captioning sponsored by macneil/lehrer productions >> brown: it was another volatile day on wall street, as stocks reacted to economic worries here and abroad. good evening, i'm jeffrey brown. >> woodruff: and i'm judy woodruff. on the "newshour" tonight, we examine the swings that sent u.s. markets plummeting this week to their lowest levels all year and then edging up at today's close. >> brown: then, margaret warner looks at the opening day of the trial of hosni mubarak, as the former egyptian president was wheeled into court on a hospital bed in a cage. >> egyptians were riveted by the fact that they were now seeing the ousted president on trial but also, i think it was a little bit shocking for some. >> woodruff: ray suarez talks to frank morris of harvest public media about the heat wave and extreme drought gripping the farming industry in the midwest.

>> what they say they need is a rain with a name, a big tropical storm to come soak the area, but what they really need is rain after rain after rain. >> brown: hari sreenivasan explores the latest push to go digital and watch movies and television programs online. >> woodruff: and to put the fight over the debt ceiling in perspective, we close by asking yale historian beverly gage and harvard's david king if washington has ever acted like this before. >> brown: that's all ahead on tonight's "newshour." major funding for the pbs newshour has been provided by: >> i mean, where would we be without small businesses? >> we need small businesses. >> they're the ones that help drive growth. >> like electricians, mechanics, carpenters. >> they strengthen our communities. >> every year, chevron spends billions with small businesses. that goes right to the heart of local communities, providing jobs, keeping people at work. they depend on us. >> the economy depends on them.

>> and we depend on them. and by the alfred p. sloan foundation. supporting science, technology, and improved economic performance and financial literacy in the 21st century. and with the ongoing support of these institutions and foundations. and... this program was made possible by the corporation for public broadcasting. and by contributions to your pbs station from viewers like you. thank you. >> brown: it was another rocky day on the markets with a fearful beginning, but a more positive end. the dow jones industrial average was down more than 160 points this morning. but for the day, it gained more than 29 points to close at 11,896.

the nasdaq rose just under 24 points to close at 2,693. the s&p 500 also rose slightly, avoiding what would have been its longest losing streak since the peak of the financial crisis in october 2008. at a cabinet meeting this afternoon, president obama said the debt deal had averted a massive blow to the economy, but that there were some lasting effects. >> unfortunately, the debt crisis over the last few months i think has had an unnecessary negative impact on the economy here as well. so, i'm meeting with my cabinet here to make sure that even as they have been throughout these last several weeks, they are redoubling their efforts to focus on what matters most to the american people. >> brown: earlier, white house spokesman jay carney said the president does not believe there is a threat of a double dip recession. wall street's sharp drops yesterday were felt worldwide

overnight and into this morning. asian stocks fell amid increasing pessimism over weak economic prospects in the u.s. european stocks also fared poorly amid continuing debt problems in a number of nations, including italy and spain, where bond yields surged to 14-year highs. joining us now to discuss the latest on the markets and the economy are liz anne sonders, senior vice president and chief invtment analyst for charles schwab and company, and mohamed el-erian, c.e.o. of pimco, a global investment management firm and the world's largest bond fund. liz anne saunders, i'll started with you. what happened a week ago to start this market, all the jitters? >> well, i think the market's had its eyes on several things. clearly the debt ceiling debate was a big factor, and i think that weakened some confidence, but in addition, last week we got the beginning of what was a string of fairly weak economic readings. first primary one was the gdp,

gross domestic product report for the second quarter, which was weaker than expected, 1.3%, but prior quarter was revised down quite a bit barely into growth territory, .4%. they not only did, that but they went back and they revised the entire recession period such that we now know that the decline in the economy during the recession was a little bit more than 5% as opposed to only a little bit more than 4%. and finally, what that actually means is prior to those revisions, the economy looked to already be in expansion, meaning that the economy had grown back to its 2007 highs. with those downward revisions, we're back down below the 2007 highs, which means we're still only in recovery. and then we've had some additional weak economic news, and i think the market had a tough time with that. >> well, mr. el-erian, what would you add to that? what triggers do you see here? >> all year, not just this week, it's been all year, the market has been torn, torn between

worrisome top-down news and good bottom-up. the best way to think about this, jeff, is suppose you are considering a good and improving house in a bad and deteriorating neighborhood. how would you feel? you'd feel torn. on the one hand,he markets like the fact that companies are doing well. they have strong balance sheets, lots of cash and they're seeing growth in the emerging world on the other hand, as liz anne said, there's limitation. politics is not just divided government. it is, as president obama said, dysfunctional government. and then there's europe. so you're seeing this amazing tug-of-war, and the last eight days or so, it has been the bad neighborhood that has dominated the good house. >> brown: now liz anne sonders, what explains what happened today then? i know you can never look at one day and tell all that much. is it a pause?

