few online video on demand services to begin a transition to the online environment. this great internet revolution is ready now to provide a new platform for competition that will, in turn, lead to video packages and a la cart offerings driven by consumer choice and device innovation rather than dictate it by the financial interests of a handful of programmers and distribution companies. how can that not be in the public interest. there are no barriers to entry on the internet. creators have the opportunity to make and distribute whatever is their fancy. if intermediaries have less control over the tv ecosystem, creators would be able to reach viewers more directly and will not have to sign over so many rights to distributors. viewers would benefit from being

able to watch vastly more programming in the way they want to watch it and from having an alternative to subsidizing the current unwieldy marketplace. new technology can allow a more modern approach to receiving local broadcast programming. right now roughly 15% of americans rely solely on over the air television because it's difficult to install home antennas or because of problems with reception. this ought to be of concern to congress which appropriated $650 million to ensure that households could actually receive the signals when digital replaced analog broadcasting. areo, a company in which i've invested, has invented technologies that allow consumers to get a clear, perfect picture over the internet and watch live, local broadcast television on any

connected device -- an ipad, iphone or an internet ready television set. it provides its members with their own antenna capable of receiving high definition local broadcasts. properly understood, areo allows a consumer to outsource or locate remotely an antenna and dvr and to use that equipment to access the over the air content to which they are all entitled. its dvr and the cloud technology ad a breakthrough as the consumer need nose extra wires -- consumers need no extra fires or set-top boxes or remote controls that no one understands. by making over the air digital broadcast signals actually useful to consumers, areo is bringing forth the very reality that congress sought, that congress invested close to a billion dollars in and at no additional cost to taxpayers. areo is but one example of how the internet can inject competition into the video market place.

online video is just beginning. it will take all kinds of new products, a lot of failures that will move these systems from a closed to an open environment. it will take vigilance to make certain that net neutrality continues to be safeguarded. that no road blocks or toll bridges can be inserted between the producer and the consumer. my hope is that congress keeps the most watchful eye as these marketplaces develop. i know at some point soon the communications act of '96 will have to be rewritten to take into account the internet which didn't exist when the act became law. incumbents have natural incentives to limb tip threats. congress should be aware that

the rules of the game favor entry, innovation and competition. in the end, there's no stopping technical innovation, but i would hope that a wise and engaged congress will make certain we have the levelest playing field, most encouraging environment for new media over the next crucial years of its development. thank you for listening, and i'll be happy to answer any questions i can. >> thank you, mr. diller. our next witness is ms. susan whiting, who is vice chairman of the neilson company. and i think you're going to talk about how american viewing patterns are changing, which is for sure. and that more households are watching online video than ever before. you've been at this -- your company has been at this for decades and decades and you produced data about american television which is very helpful. and particularly helpful as we go into this disruptive period where nobody is quite where sure it's going to end up. so we welcome you.

>> thank you. thank you, chairman rockefeller, and other members of the committee. as you said, i'm susan whiting, vice chair of the nielsen company. you are, i think, familiar with nielsen's role in television ratings in the u.s., but you may not know we're also a global information and measurement company measuring what people watch on tv, on the internet, on mobile devices, but also what they buy in retail stores all over the world. so i appreciate this opportunity. based on our latest research, the average american watches nearly five hours of video each day. 91% of which is done watching traditional tv sets in realtime or live, meaning they are not recording on a dvr, using video on demand or even watching a dvd. but what has emerged in the last four or five years is a simple message. consumers watch their favorite content on the best screen

available at that moment. and they watch from more locations and on more devices than ever before. the availability of digital technology, digital access and the explosion of laptop computers, mobile devices and tablet computers in american life has really enabled this change. these devices, along with, at the same time, a record number of tvs in homes, have provided more screens. our latest state of the media u.s. digital consumer report provides a comprehensive overview of these trends. my testimony today is based on the findings in that report and the report has been provided to the committee. today more than 274 million americans have internet access through their computers which has doubled since 2000.

in october of 2011, nearly 166 million americans watched video online. and more than 117 million americans accessed the internet through a mobile device. nearly half of all the mobile devices used in the u.s. today are smartphones which makes it possible to access the video. broadly speaking, each month, the average american sends 146 hours and 45 minutes watching tv, 4 hours and 31 minutes watching internet videos on a pc and 4 hours and 20 minutes watching video on a mobile device. so the use of video on pcs continues to increase. it's up 80% in the last four years. so who is using video this way? our research shows that women are 6% more likely to review video online than men. 18 to 34-year-olds match 35 to 49-year-olds as the largest demographic watching videos online.

