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 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 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 essentiten 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