grinning or frowning. >> david drucker of roll call, thanks for talking with us. >> pleasure to be here. ..

our guest is richard sarnoff of the tweedie company bertelsmann inc.. >> host: this week on the communicators, richard sarnoff who is co-chairman of bertelsmann and president of bertelsmann digital media investment. joining in the questioning, greg piper of washington internet daily. mr. senate if you could start off by giving us a brief snapshot of the bertelsmann companies. >> guest: the bertelsmann is the major media company based in germany. our key divisions are in television, broadcast television and television production. we are the largest broadcaster in europe with brands like rto, channel 5 in great britain. we are very active in magazine field. we are the largest magazine publisher in europe as well. brand, the umbrella brand. we have a theory and large services company, which provides all kinds of media services from

the reproductions of ddp's all the way to printing of books, to electronic payment services for google and microsoft and others. and then, last but not least in the weslia business such as random house, which is the world's largest consumer book publisher based here in new york actually and you'll vaudeville has a number of printing and servicing concerns here in the u.s. and of course we have fremantle media which is one of the producers of "american idol" and other television shows here, so we have quite a spread of different media and it is one of the larger media conglomerates in the world with north of $20 billion. >> host: you are former executive vice president of random house. what is your role and what kind of investments to look for as the president of bertelsmann digital media investments? >> guest: bertelsmann, which we call be the guy looks for

mostly early stage investments in the kinds of businesses that will affect our core businesses over time, so to give you an example from the publishing side, some years ago, we invested in a company called audible which pioneered the digital downloading of audio box as opposed to cassettes or cds so that people could enjoy them in devices that played things like mp3's. and that business was really, was a pioneer there and ended up being the largest customer for our own audio book business which, we are the largest audio book producer in north america. that kind of business as we saw it developed a besson idea of how to expect developments in the digital realm overall for random house. the same thing applies for rto and broadcast production for magazines and services so we try to make investments and we have about 15 portfolio companies now that can be lighthouse

investors, they can show the way forward for some of our core businesses. many times there will be close connections were there will be a supplier relationship or contact relationship or distribution relationship with the record division and the smaller innovative companies but in any case, these companies are successful they will show us something about how these markets will develop and how the digital media will be affecting these markets in the future. >> host: the you see a day when we will move away from paper and television sets and 20 a century technologies such as that? >> guest: i do foresee a day. that day is today. i don't think there's any question that people's habits in the media have changed substantially even in the last five years so that your kids answered my mind are just as comfortable watching a television program on their computer as they are on a television set. whether it is youtube or a variety of things they can find on the internet. the same thing is true with

amazon kindle and sonny reader and a variety of reading devices including the iphone where people are getting comfortable reading full box on screen. this kind of behavior is certainly fascinating and how it is mapping the changes in our cultural overall but it is also fairly conserving to major media companies because as things which to digital, there is the danger that a lot of value will leak out of the industry and our authors or r ardis won't have enough revenues there to pay for their best work and that we won't have enough revenues to pay for our own infrastructure. you need look no further for example than the music industry, which over the last tender 15 years, recording media industry has really declined quite precipitously as electronic dissemination of music whether legally or illegally has created a market, quite a bit smaller than the former market in the

cd, cassette and before that lp's. the same thing is true in the newspaper business. for example if you look at where newspapers are today versus where they were perhaps five or ten years ago there revenue model under serious threat from internet advertising being somewhat more effective and news bean commoditized digitally so that people are not remind on the newspaper every morning for the consumption of news. in many cases they have consumed it already online and that industry has not figured out the right revenue model gets to kind of recover its economic position in such a way that it can sustain itself. that is why we have seen a lot of major newspapers already succumbing to this particular economic circumstance. what we are trying to do at bertelsmann is to make sure the media were most closely involved with don't suffer that same fate, and we were in the music business until fairly recently, and we had a first-hand,

ringside seat of what that faith actually means. let's go mr. senate isn't there a whole generation of folks growing up expecting his free music, free television, free newspapers or free information on line that it is going to be hard to corral bat back in? >> i think consumer expectations in consumer habits are at the core of everything that we do and everything we discussed in the future. there's no question that consumers as of this point have gotten to certain levels of free content from music in many cases, for news in almost every case except perhaps "the wall street journal." and that has led to kind of a self reinforcing behavior where the industry really could not adapt because you really can't compete. and other industries it is not yet decided. so for example in the book industry, we find enormous numbers of people that are interested in buying books legitimately and reading them on

