scope, and so from what we can see, that's probably the one that's furthest ahead for this focus on the new digital delivery systems.

MR. VALENTI: Mike, currently, furthest ahead on what specifically?

MR. MIRON: On developing a standard to express and enforce rights, that can be interpreted by anybody who's building a digital system.

MR. SETOS: To address your question on standards, I may have glossed over the broadcast flag activity, but actually there is a good report to be made on many counts with the broadcast flag. On April 2nd, the ATSC, the Advanced Television Systems Committee, voted to adopt an amendment to its standard for the RC Descriptor. The buzz word for the RC Descriptor is the broadcast flag. The RC stands for Redistribution Control, and that standard specifies the protocol for labeling content that is being broadcast on digital television stations in the United States. It signals technological control over redistribution. I'm sorry. I'm paraphrasing, so that anyone who knows the standard by heart not to be upset.

Of course, that's simply a statement. It's a Lexicon. It's a dictionary. One can look to that and understand that's what it means, but there needs to be also agreement on physically implementing it in products, whether it be in software products or hardware products, whether it be looking like a desktop or a set top box, or a digital television set. To that effort, we have worked with the consumer electronics industry, and segments of the Information Technology industry, in the PPDG process. And I believe that we have reasonable consensus among, certainly in the consumer electronics industry, on mechanisms to implement and make practical the use of the broadcast flag.

There are some objections in the Information Technology area that we continue to work on, in order to bring true consensus on industrial implementation of this. The consumers groups have been very concerned about this implementation because, you know, they're concerned that their rights might be unnecessarily infringed. However, we have done everything to ensure that certainly consumer expectations; that is, practices of today, making a recording, a personal recording of a broadcast that you watch, being able to watch it later, putting it on the shelf, even making a copy of that copy and giving it to others, and then others making copies of those copies, the design of that implementation preserves all that flexibility, so we have only wanted to limit one thing, and that is the unauthorized broad redistribution of content that's been transmitted into people's homes, so that, in fact, that distribution mechanism, called local television, is preserved.

MR. SCHWARTZ: I think it is fair to say that there's been a lot of hard work and great progress. HRRC includes consumer electronics, participants, manufacturers. It includes a lot of other interests, as well. I don't know that all of HRRC, even from the manufacturing sector, would be comfortable with saying that the most serious reservations come from the IT side. Philips has not made any bones about the fact that they are uncomfortable in a lot of senses with what's happened to BPDG, and in various contexts, they've gotten support from up to three other consumer electronics manufacturers.

As to fair use, it's very difficult to take fair use, which although recognized in legislation is a doctrine for judicial application, and tried to trace a picture of how it ought to come out, whether you're legislating or in the standards activity. There's collateral damage no matter what you do, and it's certainly true that the objective of the whole BPDG flag is to address redistribution, whether you define it as over the Internet or beyond, a personal space that may include, your car, your vacation home, or what. But as fantastic as the technical tools are, they are never sufficiently precise to avoid fair use issues coming up, as well.

And the other thing that goes along with standards activities are issues of competitive parity. On the one hand, are you going to take a single technology and say this is it, and everybody else can go work on something else? On the other hand, are you going to promote competition at the expense of inter-operability? And then the third one is, if you think you have it all worked out as some golden mean, are you giving a leg up to somebody that will make it hard for other competitors to catch up? So those are the considerations that are kind of surrounding this in an atmosphere in which there's been tremendous hard work.

I mean, the plane to LA is going to be crowded tonight because the CPTWG meets tomorrow, and it's been constant throughout this year that either the Congress, or the Administration, or the FCC does something the day before, day after, or on the day of the Copy Protection Technical Working Group meeting. But, that's the environment, I think.

MR. SPENCER: Yeah, I'd just like to ?- my name is Graham Spencer from digitalconsumer and I want to thank the participants in the BPDG process for encouraging consumer participation. And I'd just like to echo the comments that Chairman Tauzin made in the meeting we had two days ago where he said that there is broad agreement on certain aspects of the technology, most aspects of the technology. But we still do have some way to go in figuring out these policy issues in terms of the balance between the rights of the content owners and the rights of consumers who use that content, so I'm encouraged by the progress that we've made so far. And I'm definitely encouraged by the fact that the BVD document carves out certain exemptions for fair use, but I would certainly like to see those clarified, and I would like to make sure that we don't foreclose potential fair uses as we're making these standards.

MR. BOND: I'll come over here to Elizabeth, and then come to Gordon Lyon for public comments on progress you've seen in some of the other standards development organizations. Elizabeth.

MS. FRAZEE: I'm Elizabeth Frazee with AOL Time Warner. And just to follow-up on the last three sets of comments that were made, Bob and Graham have both raised issues that the government really needs to help us identify and work out. That's why the content industry is going to be looking to the government for some help in ratifying some of the inter industry agreements that have been crafted.

Andy has talked about the success of the BPDG and the technical agreements that have been reached on the flag. We think that we're now going to need the help of the government, Congress perhaps ratifying the standard, giving the FCC authority to promulgate a rule to enforce it. And enforcement now is the big issue.

MR. BOND: Okay. Rhett, did you want to comment, and then we'll go down to Michael.

MR. DAWSON: Yeah. I think you're hearing exactly the right thing which is that ?- I'm Rhett Dawson with Information Technology Industry Council. I think Graham and Elizabeth had it pretty well right. I think we've made a lot of progress on the technology solution side. These things are never within reach, because when they get within your reach, they exceed your grasp, but we have made a lot of progress.

Where a lot of concern, and most of the concerns that I've been hearing lately exist have to do with what Graham called the policy side, and what Elizabeth called the government side, and what I will call how you do what Michael talked about, which is how you arrive at this, and put it in a place where the process is open and public. And that's the most vexing problem. And I think the path forward is to try to work very, very hard on figuring out what the objective criteria are for the solutions. And I think that's not just the government role. I think there's a lot of work that we need to do in the private sector to work on that. Objective criteria so you don't have a small number of players determining outcomes, and that's really crucial, so good news and bad news.

MR. BOND: You don't want to share with us your objective criteria that you developed?

MR. DAWSON: No, I actually don't ?- I think we're all going to have to work on it together. I mean that ?- I don't think anybody is going to be able to ?- I think it's going to have to be a fairly public vetting. I think the work that the BDPG did is a start. I think talking about self-certification to the standard is a very sensible notion. I think that's something you ?- in fact, Dr. Bement can probably speak to that with a lot of experience. I mean, this is something the government knows how to do, is how to accredit people. And so I think ?- I guess my general belief is before you invest the Federal Communication Commission with a whole new bunch of authority in areas that kind of mix in contract because of the licensing terms, content because of property protection, and consumer rights, I think we've got our work cut out for us.

I am not trying to allay things here. This is all meant to be trying to move forward, but I think almost as daunting to me as the standards work is the public policy kind of work. I'll get you a list later though, if you can wait.

MR. BOND: I'm sure you will. Michael, go ahead, and we'll kind of hold our NIST expert in the bull pen there.

MR. EPSTEIN: My name is Michael Epstein. I work for Philips Electronics, and we've participated in a variety of these endeavors, including helping launch digital television. I actually had the privilege of working one of the original prototypes, and spent the nights to get it done on a very short deadline.

The critical element here, in our view, is a question of balance. As Mr. Schwartz pointed out, it's very hard given the technological tools not to cause damage. And because we're working in a new technology, we cannot be said to be close to consensus on the topic itself. What we can say is we're on the cusp of a discussion about what it ought to do. And toward that end, we're delighted that Chairman Tauzin and his counterpart, Congressman Dingell, presented a broad legislative approach to take a look at the entire topic, and try to make a sensible approach, because it's too involved in the various technologies, and too broad-based to just sort out in a little bit. And the best part about the BPDG and the strong efforts made by the content community, as well as my counterparts in consumer electronics and the computer industry, is to initiate this discussion and bring these issues to light. It wasn't obvious in the beginning that's where we were, but it's obvious to us now. And now we need to have vision that says we're going to promote digital television in a way that people want to buy it, and that we can make the new devices, and the promise will be fulfilled.

At the same time, adequate safeguards must be in place for the content that all this depends on. And striking that balance is going to be the difficult part. And as the man said before me, we've got our work cut out for us, but we welcome the opportunity to participate in this discussion, as we've participated before.

MR. BOND: Jonathan, did you want to add something?

