Bob Wright Delivers Speech on Piracy

A Time of Reckoning

Address by Bob Wright, Vice Chairman, GE, and Chairman
and CEO, NBC Universal at a summit entitled Threatening Health, Safety, and
Jobs: The True Cost of Counterfeiting and Piracy, at the U.S. Chamber of
Commerce in Washington, D.C., on September 29, 2006

Thank you, Dan [Christman], for that introduction.

Let me begin by applauding Tom Donahue and the U.S.
Chamber of Commerce for their commitment to confronting the worldwide epidemic
of counterfeiting and piracy. The Chamber, representing the broad sweep of U.S.
business, recognizes the severity of this epidemic and understands what is at
stake.

Any civil society rests upon two strong pillars: physical
security and economic security. Five years ago, we learned, tragically, that
our physical security is under attack. Since then, we’ve been a nation at war,
with immense resources mobilized to fight a difficult struggle against an elusive
enemy.

Today, I want to suggest that the second pillar, our
economic security, is also being challenged.

Our nation is being tested in a way that we have not
been since the start of the Cold War.

These are the words of our President, delivered two and a
half weeks ago to the nation. His subject was the war on terror. Of course no
one could equate the horrific loss of life we’ve suffered over the last five
years with our theme at this Summit, but I do want to suggest that we indeed are
being tested by piracy and counterfeiting,
across all sectors of our
economy, with enormous implications for our future.

I stand here as a chief executive of a media company. Too
frequently, the fight against counterfeiting and piracy gets downplayed as just
being about movies and music. But let me tell you: we in the media are one of
the canaries in the coal mine. We’re the Redcoats in the French and Indian War.
Every other industry is lined up right behind us. As this conference makes
clear, and the presence here of the Attorney General, the Secretary of
Commerce, and the U.S. Trade Representative emphasizes, significant portions of
the U.S. economy are threatened by the increases of counterfeiting and piracy
in sectors as diverse as automobiles, aerospace, computer software, defense
contractors, fashion design, high-tech manufacturing, pharmaceuticals, and
software. At risk is every sector of our economy where creativity, innovation,
and invention drive the creation of economic value and of high-wage jobs.

If we do not step up our efforts to protect the foundation
of future economic growth, our nation and our children have a bleak future.
This issue needs to be moved up on the agenda of every business leader, every
trade organization, and every congressional office.

Many policymakers are paying
attention. As the Bush administration’s Report on Intellectual Property
Enforcement and Protection, just released yesterday, clearly shows, the current
administration has done more than any previous one to focus attention on this
issue. President Bush and President Barroso have been forceful in calling for
global piracy to be a top action item for the U.S. and the European Union. But
from where I sit, we are not close to where we need to be.

Too many in policymaking and law enforcement still view
counterfeiting and piracy as relatively minor crimes that pale beside the many
other demands on law enforcement, such as terrorism and violent crime. Of
course, we must respond vigorously to those threats. But we don’t seek a future
for our children that is physically secure and economically impoverished. We
seek a future that is physically secure, and economically vibrant. And this
means escalating the fight to protect our most precious resource—our
innovation and

creativity.

Let me point out that when I speak about the piracy threat
to my particular industry, it is the only sector of the economy with a positive
balance of trade in every nation in the world. It is big. It is growing. And
its product is 100% intellectual property. It is crucial that it receive the
protection it deserves. Jobs, tax revenues, and economic growth depend upon it.

So what is our response to this threat? As business
leaders, government officials, or policy analysts, what are the action steps we
need to take to answer this call to arms? I want to suggest the following four
steps that will lead to real progress in this battle.

First, we need to recognize the impact piracy and
counterfeiting have on our economy today and recognize the threat they pose to
our future. We need to understand that it cuts across all business sectors.
Recognizing the extent of piracy means collecting data. Important work in this
area has begun. The Chamber is involved. So is the International Chamber of
Commerce. The well-respected Organization for Economic Cooperation and
Development is conducting a major worldwide study. And in our own sector, we
are taking significant steps to document the extent and the cost of piracy.