what goes on on on a particular day? >> you never know what goes on, on a particular day. ily the's multiple dynamics. probably the best explanation is some of the selling simply got exhausted. we hit some technical levels in the market that brought some buyers in. we hit sentiment conditions. sengtdment, by the way, works in a contrarian way. so particularly when individual investors become very, very pessimistic, that usually sets up an opportunity for the market to rally a little bit. so that may have happened. we may have hit a little bit of a short-term exhaustion point. but we had an interday rally. we closed up. that was a nice thing. i don't know that that necessarily means we're offer to the races here. i think there's still a lot that the market has to digest. >> brown: mohamed el-erian, you mentioned the government situation. is there still, do you think, the possibility of a credit downgrade, even after the debt deal? where are we on that and what impact... how does that impact markets? >> the possibility is there, and

it's really s&p. one of the two rating agencies. the other one, moody's came out last night and said, we're going to keep the u.s. at triple-a, but we're putting the outlook on negative, which means we're worried that it's deteriorating over time. s&p has been much stronger. back on july 14th it put the u.s. outlook on negative watch, which means a presumption that you will downgrade unless you get policy reaction. it's a question mark as to whether there's been enough out of washington, whether this debt ceiling is going to satisfy s&p or not, and we're going to have to wait. if we do get a downgrade, i suspect that the markets will not take it well. >> brown: liz anne sonders, what would you add to that, and also, you mentioned europe a little earlier. those problems have been with us a good while, as well. how much does that continue to weigh on our markets? >> i think it has. in fact, unfortunately, some of the problems have now moved out of what they call the periphery, which would be some of the

smaller countries like greece, and now the latest two countries that are really feeling the pressure of this are italy and spain. and that's a much different set of problems obviously in terms of the size of the problem, the integration into the european and global banking systems. so that kind of reerupted. i think the market was contending with that. back to what mohamed was talking about on the ratings downgrades, i think what is still uncertain are a couple of things. one, treasury bills are used as collateral, particularly with lending from bank to bank. and if the ratings agencies, particularly s&p, downgrades treasuries, then suddenly that collateral isworth less, so the cost of borrowing goes up. and if yields go up or rates go up, then the cost of borrowing across the board goes up. there is also a question about whether there would be any forced selling. a lot of funds have mandate to hold triple-a securities. whether they can change those covenants or not is yet to be scene, -- seen, but there may be some forced selling which would

put additional pressure on selling, too. there are other things, and there are some unanswered questions i think market is trying to grapple with in the event of a downgrade. >> when you look forward, mr. mohamed el-erian, i think it was your colleague at pimco, bill gross today referred to the economy as "in stall speed." it might have been you. it might have been him. i read it coming out of the company. what does that mean when you're looking at the prospects for growth and for your company as a major player when people watch how you're betting? >> jeff, that is a key issue as to can we survive in stall speed, "we" being the american economy. it's also true for europe. the concept of stall speed, think of a plane. the plane has to move forward at a certain speed, otherwise it comes down. our economy has to move forward. we are still overlevered. we need to grow out of our debt problems. if we get stuck with growth of about 2%, that's simply not

enough. so we risk tipping into a worse equilibrium, as we call it here. so this concept of stall speed is very, very important for a delevering economy. that's true for the u.s. and especially true for europe. as for what that means, that means investors should be very careful. they should recognize the rules of the game are changing. the fact that we're talking about the possibility of the u.s. being downgraded would have been unthinkable a year ago, two years ago. so it's very important to adapt your intellectual framework to be agile and to understand that this is happening in a global environment and that the opportunities are global. so be it pimco, be it schwab, be it any firm, i suspect you'll find that firms are becoming more global and they're looking for opportunities much wider than just the local market, and they're managing risk also in such fashion. >> brown: all right. well, we will end on that

interesting, provocative note. mohamed el-erian and liz anne sonders, thanks so much. >> thanks, jeff. >> woodruff: still to come on the "newshour": the former president of egypt on trial; scorching heat and drought in the u.s.; new ways to watch tv and movies and some historical perspective on political warfare in washington. but first, the other news of the day. here's kwame holman. >> holman: a crackdown against anti-government protesters escalated in syria today. overnight the city of hama, north of damascus, was heavily shelled. tanks moved into the main square and electricity and water supplies were cut off. we have a report narrated by neil connery of "independent television news." >> for fourth day running, the streets echo to the sound of gunfire as the syrian regime tightens its grip. army tanks head deep into the center of this city of 800,000 people in their latest advance in this crack down on protests.