MR. POTTER: I'm Jonathan Potter with the Digital Media Association, and I'm just doing a lot of listening, and going back to first year law school and issue spotting. And I want to make sure I understand the issues that are sort of being presented as open issues. And Graham talks generically about policy issues. Rhett talked about objective criteria, and I think Rhett is talking about technology when he talks about objective criteria, but I'm not sure. Or is he talking about policy issues and objective criteria.

MR. DAWSON: Policy.

MR. POTTER: Which is a tricky thing to get objective criteria and policy. And then Elizabeth used the word "enforcement", so if they're all talking about the same thing, we should probably figure out the right word we're going to use, and it all wraps into fair use, and consumer rights and things like that.

My personal concern, and our organization is only concerned with regard to the discussions about the policy issues, and the enforcement issues, and the objective criteria that may be divined, perhaps only by the limitations of the technology, but ultimately hopefully will be defined by others, and by balancing tests, is that it seems these discussions are happening primarily on the West Coast. And if the government is going to get involved, and there are open discussions and reports back here in Washington, but if the consumer organizations, several of which are based here in Washington, are going to participate in these, if frankly less resourced organizations like our own are going to participate in what will ultimately become essentially a government mandate of some kind, a government balancing test, or a government approved mandate, whether through technology or through specific laws, there should probably be more of that activity happening here in these kinds of places.

MR. BOND: Doug.

MR. COMER: Doug Comer with Intel. I just wanted to reflect on what Jonathan just said, which is not only should those discussions also be taking place here, they need to - and going to the comment the previous speaker made - they need to embrace a much wider set of issues. And we agree that they need to embrace not just the issue just of what technology can do, but what it should do, and what should it not do. And the consumer interest in fair use, and the ubiquity and use of the technology, and also other issues. And these are some of the subjects that have been laid out in a letter that I think everyone is familiar with, that a number of CEOs in the IT industry have communicated to the content community with regard to the need to broaden this entire discussion to include these other areas, such as consumer education, law enforcement concerns, consumer rights, consumer interests, and new business models. And for the distribution or development and deployment of more digital content. And that's really a focus that Intel has at this point.

MR. BOND: Can I just ask you to submit a copy of that letter so that we can put it on our posting on the web, make sure it's part of the record.

MR. COMER: Yeah. I'd be pleased to do that.

MR. BOND: I'm sorry. I cut you off. Did you have ?-

MR. COMER: That's all right. The point I was driving to is this, it's not just a matter of looking at where the technology might lead us. We also need to look at the kind of marketplace, and the kind of consumer experience that we need to shape out of this entire effort.

MR. BOND: Mitch.

MR. GLAZIER: Just to bring everybody up-to-date on a recent development.

MR. BOND: And you are?

MR. GLAZIER: And I am Mitch Glazier of the Recording Industry Association of America. On the audio side, just over the last month, very preliminary discussions have begun. Overtures has been made with some CE and those in the IT community on trying to pursue development of a redistribution control, or an audio performance flag.

There are very specific issues to audio, some of which are parallel to video, some of which are not. And in the audio world there exists already for digital performances a statutory license. And that statutory license is meant to apply to non-interactive performances.

The advent of many technologies that are allowing the transition of what are meant to be streams into redistributions, in other words, capturing, and then from the capture burning or uploading onto P2P systems, or other types of redistributions that were never contemplated as a part of the statutory license, undermine that license and the market place that the consumers expects from radio-like services on the Internet, which are meant to be offered at a very affordable price, and advertising-based or other fora that don't include things like a true distribution or a sale. And so what we've done is begun to explore the development through multi-lateral cooperation of a redistribution control on the audio side.

We're in the very preliminary stages, but we hope that six months from now we see the same kind of great multi-lateral cooperation that's existed on the video side, and trying to make sure that the balance that Congress struck in the DMCA and elsewhere in the compulsory license is maintained.

MR. ROGAN: Are all of the participants that you've been working with, do they appear to be satisfied with the level of cooperation, and particularly in areas like peer-to-peer. What's the status on that?

MR. GLAZIER: The concept is that this would be limited to trying to prevent people from capturing streams, and then uploading those as another distribution onto P2P systems. The very preliminary feedback that we've gotten has been incredibly positive and cooperative from both IT and CE, so although nothing formal has been established, and people haven't begun to really consider technical specifications in a way that they have on the video broadcast flag side, we think that it looks promising, and we're encouraged by the prospects of development, but we just don't know enough yet.

MR. POTTER: I want to welcome this introduction of this obviously very new discussion. Our members include Real Networks, Microsoft, and many of the Internet radio companies who do believe that there are several different business models, some of which are intended to be performance-based, some of which are intended to be distribution-based, some which are subscription/non-subscription, whatever.

Certainly, we'd love to be at least aware of discussions like this. Hopefully you're talking to some of our companies that build the streaming codecs, and that are offering these services to make sure that they will work in a commercially reasonable way, that is actually acceptable to consumers, as well as those companies that are developing the technologies. We look forward to participating.

MR. GLAZIER: P is down on the alphabet, so we probably just haven't gotten to ?-

(Laughter)

MR. GLAZIER: But I assure you that it is very new.

MR. SCHWARTZ: Does this mean SDMI is going to start meeting again?

MR. GLAZIER: We ran out of locations so no, it won't be meeting again.

MR. BOND: Stewart Verdery is waiting, and then we'll come over here, and then to EMI.

MR. VERDERY: I'm Stew Verdery. Mitch, I think, raises a good point that if you have a situation where whether it's satellite radio or web casting a digital stream, if you have a hard drive device that you could say okay, I want to leave this on for a week and record every song by my 30 favorite artists onto a removable media, and this is coming from free radio, or satellite or web casting, that puts the pay-for-music industry in a difficult position if everyone can get everything they want for free, so we look forward to working with the group that Mitch is talking to, as well as anybody else, Jonathan, to kind of look around the corner and make sure that a legitimate pay-for business isn't overrun by a good radio web casting or satellite business, as well.

MR. BOND: Over here.

MR. REID: Yeah. Rob Reid from Listen.com, one of the web casters who is not yet aware of this new initiative. I'm just curious if there's any data available that gives us an idea of all the songs that are up on the peer-to-peer systems, what percentage of them were actually arduously reassembled by web casts, and what percentage of them were actually originated with the 15 billion unsecured digital masters that the music industry has sold to the public over the last 20 years?

MR. GLAZIER: We're actually trying to get in front of a problem, instead of trying to put a Genie back into a bottle, which I think should be appreciated. And also, one of the services that I think would benefit greatly from not having Streamcatcher or other types of devices could be directly for free, is Rhapsody, which depends on subscription-based interactive, on-demand consumer attention, and you don't want to see something like Rhapsody devalued by something that was unintentionally made a competitor, when that bargain was never struck in the first place. So we do look forward to your involvement. We think everybody can benefit from this.

MR. REID: Given that 100 percent of my company's revenue comes from Rhapsody, I agree heartily. The concern that I have though is and obviously put in somewhat glib terms but, it's easy to, in a sense, look at the legitimate services that are out there, that are trying to provide consumer value in a way that respects the rights of creators and right-holders, and you can either say wow, that's fabulous that it's happening, and it's fabulous that there are still some solvent companies that are trying to do that. And my concern is, if you say well gee, that's just another leak in the dam, and you ignore the fact - and I'm not saying that you are, but I mean the real problem is the fact that, yes, everything is available for free. And there are these 20 billion digital masters, and it is possible for somebody to contort themselves into unnatural shapes to, conceivably capture something from a stream. But given that there's probably millions of copies of that song both in digital form and in physical form that are unsecured and out there, I just don't see that being our biggest problem.

I'd rather that we focus on the bigger problem, which is that there are enormous free services that are there. And that we, as an industry, have to create consumer experiences that are better. We can't litigate or legislate the services out of existence. We can't litigate or legislate the fact that there are 15 billion unsecured digital masters out there. What we need to do is acknowledge that they're out there, and acknowledge that there's a consumer-base of people who really want the richness of music that those services make available, and the robustness of access. And we have to create something that's better than that, because that's just not going away.

MR. BOND: Let me jump in just to observe. You can see, now everybody can see why we chose Rob to kick off the second portion of our discussion here, because he's going to be provocative, and we do want to get to the discussion of different business models. But I'm going to make one last stab here, before I go to Ted Cohen from EMI, to kind of wrap up the discussion on progress in the standards space, in the technical space. And then we're going to let the hounds loose here, and get into what people are itching to talk about.