sites like youtube and netflix together most recently represented 56% of the streaming time which for the average american is 4 hours and about 31 minutes each month. but along with that increase in video consumption online, it's worth noting that 33.5 million mobile phone users now watch video on their phones which has increased almost 36% since last year and consumers with this access spent 4 hours and 20 minutes doing this. consumers are increasingly becoming media multitaskers meaning that they'll use more than one form of media at the same time. for example, recent nielsen data shows that 57% of smartphone and tablet users in the u.s. check their e-mail and 44% visited a social network site while watching tv. consumers are finding and accessing their favorite content

on more and more devices. or screens. consumers are saying unequivocally that online video will continue to play an increasingly larger role in their media choices. thank you again, senator rockefeller, for the opportunity to join you today. >> thank you, ms. whiting. mr. paul misener, the vice president of amazon.com. and i believe that you will speak about amazon's entry into the online streaming video business following on the heels of its efforts to digitize books and make them more widely available through its kindle service. i'm going on a limb here but i think you'll stress the need for an open internet which is kind of called network neutrality which is controversial around here but which i support and which my colleague to my left does not. in order for amazon to compete against incumbent video service providers. we welcome you. >> thank you very much, chairman

rockefeller. >> did i get it about right? >> yes, sir. absolutely right. my mom will be proud. thank you, mr. chairman and members of the committee. exactly a quarter century ago, the fcc set out to establish rules for so-called advance television which was the very first significant update to consumer video quality since the introduction of color tv in the early 1950s. the commission established a private sector advisory to evaluate the technology and i had the honor of assisting that committee's chairman. his committee can be thanked for the beautiful theater quality video that we now take for granted when we watch a movie or football game on hdtv. but much more emerged from the chairman's committee than pretty pictures. already in the mid'80s, digital video capture and compression had come of age. in the early '90s, the committee also oversaw the emergence of digital transmission of digital video data bits.

the future of video was to be digital all the way from the camera to the display. two other crucial developments occurred at the same time. first, the worldwide web was invented, forever transforming the internet. second, congress overhauled u.s. communications law. although the 1996 act maintains some legacy distinctions, it also codified the concept of an information service. it was into this era that amazon.com was born. amazon opened on the world wide web in july 1995 as an online book store and quickly grew to offer other media products, including music, cds, vhs tapes if we remember those and dvds, all of which require physical delivery. but today, the amazon instant video service offers customers throughout the united states, whether in populous or rural areas the ability to buy,

representati rent, or subscribe to a huge catalog of videos delivered instantly, 24 hours a day. amazon instant video is available on pcs and macs and other internet capable devices. amazon instant video currently offers 120,000 movies and commercial-free television episodes for purchase or rental and about 25,000 of those are available in high definition. in february 2011, amazon introduced prime instant video as a subscription service through which amazon prime members can watch instantly and for no additional cost more than 17,000 video titles selected from the amazon instant video library. this gives our customers an easy opportunity to explore new video content. now although we recognize that our customers want to watch video content from the comfort of their homes, we also recognize that they are on the move and, thus, they want access to digital video, not just any time but also anywhere. to support that demand, last september, amazon introduced the kindle fire. this device, which is a fully functioning tablet that allows customers to access the

internet, read books, play games and importantly, watch high quality video. and if our customers have any questions about our online video services and the kindle fire, our customer service team including specialists in our huntington, west virginia, facility, are standing by to help. and so, mr. chairman, to answer the question posed in today's title -- hearing, online video has emerged. and undoubtedly will be a key medium of future video delivery. with continued growth of broad band internet access, we believe the consumer demand and choice will cause continued growth of online video services for an even brighter future. this assumes, of course, that the internet will remain a nondiscriminatory open platform. the open internet encourages innovation and allows consumers to decide whether a particular product or service succeeds or fails. and this openness is

particular particularly crucial in rural areas of the country where other choices are more limited than elsewhere. the fcc has pledged to monitor the potential for competitive or harmful effects from specialized services, but i ask your committee remain vigilant on this and other issues of internet openness. for example, consumer data caps instituted by some network operators merits such vigilance. consumer choice without impairment must be preserved. amazon would be happy to assist the committee in any way we can be helpful, including if the committee were to undertake a review of the '96 act. as the testimony delivered in this morning's testimony -- hearing indicates, the lines between the communications services separately addressed in that legislation continue to blur and how consumers, especially young people, now think of television does not match long-standing legal and regulatory conventions. the hearing today already has drawn important attention to that fact and so in conclusion, mr. chairman, amazon.com believes the future of online video is very bright for

