Pop quiz: who held the monopoly on radio equipment production in the US in 1918?
General Electric? The Marconi Company?
Radio Shack? (Jk!) 🙂
How about the US Military?
The US entered World War I “officially” in early April, 1917. Determined to control a technology of strategic importance to the war effort, the Federal Government took over radio-related patents owned by companies in the US and gave the monopoly of manufacturing of radio equipment to the Armed Forces — which at the time included the Army, the Navy, the Marine Corps, and the Coast Guard.
This takeover was short-lived (ending in late 1918) but it would have profound effects in how the industry organized in the years and decades that followed. The War and Navy departments, intent on keeping the technology under some form of US control, arranged for General Electric to acquire the American Marconi company and secure the patents involved.
The result was Radio Corporation of America, RCA, a public company whose controlling interested was owned by GE.
Newspapers had been vertically integrated since their inception. The technology required for printing presses and the distribution networks involved in delivering the product were all “proprietary,” in that they were controlled and evolved by the newspapers themselves. Even if the printing press had other uses, you couldn’t easily repurpose a newspaper printing press to print books, or viceversa, and even if you could secure a printing press for newspapers (a massive investment) you could not hope to easily recreate the distribution network required to get the newspaper in the hands of consumers.
This vertical integration resulted in a combination of natural and artificial barriers of entry that would let a few key players, most notably William Randolph Hearst, leverage the resulting common economic, distribution and technological foundation to effect a consolidation in the market without engendering significant opposition. Later, Movie studios relied on a similar set of controls over the technology employed — they didn’t manufacture their own cameras but by controlling creation and distribution, and with their aggregate purchase power, they could dictate what technology was viable and how it was to be used.
Radio, early on, presented the possibility of a revolution in this regard. It could have allowed consumers to also be creators (at least in a small scale). The ability to broadcast was restricted by the size and power of the transmitter at your disposal, and you could start small. It was the first opportunity for a new medium to have the evolution of the underlying technology decoupled from the content it carried, but WWI and the intervention of the US government ensured this would not come to pass. The deal that resulted in the creation of RCA created, in effect, a similar vertical integration in Radio as in other mediums (in Britain, a pioneer of broadcast radio and later TV, the government had been largely in control from the beginning through the BBC, and so already was “vertically integrated”).
This is a way of thinking that became embedded into how Media companies operated.
RCA went on to be at the center of the creation of the two other subsequent major media markets of the 20th century: music and television, and in both cases it extended the notion of technology as subservient to the content that it carried.
For every major new medium that appeared until late in the 20th century, media companies could control the technology that they depended on.
Then the Internet came along.
The great media/technology decoupling
TV, radio, CDs, even newspapers are all “platforms” in a technical sense, even if closed ones, in that they provide a set of common standards and distribution channels for information. In this way, the Internet appears to be “just another platform” through which media companies must deliver their content. This has led to the view that we are simply going through a transition not unlike that of, say, Vinyl to CDs, or Radio to TV.
That media companies can’t control the technology as they used to is clear. What is less clear is that this is a difference of kind, not of degree.
CNN can have a website, but it can neither control the technology standards or software used to build it or ensure that the introduction of a certain technology (say, Adobe Flash) will be followed by a period of stability long enough to ensure recouping the investment required to use it. NBC can post shows online, but it can’t prevent millions of people from downloading the show without advertisement through other channels. Universal Studios can provide a digital copy of a movie six months after its release, but in the meantime everyone that wanted to watch it has, often without paying for it. These effects and many more are plainly visible, and as a result, prophecies involving the death of TV, the music industry, newspapers, movie studios, or radio, are common.
The diagnoses are varied and they tend to focus, incorrectly, on the revenue side of the equation: it’s the media companies’ business models which are antiquated. They don’t know how to monetize. Piracy is killing them. They can’t (or won’t) adapt to new demands and therefore are too expensive to operate. Long-standing contracts get in the way (e.g. Premium channels & cable providers). The traditional business models that supported mass media throughout their existence are being made increasingly ineffective by the radically different dynamics created by online audiences, ease of copying and lack of ability to create scarcity, which drive down prices.
All of these are real problems but none of them is insurmountable, and indeed many media concerns are making progress in fits and starts in these areas and finding new sources of revenue in the online world. The fundamental issue is that control has shifted, irreversibly, out of the hands of the media companies.
For the first time in the history of mass media, technology evolution has become largely decoupled from the media that uses it, and, as importantly, it has become valuable in and of itself. This has completely inverted the power structure in which media operated, with media relegated to just another actor in a larger stage. For media companies, lack of control of the information channel used is behind each and every instance of a crack in the edifice that has supported their evolution, their profits, and their power.
Until the appearance of the Internet it was the media companies that dictated the evolution of the technology behind the medium and, as critically, the distribution channel. Since the mid-1990s, media companies have tried and generally failed to insert themselves as a force of control in the information landscape created by the digitalization of media and the Internet. Like radio and TV, the Internet includes a built in “distribution channel” but unlike them it does not lend itself to natural monopolies apportioned by the government of that channel. Like other media, the Internet depends on standards and devices to access it, but unlike other media the standards and devices are controlled, evolved, and manufactured by companies that see media as just another element of their platforms, and not as a driver of their existence.
This shift in control over technology standards, manufacture, demand, and evolution is without precedent, and it is the central factor that drives the ongoing crisis media finds itself since the early 90s.
Implicitly or explicitly, what media companies are trying to do with every new initiative and every effort (DRM, new formats, paywalls, apps) is to regain control of the platform. Given the actors that now control technology, it becomes clear why they are not succeeding and what they must do to adapt.
In the past, they may have attempted to purchase the companies involved in technology, fund competitors, and the like. Some of this is going on today, with the foremost examples being Hulu and Ultraviolet. As with past technological shifts, media companies have also resorted to lobbying and the courts to attempt to maintain control, but this too is a losing proposition long-term. Trying to wrest control of technology by lawsuits that address whatever the offending technology is at any given moment, when technology itself is evolving, advancing, and expanding so quickly, is like trying to empty the ocean by using a spoon.
These attempts are not effective because the real cause of the shift in power that has occurred is beyond their control. It is systemic.
In a world where the market capitalization of the technology industry is an order of magnitude or more than that of the media companies (and when, incidentally, a single company, Apple, has more cash in hand than the market value of all traditional media companies combined), it should be obvious that the battle for economic dominance has been lost. Temporary victories, if any, only serve to obfuscate that fact.
The media companies that survive the current upheaval are those that accept their new role in this emerging ecosystem: one of an important player but not a dominant one (this is probably the toughest part). There still is and there will continue to be demand for content that is professionally produced.
Whenever people in a production company, or a studio, or magazine, find themselves trying to figure out which technology is better for the business, they’re having the wrong conversation. Technology should now be directed only by the needs of creation, and at the service of content.
And everyone needs to adapt to this new reality, accept it, and move on… or fall, slowly but surely, into irrelevance.