As an example of what I am talking about, I want to announce
today the findings from a new study that tackles one of the businesses I know
best—film. This study weighs the true economic impact of movie piracy.
Similar evaluations in other sectors would provide a much more disciplined look
than we’ve ever had at the real economic costs of piracy and counterfeiting in
every business sector. I will say more about this in a moment, but first let me
thank Tom Giovanetti and his colleagues at the Institute for Policy Innovation,
who published the study, and Steve Siwek from Economists Inc., who wrote it,
for allowing me to announce these findings today.

Second, business and government must use all the powers of
persuasion they can to get the message out that IP piracy and counterfeiting
are not nuisance crimes. This isn’t just a problem of one or two sectors or a
few big companies. We’re talking about organized crime. We’re talking about a
problem that touches pharmaceuticals, automobiles, aerospace, defense
contractors, software … every sector. We’re talking about the future economic
security of our nation.

Third, we must significantly increase resources at all
levels of government, in this country and globally, to enforcement against IP
crime.

And fourth, key players in the private sector must take
steps within their control to reduce piracy. We must collaborate, public and
private, and across industry sectors, with special attention to technological
solutions.

I: Recognize the Cost

Now, let me elaborate a bit on each of these four prongs
of attack. First, we must recognize the enormous cost posed by counterfeiting
and piracy—not just in terms of lost revenues to the business sectors
involved, but in terms of lost jobs, lost wages, lost taxes, and lost growth
for the future.

If you look at the literature generated over the past few
years on the cost of piracy, you’ll see numbers that are all over the map.
Obviously, measuring this activity is not easy. But recently we have made very
good progress. Last year, we commissioned a study from Steve Siwek entitled Engines
of Growth: Economic Contributions of the U.S. Intellectual Property Industries. The study was designed to answer an important
question: How dependent is our economy on those industry sectors that are
driven by innovation, invention and creativity?

The Siwek study aggregated the “IP
industries”—industries that rely heavily on copyright or patent
protection—and measured their revenue, employment, compensation to
workers, and growth.

The Siwek study found that these industries are essential
contributors to U.S. GDP, responsible for 20% of the total U.S. private
industry’s contribution to GDP and 40% of the contribution of U.S. exportable
products and services to GDP. And it found that they are the most important
growth drivers in the U.S. economy, contributing nearly 40% of the growth
achieved by all U.S. private industry and nearly 60% of the growth of U.S.
exportable products and services.

Engines of Growth put
some numbers on what was already quite evident: IP industries are our economic
future. These sectors are the driving force behind our ability to sell goods
and services around the world. And they are being seriously damaged by piracy.
But what does this mean specifically in terms of lost output, lost jobs, and
lost tax revenues?

We decided to try to make progress toward solving this
puzzle by starting with the movie sector, where we are close to the source
material. The Motion Picture Association of America had undertaken a
comprehensive study of global movie piracy, based on consumer research. The
study established that the six MPAA companies lost $6.1 billion to worldwide
piracy in 2005. But why should policymakers—and the general
public—care? In the study I mentioned earlier, which will be released
today at a press conference immediately following the Summit, the Institute for
Policy Innovation has answered this question.

When a studio loses revenues to piracy, it doesn’t have
that money to reinvest into making more movies and television. But the
important point is that not only does this affect the individual studio, but it
impacts all the companies that would have contributed to or benefited from
these unmade productions. It reduces the revenue both of the upstream suppliers
of entertainment products, and of the downstream industries, like movie
theaters, DVD retailers, and video rentals. How can these losses be measured?
The U.S. Department of Commerce, through its Bureau of Economic Analysis, has
developed a method of measuring these cascading effects. It uses what are
called input-output multipliers to quantify how much the change in the output
of one industry will change the output of other, related, industries. Using
these analytical tools, the IPI study found that:

• Motion picture piracy results in total lost output among all U.S. industries of $20.5 billion
annually.

• Motion picture piracy costs U.S. workers $5.5 billion
a year in lost earnings, $3.6 billion of
which would have been earned by workers in other U.S. industries.

