Telecom/1996-04-telecom-walnutcreek.iso/george.gilder.essays/life.after.tv-updated

Internet Message Format | 1994-12-20 | 50KB

Received: from delta.eecs.nwu.edu by MINTAKA.LCS.MIT.EDU id aa13072;
          27 Apr 94 20:27 EDT
Received: by delta.eecs.nwu.edu (4.1/SMI-4.0-proxy)
    id AA28477; Wed, 27 Apr 94 15:12:34 CDT
Return-Path: <telecom>
Received: by delta.eecs.nwu.edu (4.1/SMI-4.0-proxy)
    id AA28466; Wed, 27 Apr 94 15:12:32 CDT
Date: Wed, 27 Apr 94 15:12:32 CDT
From: [e-mail] (TELECOM Moderator)
Message-Id: <[e-mail]>
To: telecom
Subject: Life After Television, Updated


Awhile back, an article in the Digest discussed George Gilder's essay
'Life After Television'. I mentioned having it here and that it would
be distributed shortly. With the problems of the past couple weeks,
things were shuffled around a bit, but today would be a good day to
share Gilder's message with readers.  My thanks for permission to
reprint this here. I hope readers enjoy it as much as I did.


Patrick Townson
TELECOM Digest Editor

  From: [e-mail] (Gordon Jacobson)
  Subject: George Gilder's Article - Life After Television, Updated 1

     This series of articles by George Gilder provide some interesting
technological and cultural background that helps prepare readers to
better understand and place in proper perspective the events relative
to the National Data Super Highway, which are unfolding almost daily
in the national press.  I contacted the author and Forbes and as the
preface below indicates obtained permission to post on the Internet.
Please note that the preface must be included when cross posting or
uploading this article.

The following article, LIFE AFTER TELEVISION, UPDATED, was first
published in Forbes ASAP, February 23, 1994.  As the article's name
implies, it is a follow up to an earlier tome and may be included as a
portion of George Gilder's book, Telecosm, which will be published in
1995 by Simon & Schuster, as a sequel to Microcosm, published in 1989
and Life After Television published by Norton in 1992.  Subsequent
chapters of Telecosm will be serialized in Forbes ASAP.


                      LIFE AFTER TELEVISION, UPDATED
                                    BY
                              GEORGE GILDER

     In 1994, four years after I wrote the first edition of Life After
Television, the cornucopian afterlife is indeed at hand.  With
microchips and fiber optics eroding the logic of centralized
institutions, networks of personal computers are indeed overthrowing
IBM and CBS, NTT and EEC.  But as the great pyramids of the broadcast
and industrial eras--the familiar masters of the American
immigration--break apart, new fear and anxieties arise about the
future.  If the center cannot hold, what rough beast, shuffling its
slow thighs, slouches toward Hollywood to be born again in
gigabytes--and gigadollars--on the information superhighway?

     Will life after television mean the dissolution of the American
hearth into a pornucopia of 900-number videos, full-color cold calls
from sultry sisters at Lehman Brothers and real-crime performances in
multimedia by superstar serial killers?  Or will the new technologies
uplift the culture and empower the people, as Life After Television
predicted?

     A Hughes Aircraft Corp. rocket's red glare in French Guiana,
bombs bursting in air on 500 channels, give proof through the night
that something is going on out there: 150 choices of DirecTv broadcast
satellite images; up to one billion hertz of cable TV bandwidth;
star-spangled malls of infomercials; CD radio with fidelity beyond the
ken of the human ear; high-resolution wrestlemania; 3,000 films
on-demand; interactive personals and impulse pay-per-view playmates;
Yellow Pages blooming into home-shopping bonanzas; and videogames
galore on compact discs and cartridges.  All zooming through the air,
blasting through cable and pulsing through fiber at the speed of
light.  All to be captured, decrypted, decompressed, rendered and
rolled out from the new set-top boxes, game players and supertheaters
in millions of colors and living rooms.

     In such a phantasmagoria, what could be missing?  The same thing
that is missing in much of the media coverage of the information
superhighway: the personal computer.  What is driving the "telefuture"
is not any convergence of films and TVs, consumer electronics and
publishing, computers and games.  What is driving the change is the
onrush of computer technology invading and conquering all these
domains.  The computer industry is converging with the television
industry in the same sense that the automobile converged with the
horse, the TV with the nickelodeon, the word processing program with
the typewriter, the computer-aided design program with the drafting
board and digital desktop publishing with the Linotype machine and the
letterpress.