these streets, which have been the focus of anti-government rally, now seemingly under the control of the regime. [gunfire] the dangers to those trapped here come from many fronts. these pictures, placed on the internet, reportedly show snipers at work on the rooftops. communication with the city is cut off along with water and electricity. in what could be a sign of cracks emerging within the military, a group of soldiers calling itself the serial free army union has posted a message saying it wants to encourage others to break away. they say they want to help the generals and soldiers who are ready the leave the regime's orders. >> holman: in new york, the u.n. security council adopted a presidential statement condemning syrian authorities for attacking civilians and committing human rights violations. for the past three months the world body had been silent on the escalating violence there. tropical storm emily churned through the caribbean today. the storm brushed past puerto rico, but was forecast to dump large amounts of rain on the

dominican republic and haiti. the storm threatened some 600,000 people still living without shelter in haiti after last year's earthquake. as emily approached land, waves and wind began to pick up. more than ten inches of rain was expected in some parts of the country. three nato troops have been killed in afghanistan. nato officials said two died in a roadside bombing in the south yesterday, and another died in the east. so far this year, 328 international troops have been killed in afghanistan. president obama today urged congress to end a partial shutdown of the federal aviation administration by the end of this week. members went into their summ recess last night without resolving a partisan dispute over funding. consequently more than 4,000 f.a.a. employees have been furloughed and 70,000 construction workers idled. at the white house, transportation secretary ray lahood said congress should pass legislation to restore the funding immediately. >> for politicians to run around washington as they've done for the last seven months and talk

about creating jobs, putting people back to work. this is not the way to do it. the american people see the fallacy in these very hollow speeches. if congress really believes in the words that they're saying about jobs, creating jobs, putting people back to work, stop your vacation. come back to washington, pass a clean bill. >> holman: in the meantime, lahood assured travelers the nation's air safety won't be compromised. essential personnel such as air traffic controllers and airplane inspectors will remain on the job. justice department officials today announced the largest prosecution in history for online child exploitation. attorney general eric holder said 72 defendants have been charged worldwide and of those 52 have been arrested. the group called dreamboard considered itself the premier online image library of adults molesting young children, often violently. at a washington news conference, holder described how people gained access to the group.

>> in order to become part of the dreamboard community, prospective members were required to upload pornography portraying children under 12 years old or younger. once given access, participants had to continually upload images of child sexual abuse in order to maintain membership. the more content they provided, the more content they were allowed access. >> holman: two administrators of the group were arrested abroad. three more remain at large. those are some of the day's major stories. now, back to jeff. >> brown: and we return to the epic drama still unfolding in egpypt, as its long-time leader goes on trial. margaret warner has the story. >> warner: nearly six months after being toppled by the people he ruled for 30 years, hosni mubarak-- lying on a hospital gurney-- was wheeled into a custom-made defendant's cage today. the first arab leader brought to court by his countrymen in the arab spring. he's charged with corruption and

with presiding over the killing of nearly 900 protesters during the 18-day uprising that brought his resignation in february. despite reports of feeble health, the 83-year-old mubarak responded firmly to questions from the presiding judge, in a court session held at a police academy on cairo's outskirts. >> ( translated ): mohammad hosni sayyid mubarak... >> ( translated ): sir, i am present. >> ( translated ): you have heard the charges brought to you by the public prosecution. what do you say?" >> ( translated ): i deny all these accusations completely. >> warner: in the cage with him: his sons gamal and alaa; and his former interior minister, habib al-adli, who ran the despised state security forces. leila fadel of the "washington post" was in the courtroom today >> he actually seemed quite healthy. he was alert, awake, convsations, hair black, not

keeping up his grooming. he did not not as sickly as expected, but outside of the academy, there were large protests of both pro and anti mubarak protesters that ended up clashing over the passions that boiled over today about the mubarak trial. >> warner: nader ashraf outside the courtroom, left little doubt as to where he stood. >> ( translated ): mubarak should have been hanged on the first day of the trial. >> warner: since mubarak left office, the revolutionaries who forced his ouster have demanded he stand trial for three decades of repressive rule. but many feared the military council now running egypt would protect the former air force commander. >> a lot of egyptians saw all this as a moment as a turning point with more and more questioning whether military leadership would be willing to do this. so many doubted it would happen until last minute.

>> warner: today, in tahrir square, the mistrust was still there. >> ( translated ): i think this trial is the beginning of a farce, because we expect that mubarak will never go to jail, and this is an attempt by the military council to calm public opinion. >> warner: but the image of a caged and prone mubarak was still stunning for many egyptians, who sat transfixed by live television coverage. >> most egyptians have been waiting for this moment, to see the person they feel is accountable for 30 years of abuses. but it's little bit shocking for some. even if didn't support, thought it was humiliating moment for him, and felt sympathetic toward him. many agree on fact he was harsh dictator. at this point, divided on whether to go ahead with trial that possibly a death penalty; others want to forget don't want

to see him publicly humiliated, they don't want to see him in a jumpsuit behind bars. >> warner: late today, mubarak was returned to detention in a military hospital, and his sons to prison. they're due back in court august 15. for more on today's trial and its significance we go to tarek masoud, assistant professor of public policy at harvard university, where he focuses on the middle east. and steven cook, a senior fellow for middle eastern studies at the council on foreign relations. welcome to you both. tarek masoud, beginning with you, as we just heard voices from cairo say, a lot of egyptians thought this would never happen. how big a moment is this for egypt and in what way? >> oh, this is a really huge moment i think for egypt and i think for the arab world more broadly. i mean, if we think about it, this is the third time, only the third time that an arab dictator has actually been called to account for crimes he's committed in office. the first time was saddam

