Before the U.S. House of Representatives, Committee on the Judiciary, Subcommittee on Courts, Intellectual Property and the Internet

My name is Rob Glaser, and I am the founder, chairman and CEO of RealNetworks, Inc. I’m also chairman and acting CEO of MusicNet, a new company formed by RealNetworks, AOL Time Warner, EMI, and Bertelsmann. I greatly appreciate the opportunity to come before you today, because RealNetworks is a leader in Internet media delivery and is a founding member of the Digital Media Association.

Mr. Chairman, you and the other members of this committee are undoubtedly aware that the music industry is at a pivotal point in its evolution, as it confronts issues of great importance to artists, consumers, technology companies, record labels, music publishers, retailers and media companies. The Internet represents a revolutionary opportunity for consumers to experience music in new ways—to personalize the music they hear and to access it from a growing array of convenient devices-- and for companies to develop profitable new business models based on these new technologies. If handled properly, this digital music revolution should result in great new experiences for consumers and a bigger economic pie for rightsholders to share.

Over the past six years, RealNetworks has been a catalyst in the digital distribution of music and video. Our RealPlayer technology now enables more than 200 million unique registered users around the world to access a rich variety of audio and video content that is streamed from computers called “servers” to the user’s personal computer. Our RealJukebox product has made it possible for more than 60 million consumers to download music from the Internet and to manage their personal music collections. And just last month, we announced the formation of MusicNet, a subscription service that will allow consumers to download and stream music, in conjunction with EMI, BMG and AOL Time-Warner. In a few minutes, I will demonstrate the planned MusicNet service publicly for the first time. But before I do, I want to share my perspective on the “state of play” on digital distribution and the core public policy issues facing the industry.

The past six months have dramatically clarified the legal landscape for the online distribution of music. The lawsuits by the music publishing and record industries against MP3.com, Napster and other innovative companies have established that basic copyright law must be applied to the distribution of music over the Internet. The principle that artists must be paid for the digital distribution of their copyrighted works has been reaffirmed. While the court decisions have not yet resolved important questions regarding personal fair use and the responsibility of ISP’s to police their services for questionable content, the basic rules of the road are plainly visible.

Once the courts ruled, it became clear to us that we could build on our core platforms for streaming and downloading of music to deliver a great new consumer subscription service. The goal of this new service, which we decided to call MusicNet, is to combine three essential elements –the popular music that consumers want, a software framework that compensates and preserves the rights of artists and music companies, and the ease of use and flexibility that consumers have demonstrated they want.

A key element of the MusicNet service is that it will require consumers to pay a subscription fee – generally a monthly fee, just like cable TV or a magazine subscription. We believe that consumers will pay a reasonable fee for choice, convenience and a combination of interactive features. Indeed, our own media subscription service, GoldPass, has attained over 200,000 paid subscribers after only eight months – and this early success convinced us that Internet users would subscribe to premium content delivered directly to their personal computers.

In order to implement MusicNet, we decided to forge alliances with the major record labels. Our goal was to license a critical mass of great music for digital distribution, which we believed would catalyze the rest of the industry. On April 2^nd, we announced just that. Specifically, we’re working with AOL-Time Warner, BMG and EMI who are both licensors to and minority investors in MusicNet. This was the first time a majority of the major record labels have joined such a venture. And since MusicNet is designed to accommodate millions of songs from a wide universe of licensors, our hope is to bring as many labels on as possible; and discussions between MusicNet and other major and independent labels are ongoing.

In order to get the greatest possible consumer reach, MusicNet will not be a retailer itself. Instead, it will license its “private-label” platform to retailers and distributors who will brand, package, and sell it directly to consumers. Our intent is to distribute the MusicNet service through as many partners as possible. To date, we’ve announced that both AOL and RealNetworks will be among the initial consumer distributors of the MusicNet platform. Additionally, we expect online retailers such as Tower Records to join us, and potentially even including Napster, provided they satisfy legal, copyright and security concerns. Let me give you a taste of what MusicNet’s service will look like. This, by the way, is the first public demonstration of the platform:

Mr. Chairman, what MusicNet’s launch underscores is that the technology is there, the content is being assembled, and the subscription business model is being proven every day. So what is missing? In our view, music publishing issues stand out as the most significant potential impediment to launching great subscription services.

