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Washington's
Bogeymen
In
essence, the law of the microcosm shattered the financial system into
silicon smithereens and vastly enhanced its productivity. As the late
Warren Brookes has written, “If every bank is nothing more than an
information system, then by definition every information system has the
capacity to be a bank, and every owner of an information system, from
a desktop computer to a mainframe terminal, can be a banker.” What
happened was that thousands of brokers, mathematicians, financial consultants,
insurance salespeople, credit card merchants and bonds traders took this
opportunity to break into the field of financial entrepreneurship.
As a result, the U.S. set an entirely new world standard for capital efficiency,
generating far more economic growth per dollar of savings than any other
country. As explained two centuries ago by Adam Smith, key to productivity
growth is the refinement of the division of labor, the expansion of specialization,
the breakdown of functions into subfunctions and niches. The key force
fostering specialization in the U.S. is computer networks.
Over the next decade computer networks will expand their bandwidth by
factors of thousands and reconstruct the entire U.S. economy in their
image. TV will expire and transpire into a new cornucopia of choice and
empowerment. Great cities will hollow out as the best and brightest in
them retreat to rural redoubts and reach out to global markets and communities.
The most deprived ghetto child in the most blighted project will gain
educational opportunities exceeding those of today’s suburban preppie.
Small towns will become industrial centers in the new information economy.
Hollywood and Wall Street will totter and diffuse to all points of the
nation and the globe. Families will regroup around the evolving silicon
hearths of a new cottage economy. Video culture will transcend its current
mass-media doldrums, playing to lowest-common-denominator shocks and prurient
interests, and will effloresce into a plethora of products suggestive
of the book industry.
In essence, people will no longer settle for whatever or whoever is playing
on the tube or down the street or in their local office or corporation.
Instead, they will seek out and command their first choices in employment,
culture, entertainment and religion. They will reach out across the country
and around the world to find the best colleagues for every major project.
Productivity and efficiency will inexorably rise. A culture of first choices
will evince a bias toward excellence rather than a bias toward the mediocre,
convenient or crude.
The entire centralizing force of the Industrial Revolution, which brought
capital and labor together in vast pyramidal institutions and reduced
workers to accessories of the machine and the tube, will give way to the
explosive centrifuge of the microcosm and telecosm. Yielding single-chip
supercomputers linked in global broadband networks, these technologies
fling intelligence beyond the boundaries of every top-down institution
and Machine Age social system.
The vision of information superhighways revitalizing the American economy
and culture is far more true and compelling than even its advocates comprehend.
People who underestimate the impact of bandwidth will miss the supreme
investment opportunities of the epoch.
Decline and Rise of the Malone Model
Dominant in the industry are two essential models for fulfilling the promise
of the superhighway. One scheme, long associated with John Malone and
other cable executives, is the monster model: combining content and conduit
in order to gain monopoly rents.
Because it reaches more than 20 percent of all cable customers, access
to the TCI conduit can heavily influence the success or failure of any
content venture. As Andrew Kessler, partner and multimedia guru at Unterberg
Harris and Forbes ASAP columnist, puts it, “If you want to create
a cable channel, you may have to send it through Malone’s bottleneck—a
satellite dish farm outside Denver. I suspect that could cost you some
$ 4 million in cash, or, alternatively, you can give Malone 30 percent
of your company.”
This monster model is in essence the way Malone built up Liberty Media
and the content side of TCI, which together own parts of TNT, the Discovery
Channel, American Movie Classics, Black Entertainment TV, Court TV, Encore,
Starz, Family Channel, Home Shopping Network, QVC, Video Jukebox and an
array of regional sports networks. It has been widely reported that AT&T
and financier Herbert Allen are creating a new classic sports network
and will give a chunk of it to Liberty in exchange for access to Malone’s
conduit.
The other model is that of the common-carrier, upheld both by the telephone
companies and by Internet. In this model you build an open conduit and
exercise virtually no influence on content. Using the phone system or
Internet, people can communicate anything they want as long as they observe
the protocols of the public switched telephone network or of Internet’s
TCP/IP. Extended to images, this model suggests a “video dial tone.”
You can dial up any other machine connected to the network and download
or upload any films, files, documents, pictures or multimedia programs
that you wish. Although telephone companies or Internet providers may
own content. they cannot privilege their own programming. Their content
has to compete for customers freely with all other content available on
the network.
The notoriety of the Malone model and the resentment it arouses far and
wide explain much of the hostility toward the cable industry and John
Malone. This may even explain the current rage to reregulate the industry.
The great irony today is that Malone and the rest of the cable leaders
were in the process of abandoning the Malone model at the very moment
that many telephone executives seemed to adopt it.
It was Malone, after all, who was willing to sell his content to Bell
Atlantic, and it was Raymond Smith, above all, who insisted on acquiring
the assets of Liberty Media. It was Bell South that was willing to pitch
in some $ 2 billion to QVC’s bidding for Paramount when John Malone
left Batty Diller high and dry. Ameritech, too, was reported to be preparing
a pitch for Paramount.
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