Written Testimony of Michael D. Eisner Chairman & CEO, The Walt Disney Company Submitted to the Committee on Commerce, Science & Transportation United States Senate

Business Wire, Feb 28, 2002

Business & Editorial Page Editors

WASHINGTON--(BUSINESS WIRE)--Feb. 28, 2002

Thank you Mr. Chairman. I want to thank you, Ranking Member McCain and all of your colleagues for inviting us here to discuss the distribution of creative content over digital Broadband and digital Broadcast distribution systems. For all the reasons that I will share with you today, The Walt Disney Company urges the United States Congress to act to facilitate the establishment of open and common standards for technological protection of creative content in digital distribution.

U.S. produced movies, TV shows and other audiovisual works are part of the creative content industries that lead the U.S. economy in contributions to job growth, Gross Domestic Product and foreign sales and exports. Creative content represents nearly 5% of GDP, generates more than $450 Billion annually and provides jobs for more than 4 million Americans. In fact, creative works account for a larger percentage of U.S. foreign sales and exports than almost all other sectors of our economy, including automobiles, aircraft and agriculture. By facilitating the establishment of open and common standards for protection of creative content, Congress will be acting to ensure the domestic viability of one of the most important positive contributions to our nation's balance of international trade.

Technological content protection standards also will play an important role in stimulating the deployment of Broadband communications networks, accelerating the digital television transition and re-energizing the sale of many different digital devices, including personal computers. Our nation's build-out of Broadband networks is going too slowly. The sale of computers and other digital media devices has slowed. And, the pace of the digital television transition is a frustration to many including the local broadcasters who have invested Billions of Dollars in new digital transmission facilities.

The availability of high quality motion pictures and television programs on DTV and on Broadband networks will help drive consumer demand. That consumer demand will hasten the deployment of DTV, stimulate the sales of digital media devices and speed the build out of the vital telecommunications infrastructure that will drive our digital economy.

Digital technology and Broadband communications hold the promise of tremendous economic growth for our Nation. At Disney, we have embraced advanced digital technology. We were one of the first major studios to deliver our product digitally to consumers via direct broadcast satellite. We have one of the largest and most successful digital videodisc businesses. We broadcast digital television every day. We have state-of-the-art digital feature film production studios and were the first to produce and deliver our films completely in the digital realm with major titles such as "Dinosaur," "Toy Story" and "Monsters, Inc." Currently we are pioneering the development of digital cinema screens throughout the world. And, we have entered into a joint venture with News Corporation entitled Movies.Com. This new company will establish a direct broadband connection between U.S.- produced motion pictures and U.S. consumers sitting in their own homes. Using advanced digital technology, Movies.Com will enable exciting new choices and options for consumers wishing to access our movies and other creative content.

These Disney investments demonstrate two things. First, our Company has been enthusiastic in its embrace of new technology. Second, the digital revolution holds the promise of great economic growth for our nation and wondrous new services for our citizens. Unfortunately, these same digital technologies can enable a level of piracy -- theft -- that would undermine our capacity to produce films and entertainment, undermine the deployment of Broadband networks, undermine the digital television transition and ultimately result in fewer choices and options for American consumers.

To be sure, piracy has always been with us. But, digital piracy is different. In the analog world, each successive copy degrades in quality and sharing a copy requires one consumer to physically transfer that copy to another. In digital, each copy is perfect -- a perfectly coded series of ones and zeros. The 1,000th copy is just as perfect as the original. And, because of the ubiquitous nature of the Internet, perfect, but unauthorized, copies can be transmitted virtually instantaneously all over the world with no regard whatsoever for the rights of the content owners. For a chillingly real depiction of where we are headed, please take a look at this short clip from a recent "Night Line" program in which 15-year-old Benjamin illustrates his ability to take -- for free -- any motion picture or television program of his choice. (Play Night Line clip)

We know that we can never achieve -- and do not expect -- 100% content security. But, there must be a reasonably secure environment to prevent widespread and crippling theft of the creative content that drives our economy. As Benjamin clearly demonstrated, today, we are not even close. One research firm, Viant of Boston, estimates that more than 350,000 illegal pirate movies are downloaded from the Internet every day. In fact today, you can go to the Internet and find illegal copies of brand new films like "Harry Potter," "Lord of the Rings," "Monsters, Inc." and "Ocean's Eleven." Just in case you have any doubts about picture quality, just take a look at this excerpt from a downloaded pirate copy of the recent film "Black Hawk Down". (Play clip)