the public interest and convenience. and core to that was that if you had a finger in the air that -- or an antenna or whatever you could receive a signal without anybody being on the -- anybody taking a toll or doing anything to prevent you from receiving that signal directly. that's what areo does. areo's technology simply allows a consumer to get what was the quid pro quo for a broadcaster receiving a free license. >> so do you see yourself as selling network subscriptions in effect or do you see yourself as reselling content? >> we're not reselling anything. we're not reselling anything. what we are doing -- we have a technological platform. >> but it's a network in effect. >> no, it's not a network. >> people can subscribe to your network to receive content.

>> it's 1-1. we essentially -- you have an antenna that has your name on it. i mean, not literally, but figuratively because it's very tiny. your name wouldn't fit on it. certainly senator rockefeller's wouldn't. but you have this antenna and it's 1-1. it is not a network. it is a platform simply for you to receive over the internet broadcast signals that are free and to record them and use them on any device you like. >> the broadcasters have licensed with the producers of the content to broadcast that. but you are going to, in effect, capture that and resell it without a license is -- >> no, we're not. sorry, senator. we're not reselling anything. >> but you charge your --

>> what we do is we charge a consumer for the infrastructure that we've put together, for the little antenna and for our dvr cloud service. that's what the consumer is paying for. the consumer doesn't have to pay. we don't charge for programming that is broadcast on this free -- >> but you are a distributor. >> pardon me? >> you are a distributor then? >> no, we're not. sorry, i mean, i would like to agree with you on something. >> okay. we'll -- >> but we're not a distributor at all. we're not distributing, except if you say that what we are doing by -- if you would call an antenna that radio shack sells, charges a consumer for a distributor, then it would be analogous.

>> you would contend if amazon or microsoft, businesses could intercept broadcast signals and sell them through the -- what they have set up now, right, over the -- >> well, the laws, the system for broadcasting is, i mean, microsoft could do it presuming in redmond where there is a tv signal that they offered the same kind of platform that we would offer because the system of broadcasting transmission is local. so it's utterly 1 to 1. a local broadcaster sends a signal out. and we provide an antenna to receive it, put it over the internet, and allow people to record it. >> all right. mr. misener, do you plan to intercept broadcast signals and sell them over your network -- well, i guess do you sell them as part of your content? would you see that as a legitimate thing to do at this point? >> senator, thank you for the

question. we currently don't offer live programming in our video service, and we don't know what the future holds for our other businesses. we're all about providing our customers vast selection and choice. so the 120,000 available movies and tv episodes, that will -- >> you license those or -- >> yes, sir. >> or deal with the copyrights? with everyone who owns them? >> that's correct. >> so you don't necessarily see yourself as a competitor to traditional pay tv services like cable or satellite or -- >> no, we're close partners with the studios who produce the content. >> okay. all right. just kind of an aside question. do you think a walgreens or cvs has the right to charge and manufacture more for an end aisle display than they do a position on the shelf? >> i'm sorry, i didn't follow

the question. >> have you ever seen an end aisle display of products in a grocery store? >> sure. >> do you think that retailers should have a right to charge more for the end aisle display than they do for a position on the shelf? >> goodness, senator. i feel that the products and services that a company like an amazon offers is -- >> no, this is just a question about a grocery store. do they have a right to charge differently for displays versus shelf space? >> well, they do. >> okay. that's really all i want to know. thank you, mr. chairman. >> thank you, senator demint. senator cantwell. >> thank you, mr. chairman. and thank you for this hearing and i thank the witnesses. i think combined, at least three of you employ about 100,000 people related to washington state, so thank you very much for that, and thank you for continuing to innovate in the business models. while we could have a lot of discusses here about a wide

number of issues from net neutrality and bandwidth caps and online distribution rights and piracy and privacy and what the fcc is capable of doing and not capable of doing and simplicity. one of the things that i wanted to discuss or get your input on is just as we're talking about business models related to entertainment and the changes and what congress needs to do, to me there's one incredible opportunity with the advent of online content and distribution of that content, and that's in the area of education. and particularly when you talk about konnect and two-way devices, i'm curious about what you see, mr. westlake, as opportunities in the area of education. i could say health care is

another application. but education, where just about every university could put every bit of content online and change the dynamic and access to education. whether you're going to give them a degree or not. to me it's almost irrelevant. the fact that you can make educational materials so available. mr. diller, you made a habit of staying ahead, innovating and staying ahead of business, making sure you don't fall subject to business models as they change, you're under competition. so what do you see as the opportunities for this content to be made more readily available to the american public, when we know one of our biggest challenges as a country is making sure we have a competitive workforce and driving down the cost of education? so mr. west -- anybody on the panel, but mr. westlake, i want to know, because as my understanding is two-way communications too, so one of the things people are now saying about online or interactive education is the limitations.