     The computer industry feeds on the explosive advance of
semiconductor and networking electronics: 1) the law of the microcosm,
which shows that microchip cost-effectiveness rises by the square of
the number of transistors crammed on a single chip, and 2) the law of
the telecosm, which shows that computer cost-effectiveness rises by
the square of the number of computers connected to networks.
According to the famous projection of Intel Corp. chairman Gordon
Moore, the number of transistors on a single chip will double every 18
months.  According to the record of the last five years, the number of
computers attached to networks is rising too fast to measure.  Only by
comprehending the full force of the computer juggernaut can one
anticipate the future of the Information Age.

     Focusing on the technologies alone, however, is not enough,
because the new technologies are often retrofit into failing
industries and concepts.  To grasp the telefuture, it is still
necessary to see the domonetics of the technologies--their social and
cultural effects and contexts.

     The microcosm and telecosm have generated a rich business and
domestic culture--a supporting social fabric of PCs and network
users--that not only nurtures, sustains, applies and expands the
technologies but also is enriched and empowered by them.  In positive
feedback loops, the customers of the PC culture are also its creators
and protagonists.  If you keep your eyes on this culture, you can
anticipate the sources and vectors of growth.  If you focus on the
hype of old industries--television and telephony, Hollywood and
electronic games, consumer appliances and other diversionary
devices--you will miss the real action.

The Logic Of Technology

     Behind all the changes are the supply-side rhythms of creative
destruction.  Radical innovations sweep nearly unnoticed through the
economy from obscure niches such as Woz's garage, Bill Gates' Basic,
Bob Metcalfe's ether, Bolt Beranek & Newman's Internet, Carver Mead's
laboratories and Bob Noyce's workbench.  On the heels of these seminal
tides come much expensive hype and hullabaloo from the established
industry, which is trying to absorb, deflect or co-opt the threat.
This rhythm of real enterprise and reactive public relations explains
why the telefuture prophesied in Life After Television rushed in
faster than expected, and why the key developments are often
downplayed or misinterpreted today.  The publicity is easier to see
than the broad tides of change that have swept through society since
1989.

     Take John Malone and Tele-Communications Inc., for example.  They
are important not for the new dealmaking spectacles but for decades of
enterprise that have created a new broadband network unique in the
world.  With links to 63 percent of America's homes--coaxial lines
with a capacity some 416,000 times the capacity of telephone
twisted-pair wires and easily upgradeable to two-way
communications--the cable industry commands a key resource for the
telefuture.

     In 1989, however, as Malone consummated his network, he and TCI
were still discussed by the press chiefly in the idiom of organized
crime.  Mostly financed by junk bonds, Cable TV was derived at
telecommunications meetings as a conspiracy of political action
committees--"PACs with coax"--foisting junk services on the American
people.  Malone and his colleagues appeared in the pages of the Wall
Street Journal and the New York Times chiefly in exposes of corporate
chicanery.

     By 1993, though, the "cable czar" had reemerged as Dr. Malone,
the reigning genius of America's broadband future.  TCI loomed as the
spearhead of a cable industry that had become a unique American
resource, putting the US as much as a decade ahead of Japan and Europe
on the information superhighway.

     Even Malone could not keep up with the pell-mell pace of change.
In the early summer of 1992, on a panel at a NewsCorp Conference, he
told me, "There is no short-term need to accelerate the deployment of
fiber optics" in the cable system.  The winners would follow a
strategy of "step-by-step, incremental change," he told the crowd of
news executives and Twentieth Century Fox movie and broadcasting
magnates.

     But the logic of the technology soon engulfed him.  Less than a
year later, on April 12, 1993, Malone publicly committed his company
to a $2 billion investment in fiber--to connect a non-incremental 90
percent of his customers over the following four years.  On October
13, 1993, he sold out, probably at the top, to Raymond Smith's Bell
Atlantic Corp., once a sleepy-time regional Bell, now an
entrepreneurial dervish on the digital highway.  "There's no time to
waste in deploying this infrastructure," Malone then explained.

     In 1989 the great information companies financed by Michael
Milken's junk bonds were still seen as sleazy corpocracies teetering
on towers of debt.  By 1993 TCI, McCaw Cellular, MCI, Turner,
NewsCorp, Viacom and Time Warner--collective beneficiaries of $10
billion of Milken funds--had emerged as the titans of the new
information economy and ruled the business pages of the press or
months on end.  Scorned in 1989 as part of a Milken scam or "Ponzi
scheme" by Benjamin Stein in Barrons, James B. Stewart in the Wall
Street Journal, Connie Bruck in the New Yorker and other acclaimed
reporters and analysts, TCI and McCaw together attained in 1993 a
total market value of around $50 billion.