• Motion picture piracy costs jobs. Absent piracy, 141,000 new jobs would have been added to the U.S. economy.

• And finally, motion picture piracy costs governments at
all levels, conservatively, $837 million in lost tax revenue.

This first step—which takes as its starting point
the losses in one industry, the motion picture industry—starts to
indicate how damaging the true cost of piracy and counterfeiting is.

Imagine if we included the losses of other industries that
are hit hard by IP theft, such as software, luxury goods, and automotive parts.
The numbers would be staggering. For example, the software industry conducted a
study recently and concluded that a 10-point drop in the global piracy rate in
their industry would yield 2.4 million new jobs and $400 billion in economic
growth over four years. It is clear we are talking about hundreds of billions
in lost productivity and many millions of jobs.

This study focuses only on the United States. But, as we
all know, piracy and counterfeiting are also a significant global problem, both
for developed and developing nations. What is it costing them?

Today’s public policy debates have not benefited from a
documentation of the overall impact of these crimes on our economy. A full
accounting would galvanize a far greater appreciation of the extent to which
our economic security is at stake.

II: Communicate the Findings

My second point is that we need to do a better job of
communicating how important this issue has become. As I said at the beginning,
this discussion demands the same degree of urgency as our policy debates about
physical security. To my colleagues in the business community, I say these
issues need to be recognized as CEO-level issues, deserving personal time and
leadership. To policymakers at all levels of government and to the senior
leaders in the law enforcement community, I recognize the many demands on you
and your organizations. But I urge that we all need to communicate forcefully
that economic security has a rightful place near the top of our agenda and that
counterfeiting and piracy have reached crisis levels and require more attention
and more resources.

Events like this Summit are, of course, an important step.
I want to commend the Chamber of Commerce, the National Association of
Manufacturers, and the Coalition Against Counterfeiting and Piracy for their
efforts. Internationally, we have a similar effort under way with BASCAP, the
Business Alliance to Stop Counterfeiting and Piracy, which is spearheaded by
Jean-Rene Fourtou and the International Chamber of Commerce. These are crucial
cross-sector efforts, and they are gaining momentum. All of us—in the
private sector and government—have a responsibility to convey to our
customers and constituencies that intellectual property rights are vital to our
economic future.

We need to call upon private industry to step up worldwide
campaigns to educate consumers and policymakers about the moral and economic
reasons to protect intellectual property. We need to call upon the
administration to ensure, in its negotiations with trading partners, that it
makes the case that this is an economic security issue. We need to call upon
our elected representatives, through the Commerce Committees, as well as
through the Judiciary Committees and the International Relations Committees,
which do not normally deal with this issue, to keep the spotlight focused on
our economic security. We need to call upon both political parties, as the
election season draws near, to make IP protection a centerpiece in the effort
to keep the U.S. competitive.

III: Enforce the Law

My third prong is enforcement. This is a time of
constrained resources. But failing to act is penny wise and pound foolish,
because future tax receipts will more than offset today’s enforcement
expenditures. Globally we must wage this battle in Beijing and Barcelona as
well as in Boise. Whether it is a counterfeit drug, a computer-generated car
design, the theft of a valve technology from a French industrial parts
supplier, or a pirated copy of King Kong distributed
online, counterfeiting and piracy must receive priority enforcement attention.
We need to fight it on the street, where it operates in the shadows of
organized crime.

Just as we are doing in our fight against threats to our
physical security, we need to analyze the support structures, identify the
facilitators and target the chokepoints. The media sector, of course, faces
special challenges. I do want to applaud the Attorney General and the IP Task
Force for their efforts in prosecuting international online gangs that illegally
supply movies, music, and software to peer-to-peer networks. Cutting out that
supply and driving consumers toward the many legitimate online services that
are available, is a critical step.