hussein's trial in 2005 and '06, which was seen as illegitimate by people because it took place in the context of occupation. the second trial just began, the trial of the tunisian dictator, but he is actually in saudi arabia, so that's a trial in absentia. so only really in egypt do we have the dictator in court, facing his accusers and being held to account for crimes he committed in office by not a military court or some kind of kangaroo court, but by legitimate civilian court. so i think this is pretty extraordinary. >> warner: steven cook, what would you add to that on the significance of this? >> without a doubt this is an extraordinary moment in egyptian history and the history of the middle east. i agree with tarek100%. i think the thing people need to watch for is how this trial is conducted. if it's conducted in the best traditions of the egyptian judiciary, it will set the stage for egyptians to build a new,

better, more open, decent political system. if it turns out it is to be revolutionary justice and more about retribution and revenge, it will set a precedent that i don't think many egyptians who are hoping for a new system to realize that system. >> warner: briefly define what you mean by "revolutionary justice." >> i think the notion that mubarak should have due process and the rule of law should prevail and this process should unfold in the way that egyptian judicial practices, adhere to those standards, as low as they may be in some case, it's important that egyptians see that, even for someone like president mubarak. >> warner: tarek masoud, a lot of egyptians used to say they didn't think there was much justice in egypt, that the courts were rigged. >> you know, margaret, that's actually very interesting. the egyptian judiciary actually has had a fair measure of legitimacy in egypt over the

past 50 years. re rigged or otherght think that state institutions are unfair, for whatever reason the judiciary has actually been seen by people on the whole as the most legitimate institution in egypt. so i think that there's a sense here that this court system is well equipped to handle this trial. you know, steve warned that if this devolves into revolutionary justice where there is a departure from dew due process t obviously this would be a stain on egypt's reputation, but i think what people in egypt may be afraid of is precisely the opposite, that the courts will get mired in due process and actually won't hold mubarak sufficiently accountable, either because of their kind of internal processes or because they've been directed by the military to not punish mubarak. so that i think is what people are worried about is they're worried that the court system

may not punish mubarak as fully as people believe he needs to be punished. so the is this very delicate balancing act that has to happen. >> precisely what i mean by revolutionary justice and a desire for revenge, which you can understanding. this is why perhaps this trial in this way is not the best way of going about it. perhaps a truth in reconciliation commission, along the lines of what happened in south africa many years ago, may have been a better way to go. >> warner: because that would lay out all the abuse, how the secret police apparatus worked and all that. >> exactly. clearly mubarak, his lawyers are going to try to hide these things because there is a sense that egyptians are out for retribution and that the military is no longer interested in protecting mubarak. >> warner: tarek, can we go to this question about whether this is... protesters say they're demanding accountability to bring all these regime figures to court. do you think it's about accountability or is it about revenge or it is something more productive than that even? >> i think, look, i mean,

egyptian society is very pluralistic. there are some people who want revenge. there are other people who want to hold mubarak accountable, and there are still other people who want to use this to kind of build a new egypt that shows respect for law and an end to immunity. i think that, you know, going with the egyptian court system with all the risks that steve and i have identified may still be the best way forward. i think that, you know, anything else, any new structure that you set up to try mubarak could have the appearance of a kind of kangaroo court, and part of the potential beauty of this process is that he's being tried in a civilian court, in the same court that i would be tried in if i committed a crime in egypt. so that's a promising thing. >> warner: so steven cook, what effect do you think this trial, which is going to be unfolding in the coming months, is going to have on the shaping of the new government, the new election system that's coming up this fall to create the new

egypt? >> well, i think people are looking at this trial for precisely those kinds of signals. as i said before and as tarek has pointed out, if this trial unfolds in a way where it is seemingly fair, it is a stepping stone to sending a message to new leaders, to the people who are going to be writing a new egyptian constitution, accountability must be built and institutionalized in a new system. >> warner: there were treats going around today saying this could inflame passions. it might not be terribly healthy. >> it may. this is a pluralistic society. there are some people who want revenge. there are some people who want accountability. if the egyptian judiciary lives up to its traditions, and i agree 100% with tarex, it is a well-respected institution, it will set egypt off in a good way rather than something pretty bad. >> warner: and tarek masoud, do you think this will have an effect in any way in shaping the

parliamentary elections that are coming up in november that everybody is supposed to be getting ready for? >> you know, that's a very interesting question. i think this broader question of justice absolutely will have an impact on the parliamentary elections because, you know, everybody in egypt now is worried about a counter revolution. they're worried about forces that were allied with mubarak that may not be happy with the democratic turn the country seems to be taking and they're doing everything in their power to halt that turn by fomenting chaos and violence. and if these forces, these shadowy forces who everybody in egypt talks about, if they see the trial of mubarak as simply the first step towards holding all of these people accountable and punishing anybody who had any link to the old regime, including the types of people what might run for parliament, then we may see that the parliamentary elections may be the site of violence, attempts