but with konnect you're obviously changing the dynamic to get more interactive going with individuals. >> thank you, senator. yes, that's correct. in fact, i look at the sesame street play for learning program that we'll be releasing in september as a catalyst for companies, producers, to actually see what can be done. this is technology that -- konnect as you mentioned -- for those not familiar, with spelled with a k, kinnect, as opposed to the word connect -- is an accessory that attaches to x-box and has the capability of detecting voice, motion-sensing, as well as a video camera. what this program, what we've done is commissioned 50% more programming to be shot, integrating it with the produced production of the sesame street program that's produced each year. they produce about 40 hours of linear programming. taking the additional content and combining it with the linear, children are able to interact and as i describe can

throw a ball toward the television set and actually the ball magically appears on the television set as though this nonexistent ball, for example, just suddenly fell into their television set. something that was previously impossible to do. and what we're doing is we look at this as a seed for showing others, this is what we can do. this is what we've done in other areas. which is when we know the technology, what better way than to demonstrate it? so i think it's the beginning stage of being able to have producers produce the content that is available for children to be used in this fashion. as you said, the same with health care. there are any number of ideas that could be used for this technology to bring health care content, et cetera. >> mr. diller, education? what do you --

>> i would say that if online technology does not transform education, it would be a crime. it is already beginning to do so. but you have to remember, we've only had broadband for just a few years. so the ability to have rich video transmitted is a recent phenomenon. we have things like con academy which is a wonderful service for education. we have online like kaplan's online university, which has, 100,000 members, i think. so to speak. eventually everything is going to be online. and there are healthy potential business models that are going to support that. and they'll have a profound effect, i think, profoundly positive effect, because you will finally get some competition, some really lively, creative competition, in education, how it's delivered, what its products are, et cetera.

so i'm very -- i would say i can't imagine that it won't be transformed. >> thank you. thank you, mr. chairman. >> thank you, senator cantwell. senator thune? >> thank you, mr. chairman. i want to thank the panel. this is all -- the technology is remarkable, the innovation is amazing. we here in congress are just trying to keep up with what's going on out there, as you can tell from listening to us this morning. but i'm curious to know, and this is for anybody on the panel, because there are some studies out there that suggest streaming accounts for about 54% of internet traffic in north america during peak times, netflix and youtube account for 37.6 of north america's daily internet consumption. which leads to a question. that is, do me we as a nation have sufficient infrastructure and bandwidth to support the increased demand for high-quality online streaming services and what are the foreseeable issues that arise in

our internet infrastructure in terms of this exploding demand and availability of online video, and what should congress be watching for in this area, if anybody would like to take a stab at that? >> well, senator thune, thank you very much. i think the core characteristic of the internet is that consumers are allowed to pull to them the information that they seek. so it's all about consumer choice. the information doesn't get into the wire, as it were, unless the consumer asks for it. and so consumers are driving that growth of online video. consumers are demanding devices like kindle fire. they're demanding the broadband delivery of video services. and so so long as consumers are able to make that choice in the future, so long as the networks remain open to that consumer choice, it will be a bright future for consumers. because they will decide what

they want to receive through the internet. >> but in terms of capacity, just the infrastructure to handle all of this, i mean, does anybody see that as a problem? does that impose any kind of a constraint -- >> of course it's a problem -- >> to the future growth of the industry? >> we do not have a first-rate broadband infrastructure in this country. we are slower and less deployed than i think 15 or 18 countries. >> right. >> we also are beginning to strain at capacity. and so i think that all the efforts to free up spectrum, the efforts that i think should be mandated for the widest broadband coverage, is mandatory. one way or the other, it will get solved.

it would be nice if, in fact, enough spectrum is offered and enough bidders bid it up to whatever they think is a fair going rate, and then they bash each other in competition, for which there's relatively little right now. and the potential then is for rates -- transmission rates to be lowered, which would be a good thing. >> and you mention, mr. diller, in your testimony, to your prepared statement, you talked about broadband being ubiquitous. somebody represents a rural area, there are places in the country where that's not true. and i think of the reservations, for example, in south dakota and thinking about how -- what efforts we need to make to make sure that we're including rural americans in these video business models of the future. because there clearly is a -- i know it seems like it's ubiquitous to many of us who live in places where you have access to it, but there are a lot of places that don't. i had a question on having to do with this issue of cord shaving.

