The recording industry has missed numerous opportunities to embrace new technologies. Lawsuits are not a business strategy, and the industry's legal assaults have driven consumers on to new technologies that are progressively more difficult to measure and monetize.

Online musical sharing utilizing P2P would provide many significant benefits to the recording industry. The Kazaa-Altnet partnership is already demonstrating that paid sharing can coexist and prosper with free content on an open P2P network.

A new compulsory license levied against the broad base of economic activity that benefits from the free availability of digital media could provide substantial new revenues to rights holders and creators. In return for this monetization, consumer burning and file sharing activities would be legitimized. Overall, the incentive ends of copyright law would be preserved in this new age of unfettered digital duplication.

New online music sharing and delivery services plus sales of qualitatively
superior hard goods can revive music industry revenues in the not distant
future.

The movie industry is fundamentally different than the music sector from the
consumer use, revenue structure and technological perspectives. It has little
to fear from P2P, and much to gain from its exploitation.

While adult content can be exchanged with P2P software, this technology remains but a minor player in the distribution and access of such material. A new federal study determined that the adult content filtering capabilities of the KMD software are the most comprehensive and effective among all free P2P software applications.

Stronger digital rights management approaches are not only doomed to failure but may act as a disincentive for consumers to engage in legal commerce. The best means of competing with the "darknet" distribution network is on its own terms of convenience and low cost.

P2P is the path to prosperity for the entertainment industry - but only if it embraces it.

The Human Species and the Technological Imperative

Mr. Chairman, history informs us that the human species is not inclined to forego new technologies, regardless of their collateral effects. The only example I can cite of a society rejecting, at least temporarily, any advanced technology is the Japanese decision to give up the gun — to forego the use of firearms and gunpowder for a three-and-a-half century period stretching from 1543 to 1879. The event is remarkable for its rarity in human history.

Digital technology in general and the Internet in particular have been referred to as disruptive technologies. I prefer to use the term transformational technologies. The word disruptive implies a temporary pause, and then a return to normal. To the contrary, transformational technologies disrupt the old normal and abet the transition to a new and far different normality. Because we equate technology with progress, we are prone to forget that every technology has inherent negative aspects, and that every new order undermines the foundations of the old.

I believe that the Internet is the most powerful transformational technology since the internal combustion engine. As you hail from Los Angeles, Mr. Chairman, you're undoubtedly aware of the inherent negative aspects of the automotive civilization that we take for granted now, but which barely existed a century ago. The automobile has given us incredible personal freedom. But mass adoption of the internal combustion engine also brings inherent and unavoidable side effects. These include highway deaths and injuries, urban sprawl, neighborhood disruption, the voracious consumption of nonrenewable resources, pollution, and global warming. We are well aware of all these negative byproducts of automotive civilization. Yet none of us is about to give up their car. Society mitigates the collateral effects of this technology through law, business models, and technology itself - but we can never eliminate them.