     In 1989 the most weighty wisdom on the future of media was the
"Negroponte switch"--the theory launched by Nicholas Negroponte of
MIT's Media Lab that what currently goes by air--chiefly broadcast
video--would soon switch to wires (fiber optic and coax), while what
currently goes by wires--chiefly voice telephony--would massively move
to the air.

     In Life After Television I urgently touted the Negroponte switch.
I still believe it brilliantly captures the key vectors of change.
Shortly afterward, though, I began to have my doubts that the victory
of fiber as a delivery system would be quite so total as I had
imagined.  After all, the spectrum of electromagnetic vibrations is
essentially infinite, and several companies, led by Motorola, were
offering wireless local area network (LAN) equipment operating at
Ethernet or Token Ring data rates in the 18-gigahertz band--a
frequency previously used chiefly in outer space.  Moreover, BIIC,
Photonics and other firms were offering LANs in the infrared bands of
the spectrum--up in the terahertz and beyond--previously used in the
air only by low-data-rate TV remotes (although infrared pulses were
the medium of fiber optics).

     By 1994 the vision of scarce spectrum behind the Negroponte
switch was in a rout.  Qualcomm Corp. of San Diego introduced a
cellular technology that allowed use of the entire spectrum in every
cell (rather than permitting frequency reuse only once every seven
cells as in current cellular technology).  By creating smaller cells
in larger numbers, it would be possible to multiply spectrum almost
without limit while drastically lowering handset power usage.
Spectrum once too scarce to waste on video was becoming as cheap and
abundant in the air as in wires, where fiber optics had already opened
an era of potential bandwidth abundance.  Andrew Grove, CEO of Intel,
memorably declared: "You think computer prices are plummeting.  Wait
till you see what happens to bandwidth."

     Still, there remained limits to the use of higher frequencies for
communication.  Higher frequencies, it was believed, created
prohibitive problems of interference and power.  Rain, for example,
would drown out microwave communications.  Pigeons would fry on the
antennas.  Then Cellular Vision of New York Inc. overthrew this
conventional wisdom.  It announced in the fall of 1992 that it was
broadcasting 49 channels of studio-quality video in the 28-gigahertz
band of the electromagnetic spectrum to 500 homes in the Borough of
Queens.  The total cost was some $300 per home.  Months later,
Gigahertz Equipment of Phoenix was seeking similar licenses in the
West.

     Although many observers scoffed at these microwave ventures, on
August 4, 1993, Bell Atlantic signed up to market the system through
the City of New York and in neighboring suburbs to the north.  US West
signed up with Gigahertz to supply service in its own region.

     Shaking most of the certainties of 1980s conventional wisdom,
such insurgencies all stemmed from the still deeper forces of the
microcosm and telecosm--described in Life After Television--that are
still gaining momentum in 1994 and will continue to cascade through
the technoscapes of the coming decade.

The Avalanche Of Bits

     But with Milken banished from financial markets and Malone in
harvest mode, who will ride the next avalanche of bits on the
information superhighway--and who will be buried under it?  Widely
regarded as likely winners are Edward McCracken of Silicon Graphics
Inc., the aspiring king of the set-top box and the video server, and
Jim Clark, SGI founder and chairman until February 28 (when he will
leave to start his own interactive TV software company).  In the form
of 3D graphics hardware and software, SGI's technology is central to
the triumph of computers over television and games.  Yet the company's
present strategy is to retrofit these digital engines into the
television set-top boxes and Nintendo game machines of the
pre-computer culture.  Clark hopes to provide the content.

     SGI offers compelling reasons for this strategy: production
volumes and foundries for the Mips 4000 microprocessor family
comparable to those of the Intel X86 standard; a siphon amid the
possible floods of software revenues to be earned by Nintendo using
the SGI architecture; and sales of SGI superservers to the television
programming industry.  But in harvesting these benefits over the next
five years, SGI and Clark risk dissipating their energies by serving
the industries of the past.