Ted, did you want to make a comment?

MR. COHEN: I think the biggest challenge is, and Rob and I have talked about it before, and Jon and a lot of people in this room. It's not a question of do people have personal use rights? We believe that they do. I mean, there's no intention -- you know, contrary to public opinion, it is not in the interest of any record company, our's in particular, to limit the consumer's enjoyment of music, we want it to be a rich experience.

What we're faced with is the challenge right now that with technology comes the ability take away a lot of the friction. It's created an environment where it's very easy ?- I mean, I brought ?- I'm known for my toys sometimes. I mean, this is a 20gig personal music device. I can bring this over to your home and transfer basically 500 albums in about less than five minutes onto ?- well, not with this one. With this one I can transfer. It's different. This is USB, this is Firewire, a lot faster, so you end up with a situation where is it fair use, is it personal use for someone to go on eBay and sell Nomad Jukeboxes with 20gigs of music, 5,000 songs for $400, and sell ten of them? I don't know if that's Junior Achievement. I don't know if that's personal or fair use. And that's what we struggle with, what is the boundary of a reasonable experience?

If I can put on this device another 20gig hard drive, I can put the complete works of EMI popular music on this cartridge. I could basically go home-to-home and transfer this over. That, to me, intuitively is not personal use, so what we're looking (ebit) out of all these standards as they develop is just something that if you do what everyone says is reasonable consumer behavior, you make a couple of a CDs, you put your music on a few devices that you have, you access it from work, you won't feel any type of digital rights management. You'll never run into that wall.

We want it to be a really soft wall. We don't want ?- we're not looking for something confining. I want you to have as enjoyable a music experience as I do, and so in working with any of the copy protection companies, or any of the digital rights management companies, we keep saying it's got to be friendly, and this is why I came on board.

MR. BOND: Thank you. We'll go ahead with you two, and Gordon, I'm going to get to you. I promise. Go ahead.

MR. SCHWARTZ: Well, just in the progress report area, just as I thought in the overview, one area that was left out was cable, by which 70 percent of the public actually gets their entertainment programming. In the progress or lack thereof area, I think some notes should be taken there. And the problem there is that in the market ?- the market for consumer devices that hook up directly to digital cable systems which is, you know, where the leading edge is supposed to be, is still closed and controlled, and serviced only by those who provide the services themselves.

Now this is something that we got out of with respect to telephones in the 1970s, and a bonus of doing that was, you know, we have the Internet and fax machines, and all sorts of other good things rather than black dial telephones.

Congress passed a law in 1996 as part of the Telecommunications Act that was supposed to accomplish roughly the same thing. The FCC has been working on this since 1998. In the technical area, I mentioned before, Cable Labs, a consortium of the cable industry, there has been a lot of technical progress towards letting devices that consumers can buy, get onto any cable system in the country and, you know, download enough information so as to operate and serve consumers on that system. And then when the consumer moves, we'll work on another system. That's called Open Cable Access Platform or OCAP.

In the area of licensing that to manufacturers so that they can build to that technology, and to earlier technologies that Cable Labs has developed for competitive entrance, in the last two years there has been no progress. The subject of this has been the so-called PAHOST Interface License Agreement or PHILA.

HRRC members are extremely concerned because as manufacturers, retailers, users they would like there to be the same benefits of competition in this market, and without the restraints, the sort of collateral damage that I talked about before. And there isn't the immediate prospect of entry. There is the prospect of severe constraints on consumer viewing, as well as recording, as a result of issues that emerge in the negotiations of this license, which every competitor, if they want to put a product into the market would have to sign. So without going into a debate or editorial on that subject, just in terms of has there been progress in particular areas, the FCC has a docket on this issue, CS Docket 97-80, and I think that's ?- a group like this ought to be keeping an eye on that as well.

MR. BOND: Thank you. Graham, did you want to ?-

MR. SPENCER: Yeah, just briefly. I want to follow-up on Mr. Cohen's comments. We, at digitalconsumer, certainly respect the fact that the entertainment industry is making efforts to make content more easily accessible and respecting fair uses. I would say one of our major concerns is that sometimes the technology hasn't yet caught up with the fair uses that people would like to enable. And I think, for example, CD copy protection is a good example of that. It certainly eliminates certain fair uses. And again, you know, the record industry has made reasonable efforts to, for example, provide songs that you can download once you bought the CD, to match up with that, and so we respect that.

But our concern is that we don't want solutions that don't adequately support fair use to be made part of legislation or to be made part of law. We want to make sure that we leave the door open for future technologies that will do a better job of protecting fair use.

MR. SETOS: If I could, yeah. There is one other area of standard setting I think that you should take note of, and that is the DVD Copy Control Association, which is responsible for the DVD format that movies are distributed on in this country and throughout the world, has been evaluating watermark technology for the so-called suspenders, or the belt and suspenders approach of protecting that content. And that work is going on right now as we speak. And in fact, it's today, and I'll be joining it tomorrow after I go back to Los Angeles. And we are evaluating two commercial proposals for watermark technology image watermark technology, that in this context would only have application because of the charter of the DVD CCA and DVD players, or DVD devices. However, many of us involved hope that this will ?- we have a buzz word called the consensus watermark will emerge from this, and we can apply this watermark in a whole bunch of audio/visual applications.

MR. BOND: I'm sure there'll be plenty of discussion on that down there, and then Gordon, I'm coming over to you.

MR. WYNKOOP: Yes. Good day. I'm Brett Wynkoop from New Yorkers for Fair Use, and I wanted to express my concerns that any protections that industry feels that they need on digital content, I don't really feel that the government should be getting into making rules, regulations and statutes supporting that, that would essentially criminalize free use, or unwittingly, after the fact, after the regulations are made, make criminals of otherwise innocent citizens.

I would venture to say that most people in this room today own a permanent magic marker or some White-out, and I would venture to say that there are enough of you in this room that know the reference to realize that a certain recording company has made every man, woman, and child in this country that owns White-out or a permanent magic marker a felon, without, you know, there being any real law making process.

The government promulgated a set of regulations that were extremely broad, that allowed for private industry to, in the future, make people criminals, and I think that we can protect the interest of artists without overstepping the bounds like that.

MR. BOND: That balance is our goal. Let me come over here to Gordon to give us your perspective from NIST, kind of surveying the different developments, and progress or lack of progress you may have observed. I'm going to take a stab at wrapping this up so we can get to what everybody is itching to talk about.

MR. LYON: Okay. My perspective has probably been stated in several different ways here. One can see normal marching along of progress and, for instance, at NIST we work on the MPEG series, and there's the usual computer security standards work that we do Internet protocol security. At NIST we also work on DRM as an item for the OEBF, the Electronic Book forum. The ATSC, my own group, has worked with the television systems committee, so we've heard them.

OASIS and, of course, the ubiquity of XML. And these are technical components. And they're just kind of ?- I would say they're marching along, but what I've noticed is well, say last fall or in the summer, technical people coming around. They've begun saying well, I used to think that this technical whatever would do the trick, but I'm now beginning to have second thoughts. And they no longer see a technical solution maybe to the path to general DRM success. As one might have heard, they're beginning to see the barriers of the technology, and the policy, and the business elements not having more interactive and constructive interactions, that you can invent a lot of technical things. If there's no real way to make a business work with them, they don't you to do much, so that I believe the ?- Mike Miron in the beginning, talked about being open and creative, and other people have said ?- a balance was a good word. I forget, it was over here.

The word "balance", but it's a bigger balance than just a technology balance. It's this balance of technology ?- the problem is a balance of technology, and law and policy. You know, some people are going to be miscreants, but what are they? I mean, are they people with White-out? No, you don't want that. And then there's the poor souls ?- I mean, you are not going to create stuff if you don't get some way to get compensated for it. You know, starving artists don't last too long, so it's a complicated thing that I think is going to have to be pursued on all these dimensions. And as a technologist we can see where things can be done, but things ?- one thing, for instance personally, I have a suspicion that the richness of business models is tremendous, and I think it would be good, whatever is done, to allow new people with bright ideas to do something that doesn't turn out to be a legal -- the richer you can make that for people to invent, the more likely in the end you'll have an imaginative set of technical solutions that people like.

And then just one last observation, that sometimes from a technology standpoint, people are always trying to get A Class solutions, but it's sometimes better to have a B Class solution that has a tremendous breadth of application, than a narrow A Class solution.