In the wake of the Supreme Court’s Grokster ruling,
enterprises based on theft—Napster, Kazaa, and Grokster itself, have
either gone legit … or moved out of the United States.But these are,
unfortunately, only initial victories. Technology makes it easier than ever to
illegally access and distribute copyrighted materials from anywhere in the
world. Practically anyone with a computer can make copyrighted content
available instantly to millions of people. This makes enforcement efforts at
once more difficult and more important. At the federal level, we’ve seen the
Department of Justice increase its prosecutorial resources in this area
significantly. But I urge Congress to act this year to appropriate funds for
significant increases in FBI investigative resources devoted to IP crime. We
need more resources at the Department of Homeland Security dedicated to
stopping counterfeit and pirated goods from coming into this country. We need
more enforcement resources at the state and local levels, and I urge the
National Governors Association, the National Association of Attorneys General,
the U.S. Conference of Mayors, and the National Association of Chiefs of Police
to make IP protection a major priority for 2007.

In particular, I hope we will see significant leadership
in plans to combat IP crime from some of our largest cities and states in the
coming months. Overseas, the U.S. must continue and step up efforts to ensure
that our trading partners—including Russia and China—respect and
enforce intellectual property laws. Internationally, the media sector faces two
different challenges. On the one hand, there are entire countries in many parts
of the world where the piracy rates are so astronomical that doing business is
virtually impossible. Plenty of people consume our products, but it is all
stolen property. This is a huge opportunity for growth that is completely
foreclosed by piracy. But it is not a hopeless situation. Where there is the
political will, the tide can be turned. Taiwan and Hong Kong, for example, have
made good progress when their governments made strong enforcement a serious
priority. On the other hand, there are the more industrial countries where our
business is traditionally strong but is beginning to be eroded by piracy. This
is the case in Spain and Mexico, for example. We need both these situations to
be addressed. Where piracy dominates the market, we need serious criminal
enforcement commitments from governments that have historically allowed piracy
to go unchecked. Where piracy is eroding established markets, we need
modernized enforcement initiatives from governments that have historically
enforced IP protection but are falling behind in adapting enforcement to
today’s more sophisticated and dedicated IP criminals.

The commitment made by Presidents Bush and Barrosa at the
June EU-US summit represents a major step in the right direction. But a huge
amount remains to be done internationally.

IV: Work in Partnership

Fourth, we need cooperation within and across sectors. We
need all industries to be committed to taking action in areas that are under
their control and also to support wider public policy efforts. We should
recognize, too, that effective solutions will require a heavy measure of
technology. Technology, for example, that will help identify counterfeit goods
at the border.

Again, let me use my own business as an example. In
confronting our piracy problem, it is imperative that we have our partners on
the technology side as part of the solution. The media industry has long been
criticized for resisting technology and protecting old business models. Today,
nothing could be further from the truth. We and our competitors are embracing
new digital delivery systems as quickly as they appear. Consumers can download
our TV shows on the iTunes service. They can get our movies from Amazon.com.
They can watch streams of our programs on NBC.com or MSNBC.com, or even on AOL.
We are entering an era marked by an incredible wealth of video choices at your
fingertips.

All this has a dark side, however. It makes our most
valuable products incredibly vulnerable to theft. We need our business partners
to be as aggressive in deploying technology for fighting theft as they are in
deploying technology for new digital distribution. It is ironic that some of
the very same parties who suggest content companies aren’t moving fast enough
to embrace new technologies for distributing our content, fail to call on
technology and distribution companies to accelerate the development of
technology to fight piracy.

All too often, our business partners act as if digital
piracy is a problem just for the content industry. It is terrific that ISPs are
investing billions to roll out broadband services. Yet independent firms report
that well over half of broadband traffic is devoted to P2P filesharing, which
is dominated by the illegal exchange of movies, music, software and games, not
to mention pornography. We need ISPs to work in partnership with content
companies, passing notices to and if necessary terminating customers who abuse
their networks by illegal downloading.