to foment chaos, et cetera. >> warner: and briefly, steven cook, the past month in tahrir square has seen demonstration, counter demonstrations, the police clearing the square on monday. do you think the society is more divided, and will the trial affect this one way or another? >> the egyptian society has always been divided, and it has always been ideologically richer and more contested than we've ever given it credit for. that's what we're seeing. now that the authoritarian rule has been lifted, people are engaged in politics. we're going to see this confesstation going forward. >> warner: steven cook and tarek masoud, thank you both. >> pleasure. >> woodruff: next, an unusually hot summer has magnified the dry conditions throughout much of the country and it's taking an especially tough toll on farming. ray suarez has our story. >> suarez: many areas in the southern u.s. and southern

plains are suffering from parched pasturelands, wilting and dying crops and a loss of livestock. huge wildfires have swept across tinder-dry trees and forests in several states over the past few months. now, new research by the national drought mitigation center shows 12% of u.s. land is in the midst of an exceptional drought. the largest contiguous area to suffer such difficult conditions in a dozen years. the hardest hit states are texas, louisiana, oklahoma and new mexico with 100% of each state experiencing drought. arkansas, georgia and south carolina are also very dry with 95% of each of those states showing drought as well. we take a closer look now at the impact this is having on farming with frank morris of kcur public radio and harvest public media, a local journalism center dedicated to agricultural reporting. he joins us from kansas city,

missouri. and frank, it's mid-summer. it's hot. it's always hot. so what's different in extent and degree about this summer? >> it's record breaking in texas and oklahoma and parts of kansas. you're seeing... in texas you see the driest february to june on record. in oklahoma you're seeing the hottest weather since 1936, hottest and driest since 1936, the height of the dust bowl. in kansas there are some places where it's barely rained in a year. you're talking about an inch or just a little bit more precipitation. >> suarez: so the whole soil system is just completely... >> bone-dry powder as far as the subsoil goes. >> suarez: are we talking about farming areas now where they're not just expecting lower yields or lower-quality products

but looking at the possibility of losing entire crops? >> well, they've lost crops. i mean, in the wheat harvest in texas and oklahoma and again southwestern kansas was terrible. they've given up on corn. you know what, they're doing, ray, is they're bailing dead corn stks in texas and even missouri and oklahoma and kansas, bailing it up to feed the cattle because there's not... there's no cattle feed otherwise grown locally. so, yeah, you've lost the hay crop, two or three hay crops. usually you cut that four times. you're lucky to get one cutting this year. the wheat crop was terrible. the corn crop is abysmal unless it's irrigated, and even there, a lot of farmers are having to give up on half the irrigation circle in order... because they can't pump the water out of the ground fast enough and to allow the corn to grow as it should. they can't get it on fast enough while the thing is going around

the circle. so it's pretty grim out there in the southern planes. >> what about the next crops, the plantings for later this year? are they in trouble, as well? >> they sure are. the wheat crop is supposed to go in. you would normally start planting that maybe next month and in through november. this year the ground is so dry, it's like powder, so the wheat won't be able to germinate unless they get some good rain. out in western kansas, they called that dusting in. you know, i dusted in 140 acres today or what have you. that means they're planting the corn in powder that's so dry it can't possibly grow. and to do that you have to double down and plant... i'm talking about wheat. you have to double down and plant extra seed, maybe twice as much as normal, because you know that the growing season is going to be shorter, so you won't have time to get the kind of yields you want. that means you need to spend more money and really hope and

make a bet that you'll get some rain later. >> suarez: the federal government is often looked to in times like this. can farmers in this part of the country expect any help from the congress? >> oh, well, absolutely they'll get help. i mean, there are layers of disaster programs. there's federally subsidized crop insurance that's already paid at least $200 million into kansas, texas and oklahoma, and that's just the beginning. that's for the wheat crop. but normally or over the last few years, congress has come up with something else as sort of a package for disaster aid on top of all the other ones, you know, typically ranging from $1 billion or $2 billion. and nobody is expecting to get that this year, especially with crop prices high as they, are farmers mostly are coming off pretty good crops in most of that area any how, at least from last year. >> suarez: how long until we

see this in the supermarket, in lower prices for livestock that's being slaughtered earlier than it should have, higher prices for livestock that is eating more expensive corn? are we consumers going to see this very soon? >> i don't think you're going to see it very soon. the cattle that are going to slaughter now early, they're going in lighter and earlier than they normally would in the southern plains. those sales are up dramatically, and it's especially hitting the little guys. some of them are having to liquidate because they just can't find footed for their catd l. but the system is pretty flexible. you have other parts of the country where they're holding back some there's not going to be an amazing shortage of cattle, although the catling herd is at the lowest levels it's been since the 1950s. so eventually when you are

