AOL TIME WARNER IS BOTH THE LARGEST PRODUCER OF INFORMATION AND ENTERTAINMENT AND A LEADER IN DEVELOPING INNOVATIVE DIGITAL TECHNOLOGIES FOR THEIR DELIVERY.  AS SUCH, WE APPRECIATE THE DTV ROUNDTABLES YOU'VE HELD AS WELL AS YOUR OVERALL EFFORTS TO SPUR THE TRANSITION TO DIGITAL DISTRIBUTION. 

our company has BEEN OUT FRONT NOT ONLY IN recognizING the LANDMARK importance of digital TECHNOLOGY, BUT also in BRINGING ITS BENEFITS TO THE PUBLIC.   warner bros., for instance, pioneered the dvd.  hbo Is the first premium channel to offer nationwide high-definition digital television and today delivers more than 60% of all its programming in high definition format.  time warner cable offers digital distribution in 42 markets -- leading the cable industry's digital transition.  aol encompasSes what is, by far, the world's largest online community. 

at aol time warner we also have the world's finest library of film, music and tv programming -- content that we'Re eager to OFFER consumers in new digital formats. 

iN MY ROLE AS head OF AOL TIME WARNER'S MOVIE, music and television BUSINESSES, I Witnessed FIRST-HAND THE PROFOUND IMPACT digital media have on the creative process.  On the delivery side, more innovations will reach the market in the next three to five years, INTRODUCING new levelS of reliability, variety and quality.   

but no matter how digitized content becomes, or how tremendous the impact of convergence, the power and POTENTIAL of the entertainment industry will always depend on the unique, idiosyncratic magic of storytelling. 

it's that magic which stands to be hurt most by digital piracY.  along with breakthrough benefits, digital technology enables users to make unlimited perfect copies and, WITH the click of a mouse, distribute them globally. 

 THE ILLICIT USE OF THIS COPYING CAPACITY threatens THE ECONOMIC EQUATION WHICH SUPPORTS AND FUELS THE ENTIRE CREATIVE PROCESS.  WHAT ARTIST WILL INVEST YEARs OF SWEAT, STRUGGLE AND TALENT IN DEVELOPING CONTENT THAT can INSTANTLY be RIPPED-OFF?  wHERE WILL THE CAPITAL COME FROM FOR NEW STUDIO PRODUCTIONS WHEN THERE'S LITTLE OR NO RETURN ON WHAT'S BEEN PRODUCED? 

when viewers can download an entire season of west wing from the internet, for free and without commercial advertising, what value does syndication have?  When lord of the rings is available for free on morpheus, HOW MANY people WILL skip the trip to the theater?  

last year, record sales were down 10%, much of IT due to online file-stealing on napster-like services. 

with the spread of peer-to-peer swapping sites ENCOURAGING and enabling online theft, THERE'S definite URGENCY TO our  plight.           

We've vigorously pursued the legal remedies that exist.  But litigation isn't enough.  We need to protect content at the source while simultaneously DRIVING THE use OF DIGITAL technologies. 

over the past six YEARS, we've worked with our colleagues in the information technology (IT) and consumer electronics (CE) industries to develop EFFICIENT METHODS OF content protection.  IT'S BEEN A PRODUCTIVE PARTNERSHIP, AND WE'VE aCCOMPLISHED A GREAT DEAL IN THIS voluntary CROSS-INDUSTRY PROCESS.  

AMONG THE results ARE AN encryption system to secure dvd video; protection for content passed through device-to-device connections in home networks; safeguards for content as it moves from computers to display on monitors; and a secure means for making recordings for home use that inhibit the potential for digital piracy.  

Of course, our business is dependent on providing consumer benefits and making consumers happy and we think our efforts in copy protection will do just that - making content available easily, legally and at a reasonable price. 

 WE'RE CONTINUING TO WORK TOGETHER TO MEET NEW CHALLENGES.  TODAY companies like realnetworks are providing drm solutions that we're already using in the marketplace. 

the cornerstone of these cross-industry efforts is the awareness that, to the greatest extent possible, digitally delivered copyrighted content should be made secure at the point of distribution.   

these new technologies also offer consumers both familiar and new ways of using their devices to enjoy content.  for instance, under the content protection licenses we've signed to date, consumers will be able to make digital copies of over-the-air broadcast, basic cable, and satellite, and premium channels (such as hbo) to watch at their convenience. 

that means a son can copy band of brothers from HBO for his wwII veteran father to watch when he comes to visit.  other technology will permit a family in the middle of watching harry potter via video on demand to pause the movie for its own intermission.  that's the type of convenience we plan to offer consumers through digital technology.  

