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Interview with George Gilder

Aren't I more likely to tune into the Consumer Reports channel and get it from them rather than General Motors? Well, you may use Consumer Reports, but that requires you to seek out Consumer Reports. They can cover a certain range of products. Your Consumer Reports for computers is PC Magazine or Byte or whatever. Advertising will just assume different forms. It will step you through to the transaction, among other things. Just catching your eye or impressing you with a brand name will no longer suffice. What the advertising will have to do is not only attract your eye but also your interest and then supply enough intriguing detail and confirming facts so that you're actually willing to purchase the product.

Narrowcasting is much more effective than broadcasting if you're actually thinking about selling something—which, after all, is the goal of advertising. The best advertising will be two-way. You will advertise what you want to buy and the vendors will advertise what they have to sell, and the computers can reconcile those two advertisements.

When people say that there'll be less free service in a narrowcasting world or a teleputing world, I say no, there'll be more free service. Less advertising will be able to support more substantive programming. In recent years there has been a contrary trend—more advertising to support declining amounts of substantive programming on television. That trend will be reversed and it'll take less and less advertising to support more and more programming. The infomercial is an important precursor. It's crude in its current form, but ultimately advertisers producing programming that people want to watch is desirable.

But if money is going into infomercials, where the whole thing is about the product they're trying to sell, it will mean less money to support a magazine or a newspaper, which has editorial material independent of the ad. Don't infomercials threaten journalism? Essentially those are infomericals in EE Times, where the writer for Sun Microsystems introduces his new communications product and explains it. It's an ad in a sense, but in another sense it's real programming. That corresponds more to the pattern that I would expect. It's presented in conjunction with objective reporting. You wouldn't read it if it wasn't. An editor has placed it in context and made it intelligible and chosen to endorse its general plausibility; it's not pure advertising because it's been subjected to that editorial process. But it's not pure journalism, either. It's some sort of hybrid. And I think there's a future for it.

The TV infomercials on weight loss or hair are growing in popularity. But I can't understand why anyone would want to watch them. I don't think that's the end of the story on how infomercials will emerge. When they get more refined and they're delivering more specialized products, they're going to have to change. They will be a positive force, in general. I had an interesting exchange at the Media Lab at MIT a few months ago, where a spokesman for the Time Warner project in Orlando was saying they were thinking of having two different ways you could receive their programming: with ads, in which case it would be very low-priced; or without ads, in which case it would be high-priced. A woman from some advertising agency got up and said she didn't agree with that. She thought that the ads would be a positive added value and you'd want to pay extra to have the ads included.

If I watch a movie on TV and I have a choice of with or without, I want it without. That's just as well. You will pay for the movie and you probably will get the ads to the extent that they want to do some mass eyeball capture. They'll have a Coke bottle strategically placed or a Boeing plane or an American Airlines flight guide on the hero's desk or whatever. They may be unobtrusive enough so they don't bother you.

Do you think, in general, that people will pay more or less in the future for the information they receive today? They'll pay more but they'll get much higher-potency information. They'll get what they want when they want it, rather than poring through lots of marginally relevant stuff. They'll get what they really need and they'll pay more for that. Information will definitely be a higher portion of total revenues in the economy. It depends how you define it, but as you move up the Maslow hierarchy, you first satisfy your needs for food and lodging. When you get to the end point, all of your gratifications are, broadly considered, information products. Economies will tend to move up that escalator to increasing preoccupation with information products and increasing dominance of information products in the economy. That's why people who build information conduits, like phone companies—even if they can charge less per circuit connection—will still have a very profitable, successful business. The whole economy will be moving toward them.

And similarly for entertainment. People seem to be willing to pay more for higher levels of entertainment experiences. This is where the economy is moving. It's true we're in an Information Age. Information products already capture some 70 percent of the economy if you include everything that's not actual manufacturing or transport. That's why the computer business is doing so well. In turn, that's why the U.S. economy is doing so well, relatively speaking.

In the battle over Paramount, some people have said that in typical fashion, the bidders missed the boat. If they have that much money to spend, they should invest in some of the multimedia startups. While Paramount has some interesting archival stuff, they are really not doing a lot that's new. It's certainly true. The market avidly watched who was going to get Paramount, because the winner was going to be the big loser in that contest. The assumption of the high price paid for Paramount is that you can gain a benefit for your conduit by having preferred content. But this misses in two ways. First of all, if you're Paramount you want to be able to distribute your product through anybody's conduit. You certainly don't want to restrict yourself to one conduit. And if you own a conduit, you want everybody's business to flow through it, if possible.

The law of the networks takes over: The more connections you have, the more successful your conduit will be.

So on both ends, from the content side and the conduit side, there is a big premium for openness. The bidding for Paramount was almost all done on the assumption that there were monopoly rents to be gained through controlling content and controlling conduit, and those assumptions are wrong. It shows that the managers of these companies often don't have a very clear understanding of where they are going or what they will need.

Do you think it was a panic response, feeling that something was going on out there and they had to be involved? There was a certain amount of that. The train's leaving the station and you have to get aboard. Bill Gates said it's a ridiculous idea, and he's right. After all, if Paramount really was central to success in the information era, why didn't Intel or Microsoft buy it? Intel and Microsoft each is worth about $25 billion. Paramount was worth about $10 billion, even at its overpriced level. Gates and the people who are in the business know there are plenty of more rewarding places to put their capital.

Then do you think Time Warner, which has studio and cable operations, wasn't a very good match? Well, it's not a particularly good match for the same reasons I discussed with Paramount. The movie company wants to use all conduits and the cable operators will want to use movies from everybody. So again, these big synergies will elude them. Parts of the company may be good, profitable businesses.

AT&T's Bob Allen has said he's not getting into content. I think that's right. He's a conduit man. That's his business and it's going to be an immense business. Why abandon it? He doesn't have any special competence or advantages in the content side, so there's no reason for him to pursue it. AT&T has been excessively preoccupied with games. There's been this preoccupation with TV and games on the assumption that those are really popular, mass markets. And the PC is a specialized business and an elite tool.

Despite it being a computer company, AT&T has preoccupied itself too much with Sega, 3DO, Nintendo and all these other companies it has had affiliations with over the last couple years. And that's 3DO's big error as well. They want to be a peripheral to the TV rather than the computer. They may well have to correct that mistake before they succeed. Just think, 3DO could have been Creative Labs.

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