Music publishing rights are based on a very simple principle – that the author of a song has the right to be compensated. We are in 100% support of this principle. The issue in front of us relates to how this principle gets applied in the new world of digital distribution.

Artists and songwriters have been speaking out about the need to distribute their works to their fans online—and to be paid for that distribution. The presence today of the National Music Publishers Association and acclaimed artist Lyle Lovett underlines the importance of properly compensating songwriters for the digital distribution of their works.

Unfortunately, music publishing rights are one of the most tangled areas of our copyright system. My legal team advises me that up to eight claimed rights arguably are needed to clear a single song to be placed on a computer server and delivered to a consumer via downloading and streaming. While some of these rights can be efficiently licensed today, others cannot. Simple logic dictates that we set up a licensing system that allows for one-stop shopping and the license of all required rights for digital delivery. To accomplish this, we will need the cooperation of music publishers, who we believe must offer more flexible licenses that reflect the function of these new digital distribution systems.

Songwriters must be compensated when their songs are streamed or digitally downloaded to end users. Yet these licenses should not tax a single delivery of a song multiple times along the chain of delivery across the computer networks that form the Internet. This would be akin to requiring a broadcast royalty toll every time a song is boosted across transmission towers on the way to a consumer’s radio. Similarly, these licenses should not tax RAM-buffer copies that exist only for fragments of time in a RealPlayer.

In the end, songwriters will benefit greatly from a simplified licensing regime, because individual songs will be more easily accounted for and transparently tracked; and payment to songwriters for the performance of their works will be rapidly accelerated.

We hope and trust that there is a strong willingness on the part of all parties involved to work out these simpler licensing mechanisms, so that together we can launch compelling new music services with the necessary levels of economic and legal certainty. If the parties involved can establish this framework quickly, I believe a vibrant new market for music will develop.

But Mr. Chairman, if we are not able to quickly resolve these licenses around the negotiating table, then I believe it will be necessary for Congress and the Copyright Office to step in and streamline music licensing. For instance, Congress has already established compulsory licenses; it could now clarify that additional licenses for server copies are not required simply for a company to utilize the existing compulsory license. Moreover, the Copyright Office has already studied the legal status of ephemeral and temporary copies; and if necessary, it could now establish clear rules that facilitate digital distribution.

As you and other policy-makers work to help create a stable and robust marketplace for the distribution of digital content, I suggest that the following fundamental principles guide your efforts:

First, content creators must be fairly compensated for the distribution of their copyrighted works in new markets;

Second, the legal personal-use rights of consumers should not be eroded in the process of ensuring copy protection;

Third, there should be maximum transparency for artists and others whose rights are implicated in the reproduction and distribution of digital versions of audiovisual works;

Fourth, the new distribution channels must be open to fair competition;

Fifth, Congress should eliminate barriers to new methods of digital distribution, such as web radio, that do not exist for traditional media.

Ultimately, of course, I hope that the “bully pulpit” of today’s hearing will encourage everyone to sit down and resolve these issues without further legislative or administrative intervention. But I would urge the committee to track these issues closely and set a very near-term deadline by which the parties need to report back on progress. If an agreement is not reached quickly, it may well be appropriate for Congress or the Copyright office to step in directly – guided by the principles I have just laid out.

Mr. Chairman, RealNetworks embarked on a journey six years ago – a journey to bring digital music and content to consumers everywhere -- and we are excited that with the launch of MusicNet and other recent developments, that vision is coming more fully into fruition. I am confident that with the right rules in place, we can create incredible worldwide marketplaces for American companies and creators of content. I welcome the opportunity to continue working with you toward this end.

I’d be happy to answer any questions you might have.