consumers. and we look forward to working with the committee to preserving consumer choice. thank you again for the opportunity to testify, and i look forward to your questions. >> thank you very much, mr. misener. and finally, blair westlake who is corporate vice president of microsoft. and you're responsible for the xbox, perhaps not personally, or perhaps you are, at microsoft and that started as a video game but it's gone on to become an amazing instrument. we welcome your testimony. >> chairman rockefeller, members of the committee, thank you for the opportunity to testify on the emergence of online video today. i oversee the medium entertainment group out of microsoft. that's my core scope and responsibility. microsoft engages with video in several ways, including through our various releases of the windows operating system and windows phone products. but i am also here to discuss

how the market is delivering consumers greater choice and control over their viewing with online video through our xbox video service. i have three ideas for you to consider today. first, we are in the early stages of the transition to the future of video. a few years from now, current online video offerings will look like a mere bucket in the proverbial ocean of content. second, while the current online video distribution marketplace is dynamic and vibrant, the committee is ready to keep a watchful eye as content and internet service providers adapt to these changes. third, the video marketplace is on the edge of even greater change. that will feature new forms of content, greater interactivity, access and payment choices for the consumers.

let's first consider the present online video market. even five years ago, it was not possible for consumers to access high definition, high quality video content delivered over the internet. the witnesses in today's hearing represent just a few of the businesses creating an abundance of viewing options for consumers. as you may know, xbox did, in fact, start just as a video gaming console. when netflix chose to make its online video service available beyond the pc so that it could be viewed on a tv set, netflix did so through our platform. that was a pivotal moment in tv history that has helped revolutionize consumers' viewing habits. today, microsoft's xbox live service has more than 40 million subscribers worldwide watching 300 million hours of video per month. internet delivered video allows

consumers to access a broad array of video content at various price points, wherever and whatever broadband enabled device they want. these choices from xbox and others complement traditional cable, satellite and telco services. but to emphasize, we are not a substitute for traditional video offerings. for example, we've also seen consumers choose smaller discounted programming packages offered by many of the mvpds. and who may then opt to supplement their basic tier cable service with online video offerings such as netflix, a practice that is referred to as cord shaving. all this demonstrates a current online video market that its vibrant and dynamic. the future will bring even more change. in my view, the tv landscape will likely experience more change in the next 18 months than the past five years.

tv will increasingly become a two-way interactive experience. to give just one example, sesame street programming that microsoft will release in a few months will be completely interactive for children and leverage the power of gesture and voice control. children will be able to interact directly with elmo and cookie monster on their tv screen to learn counting and the alphabet and to actually see themselves on the tv in the program, thereby stretching their imaginations like never before. tv also will be increasingly a multidevice experience. soon consumers will be able to watch all the content they want and pay for on any and all of their devices. we are already seeing production companies create content with mobile screens specifically in mind.

innovation also will be introduced into other aspects of the television viewing experience. for example, the integration of bing search functionality and voice recognition technology enables some customers to find an episode of mad men by using just their voice. these are just some of the exciting changes on the horizon, and they highlight a key lesson. the vital importance of broadband access. microsoft is committed to digital inclusion and affordable access to wired and wireless broadband. as we move forward, policies that promote access to universal high-speed broadband are critical to the health and vibrancy of a market that enables innovation and benefits consumers. finally, the future of video also depends on companies adapting to sustainable, innovative business models and broadband management policies

that do not discourage or impede consumer consumption of the vast and innovative online video offerings that are possible in the future. and consumers have come to expect. today, companies are experimenting with transactional video on demand, subscription-based distribution and electronic sell through models. all these options enhance choice and are good for consumers in so many ways. as content owners and distributors develop new ways to monetize their products and services, i fully expect that innovative alternative business models will come into view. out with the old, and in with the new. in conclusion, microsoft is pleased to be a part of this vibrant and competitive video marketplace that is rapidly evolving to a future that will give consumers more choice, more control and better offerings. thank you, and i welcome your questions. >> thank you, mr. westlake. we'll do five-minute rounds, and i've got about 100, but we'll

just keep going until you exhaust. this is to all of you if you want. ms. whiting notes in her testimony, the popularity of online video is growing. we agree with that. but traditional television also remains very popular. i want to understand better how online video will compete with pay television packages from cable and satellite companies. and, therefore, my questions, do you believe online video will grow to become a full substitute for pay television? will it compete directly with pay television packages that are so popular still today? and secondly, even if it does not become a full substitute, will it result in some downward pricing pressure on pay television service which costs more for consumers each and every year?