MR. ROGAN: Gordon, in light of the recurring White-out analogy, as a former prosecutor, I feel compelled to advise everybody in this room, you do have a right to remain silent.

(Laughter)

MR. LYON: Well, may I ask, I always thought one had to have criminal intent too.

MR. SCHWARTZ: Actually, in the example the gentleman was giving, it's the HRRC's view that making a signal non-standard for purposes of confusing some, but not all of the reception equipment, is not a technological measure as was contemplated under the DMCA that is entitled to protection under the DMCA. So at least in our view, and you know, maybe the guy sitting to the right of me wouldn't agree, but in our view the folks with the magic markers and the White-out don't have to worry because they are not -- we're not saying that this technology is a good thing, but it is so random and non-standard in its application, it is not what we believe that Congress had in mind as a technological measure that's supposed to be effective given the legislative history of the DMCA. And this, so-called copy protection applications, to add some noise or do other things to the signal so as to fake out some playback or rendering devices but not others, is not a technology that qualifies for protection under the DMCA. And, therefore, defeating it by that means, or by changing the design of products so that it no longer applies to them, would not be a violation of the DMCA. You don't even have to get to other parts of the DMCA, such as no mandate clause, or the playability legislative history which might also shelter whoever does that.

MR. SETOS: I have to set the record straight. I care a lot about music. I'm just not in the music business, as I said. In fact, I even helped start MTV, so there.

MR. BOND: Joe Tasker, ITAA.

MR. TASKER: Thank you, Phil. Before we go to the next topic, I just want to say about standards for a moment, that I came into this debate in February, as a believer that the private standard setting process would work to solve these problems. And I think it's important to reiterate and I think that I haven't heard anything to suggest otherwise, that there may be some bumps along the road. Standards processes are complicated, and when you expose them to the light of day, you sometimes see how complicated they can be. But I think it's important to underscore the fact that when you look at the role of government, which is one of the items on your agenda, the role of government is best expressed right here in meetings like this, facilitating processes and urging people to do the right thing, but not in the government setting broad technology mandates for one size fits all solutions.

MR. BOND: Can I get a show of hands of people who generally agree with that sentiment? Jonathan.

MR. POTTER: I thought what I heard Gordon say was we've got a lot of smart technologists doing a whole lot of work, and that perhaps they hit a wall because the rules haven't been defined yet, that they're supposed to be building to. And if that's the case, I mean, back in our last forum when we were having loads of fun on the second panel, I made the suggestion that perhaps if the content companies would define precisely what they wanted, that the technology companies could probably build to the standard, could meet those criteria.

What Gordon, I think said, was that technologists have done a lot of work. They've built to a lot of criteria, and now we need some clarity on precisely what the criteria need to be, so we get back to the rules, the enforcement, the public policy perhaps, or maybe even the law.

MR. LYON: The solution, I think, may lie in ?- for instance, business models that allow what the business people think are certain losses because they're not worth implementing anything that would keep them -- it's like the credit card industry. The credit cards could be tightened up, but it costs more than the losses, so you quit right there. And so, I think the innovations could be both on the business models, building interesting ways of putting it together, and then the technologists making those things really cheap so the transactions cause the business people to make money that makes the material readily available.

It's not quite the same as what you're saying, because the business models would sort of be generating the requirements to which the technologists work, but that itself should be not a fixed thing that's just given. I would expect it to be ?- you know, little businesses may come up and die off the way they have been for some time, and it's kind of authority in selection. I mean, they give some requirements to the technologists. They try it. It's a fiasco. They try something else, maybe minor changes to it which may make all the difference in the world. And it's that, you know, allowing this to go on until it settles out I think would be healthy.

MR. POTTER: That feeds back to your point, I think, of taking the Class B solution. I think a point of ?- perhaps what Rob was saying about getting the legal out there, going back into marketing, but perhaps it applies to the technology also. And Mike having put up an array of wonderful circles, when do we stop and say launch? When do the technologists stop? I mean, the technologists stop when the business people say you've spent enough. It's good enough, and then the business people say we're just going to go with it, because sooner or later we've got to go with it. Legal must win, it just must. And as one who has been maligned in all sorts of interesting ways as we've borne and created our organization, we believe that legal must win, and that consumers must win. And the technology must make sure that both of those happen, but sooner or later the business people have to pull the trigger and say we're going to market. We're going to win.

MR. COHEN: I think we've done that. Rob and I spoke last night. I mean, we don't know what the best business model is, so what we're doing is working with companies like Rob and other subscription services and radio services, to try and get -- to find out what is that sweet spot where, for lack of a better term, we've eliminated shoplifting. I mean, I don't know how else to put it.

It's hard, it's really hard to compete with that, but when you're in an environment where the technology ?- any technology that liberates content and makes it free is good technology, and any technology that tries to impose any type of a speed limit is bad technology, it's a rough environment to work in.

MR. BOND: Looking at Jon.

MR. POTTER: I would agree with that.

MR. BOND: Let me take a stab here at trying to wrap up so we can move on to the second panel, and I'll steal some notions tabled by other folks here. It seems that we have general agreement that there has been a lot of progress made, some good talks, a lot of hard work. And perhaps to steal Rhett's notion a little bit, that as progress has been made, the aperture keeps widening to enforcement, and fair use, and other legitimate public policy issues that are going to have to be tackled that are linked, inextricably linked to the technical progress being made. And that even on technical progress, we realize that sometimes, as in many other instances, the perfect may be the enemy of the good, which I think is the point Jonathan is trying to make. So progress is made, but solutions remain beyond our grasp. I guess what we need to do is move now both in the discussion, and perhaps in reality too, towards this point of trying to find when are we at a point where businesses can launch, where we can get the content out there, to the societal good, hopefully, of stimulating some more deployment, and more services, new applications, and a new virtuous cycle of innovation.

So with that I'm going to ?- if people see me wildly off-base in summing that up, I would like to hear now. Otherwise, we're going to go to Rob. Andy.

MR. MOSS: Andy Moss from Microsoft. I just want to get one more point just to think about. When we think about DRM, most of the discussion takes place in the context of what consumers do with other people's content.

When we think about the technology, one of the measures of complexity, as if there aren't enough, is also what you can do with your own content. And so Michael mentioned that early-on, but we think that DRM is also a mechanism for personal privacy protection. So as the digital economy and the digital infrastructure takes root, as you have discussions with your doctors, your lawyers, your accountants, from a personal level you can protect your personal content in that, as well. And so I want to make sure that that point doesn't get lost when you think about consumer rights. It's also about personal privacy.

MR. BOND: Okay. Thank you. My apologies to the folks in the audience. I see a lot of hands, but in the interest of trying to cover the subjects before us, I'm going to refer you to the web site for your comments. They'll all be taken in, and ask Rob to move us.

MR. REID: Okay. Great. I'm chairman of a company called Listen.com. And for people who aren't familiar with us, basically what we try to do is offer, what I characterize as a billionaire's music collection for $10 a month. We have tens of thousands of CDs, basically the catalogues of five major record labels, and about 80 independent record labels available 24 hours at a day at CD quality. No restriction at all on how much you listen to. You can listen to -- tens of thousands of songs by hundreds of artists if you've got enough hours in the month. I guess that might be tricky, so there's a limit in terms of the hours of the month. But basically you can listen from your home stereo, from your computer, or basically any set of speakers that in some way is connected up to the Internet. And we price this at $10 a month, which we think is a pretty good deal. It's less than the cost of a CD.

We're being under-priced by our competitors, and we're being under-priced by about ?- well, $10 a month. And the reason for this, of course, is that our competitors are pirate services. And how do I win against that? And there's ?- you know, basically there's a couple of ways to win, and a couple of ways not to win. I'll tell you how I don't win. I don't win by litigation. I don't win by legislation. Why? I don't have the time, I don't have the resources, and ultimately, I don't think that works.

The way that I'm going to win is, I have to acknowledge that piracy is a permanent part of the landscape. The Internet is too open. The software developers are too good. It's always going to be out there, whether we want it to be out there or not.