their kindle devisor evin their iphone and are finding the same kind of benefit from that experience that they have when they buy books physically in bookstores and we don't necessarily see that industry transforming into the kind of piracy oriented atmosphere we might have seen in the music space. in television the model is not yet broken at all. we still have a robust broadcast television atmosphere in this country and other countries and advertising on network television, although it is not perhaps at its highest, it is still an enormous business and it is not clear whether brand such as hulu and others that you can see will become more prevalent or will simply ride along with the core broadcast business over time. i think there is an expectation that television will be free but the same time if you look of the cable penetration in north america you can see 80% of households pay a fair amount per month for their television, so

there are different models that you can apply to get economics into a business. only one of which is to pay each time you want to watch something or each time you want to read something or you pay each time you want to listen to something. another one is a subscription model such as cable has. call it dahlia canete type of payment every month and you watch as much as you want or you listen as much as you want. it could be in the future there will be book subscription and you read as much as you want. >> host: within do you see that? >> guest: that is somewhat more doubtful. the book business has special characteristics. i can go into them briefly. the first is that the cohort, the audience that consumes books is perhaps as broad as any that you confine. it goes from may 0 to age 99 there every walk of life. they like to bring kinds of books. some religious books, some non-fiction, self-help,

literary, mass-market said representative. there is a huge variety which means that spectrum we have and publishing also means it is somewhat slower to change radically as the music business did which had more or less a single cohort, let's call it 15 to 25-year-olds and so the audience changed and the tastes changed fairly rapidly and trends could reinforce themselves with that audience much more easily. the second reason the books are different and this is also not a subtle reason, is that the reading of books on devices is going to be a kind of slow transition over many, many years in this country and other countries. it hasn't really even started in other countries. that is because, as i have certainly heard a lot of times, there are a lot of devices were you read on them, it is like looking at the flashlight. it is a lot more significant than heisting get from ignorable-- normal page.

many of the reading devices coming out now use a stream that has very low eyestrain but also not the same kind of contrasts so you need the sunlight to read it. also, people like to have books. do you know, headon sade varies media. you have seen this medium. >> sense about the 15th, 16th centuries and there are lot of psychological reasons for that one of which is i find books are the intellectual furniture of your life and you tend to move with that intellectual furniture. when you read something great you wanted to be a kind of airmen product for you personally. and when you have digital media it is harder for that to be true. you can't actually be proud of a bookshelf that is a memory stick, and no one can see with the intellectual furniture of your life is in their very easily so i do think we are going to have a very long hybrid period where there will be a lot

of reading electronically and there will be a lot of reading in print. the difficulty for the book publishing industry is that we have to support both simultaneously for a long time enacting expensive. >> guest: what is the rest of the book publishing industry turning into the music industry insofar as you may be relying on one and dama provider to said they have had an uneasy relationship for itunes which tightly controls pricing and terms of use, and that means the industry is trying to create alternative to itunes to create that now has its own e-commerce store is going to become a dominant player and turns on you that you are not going to be comfortable up and find yourself in the next five to ten years trying to get out of this panopoly relationship? >> guest: it is a fair question. we are in a different situation than the music industry as although amazon is a strong

player today in digital reading in general, electronic books. we also see a number of strong players as current or potential competition and we think it will be a vibrant, competitive atmosphere. >> guest: such as soon? >> guest: we can star wistony which is rtl with its the bison has a fair amount of installed base of vigil readers and then you go right to apple, which with the iphone as a fairly well distributed medium. people are starting to read on that medium. i think you'll find enormous numbers of other cell phones over time become reading devices as they have for example in korea and japan. and i am not done yet. and i not done yet. we have google waiting in the wings perhaps. we have other electronics companies that see this as a vibrant enough market and then we have one other thing that is important here, which is in music, there had been standardized pricing for a really long time. and other words when you guys

were buying l.t.'s when your perhaps growing up, not that you were that old or more recently cd's they tend to have a very narrow band of pricing by the industry. sigel's, whether itunes ingalls or before that, singles that were playing on fixed media also have very uniform pricing. so when itunes came out with a 99-cent price point for a single track, that ended up sticking fairly quickly in becoming quite standardized. in the book business we don't really have a history of that. if you look at hard covers, they might be $25, paperbacks' might be $14, children's books perhaps four or $5. or up to $15 for illustrated books, and we have pricing if you walk into a bookstore that is truly all over the map. we may have condensation of pricing but i don't see a uniformity of pricing and