mr. westlake, you mentioned that in your prepared testimony where consumers elect to just have basic cable service and supplement their service with a subscription to netflix. it seems like there are a lot of content providers that are going to have the opportunity to sell their content directly to the consumer which would allow them to bypass cable subscriptions. and yet many, if not all, of the current online streaming models requires you to have a cable subscription. for example, you can't watch espn or hbo on your ipad unless you have a cable subscription. they provide licensing rights to stream it. what is stopping espn from selling their content directly to the consumer, or the nfl for that matter to sell directly to the consumer? you mentioned it -- >> yes. in terms of each of these companies, of course, can make a decision whether they choose to sell directly to the consumer. if what you mean is do i know of any impediment, there are no impediments, it's more a business decision that they

make. some of these services are, in fact, selling directly as well as on an authenticated basis. so it's really purely a business decision on their part. some have and some haven't. and i would expect over the course of time, there will be more services that are offered directly to the consumer. >> simply, senator, it would be insane for espn to sell itself directly to consumers. because right now, it's selling itself to me. i don't watch espn, i pay god knows what for cable transmission. and i am therefore paying for espn because 100% of subscribers have to pay for it. so to sell it individually would be something they avoid. >> all right, thank you. mr. chairman, my time's expired. thank you all. >> thank you very much. senator warner.

>> thank you, mr. chairman. thank you for holding this hearing. part of mr. diller's testimony, if i understand, he said incumbents always want to protect themselves and we need more disruption. i agree, coming from my background on the telecom side. but i'm trying to get my head around this whole new model where we've got on one hand, we have the content generators. in the traditional model, we had broadcasters and/or cable others, which then had some level of public obligation because they either got that free license or they negotiated with the local community. so we've got this kind of how you do a distribution through either cable, over the air, or broadband network providers. and we've kind of got this new entity, not so much from

nielsen, but everybody else, you all kind of being, in many ways, in between the content creator and the distribution system. and i guess the question i have for you all is, we have placed in the past either kind of program access rules or other responsibilities on the network providers some restrictions or rules around the content entities. what should be kind of the policy ramifications for you all? what sort of rules? should we kind of -- should we get to the notion of what -- how do we define, senator demint was getting at, whether a distribution network or trying to put you in a traditional box,

but what should your obligation be and what policy restrictions framework should we put around you all? i'm not sure that's a very clear question but let me have you all take a crack at it. >> well, senator, if i may, i think vigilance is due most in the areas where there's the least competition. and so at present, there are a plethora of content creators, content distributors, and certainly consumers. but there also are not many conduits by which the content can get from producer and provider to consumer. and so that's the area i believe requires the most vigilance. and in this context, maintaining an open internet is crucial to the provision of these competitive services and the consumer choice that i believe we all agree is the right policy. >> senator, i think that -- not to be presumptuous, but i think you've got to rewrite the communications act of '96.

it's overdue. given the internet. which -- which -- and it needs revision. because the rules started with broadcasting 80 years ago. but the rules that essentially protected broadcasters, and then the rules that enabled cable television, there is a new entrant. that new entrant -- and it's a healthy entrant -- is the internet. and so i think the rules now need to reflect that there is a potential positive competitor to what has become, as you stated earlier, a very closed system of program content makers, people who organize networks, whether they be pay networks or whether

they're advertising-supported networks and subscriber-supported networks rather than, quote, pay per view. but these players actually are in a system where there's no air. and there's no air because it's completely closed. dominateively few companies, less than a handful. and i don't think those companies are going away. my goal in life is not to make them disappear. but i think it's -- the internet allows for competition. >> let me just ask you this because my time's going to run out. >> sorry. >> no, i just feel though -- i agree with senator thune, we've got to push more access. we've got to push more conduits. but then what obligation should you have as a way to take -- as the intermediary between the content creator and the distribution system, what

obligations should you have in terms of providing equal access, paying for the amount of content you push through these pipes, and should we be distinguishing between traditional sources -- cable, broadcast, wired, wireless? should we have a total level playing field? my time's gone. >> i would just simply say a level playing field is mandatory. and that means that the rights and obligations that people have are across all of these arenas. [ inaudible question ] >> absolutely. broadband -- by the way, right now, the profit margins on data transmission are in the 90s. so it's not exactly as if these systems are not going to be built out. they are being. and they're being added to every hour. so i don't think you have any worries about that.