IN VIEW OF THE SIGNIFICANT progress WE'RE MAKING in cross-industry content protection, WE BELIEVE THERE'S NO NEED FOR a broad government mandate of design requirements.  tHAT TYPE OF SWEEPING REGULATORY ACTION WOULD BE COUNTERPRODUCTIVE, SERIOUSLY HINDERING the development of new and better technologies.   

However, since it WOULD BE impossible to require all manufacturers to join the effort, it'S clear that certain gaps cannot be closed SOLELY through license-based, voluntary protection systems.  these gaps occur when content is either initially delivered without access controls (i.e., "in the clear"), or later converted into unprotected formats. 

over-the-air broadcasts, for example, are delivered in the clear, with no access controls.  work is underway to identify copyrighted broadcasts with a "broadcast-flag," indicating they shouldn't be redistributed over the internet.  to ensure that DEVICES RECEIVING THE BROADCAST SIGNAL obey the flag, there must be a legal requirement to detect and respond to it.  

 such a requirement can be accomplished by narrowly focused government action -- possibly through an fcc regulation.  many of our partners in the ce and iT industries agree that this targeted government action is necessary as well as desirable.   

a more critical and systemic problem is known as the "analog hole."  even when delivered digitally in a protected manner, video content must be converted to an unprotected analog format THAT ALLOWS IT TO BE viewed on millions of analog tv sets.  once content is "in the clear" in analog form, it can be converted back into a digital format AND IS subject to unauthorized copying and redistribution.  

 this involves all delivery means for audiovisual content, from dvds to pay per view, to over-the-air broadcasts. 

one way to plug this hole is through watermarking.  This embeds copyright status and permitted uses within the content.  although not perceptible by the consumer, the watermark can be read by devices designed to detect and respond to it. 

as with the broadcast flag, efforts are underway to develop and select a consensus watermark.  but these have been hampered by patent disputes.  a single watermark must be agreed upon.  if private industry can't agree, we are likely to turn to the government for guidance and assistance. 

once a watermark is selected, some government action will be needed FOR appropriate detection and response.  this can be strictly focused on the particular devices or parts of devices capable of receiving an analog signal and converting it into digital.  no broad mandate concerning the overall design of computers or consumer electronic devices is necessary. 

implementing the broadcast flag and filling the analog hole with watermark technology are goals on which we are making good progress.  but these solutions won't solve the vexing problem I mentioned earlier of piracy on peer-to-peer networks.  

this is the third gap, and THE MOST DIFFICULT TO CLOSE.  The popular term for trafficking in copyrighted works -- "file sharing"  --  is a misnomer.  It isn't sharing.  It's online shoplifting.  InDEED, it's worse than shoplifting because it's not simply making a copy for oneself but duplicating and distributing multiple copies throughout the world.   

the pace and reach of this illegal activity continues to increase.  new peer-to-peer services, such as KazAA, Morpheus and Grokster, flourish on the Internet.  Studies have shown that at any given moment 500,000 to 1 million people are using one of these services and networks to find, reproduce and redistribute files.  If Napster is any guide, approximately 90% of this activity consists of unauthorized trafficking in copyrighted works.  

and we face new peer-to-peer challenges all the time.  for example, the new replay 4000, among other things, allows users to copy premium cable shows and then easily send them to other replay owners who don't subscribe to the channels involved.  in effect, it creates an internet "black box." 

No single approach -- technical, legal, legislative or economic -- can provide a solution.  The active cooperation and committed participation of all industry sectors -- content, consumer electronics, computer and service provider -- will be necessary to reach WORKABLE solutions. 

 the main impetus will come from business, AND WE're strongly committed to WORKING WITH OUR COLLEAGUES ACROSS THE RELEVANT INDUSTRIES.  Yet, it's clear to me -- and i believe there's a growing consensus across the entertainment, computer and consumer electronics industries -- that at certain critical points our work must be complemented by targeted government action TO SUPPORT PRIVATE-SECTOR solutions.    

in conjunction with intel, which has led the development of many copy-protection technologies, we've worked to establish principles that outline this growing consensus.  i am pleased to report that newscorporation, led by my colleague peter chernin, issued a statement last week applauding these principles. 

the fact that we are all coming together TO DESIGN AND put in place CONSUMER-CENTRIC SOLUTIONS, with only limited government involvement, IS A VERY ENCOURAGING SIGN. 

iT makes me confident that we can work with each other and with Congress to overcome whatever barriers exist to UNLEASHing THE FULL POTENTIAL OF THE DIGITAL ECONOMY.   

Thank you.