Testimony of Edgar Bronfman, Jr.

Executive Vice Chairman, Vivendi Universal

Thursday, May 17, 2001

House Judiciary Committee

Courts, the Internet and Intellectual Property Subcommittee

Chairman Coble, Congressman Berman, members of the Subcommittee, my name is Edgar Bronfman, Jr. and I am pleased to be here to testify about the electronic distribution of music -- a subject that is of great importance to me and my colleagues at Vivendi Universal and the Universal Music Group.

Let me begin by thanking the committee for all the work that you have done over the years to find a balance between the rights of creators and the needs of consumers. The solutions fashioned by this subcommittee -- from the 1976 Copyright Act to the DMCA -- are part of the reason that our creators and copyright industries are as successful as they are, and that choices are as bountiful.

Let me also acknowledge my friends and colleagues on this panel. I am proud to say that Lyle Lovett is a recording artist on MCA Records -- which is part of the Universal Music Group. His presence reminds us that without the genius of the singers, songwriters and other artists we work with, there is no music business.

The Universal Music Group is also a beneficiary of Mr. Glaser's expertise - we pursue several different initiatives with Real Networks. Universal Music Publishing is a member of the National Music Publishers Association. Universal's catalog of sound recordings has been licensed to MP3.com.

I mention these relationships to highlight that there are many players within the music industry - all with different but significant roles. The Internet presents great opportunities for us all -- artists, songwriters, record labels and, most importantly, music fans. We will disagree, we will squabble and we'll negotiate, and at the end of the day I believe we will work through the complex issues that this extraordinary distribution mechanism presents.

The challenges to the secure digital distribution of music and other intellectual property are significant. As such, the process of their resolution is sometimes frustrating and always time consuming. However, the opportunities are vast and our determination to achieve a robust digital marketplace for music intensifies everyday. In that brave New World, we and our retail partners will be able to reach every consumer that has an internet connection. Consumers in small towns will then have the same access as those who now live near large retail outlets. Shelf space will not be an issue, so back catalog will be right next to the recordings at the top of the charts. Of course, the 8,000 movie titles in the Universal library will also benefit from the music industry's innovations.

So why is it taking so long for legitimate online music sites to become a reality? Not for lack of effort - Universal has invested many tens of millions of dollars in developing a environment for the delivery and enjoyment of digitized music. I do not know of any music company that has invested more.

But a rational, dependable, long-term business plan has two prerequisites. First, we need a strong legal framework to protect our copyrighted music. Second, we need technology solutions that are ready for a global audience.

The legal framework appears to be in place. The DMCA has done a good job of updating the Copyright Act for the digital age. Importantly, recent court decisions have clearly held that our property rights must be respected. It is true that the industry still needs to work through some of the licensing issues that have arisen - concerns that are legitimate and thorny -- but I believe that the requirements of the marketplace will dictate that they can and will be resolved without additional legislation.

As for the technology, to be honest, to do it right has been harder than we expected. By "right" I mean -

· consumer-friendly systems that are easy and fun to use

· a mechanism for identifying which songs are downloaded or streamed so that the songwriters, musicians and other rights holders of each song are properly compensated each time

· dynamic sites that reliably deliver great songs as well as cover art, lyrics, concert information, the ability to communicate with the band, chat with other fans and discover new favorites; and

· security for our copyrighted property

While developing the technology has been labor intensive and challenging, it is clear that we can build a secure system that respects the rights of artists and meets the needs of consumers. It is also clear that although much time, money and effort has been expended by many, we are not there yet. Nonetheless, thanks to our efforts and those of my colleagues on the panel and others, that day is coming ever closer.

We have engaged in extensive R&D to learn about the marketplace. I have had the chance to speak with several of you about some of Universal's online projects, including a download service known as Bluematter and a subscription model tested within the Farmclub website. We have also closely followed ventures that others have tried.

These initial prototypes taught us a great deal about consumer preferences. We learned that there is plenty of room in this marketplace for many different ventures, and we intend to license the Universal catalog to every viable business model - those that we create and those developed by others.

Our business strategy is to license the Universal catalog to outside ventures, and to license works from outside the Universal catalog for our own online ventures. I am not revealing any secret formula. We plan to do it because consumers want all their favorite music conveniently available in one place.

While many people in this room are Lyle Lovett fans, and many of you have spent hours enjoying songs from "The Road to Ensenada" and "I Love Everybody," none of you would think to look for those songs on an MCA Records website. Until I mentioned that Universal was lucky enough to have Lyle within our family, very few of you would have made that connection. That means that for us to effectively market and distribute Lyle's albums, they are going to have to be on as many different online music sites as possible - just as the physical copies are in Tower, Sam Goody's, Best Buy, Walmart and countless independent record stores across the country.

From Motown to Verve to Deutsche Grammophon, Universal's extensive repertoire comes from all parts of the world and we want to make it available to all parts of the world. Frankly, if we lock away our catalog, we aren't generating value for our artists or shareholders, or fans. That is why we have already licensed works within our catalog to Click Radio, Loudeye, Discovermusic, MTV, eCast, Touchtunes, MP3.com, Digital On Demand, eGreetings, ComedyContent.com, Starmedia and others. We are in the process of finalizing other licensing deals, with the hope that each one of them find their niche in the marketplace.

Let me take a moment to talk about Duet, an online digital music subscription service that we created with Sony Music Entertainment. Duet's U.S. on-demand service will be available and marketed through a number of distribution alliances -- the first with Yahoo!

The on-demand Duet subscription service will offer consumers the opportunity to access a broad range of quality music online with speed, ease of use, and reliability, while respecting artists' rights. The service will provide music enthusiasts with the ability to compile personalized playlists and to share them with other Duet members. The Duet service is expected to launch with streaming music and plans to add downloads as soon thereafter as is technologically feasible.

As many of you know, Vivendi Universal was formed in December 2000 as a strategic business combination among Universal Studios, Universal Music Group, Canal+ and Vivendi. We came together to embrace e-commerce opportunities that most consumers did not envision when Seagram acquired Universal Studios in 1995, and Polygram in 1998. Vivendi Universal's content, internet and telecommunications assets will give us unique opportunities to provide personalized information, entertainment and services to consumers anywhere, anytime and across all distribution platforms.

As a result of our efforts, and others in the entertainment and technology industries, legitimate, secure and vibrant digital distribution will be a reality for consumers and creators around the globe. At Universal Music Group we are enthusiastic about the digital delivery of music. At Vivendi Universal, we know that music is just the first of what will be a long list of compelling and legitimate entertainment choices for consumers, as part of a digital future we eagerly embrace.