calling the herd more, that supply is going to get tighter. how much that raises is price is, you know, a very hard thing to calculate. >> suarez: and the forecasters aren't offering much hope in sight. frank morris, thanks for joining us. >> thank you, ray. pleasure to be with you. >> brown: now, what are you watching on your computer tonight? hari sreenivasan explores the changing world of video and viewership online. >> sreenivasan: it was a protest that seemingly erupted out of nowhere. thousands of avid movie fans displayed their anger online when netflix announced a major change in its rental plans in july. effectively hiking its monthly rate by 60% to $16 a month if customers want to watch movies online and still receive old- fashioned d.v.d.s in the mail. some customers even announced on

facebook they'd cancel their netflix accounts. the response was so overwhelming that it was mocked on the website, funny or die. >> 2011, tsunamis, wars, earthquakes, but one trage eclipses them all. netflix has raised their prices. >> sreenivasan: behind all the anger: a big shift in the company's business model and how they want customers to change their behavior. with more than 25 million subscribers, the streaming video service from netflix now accounts for a quarter of all the internet traffic in north america. half those customers use video game consoles connected to the internet to access netflix movies. the company plans to expand into 43 countries and it's inking deals with content providers like cbs and nbc universal for rights to stream even more films online. the netflix announcement came amid a series of other business

developments in the battle to claim a share of the growing market for streaming video. hulu-- whose customers overwhelmingly use the site to watch recent free tv shows on their computers-- is trying to convince more users to subscribe to its $8 a month service by restricting the availability of shows that aired within the past week. the company-- a partnership between nbc, fox and abc whose shows are featured on the site-- is also trying to entice customers to subscribe by creating original content. today, it announced its first original web-only show: a six- week half-hour show created by documentary maker morgan spurlock, who produced "supersize me." >> supersize me. ♪ >> sreenivasan: amazon.com, the online retailer is now in the game, too with a streaming video service. it's offering video for purchase on demand or even for free to select shoppers who pay $80 a

year for free shipping of their amazon products. apple just announced a plan allowing customers to buy a movie and share it on any device, be it their ipad, iphone or set top box. the largest retailer in the country, walmart, is rolling out its vudu service to 35 million monthly visitors at walmart.com. they'll offer nightly rentals of up to 20,000 movies. and youtube-- the largest online video sharing site-- accounting for half of all streaming traffic, has already announced plans for a video rental service with more details coming at the end of the year. for more, we turn to bernard gershon. he's the president of gershon- media-- a firm that provides advisory services to digital media companies, including ones that provide streaming video. gershon's also a former senior digital media executive at the walt disney company. thanks for being with us. >> thank you, harry.

>> sreenivasan: first of all, what do all these different positions these companies are taking mean? what do they add up to? >> well, they add up to big viewership and big money. there are over 160 million americans accessing online video today. that number in the next few years will go to well over 200 million. people are accessing the content on pcs, laptops, tablets. i was watching pbs news hour streaming live on my iphone. so there are multiple ways that people and programmers can now access viewers and those eyeballs. >> sreenivasan: so is this shift to digital inevitable? >> well, it's obviously been going on for years. and i can't imagine, harry, when was the last time you went to a blockbuster to rent a vhs? probably not very recently. blockbuster is dead. tower records is dead. and certainly content is moving more and more online, moving more and more to bits from physical goods. and consumers like the convenience. they like being able to stream

tv shows and movies from, as you mentioned in the piece opening this, from hulu or netflix or amazon or some other service. >> sreenivasan: so will they all coexist? will digital technology rest side-by-side with over-the-air broadcasts and cable and everything else? >> well, i mean, over the course of time, there are obviously going to be winners and losers. broadcast tv is still a big, multibillion dollar advertising-supported business, but the growth is small. the growth of online video and the revenues from online video come from advertising as well as subscription revenue. those are growing dramatically over the course of time, and they're growing both domestically and internationally. and netflix, for example, recently announced that they're expanding their service into 43 countries around the world. so the advantage, you know, taking this product out, using bits as opposed to shipping vhs or dvds or whatever is that you can be everywhere and you can also extract revenue from

consumers much more easily. >> sreenivasan: was it necessary for them to raise their rates? >> for netflix the raise their rates 60%? >> sreenivasan: yes. >> again, you talk about 26 million subscribers to the service. barely three million of those subscribers are getting the d.v.d. only package. i don't know it was necessary. i think it's a move to raise more revenue but it's driving people to the streaming-only plan, which at $8 a month is a good deal the watch tv and movies on demand. >> sreenivasan: what about stumbling blocks. let's say your person who brings you the internet, isp, aren't they going to say, it costs me a lot of money for bandwidth and here you are, netflix, taking up all this space? >> well, as in every business, there are going to be gatekeepers, and recently at&t and comcast both said that they are going to meter the amount of video content or the amount of bits you can watch. so they may say to you, you've