therefore i am somewhat less concerned although still generally concerned about pricing but somewhat less concerned we are going to be locked in by a single competitor to a single price point as the music industry has been. >> guest: when you say about copyright, that you saw the consolidation of round of price point of $10 for books let's say, through candle, is there any reason to think consumers want it used to a lower price but just as they have gotten used to a much cheaper music single or album which is gone down from the highs of $18 down to maybe $10 through itunes? how much control do you have here and what kind of expectations are you trying to build that this digital file is for something more than the price is coalescing around? >> guest: it is a fair question. when i mention that the summit today i think the coalescing price is more of an average price although i think you can see amazon pricing almost every bestseller at $9.99. there are large variety of

titles that are priced above and many that are priced below $9.99. i think you are going to find price variability because honestly if we are publishing roger penrose's with 600 pages with a ton of content, that is not a 9-dollar book or ten dollar book. never will be. but if we are doing 192 page category romance that may not be a ten dollar book either. it may go the other way. so there is enough difference in the content. these are like songs were there typically one length and even sans now you can see that itunes is basically agree to break the 99-cent model and they now have $1.29 for certain songs and 99 brothers and 79 cents for other selee think we are in a place for it is not going to be a single price point for the publishing industry. i don't fear that.

i to actually support to some extent consumers understanding what the prices are, and understanding that they are a good value in the electronic formats. in other words i would hate to have everything priced at $30 for an electronic book and have people think hey, $30, i am not willing to pay that. let me find out if there is an illegal way to get this for free. we have to establish the habit of consumer behavior that is legitimate because like all media, the book industry has this television industry is going to have this, the music industry has had this. you have they sell encryption this, too bad outcomes that you are trying to navigate through. fossella is piracy which everything is going to be free. there is no industry left. the core of this on this side is, you are pricing too high and you are going to force people over this way so you have to

have enough, enough revenue volume to maintain your industry so you can't price too low, because then you have no industry left in there is no money for the creators and the stock trading by decant price so high that you are forcing them to the other side. you have to navigate this thing very carefully. i think over time the music industry has come back and it's going to get it right. i hope the book industry gets a ride from the beginning and when we get into movies, television and other media i hope they are able to navigate this fairly well as well because the outcome here is a very negative outcome if we get the wrong and that is if there is really no economics in these creative content industries, there are going to be now industries, which means the best creative talents and minds that we have is not going to, they are not going to find this to be a particularly attractive industry that participated, so we really need to make sure that consumers,

whether this is through copyright enforcement or education or other reasons or other methods, the consumers understand the value of content. they don't expected to be free. they are comfortable with purchase mechanisms that work for them and deliver value to them and i would submit that sony's reader and amazon kindle are examples in the book business and there are other examples in the music business as well. >> host: mr. sarnoff is google book it way to navigate between the piracy and they too high prices? >> guest: yes, i believe that is. the google settlement, which is a settlement between the authors, represented by the authors guild, the publishers dealed and google itself and on the side the libraries for which google cop adel of these materials is an important settlement as a kind of precedent for our media markets here because it does allow for a

brand new markets to kind of come out of nowhere for the content creators and for publishers and four google frankly. in other words, they were engaging in a behavior which we from a copyright standpoint thought was illegal. they were copying books and libraries and they were taking those copies to making some at the thought of them so people could find the books, and they were giving copies back to the libraries. all of this kaupthing is exactly what copyright is about in our few. that you really can't make copies of these works for any commercial purposes without the permission of the rights holders, so we engaged in a lawsuit that ended up being a class-action, the authors broddick class action format of a lawsuit and we joined in nat and together we sat around a table and this was not quick. it took years and try to figure out how could we take this situation which is going to end badly for all of us. in other words that google had

won the day, what it would be able to do then is take all of these books, copied them, give copies back to the libraries and then served out snippets to the public to show what pieces of these books were to the public, so you could search and find little pieces of your books. that is all they would be able to do however, and we view that is unlikely because we thought we had the better of the argument that no, they would be prevented from doing such a thing. they would not be able to make these copies and snippetize them for the public. that is a loss for us too because what these guys were digitizing and have digitized millions of books already, are many, many books that are out of print and essentially inaccessible to the public, in accessible to researchers at universities and inaccessible to the world in general. and so it least for the united states, which is the only place the settlement could be

effective if it is approved by the judge we will allow for all of these books that are digitized to have the kind of new life in our culture, in our society and in our educational institutions, where once digitized, you will be able to have access to these as a consumer and browse them, see if your interested in buying them and so you can access them electronically. and the case of institutions you can get a subscription to all of these works of your students and faculty have essentially the world's greatest library and in some ways they have library of alexandria ultimately, every book that you could ever want would be available to their students and faculty, not just by going to the library and taking a physical copy, but in their dorm rooms, in their offices. it would be an absolute revolution of scholarship and a really big sea change for the american educational institutions to have that capacity.