The other thing that's a permanent part of the landscape is tens of millions of consumers who absolutely crave the richness of catalogue, and the robustness of access that pirated services have given them over the last several years. So the way that I compete isn't through legislation or litigation. The way that I compete is I have to create a service that's better than free, which is hard to do. I mean, that's a tough proposition, but the good news is people do opt for things that are better than free all the time. If they didn't, you know, we'd be eating at soup kitchens every night, and not going to restaurants. And just looking around this table, I see a bottle of Poland Springs, and something else I can't identify that tells us that designer water is a multi-billion dollar industry, and that comes out of the faucet for free. So better than free does exist, and in fact I think an even more optimistic way of putting it, and a more realistic way of putting it, is I have to create a product that consumers will say, you know, that's worth at least ten bucks more than the competition. The competition happens to be priced at zero, but I've got to provide more than $10 worth of value. And practically, every transaction we ever make, we could always buy whatever we're buying slightly less expensively if we're willing to incur the inconvenience or buy a slightly shoddier product. So I start feeling better when I think about that.

Now how do we provide this value? How can we personally as a company, but then more broadly as an industry, and I'll just use our own experience because it's what I know. How can we compete with free? I'll take one example of an action that's very common for music lovers online. If I want to listen to five albums from start to finish on Rhapsody, which is our service, the odds are that we've got the albums. Not all -- we don't have a perfect catalogue, but we've probably got most of it. I'm going to basically type in the names of five artists, click on the names of the albums and hit play. This takes me about a minute.

Now if I get onto a pirated service, I am going to type in several dozen song names. I'm going to execute the searches. I'm going to search again for the songs that didn't come up, which will be a lot, select connection speed, select bit rates, execute the download. Sit there. Babysit the downloads for the songs that don't successfully download, start all over again. Once the songs are down, I'm going to have to quality control them, make sure they actually play. If they do play, are they the songs that I thought I was downloading? If they are, do they sound good? Re-download the bad files which will be a lot. Probably rename most of those files because there'll be exotic naming conventions that aren't consistent with my own. Sort them into folders which is basically representing the albums, put the songs in order, and then hit play. That's a pain in the ass.

That's a technical term. I guess we're making a transcript here too, aren't we? That's extraordinarily inconvenient for the time-pressed consumer. And so basically the way that we look at it is one important way that we collectively can win is to say look, let's create a service that anybody who values five or six hours of time more than they value $10, which isn't everybody, but it's an awful lot of people, and probably most of the people in the room is going to flock to. That's one way to win.

Another way to win, and again I'm not touting our service, but this is our experience, and I think we can generalize it, is we've invested literally hundreds of person years into creating a user experience that doesn't just dumbly return the song that you request, but does a very aggressive job of introducing you to all kinds of new music. And it's one thing if I give you 25,000 CDs to listen to for a month, and I think that's a pretty cool thing, but if you don't know where to start, that's about as useful as a library in which all the books are in random order. And so we've actually done a really aggressive job in saying okay, if you're interested in this artist, try these artists. Or if you want to explore this new artist that you've never listened to before, who has a dozen albums and 200 songs out, why don't you start with these 15 songs and see if you like her, and if you do, check out this album. Or if you like this song, you might like this really weird narrow genre of Electronica music, or Blue Grass, or whatever it is. And if you like that song, check out the genre page that we've put together. We probably have the 20 key artists and the 30 key albums, and you can learn about something new, and it flows into radio.

If you like this kind of splinter of electronic music you've never heard of before, listen to the radio station that we've programmed that plays it. And if you hear a song or a voice that you like, hit a button. You'll be at that artist's home page, listening to their album, their sampler, et cetera. So I think that we've created something that is, to the pirated services, what the Windows 2000 and the Macintosh interface is to DOS. It's much more powerful, and I think that there is something that's there that can be better than free.

So basically to sum up, a company like our's, and anybody who wants to make a living in digitally distributed music is always going to lose on price. Piracy is a permanent feature of the landscape. We are always, if we're good, going to win on the consumer experience, and on speed and convenience, and that's not a bad trade-off.

The problem that I have right now is that I'm losing on two other things. I'm losing on catalogue. Yes, I have supposedly full catalogue access from all major labels, but I can't offer the stuff that's out of print. I can't offer the stuff that's on import. I can't offer the music from dozens and dozens of very significant artists, who for a variety of reasons are not allowing their music to be distributed online.

We have a deal with Ted's company, EMI. Despite that fact, and despite that we have a fabulous relationship with him, we cannot offer music by the Beatles, the Beach Boys, the Beastie Boys, Garth Brooks or anybody else who's name starts with B. I don't know.

MR. COHEN: There's a lot of problems in the Bs.

MR. REID: The letter B is ?-

MR. BOND: It gets a lot better as you get to the Cs.

MR. REID: Yeah. We're very pleased with our C catalogue, so there are these holes in our catalogue. That makes it harder. I'm competing with free. Well, now I'm competing with an incomplete catalogue.

The second thing I'm losing on is features. My competitors that are beating me by ten bucks a month offer completely unfettered portability. I currently don't have the licenses to offer portability. Rather than go into a huge discussion about how this can be fixed, I just want to close with a statement of optimism, that I think that basically artists, other rights holders, the technology companies and public policy makers and consumers, all have an interest in services that are far better than KaZaa and Morpheus, that are far more fun, that are worth ten bucks. Consumers win because they've get a better service, and they're judging that it's worth that to them.

The artists and the rights holders win because people are actually paying for what they create. The technology companies win because we can be solvent, so I would actually like to propose the creation of a "better than free commission," that would be led by somebody is an ardent user of peer-to-peer services. Courtney Love on the artist side, Tommy Mottola on the executive side, somebody from my own company, and Bruce Mehlman, so we can bring together the artists, the other rights holders, the technology companies, the consumers, because I think we all win by creating something that's better than free.

We lose by ignoring the fact that the cat's out of the bag, that this fabulous and empowering experience is out there. Consumers want it, and it won't be wished away. Let's just beat it. That's it.

MR. BOND: Jack Valenti, the Motion Picture Association. Piracy is permanent, and there's something better than free. You want to respond?

MR. VALENTI: Well, I certainly want to associate myself with what Rob Reid just said. I'd like to hear him speak up with confidence, which by the way is the title of a helluva a new book which I recommend to you at $12.95 at your local bookstore.

(Laughter)

MR. VALENTI: I think I want to offer a few comments about where the movie industry is, and I have some colleagues who are far more knowledgeable than I am sitting around this table, and maybe they would want to follow-up.

The first thing I want to do though, is to try to introduce some clarity to this bewilderingly complex issue. Michael Miron put that chart up there, which I almost went into a tailspin to see the alphabetical chaos that existed on that screen. We're being nibbled to death by acronyms, and I don't think that's a good thing, so I define clarity as, if I understand it, everybody else can. Or to paraphrase the Descartes great maxim, "I understand, therefore I am." So let's begin to try to introduce some clarity.

First, I don't think there are any enemies around this table, and I think that for a very good reason. President Johnson used to say, "You can tell a man to go to hell, but getting him to go there is another proposition." Therefore, I have exiled from my mind antagonisms, because I don't believe we're going to get anywhere by the strident buttals and counter rebuttals, and comic lines that try to undermine the integrity and the convictions of people around this table, is insufficient to our needs.

I think there are certain things that we have to understand, at least I do. One, the Internet is a delivery system. It's like UPS, Federal Express, Satellite, flatbed trucks. It delivers information, data, and hopefully entertainment and music. That's what it is. Therefore, the Internet is not immune to the accepted normalities of the market place, can't be. And I think all of us have to understand that.

Number two, the best way to deal with these abstruse, complicated issues that bewilder me, is for everybody around the table coming from different segments of the business enterprises in which we're interested, to try to work this out.

Now it is true, we've had some meetings going on that began in the Mesozoic Era. There's no question about that, and they seem to go on exhaustingly and interminably, and I pay tribute to my colleague, Andy Setos, who has done Herculean work. I don't know when he finds time to do his day job, but he's done a great job in trying to hold everybody together.

Number three, I am convinced, and I could be wrong, that the only way we're going to come to an acceptable conclusion; acceptable, meaning everybody agreeing, though not wholly, but maybe in part, is for the highest station executives of the information technology community, consumer electronic community, content community, and anybody else that's sitting around this table to find a consensus.

PARTICIPANT: What about the public?

MR. VALENTI: Well, I'm the public, and you're the public. You see, I don't believe anybody around this table represents the public.

PARTICIPANT: You're representing industry, not the public.

MR. VALENTI: Well, we're all consumers, and by the way, I'm going to accord you the utmost respect. I will listen to you, and I will try to believe you, but let me speak. That's all I ask, and I'll accord you that same respect. You're due that.