watched five movies in the last month. your rates are going to go up, or you can't watch any more movies. so i think certainly there are going to be those gatekeepers, those isps, and they will be looking for a bigger slice of revenue from people like netflix and others. but i also think with these challenges, there are opportunities for programmers and content creators and additional ways to develop revenue from the original content they're creating. >> so how about those content producers? what do the cbss and the nbcs and the disneys do many this landscape? >> they go the people like netflix and say, "write me a big check." netflix is spending well over $2 billion a year today that. number will go up in buying tv programming from people like cbs. they recently announced a new deal with netflix. and so there is opportunity there as traditional broadcast revenues stagnate. again, as i mentioned earlier, the broadcast revenues are still big, but they're not growing as

rapidly as the revenue is from online. so people are now like apple, netflix, you mentioned hulu, service through wal-mart, am -- amazon and others who want to make it possible for you and me to watch this content that is on tv, to watch that online or on any device. so i think that it is... the opportunity is for consumers to say, i want the watch this content when i want to watch it, where i want to watch it, and whether it's on a three-inch screen on my iphone or a 60-inch flat panel display, i can watch that content as long as, and this is what the programmers are saying, as long as i am paying someone for access to that content, either by looking at advertising or paying a cable provider or writing somebody a check. >> what about those folks who aren't paying anyone? how big is a problem of piracy in this space versus music or print? >> well, certainly piracy is a problem. i think there are parts of the world, latin america and china,

for example, where piracy is a bigger problem. but i think as long as the content is made available in a sensible, convenient, relatively well-priced way, piracy is not going to be a tremendous issue. obviously it exists and again, whether it's a big movie that just comes out, you're going to be able to find a way to steal that online, but generally it's going to be more convenient to get it through netflix or amazon or apple or somebody else. >> all right. bernard gershon, thanks so much for your time. >> thank you. >> woodruff: finally tonight, washington barely eked out a compromise to avert a government default, and congress has now gone home for the rest of the summer. in the aftermath of the messy fight that led to a last-minute deal neither side was crazy about, we get some perspective on how the nation's capital looks compared to other times.

for that, we are joined by presidential historian beverly gage. she's a professor of american history at yale university. and david king, lecturer in public policy at the harrd kennedy school, and faculty chair of harvard's program for newly elected members of congress. it's good to see you both again. thank you for joining us. david king, to you first. you're both outside of washington, so let me ask you, does this city look as bad as we're hearing voters think it does right now? >> it looks bad in the short term and actually it looks bad historically. this level of polarization, deep division we haven't seen in really a couple of generations. and everyone in the middle, sort of middle americans and people who are moderates have every reason to be upset that compromise took us right to the brink of disaster. >> woodruff: beverly gage, what do you see when you look at

washington? >> well, i see both a sort of momentary crisis that hopefully has now passed, so it's anybody's guess for how long, and i think it's also the culmination of some much more substantive, long-term trends, both within congress, within the republican party itself, and also at the white house where i think this has been a real test of some of obama's strengths but mostly his weaknesses, and i think it's not going to play out very well for barack obama. >> what are some of those strengths you're pointing out and weaknesses on the part of the president? >> well, i think obama came to office with a real moment a few years ago. in fact, i happened to be looking back at an old issue of "newsweek" from early 2009, and it seemed incredible to me that the headline on the cover of "newsweek" was, "we are all socialists now." and this was just a couple of years ago. it's almost impossible to believe that that was really the case. and i think obama had a moment

when he came to office when he had both houses of congress in which he could have mobilized people around a different sort of economic agenda, certainly than we're seeing now or even that he himself attempted to put into play when he came to office. and one of the things that's really astounding is how quickly that moment has passed and where we see ourselves two years out from that moment. >> woodruff: david king, dissect a little bit of what you see going on now, and how does that compare with what presidents have faced in the past. >> well, of course, the thing that intervened between 2009 and today is the elections of 2010. an off-year election in which very few voters actually voted in the primaries. so you had only 16.8% of eligible voters voting in the primaries, and today we have the congress that is very representative of folks who are actually involved in that election. we've seen a real trend from the 1970s to present with

ever-increasing levels of polarization. this is a very difficult country to govern, and the last time we saw these kinds of levels of polarization were in the 1920s and then before that in the late 1850s and before that in the 1820s. so we're approaching the fourth epic of deep division and polarization. we're in the sure what's going to happen to our institutions. >> woodruff: the 1920s some you're saying it hasn't been this bad in 90 years? >> well, if one looks at the democrats versus the republicans and how solid they are, one against the other, that's where we are. we have not seen this since the 1920s. if you expand it further and look at every state legislature for which we have data, we've seen a continuous increase in polarization, democrats versus republicans, refusing to get along, unable to get along, since the early 1970s. so we're at a moment, we don't know where we're going to go. >> is there any moment, beverly