married to that, we would create an economic model so that would be available by subscription to these universities so all of the creators of the content and the publishers of that content can be compensated for these essentially, for these subscriptions the institution would be engaged in providing to their audiences. that is a brand new market for us and allow this to do this settlement. >> guest: but there have been serious antitrust concerns and google's role in having exclusive rights to these books that are in cop rate but use owners can be found and this may actually tie up the settlement. it could be the basis for being rejected with the dissed-- justice departments so i'm wondering where these conditions avoidable? thing that have been raised by people who may want to get into the same business that will be precluded by law because the dawn of the same exemption that google is going to have to write all of these works. >> guest: the so-called exemption applies only to works is owners cannot be found. annie works that are claimed,

that is we as a publisher claims or the author claims them, those works can be licensed by the book rights registry to any competitor who would want to provide the same service as google. you are right, when it comes to the so-called orphan works, works better never claimed by anyone, the class-action mechanism gives google a capacity to do certain things with those works that would be difficult to replicate unless someone else had a similar class-action result. however, we think that is quite temporary and not particularly meaningful. let me explain. not particularly meaningful. these books were talking about, these orphan works, there is the concern that google will have a monopoly on these works but let me tell you these works are a no-opoly today. there is no one exploiting these works. there is no one who could possibly exploit these works. these works are sitting there not findable, not accessible to anyone. in order to have in my view, to

have google servicing these works is a societal good and it is a good for the rights holders and that is who we are trying to service here, the rights holders, the general public and of course the communities of scholars that the want access to these works. so the settlement does provide that for the second reason is not particularly germane and my view the settlement for the first time provides an economic incentive for people to claim these works when there there is. my father wrote this thing a long time ago. i hear their payments being generated. i am going to claim it. so we will have fewer and fewer orphan works because there is a mechanism for payment. the last thing is, and i believe this will also come to pass, maybe not immediately but there will be renewed legislative and the tests to deal with orphan works so that others can be enabled to have the same kinds of licenses that google has legally without the class-action mechanism. we could not do that as we saw it today but certainly with the

legislative action that could be contemplated it would be very easy to do. >> host: mr. sarnoff why did you say that the benefits of this deal would be limited to the u.s.? >> guest: because, this is a u.s. lawsuit and only use, whether it is consumers are institutions would be in the u.s.. outside the u.s. none of these files would be usable by anyone including google. >> guest: let me ask you about these two different approaches that have emerged in the print world for dealing with piracy. we have several media organizations who have recently created a group called the fair syndication consortium who are trying to get basically advertising networks to share some of the revenue that is being generated from the unauthorized use of their articles, their news stories and on the other side you have mainly the "associated press," which is taking much more of a recording industry style campaign to actually go after and try to prosecute some of these places that are running

their articles without permission. the you see either these approaches as more likely to work? is there any kind of history from the past ten years with the recording industry being proactive that have tried to be more cooperative and as you have tried to with bertelsmann cots a pirates service? >> guest: well, it is a complicated issue and in the news business, as to whether they could be a kind of forced sharing of advertising revenues from sites that are not legitimately paying anyone, that is a whole enforcement regime that is pretty hard to figure out how it would work. i think it is possible. i am not sure it will be desirable. the more desirable way to go is that the internet, there is actually in the congress today we had friends there which is pointing in a different direction which is to say hey, there's no god-given right to use the internet exactly as they

wish to use it if it is violating someone else's rights so therefore, there is a certainly a possibility because of the nature of the internet to figure out where all of these things are posted, and to make sure that they are posted legitimately and sharing revenues legitimacy over time. i'm not sure either the two extremes that you outlined are the best way to go, and i'm not sure france's methodology of withholding internet service for those who engage in piracy and other kinds of things is the right way to go for this country either but i am sure there are technical solutions to what is ultimately a technical problem. >> host: unfortunately we have to leave it there. greg pifer and mr. sarnoff thank you for joining us on the communications. the name sarnoff is quite familiar and is a name that is known in communications. why do we know that name? >> guest: well, going back a couple of generations, my grandfather's brother, david

sarnoff, was head of rca and established in dc so he was part of the development of radio and television, which is why the name is somewhat familiar. i do like to tell the story that he fundamentally got it wrong along with marconi and others which is as we can now see, television really should go through wires and telephone really should go through the air. [laughter] they essentially added slightly reversed, but it worked for many decades and he was a great man. >> host: richard sarnoff is co-chair of the bertelsmann corporation. thank you. >> guest: thank you.