>> senator, the greatest -- i would just add, the greatest innovation we've seen in the last couple of years has been from those that are utilizing broadband online video delivery, bar none. access to the broadband and the reach of broadband is the essential part. i don't find that we have an issue of getting access to the content. in fact, the most profoundly different content is coming from those who are utilizing that means. wide access to it is essential. that is essential. but that is the -- the creation of the content is growing exponentially, both the volume of it as well as the innovation behind it. >> senator klobuchar to be followed by senator heller and senator kerry. >> thank you very much. thank you, mr. chairman, for holding this hearing. i wanted to follow up quickly first with senator thune referred to rural america.

i think you all know the fcc national broadband plan talks about getting broadband, including web pages, photos, video, to everyone, yet often the speeds aren't as fast in the rural areas. and could you talk, maybe one of the three of you that provide these services, about how you're working to make your delivery systems more available to rural america? >> senator, well, we are a platform company. we don't actually deliver broadband to the end point. we're dependent upon that essentially as the consumer is. >> i understand. >> we are certainly, as i said in my opening remarks, encouraging wider access to that at the fcc, 4 meg down, minimum threshold. because at that point, we feel in terms of both what we can deliver, in terms of high speed -- excuse me, high-quality video, hi-def quality video,

that suits the needs we have as far as giving those consumers what they need. but as far as actually being able to facilitate that pipe out to the home, that's not a business we're in. >> senator, thank you very much, senator. we believe we're helping to provide the value proposition for the buildout of that broadband. the very fact that 120,000 movies and tv episodes already are available from a service like amazon instant video makes it more valuable for consumers. and so the consumer demand will drive the buildout of broadband. certainly that's an area of important policy oversight from this committee and from the commission. i'm a big believer in that. but rural areas especially will benefit from internet video. >> and there's an article today in the "washington post" pointing out the 1934 telecom act was ensuring programming for rich and poor alike. how about the disparity issue in terms of equal access to low-income households?

how do you think that fits into this? as more and more people are going to be getting their news in other ways? >> well, i would say that access is going to be increasingly available as the broadband infrastructure not only becomes completely ubiquitous, but also has enough price competition to allow it to be available. i think what the fcc is doing is -- i mean, in terms of using the old telecom funds to finance buildouts in rural areas, et cetera, for broadband is great. but i think we do need a national policy for broadband. because everyone is going to be affected by it and we're going to need to have as good a system

as there is in the world. and right now we don't. >> and where do you see the role for local news? our state, the local news is provided through getting people through tornados, to the flooding in fargo moorhead, literally daily reports of where people should go, what's happening. what's the role of local news as you see the video marketplace maturing? >> i've always thought, as people said, that local broadcasting, local television stations, were going to be outmoded. were probably in all these new development areas were going to be antiquity. and i've always felt otherwise. because the strongest local television stations are the ones that provide the most news and information and community programming. and so i think that is -- continues to be very vibrant. and clearly, if you look at the

success of any television station in any market, they are more dependent upon their ability to deliver news than they are having to hit a television program of the moment. >> senator, i find that based on just viewing in the greater seattle area where two of us live, or actually i guess -- you work for one, i live in seattle. the local stations are utilizing online now for a depth of local news that is impractical on-air. so there is barely ten minutes that goes by in a broadcast of a local independent or affiliate station that does not refer to their website for more in-depth video footage, et cetera. so actually, i think the local -- i agree, local content remains for more consumers first and foremost where they go, as opposed to just a broader national feed. and the local stations on the

whole, i think we're seeing just the beginning of it, i think you will see those local stations actually adapt to video apps that others are doing, and it will only proliferate. >> ms. whiting, i just had one last question. i was looking at your gender break youp. always a good topic to end, huh? on the digital consumer. you have the tv viewers, 51-49, women watch more tv, is this right? i didn't know this. and online women beat out men 53-47 for videos. 54-46 for social networks. 50-50 for smartphones. and the tablet owners are the only category the men are ahead, 53-47. do you see that changing as well or where do you see that going? >> no, i don't see that changing. >> why is that? >> because actually, we see very broad distribution of video in -- usage on every device.