PARTICIPANT: Well, give me the respect to --

MR. BOND: Please. Thank you.

MR. VALENTI: See, that's the problem.

(Off mike comment.)

MR. VALENTI: Of course, I'll allow him to reply, but first allow me to finish.

PARTICIPANT: Absolutely. Absolutely.

MR. BOND: No, time out. Time out. Time out. I think we have a structure here that ?-

MR. VALENTI: I think the first thing we ought to exhibit is good manners.

PARTICIPANT: Yes, sir.

MR. VALENTI: All I'm asking you is a golden rule. I'll treat you with the same respect you treat me. I don't think there's anything wrong with that. Now let me finish, and then you can do whatever you choose.

I'm saying to get everybody together and have them agree. Some months ago last year, we got in touch with the Information Technology people, a group that includes Intel, Dell, IBM, Hewlett-Packard, Microsoft, Motorola. Let's see, an Unisys and some others, saying let us begin to try to find way out of this morass. And then if we can come to conclusions, everybody else can take a crack at it, and have their imprint put on it. And I think that's the only way to go.

Now I have to say though, that there has to be an end game. What happens if there is an irreconcilable impasse, what do we do? Now I'm one of those who's not afraid of government. I happen to come out of an administration that I think in human justice, and civil rights, and education, medical insurance where the government intervened for the long term benefit of the people who live in this free and loving land. The government is not your enemy. And therefore, at some point, there has to be some kind of intervention, either by regulation or by Congressional mandate that would put into effect whatever it is that we've agreed on. Have exhaustive hearings and do all of that so it's open and transparent, and everybody can participate in it.

Now that's the way I see this, and I don't claim to be a repository of all wisdom, but I do believe that over the last five or six years, I've been involved in these meetings with all the acronyms that you see up there. I don't know of another way to do it. Now after me, the deluge.

PARTICIPANT: I was invited to respond. I'd like to respond.

MR. BOND: Right. And I'm going to give you the chance to do that out of deference to Jack Valenti. And then I'm going to remind the audience that we have a structure here, and that this is going to be adhered to. It is a discussion among the panelists with all you able to comment online. Without some kind of structure, we simply couldn't have a worthwhile discussion. So out of respect to Jack, I'm going to allow this gentleman stand up and say a word. Back to Jack Valenti, and then we're going to ask folks in the audience to comment online. Go ahead.

(Comment off mike.)

MR. BOND: And he can comment online, sir.

(Comment off mike.)

MR. BOND: NY Fair Use has had a chair at the table which they were not extended, and have now had multiple speakers, and I will ask you again to avail yourselves of comment online. We will work with you to make sure in future fora that you're included. Everybody here is a proxy for folks. Not every company is represented, not every interest is represented. We have consumer groups, as well as various facets of the sector, of different parts of the technology sector. We're making available for you for comment on everybody's comments here.

(Comment off mike.)

MR. COHEN: I would respectfully say, just as it relates to the consumer issue, Rob and I had a drink last night -- and I said to him, that before leaving for this trip, I sat in front of my computer putting my music on a portable device. And I said, I don't personally want to be involved in anything that's going to limit my ability to enjoy my music when I want to enjoy it. So I think a lot of the music industry, and I know it's true in the film industry, people who work at film companies love movies. People who work at record companies, despite public opinion, love music, so I think consumer interests are represented within these companies. And I think a lot of people agonize over making sure that everybody has an enjoyable experience. It's not industry versus consumer rights.

MR. GLAZIER: Actually, Rob raises an important point in this discussion which is that the consumer dictates the market place. And that the services that will make it, the legitimate services like Rob's that will make it, will make it because consumers like those services, and consumers find it of value. And all of the licenses that exist with Rob's companies, with Rob's competitors, with the four that are launched, two affiliated, two independent that are launched now, and the eight that are licensed, there are four that remain unlaunched right now, but soon to be launched, all of have different types of licenses that allow them to do different types of things.

One just gave burning rights to Full Audio which is a competitor of Rob's, and you know, people are still in negotiation over all sorts of different types of business models, whether it be burning, or portability, or streaming. And the point is that each of these different business models competing with each other will attract different consumers. And the one that attracts the most will be the one that is the definition for what everyone else will become. And we are in an experimental stage right now in the market place, offering different types of licenses to different types of companies to determine what the consumer wants, so that everybody can finally develop a legitimate online place that can compete with free. And Rob is on the forefront of creating one of those companies.

So to say that the consumer is unrepresented in the market place is not exactly accurate. They are the ultimate arbiter, and we're all looking forward to the experiment being over, and actually competing with existing services that have more subscribers than the free guys do.

MR. BOND: Stewart.

MR. VERDERY: I was going to say we're one of Rob's biggest allies in Rhapsody. We just reached an agreement with them early this month to get the Universal catalogue onto Rhapsody, but it's not just that service. We're also, you know, are licensing back catalogue music. We have a service called Press Play. We have MP3.com, so there's a variety of things, as Mitch has mentioned, as people experimenting out in the market place both with their own services and through licensing agreements, and we just don't know at this point which models are going to take off. But I think Rob had a great point about competing with free. You have to give some people something that makes it worth paying a couple of extra bucks.

It is a little more difficult when -- I think the analogy of the bottled water isn't quite right, because in this case, we're competing against our own product. It's not the exact same, but I think having Rob's service up and these others is a valuable thing. We're trying to experiment in the market place, and only time will tell which services prevail.

MR. REID: Now in saying you're competing with your own product, the bottled water, are you referring to the fact that Viviendi is a big water company?

(Laughter.)

MR. VERDERY: Actually, I wasn't, but it's touche.

MR. REID: I know. I couldn't resist. I'm sorry.

MR. COHEN: I think we also have to realize that we're talking about an experiment. At the end of it, people always ask questions at a panel of what's the one way people are going to listen to music in the future, and we always say with your ears. I mean, because there isn't going to be one way. Even at the end of the experiment we believe there'll be a half a dozen different business models that work. It's not going to be that we're doing a test, and at the end of it, we're going to pick the winner. They get the grand prize, and that's the way people get music for the rest of their life.

MR. MIRON: The general discussion of the last few speakers about the uncertainty and the wide variety of choice that will be characteristic of a successful market place is the theme about why there are so many activities around the world. There isn't a one size fits all. There isn't even 100 sizes fits all. There will be thousands, or tens of thousands of experiments. Therefore, if you think about the discussion we had during the standards work, we had a few touches about the wide variety of the future, and a lot of discussion of the pressing needs and particular problems that exist today.

Let me add some comment to Jack's point about the Internet being a distribution, a delivery system. It's that, but it's also a whole lot more. It is a highly interactive, highly personalized communication system that allows each individual to be his own deliverer, or sharer of information, or communicator. And that unleashes all kinds of new problems that we never had to deal with before.

The successful business models online will combine some elements of personalization, on-demand, and community. Business models that seek to replicate things that take advantage of none of those three will probably not work. And therefore, DRM as we think of it, is not about copy protection. That is a little element of it. It's about enabling experimentation of all these new business models, and that's why you do have this variety of activity.

MR. VALENTI: I think that is true, but cable is interactive, and more and more video on-demand will be on cable, and it is a delivery system.

What I'm saying to you is there has to be some kind of rubric that we live by, and that is a market place that says that you shouldn't be taking things that belong to others without paying for it, or getting their permission. The music industry is being pillaged today. There's no question about that.

What worries me is, not now, but in the future, unless we deal with the broadcast flag, unless we plug the analog hole, unless we deal with peer-to-peer file sharing, when you get beyond the 10 to 12 million broadband homes that you have now, out of about 75 to 79 million computer homes, I think that we're going to be put in terrible peril. You don't have to be a clairvoyant to figure that out, so what we're trying to do is to look to the future, peer beneath it. Pierce that veil in the future and find out, maybe there's a hundred different business models, but unless there are things like watermarking or some kind of digital rights management procedures which allow people to protect what they own, and offer it to consumers ?- the CEA had a recent survey that showed 68 percent of home computer users were satisfied with their ISP, their dial-up, because they said what's on the Internet now, what's available to them is mostly text, or bringing down music where there's no graphics in it. Therefore, why do I want to pay 40 to 50 dollars for broadband when what I really want is out there.

Many acute observers, more wiser than I believe that not 30, or 300, or 500 titles, but like DVD, where there are eight to fifteen thousand titles available of brand new movies that's available on the Internet, that's got to increase the velocity of broadband access.