please. >> so we have a little bit of history to look at in the digital transition that just occurred about three years ago. the full digital. many homes actually kept their pay cable television or satellite. so in some cases it was a matter of switching the provider, but they were pay -- what we see, as i said before, a record number of televisions in the home which may seem counterintuitive, but people love large screen tvs, high definition experiences and i think it's the ease of use that will matter. so while i won't predict, what we do know is good content absolutely wins. whether it's user generated or created in other ways. and so if people provide the right content and has a business

model. mainly it's been supported by advertising or by subscription. if it works they'll continue to produce the content. consumers follow the content. the devices will multiply. and i think it's the ease of use and the ability to watch whatever you want, wherever you want it, whenever you want it that we see has supported traditional television programming. it actually has grown. it's the access that matters. and i think other members of this panel may have more insight into the pricing and other things. but if we look at consumer demand, people want the content. and as long as the content is there, it's a matter of just making access easy, simple and different. >> i don't think it's -- to answer directly, i don't think it's going to be a substitute. i think it's a supplement. i do think what online can offer is more a la carte programming. you spoke earlier about having

500 channels and only watching 10. but you essentially pay for the channels that you do not watch and, therefore, subsidize them. and that's our current system. it's a totally closed system. the internet gives the ability to offer individual programs or discreet packages or the narrowest of narrow casting and so as time goes on and we get more television sets naturally in big screen format connected to the internet you have this incredible, incredible optionality that can only come

from the internet. there's no closed pipe. so i think that its long-term effect is it's not going to replace pay television, but it will certainly be up there in terms of consumption if not exceeding the consumption of pay television over time. >> for now it's attitude? >> sorry, did you say attitude? >> yes. >> yes. >> let me do one more very quick one. apologizing to you two. obviously, television is incredibly powerful, and it informs us or doesn't inform us in some ways shapes who we are to be. so we're talking about the advent of online video and how new technologies could change the nature of television. and once again, we go back to, i believe, that disruptive technologies come along when there is something to disrupt. and when we have -- when what we have is not working for us. so this leads me to ask, so what went wrong with television? or is it just about technology? >> mr. chairman, if i may, i

think the medium of television was always about pushing information out to consumers with the hope that they would appreciate it and want it. the internet in contrast by its very nature is a medium where consumers pull to themselves what they choose and what they want. our whole business mod cell predicated on vast selection, convenience and value, providing low prices to customers. nowhere is this more clear than the provision of our video services. we want to give our customers the choice to watch what they want to watch, rather than have to watch what was pushed to them by someone in the traditional media. >> one more crack? >> yeah, i think stepping back, it's about what you define television to be. so what we see happening is, you know, there's live tv. you are watching when it's immediately broadcast.

there's so much now done with time shifting, with dvrs. obviously distributed online video on your pc, on your tablet, on your phone. i'm not sure anything has gone wrong with tv so much as you've had this incredible technology change in how to access it. and that's what we see happening. and it's complicated. it's complicated for everybody in the business to adapt to, but it's really about the distribution. >> just one little filler here. in 1960 if the world had the internet, the whole distribution system would have changed. we would not have wired the country. we would not have put up satellites. we would have done it over this wonderful internet ubiquity. >> no, i agree. and one thing that occurs to me, and i'm coming right to you,

senator demint, is the marvel of how we push broadband and how with the exception of some rural areas which i care fiercely about it has worked wonderfully and also wireless. so in a sense it's like public policy and your innovation has created a perfect playing field. senator demint? >> thank you, mr. chairman. mr. diller, i'm curious, if you were still in the broadcasting business, what would you think about areo? >> well, you know, i probably would -- if i was in the broadcast business, i would do what every broadcaster has done since the beginning of broadcast which is to protect their arena and do anything to prevent anyone else from getting into it. but i would also recognize that the part of being a broadcaster was receiving a free license. and in return, you programmed in