gage, that you could compare this to, or does it just stand out on its own? >> well, one of the things that's so interesting about this moment is usually when you have these kinds of big showdowns, particularly between the white house and the congress, particularly when you have the white house of one party, at least part of congress dominated by the other party, it's around some grand legislative initiative. so you think of woodrow wilson's showdown over the league of nations in 1919 and 1920 or maybe franklin roosevelt's showdown over his court packing plan in 1937. but in both of those cases, you had a white house that was putting forth something really bold, something adventurous, something untried, and then running into opposition. and what's really remarkable about this moment, and i think fairly hard to find a precedent for is that this wasn't actually about anything new. this was about a set of decisions that had already been made about how money was going to be spent, raise the debt

ceiling at its heart. that's really what we are talking about. it was also about a set of future decisions that might be made that to some degree congress went ahead and made but that for the most part had been made. so it wasn't a response to some brand-new initiative. it was looking to the past, looking to the future, and that's a very strange situation which suggests that this is really primarily about a struggle for power as opposed to really about the substance of what's going on. >> woodruff: david king, when there have been these kind of struggles in the past, how have they worked themselves out? what has happened? what i have they done to get through it? >> well, from the point of view of polarizing political parties, in 1828 there was of course the druation of the democratic party, a mass-based party with president andrew jackson, and in the late 1850s, that resulted in the demise of the whig party, the rise of the republican party and the civil war.

in the 1820s it was, you know, a very deeply divided country, urban, rural, rich, poor, protestant, catholic that moved towards the new deal era. and i think now we do actually have something that is a big question, and this is: what is the proper role of government? is the current version of government sustainable at all? i think that's what we're really trying to address and the tea party or the democrats, liberals and conservatives, they're grappling with some of the most important and fundamental questions that were left by our founders, what's the right role for government going forward. >> woodruff: and one hopes we're not headed for another civil war. beverly gage, what do you see in the past in terms of anything to give us hope for how this is going to resolve itself or not? >> well, i think it's hard the quite see, as i said, an entirely similar situation in the past. i think david is right.

these have often been resolved through electoral mechanisms, although it seems highly unlikely to me that we're going to see anything like a third party coming out of this. and i think there is a real question on the one hand, you have very divided parties in partisan term, but if some sense the ideological spectrum has also narrowed and shifted very far right over the past 30 years. so you've got these two things going on simultaneously. i mean, i think history suggests on the one hand that people often feel that they're in crisis and they mostly muddle through and that crisis kind of passes. and on the other hand, there are real moments of crisis when things do not get better. they, in fact, get worse. i think the question right now, both economically and politically, is are we looking at a moment like 1937 when people thought that they were coming out of a crisis, the depression in that case, but, in fact, they were heading into a much deeper one, both economically and politically.

>> woodruff: david king, i'll give you final words. i guess not much for us to hang any hope on. >> well, i think there is, and i'll say something people aren't expecting. i like congress. i have a lot of faith in the institution, although it's kind of difficult to actually watch them work. we have this super committee, this joint committee that will be reporting out by december 9th and then the congress has to vote on up or down, can't be amended, can't be filibustered, have to come up with $1.5 trillion in savings at a minimum. i'm actually somebody who is very hopeful that wise men and women are going to sit down, do serious business and back us away from the brink. >> i hope you're right, david. >> woodruff: i hear both of you. i may be phoning you both up as we get close to december to talk about that. all right. beverly gage, david king, it's good to see you both. thank you. >> thank you. >> thanks, judy.

>> brown: again, the major developments of the day: stocks on wall street recovered from a sharp selloff, in a volatile day of trading. former egyptian president hosni mubarak denied he was complicit in corruption and the killing of protesters earlier this year. he appeared at the opening day of his trial. and syrian tanks shelled the city of hama. the crackdown on anti-government protesters was condemned by the united nations security council. and the u.s. department of oog culture announced that the food company cargill is recalling 36,000 pounds of ground turkey. it's been linked to a death in california and at least 76 other salmonella illnesses. and now kwame holman for what's on the newshour online. and to kwame holman for what's on the "newshour" online. kwame? >> holman: find an update on haiti, bracing for a possible uptick in a cholera cases as tropical storm emily approaches. margaret filed a blog post about

the mubarak trial, examining whether it helps complete egypt's revolution, or diverts it. plus, our science unit looks at the physics of air turbulence and asks experts how much danger it poses to commercial flights. all that and more is on our web site: newshour.pbs.org. jeff? >> brown: and that's the "newshour" for tonight. on thursday, we'll look at an award-winning documentary and the story of an infertile american couple and the indian surrogate who carries their baby. i'm jeffrey brown. >> woodruff: and i'm judy woodruff. we'll see you online and again here tomorrow evening. thank you and good night. major funding for the pbs newshour has been provided by: and the william and flora hewlett foundation, working to solve social and environmental problems at home and around the world. and with the ongoing support of these institutions and foundations. and...

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