What the people in Washington are doing, they're going at it the wrong way, like the drug war. We've lost the drug war because we're dealing with supply and not demand. If you have people demanding broadband, they'll go on it, and they'll pay the extra money if they believe there's something there that's valuable to them, entertainment. And what everyone wants to say, that is probably the great common denominator in America today.

So I'm saying, as I've said to your colleagues, Rhett, in very good faith discussions. It's in the long term interest of the consumer first, as Stewart pointed out, and the IT and CE and content people, and everybody else, to give the consumer what it is he would like to have, at reasonable fair prices. That definition, by the way, to be defined by the consumer, and not by anybody else.

That's what we're all about, and everybody benefits, first the consumer, and everybody else that supplies him. Because as Stewart says, if you don't please the consumer, you're out of business.

MR. BOND: Jack, let me push you on that a little bit though. You say we've got to deal with peer-to-peer. That's one of the things the consumers want. What is your suggestion?

MR. VALENTI: Well, I might like to have a skeleton key that would allow me to open every door in my neighborhood, because I think that's fine. By the way, if you build it free, they will come. We all know that. And somebody pointed out, Rob, you can't compete with free. There's something ?-

MR. BOND: Rob says you can. You say you can't.

MR. VALENTI: Well, Rob thinks ?- if you think ?- Rob thinks he can compete with free, God bless him, and may Allah praise him. But I'm just going to tell you that I don't believe you can, ever.

MR. BOND: Yeah. Jonathan, and then Mike.

MR. POTTER: I mean, if we want to go in just the media world, you know, movie theaters compete with free. They compete with broadcast television. Cable competes with free. Satellite competes with free. In fact, this -- they compete with broadcast television, and broadcast television is free. This country's citizenry has an extraordinary appetite for the content that's produced by the companies represented in this room or through their associations. It's extraordinary. We also have an extraordinary amount of disposable income, you know, not as much as we might have had a year or two ago, but it is an enormous amount of money.

People are willing to pay for quality, price and service, and I would say to you that the "illegal" services aren't services. They don't have 800 Help Numbers. If you get a bad download from Morpheus, you can't pick up a phone and call them and say hey, you know, why did I get this piece of junk? But if you get a bad download from Rhapsody, well, Rhapsody doesn't have downloading rights. Ooops.

If we go back to Mitch's point about the companies that are experimenting and different rights being granted to different competitors on the distribution chain, one of the problems that Rob's company faces and others that are trying to meet the consumer in the market place is that consumer is confusing and nimble, and can change services quickly. And by parsing out the rights to the preferred fair haired distributor of the day, every time Rob's consumer research, which probably comes by a lot of email, when they say I want X. Every time he gets it, he's got to go back and negotiate all over again, and he's got to start from scratch. And yeah, Universal just gave Rob a license, and one of Rob's colleagues was quoted in the paper saying thank you very much. It was a 16 month negotiation process. It's an extraordinarily long process.

How many dollars would Universal purport to have lost in the free market place while they were negotiating with the guy who's trying to actually make them some money for the same content? We need speed to market. We cannot wait for the perfect price point, the perfect system, the perfect content, the perfect DRM. We have got to win the consumer's heart and mind now before the intellectual property represented in this value is devalued so mercilessly that there's no more money to be made.

MR. MIRON: Let's separate the peer-to-peer which is a behavioral and a technology enablement, versus piracy practiced in peer-to-peer. I believe, as do a number of others, including many of the participants on those charts that peer-to-peer is possibly the most powerful marketing medium ever invented when something is offered on it. And we are actually beginning to work with some of the music companies on idea to foster exactly that.

MR. BOND: Separate from piracy. Mitch.

MR. GLAZIER: We agree with that, obviously. You know, just to bring this full circle, and it is a chicken and egg problem sometimes in all of these negotiations, whether it be on licensing for legitimate services or in standard setting bodies. You know, Rob made the point that you can compete with piracy if you have everything that the pirates have. But then he also said that one of the reasons why he can't get all of the licenses he wants is because the artists who are creating these works are scared to death of piracy, and won't release their works to him so that he can then have everything, so that he can successfully compete with them. It is a chicken and egg problem where songwriters and artists -- actually, in the artists' contracts they have to give permission many times to release online, and a lot of them refuse to give permission to the record company to release them online. And the same thing with music publishers who actually own the musical work within the sound recording. We don't own that, they do.

Many of them do not want to allow in this piratical world right now, their creation, their asset to be set free, and so you can't get to the point many times where you have everything you need to compete with free because it all comes down to the creator, to their property, and to what they're willing to let be done with it. So while we're still ?- while we're sitting here focusing on consumption, and we're sitting here focusing on price points, a part of the equation that has to be considered, and that we deal with every day is the true creator, and the willingness to let it go. And until you solve that problem by giving them an assurance that piracy is going to be curbed, and that there are DRM solutions that protect their works, you're not going to get what you need in order to allow the competition with the free services to begin.

MR. BOND: I'll come over.

MR. SCHWARTZ: I think as often happens in, you know, various Congressional hearings and roundtables, we get into, you know, what are the assumptions about broadband? Why has broadband roll-out not gone as fast as it's gone in Korea or whatnot.

The -- I don't think ?- I don't know if this is where, you know, the folks who are going to contribute over the Internet on the website as moderators who are invited are going to say, but in my house, lack of content is not the reason I'm not in broadband. It's because it's very complicated, and my choice is to either spend the time trying to sort it out myself, or have a cable guy running over my house dealing with five T.V.s and four computers. And I haven't sorted it out, and eventually I will. But for people who have been early adopters, you know, up to a point, even, you know, switching everything to broadband is not easy. There's a lot of confusion. It's not been simplified in terms of devices and marketing, and a lot of this is going to come.

I also would not say we should embrace the assumption that lack of copy protection in various instances is the reason the content isn't available. I think, you know, Jon and others have touched on the fact that it's a lot more complicated to get content available. And I trust that the MPAA does not, you know, jointly decide these things. And that in a competitive market, you know, people under certain circumstances are going to take risks, as we all do, even though the environment may not be perfect, so we shouldn't start from that assumption.

The other assumption, that it's too easy to fall into, and that the HRRC for 21 years now has been dealing with, is that use of a product is either authorized or it's illegal. If that's the formulation, that leaves out fair use. Fair use by its very definition is not authorized. Where have we come down ?- and, you know, we've already said you can't track it through legislation, so what do you do? We have settled on the reasonable and customary expectations and practices of consumers. Well, that's fine, but we're all in a dynamic environment and these models are changing so, you know that's why we find ourselves, in my view, not avoiding, I think for most of us the prospect of legislation, because if you have to deal with unlicensed and otherwise unregulated devices there's no other way to implement something. You know, men and women can't live by licensing alone. That's one thing that I think we've learned in six years of the Copy Protection Technical Working Group, but you can't live by legislation alone. But from the HRRC perspective, you might have to very, very cautious and look into both elements. But history teaches that you've got to be real cautious about it, because some of these assumptions that we have might not turn out to be the case.

MR. BOND: Since you invoked Jack's name, I want to go there.

MR. VALENTI: I'm not rebutting what you say. I'm not saying it's unreasonable, but there are two points I want to make. One is, I want to make clear that we are not opposed to peer-to-peer file sharing. What we are opposed to is unauthorized peer-to-peer file sharing.

I couldn't agree with you more, Michael. I think it's an extraordinary community display there of people exchanging things, but you can't exchange property that belongs to someone else. That violates the very platform which guides the whole moral behavior of our country. And suddenly, all of a sudden people say well, if it's up there, it's free. It's okay. It's not okay.

The second thing is somebody was talking about free television, but free television doesn't compete with theaters. By the time a movie gets to free television, it's gone months, and months, and months, so free television exists through advertising support. And as one network said, if you're going to allow people to zap out commercials, pretty soon there won't be any free television, because advertisers support it. There's no competition between free television as we know today, and a theater, a Blockbuster store or anything else. It's a different delivery system, and it's supported not by people paying money, except there are a few cents added to the product that you buy by advertising, and I applaud that.

MR. BOND: Ted.

MR. COHEN: Yeah, I was going to say in deference to public opinion again that there's no music that we - I can only speak for EMI - that we've held back from services that was held back without an artist saying I don't want it to be in there. I mean, everything that Rob's company has and any of our other licensees was everything we could give them without getting into the Bs there, as we talked about.