Moreover, ISPs and content companies should be working
together to find ways in the future, always consistent with subscribers’
legitimate privacy concerns, to filter out illegal content while speeding along
legal content. This is an acute issue on college campuses, where students
all-too-often use ultra-fast computer networks not for academic

research, but for illegal downloading. We need university
administrators to take much stronger action, including most importantly the use
of blocking technologies, to stop wholesale illegal downloading and exchange of
stolen copyrighted works on campus. Their action or inaction sends an important
message to students about whether illegal activity is condoned or condemned. I
pledge the full support of my company—including the formidable capabilities
of the GE Research Lab—in these efforts. Together, we will find a way.

The fact is, technological steps that would significantly
reduce much of the piracy problem for media companies are available right now.
We have the ability to insert a digital “tag” or “watermark” in our content. I
am delighted that the CE, IT and content industries have cooperated in
developing technological standards for the new HD generation of DVDs, which
will include provisions for detecting copyright watermarks in order to interfere
with the playback of pirated material. It is absolutely critical that we
continue down this path. Technological sophistication should be our partner in
the fight against digital theft. We need our business partners to help us apply
the same technology to our content viewed in the context of the PC and the hard
drive, to the new devices that will facilitate moving digital material from
device to device within the home, from computers to handheld devices to TV sets
and so on. In this connection, I applaud the recent formation of the Digital
Watermarking Alliance, consisting of companies that are at the forefront of
developing technologies devoted to the protection of copyrighted and
proprietary content.

I mention these issues as examples of how we in the media
industry need cooperation to make progress. But every business sector needs to
look at ways specific to their industries to address this problem. Sometimes
all it takes is the recognition that no competitive advantage is worth
violating intellectual property rights. That’s the position PepsiCo took when a
Coca-Cola employee came to them with trade secrets. They promptly alerted their
rival and enabled the FBI to set up a string operation to catch those
responsible.

Conclusion

I’ve discussed—at some length—four steps that
will lead to progress on this issue. By way of conclusion, let me suggest four
specific things that need to happen between now and when we gather again at
next year’s Summit.

First, we need to have hard numbers on the table that reveal
the full impact of piracy and counterfeiting on our economy. The IPI study is a
great start but it needs to be expanded and complemented by other studies, in
industries from manufacturing to pharmaceuticals. That is going to take a
commitment of resources and data from government and from other business
sectors.

Second, we need to see stepped-up advocacy by both the
private and public sectors. On the private side, this means companies in every
sector, from aerospace to automotive, working together with organizations like
the Chamber of Commerce’s CACP and the International Chamber’s BASCAP to convey
the scope of the problem and the urgent need for solutions. On the government
side, it means clear pronouncements from the administration, Congress, and both
political parties that our future growth depends on rigorously protecting
intellectual property.

Third, law enforcement at the federal, state, and local
levels needs to be in a much better state of readiness, with adequate resources
in place. Congress should follow through on the effort to add 65 agents at the
FBI and Customs dedicated, educated, and well equipped to investigate IP crime,
in sectors ranging from financial services to fashion. I would also call on the
governors and attorneys general in our ten largest states, and the mayors and
chiefs of police in our twenty largest cities to have adopted coordinated,
model IP protection enforcement programs in their jurisdictions.

Fourth, when we reconvene next year, we need to have made
real progress in implementing technological solutions to the counterfeiting and
piracy problem. In our own industry, I hope we are well on the way to
partnering with the CE, IT, and ISP industries, as well as the university
community, and putting serious resources and effort into developing and
implementing effective technological solutions that create real roadblocks to
the digital distribution and playback of pirated products.

I titled my remarks today, “A Time of Reckoning.” To
reckon means to consider or to weigh something.
But in its earliest definition, it has to do with counting. Today, both
definitions apply. IPI is literally announcing a new reckoning when it comes to
piracy and counterfeiting.

By accurately measuring the scope of the problem,
communicating its importance, ensuring adequate enforcement both here and
abroad, and working in tandem with our technology partners, we can make a real
difference. NBC Universal has made a commitment to work with the CACP
domestically and with BASCAP internationally and with all governments here and
abroad. I hope you all will join us in support of these important efforts. The
time of reckoning is right now.

Thank you.