And it's a problem with the artists, and I refrain from the anecdotes which I'm normally really verbose at, but I spoke to -- I did an interview with Jon Potter and another major artist on a talk show, oh, and another major ?- I'm sorry. Yes, and a major artist. Yeah, Jon is a major artist.

MR. POTTER: I'm going to sing tonight at the 930 Club.

MR. COHEN: Okay. And during the interview -- really quickly, during the interview, the artist -- we asked the artist what he thought of, you know, dealing with his record company, and he went on ad nauseam how much he hated his record company, so I asked him to call me after the show because I really wanted to talk to him and understand it. And he called me, and I said, "Why do you hate your label"? He says, "I don't hate them. I love them. They just gave me $2 million. I just bought a new house." I said, "Well, why did you say what you said?" He said, "Do you think there's any mileage in saying you love your record company?" Seriously.

MR. BOND: Rob, you've been waiting. Do you want to still jump in?

MR. REID: Yeah. I mean, there is this question that's kind of come up in a couple of ways of, you know, how --and to be clear, yes, I do believe that we can compete effectively with free if we have an adequate catalogue, and if we're able to offer adequate features. No question about that. I think we can win that battle.

Let's talk about the catalogue for a second because it's come up a few times. The holes in my catalogue compared to what you'd find in a pirated service, they kind of come in about three classes. There's stuff that's out of print, and there's a lot of that. And a lot of that is stuff that people really desire, and if you talk to people, you know, particularly who are heavy users, it's harder to find out of print stuff, candidly, on the pirated services today because it tends to be more obscure. And without central directory server like Napster had it's harder, not impossible, but it's harder to tap into enough hard drives to really find obscure stuff.

But nonetheless, you talk to people who were really passionate about Napster back in the day, and to some extent passionate about today's services now, the out of print stuff that cannot be bought at any store at any price off of which the label is making no money, and from which the artist is being paid nothing, was one of the things that people were really excited about accessing, and it's hard to say that that was a crime with a victim, you know. If somebody went up and downloaded a song that was not available period -- now they're connecting with it. And who knows, maybe they'll become re-aware of the artist and buy some of their in print stuff or whatever.

Another area which is really hard to figure out is stuff that's on import, stuff from foreign markets that I can't license here. And then finally, you know, what Ted was just talking about, the hold-back artists, of which there are many, and they're very, very significant for the most part.

And I would actually take issue with the contention that the reason they're holding back - and I don't think Ted said this. Somebody else said this. I don't believe that the reason they're holding back their music is because they're concerned about piracy. I think they're realistic and they understand that their stuff is being pirated at the rate of hundreds of thousands or millions of songs a day, and they're effectively choosing not to allow it to be sold, and almost insisting that it be pirated. And I believe, I'd actually be curious about Ted's perspective, in particular, I believe that a big part of the issue there is the animosity that in many cases does exist between the artist or the label, or a hope on the part of artists or artists' management that they'll be able to shake a label down for an enormous advance check, which just isn't currently economically justified by the kinds of volumes that a service like mine can do, so those are three big holes. And, you know, Mitch, Ted, anybody, what's the right way to approach these things, because I think this is something that absolutely everybody, certainly including consumers who could get access to a much better experience than the pirated services if we get our acts together, certainly the artists and everybody else could benefit from it. What do we do about out-of-print catalogue? What do we do about hold-back artists? And I think import is a tough one, so let's leave that off the table. What do we do about those things?

MR. BOND: While you guys are formulating thoughts, let me go to Joe, who's been waiting, and Michael, real quickly. And Tim.

MR. TASKER: Thanks. Joe Tasker again. I was really glad to hear about everyone's agreement on peer-to-peer networks, because sometimes there's loose talk about peer-to-peer as a problem that needs to be solved, and as we've made clear, peer-to-peer is a tool, it's a technology of the Internet. And what people do with it is different from what it is itself.

I guess that that brings me to a question about Jack's proposal a minute ago, for his - I don't mean to put a word in your mouth but end-game, what happens if we don't reach agreement? And I guess before I would just let that go unanswered, I think it's important to think about the process a little bit more because having spent a long time in the IT industry myself, I know that this is an industry that cares a lot about its customers, wants to do what it can to help its customers, and also believes in its bones, in its DNA, that it represents the consumer. And will do everything that it can to reach an agreement on all of these issues.

But, you know, I think before we say at the end of the day that if there is not an agreement reached, then we need Congressional intervention, we need to ask ourselves if there is not an agreement, why? What happened? What was the problem? Because it may very well be that in the opinion of experts there are problems that can't be solved. And if that turns out to be the case, then the answer is certainly not to go to Congress and ask Congress to take care of the problem, or to any government agency, to simply mandate a solution that the experts say can't be reached.

We're not there. I don't -- I'm not trying to suggest that anybody has reached the point where we think that there are no solutions. Everybody wants to try to find solutions and work hard on them. I just want to make it clear that from my perspective, at the end of the day if there is a problem, legislation may not, in fact, be the answer.

MR. BOND: Bruce, did you want to jump in real quick? Michael.

MR. EPSTEIN: I'm glad that sort of leads up to some of the things I was going to say, which is to talk about the technology and how we're applying it, and the kind of problems that my company faces sometimes with trying to resolve these issues.

We believe, you know, that content is not essentially free, that people create it and they deserve remuneration. The question is how we protect it.

The first thing that's clear is that we don't know how technology will evolve, but we want it to evolve, because that's where the benefits of all these new things are going to come from. And we've been notoriously bad at predicting it. The truth is that at one time, the movie industry said that television would wipe it out. If it was free, no one would go to the movies. That proved to be ill-founded. In fact, it produced a new market for movies. Movies came out of the theater, they were re-shown on television. And people feared the VCR. Today, 40 percent of the revenue of film companies comes through a VCR, and now DVD recordings, so home recordings didn't decrease profits, and it shows the cleverness and the diligence of the content industry to take new technologies and generate new business models, and new markets, and to use them, not to lose to them, and that's going to happen in the future.

The place where we get into trouble is when we try to predict which one of them will cause a crippling problem, and which one will be a benefit. People have predicted this before, but they've done it wrongly. And one of the things that's happened in some of the cases, we say let's wipe out this aspect. Let's cripple this aspect in some way, and therefore, wipe out possible revenues as opposed to solving possible problems.

The second problem that I've had is that when we try to do it, we apply technologies to it. And the technologies, even if they're not through government intervention, come encumbered with all kinds of agreements that are anti-competitive. And the real problem my company would have with a legislative approach would be if it mandated the technology and gave somebody a free monopoly on a critical element, a control point in the flow of this kind of information, we have to have care about how these things are done. In both cases, let's make sure we're not cutting off our nose to spite our face, which we're just notoriously bad at collectively predicting. And secondarily, to make sure that we're not generating some anti-competitive problem which curtails IT.

All these things have to be freely available, and a company like mine is very good at making these things consumable in any easy way, but that's only going to happen if we're not encumbered by problems of our creation. And, therefore, I seek that consensus with these other companies, without these encumbrances.

MR. VALENTI: Let me -- I need to set the historical record straight, because you're much too young to have been around when this ?- when an old author cocker like me was there, and I know about it. What was said in 1981, `82, and `83 was not that we wanted to abolish the VCR. Universal Studios had a partnership with Pioneer in Japan for VCRs.

What we were trying to do was to get a copyright royalty fee to compensate us for the piracy that we knew would follow. As a matter of fact, the copyright royalty fee on blank video cassettes is endemic throughout Europe. That's -- they have that -- when you go to buy a blank cassette in France, you pay a small levy. That goes back to the creators and the copyright owners to compensate them for piracy. And, therefore, my predictions came true.

We, today in analog video cassette piracy, suffer three to three and a half billion dollars a year worldwide, so when people say well, you guys were trying to abolish the VCR, it's not true at all, not true at all. And I just wanted to set that record straight.

MR. EPSTEIN: I only spoke of the trepidation surrounding such a thing. And many statements were made about that, which we don't need to repeat, but people did have fears about it. And notwithstanding the losses that Mr. Valenti refers to, on the whole, it has proven to be profitable, and I think Mr. Valenti would concede that.

MR. VALENTI: Well, I know that, but my point is, we use rhetoric many times, and I'm -- a little demagogy never hurt anybody. And what I was trying to d