     Is Mickey Schulhof of Sony Corp. going to countervail these
trends?  He is trying to converge and digitize all the technologies of
the past into a pi$ata of new consumer appliances, musical hits,
videogames and movies, making blockbuster turkeys such as "Last Action
Hero" and selling everything but the feathers and the popcorn.
Schulhof grandly plans to rule both ends of the information
superhighway, with Hollywood video and musical content and a panoply
of appliances to play them, from high-definition TV sets to minidiscs,
CDs and videotapes, game players and walkmasters.  But Sony may merely
be supplying digital cosmetics to two dying industrial establishments:
Hollywood and consumer electronics.  Making an array of incompatible
and incommunicable devices, Sony is defying both the law of the
microcosm, which compels the distribution of intelligence, and the law
of the telecosm, which asserts the exponential benefits of
interconnection.

     Lest the information superhighway clog up with wrecked hopes and
misbegotten plans, let us look for the false assumptions behind some
of the disappointments of today.

     GTE's Cerritos, Calif., project--the first full test of
interactive services, launched in the mid-1980s--rolled out its
cornucopia of on-demand video, instant banking, shopping, games and
other services to an indifferent marketplace.  Although the results
are still shrouded in secrecy, news reports suggested that people just
didn't want to take the trouble.  US West and TCI are said to have
made similar discoveries in Denver.  If the world lusts for
interactivity, why does it spurn the leading interactive market tests?

     The "killer app" for these new broadband systems is supposed to
be pay-per-view television.  But, says Frank Biondi, president of
Viacom, "there has been no serious take-up for pay-per-view in 20
years.  We are way behind revenue projections on motion picture
pay-per-view." When Time Warner raised its pay-per-view movie
bandwidth from five to 60 channels in the Borough of Queens, monthly
revenue is reported to have risen by only some $4 per home.  "If
people really hated going down the block to pick up a movie, video
stores would have a thriving delivery business today," commented
Michael Noll of the University of Southern California in the software
newsletter Release 1.0.

     3DO's new super-Cd-ROM multiplayer and graphics processor may
someday find a market outside Wall Street.  But judging from the fall
of the company's stock price, from a high of 48-1/4 when the machine
was launched into stores last October to 26 in mid-January, sales have
been disappointing.  3DO indicated that some 50,000 units had been
shipped to retailers, compared with earlier company projections of
"fewer than 100,000" and euphoric expectations of many more.
Similarly, after investment of untold hundreds of millions of dollars,
the Philips CD-I players still lag in the marketplace.  If the world
is rushing to multimedia, why is it so slow to embrace the leading new
multimedia players?

"Like Feeding Vitamins To A Horse"

     Games show magnate Jon Goodson of Mark Goodson Productions
declares that people don't want to interact with game shows.  "It
changes the game--for the worse."  A 1993 Dataquest study reported
that people really don't want to interact with sports events.  TV
Answer, now Eon, and Interactive Networks both failed to break through
with plans to supply interactivity to current-day televisions over
special radio frequencies allocated for the purpose by the FCC.
Hollywood has determined that audiences have no interest in shaping
the outcomes of films; they want to be surprised.  If people don't
want to interact with video, how can the world move beyond television?

     The new standard for digital HDTV, though far ahead of the old
analog systems, will not be officially unveiled until 1995, according
to Richard Wiley, chairman of the FCC's Advisory Committee on Advanced
Television.  The broadcast companies that are supposed to adopt it are
mostly uninterested.  "We see no way any of us will make money out of
this thing," says John Swanson, vice-president, engineering, at Cox
Broadcasting.

     Most of the fiber-to-the-home and fiber-to-the-curb companies
have been disappointments--Raynet and BroadBand Technologies have had
difficulty selling their equipment.  A superb passive optical
technology has so far failed to save BroadBand's stock price.  It
tumbled from a high of 52 early in 1993, amid the uproar over the
information superhighway, to a low in the mid-20s by the end of
January 1994 as revenue projections were lowered by analysts.  Raychem
has pumped more than $100 million into Raynet without yet generating a
profit.  Meanwhile, the telephone companies have been dallying with a
new system called Asymmetrical Digital Subscriber Line, which will let
them send full-motion video down a conventional phone line at six
megabits per second (near to the practical rate of an Ethernet
computer network).  Although Eli Noam of the Columbia University
Telecommunications Center says ADSL is "like feeding vitamins to a
horse rather than buying a truck," the phone companies feel that if
they have to compete with TV, it is cheaper to supercharge the old
copper nag for the last few hundred yards.

     On the content side the picture is equally cloudy.  At multimedia
conventions, television executives declare that there is no way they
can make money with the kind of stuff currently available on CD-ROMs
and other such platforms.  During intermissions they mutter off the
record that the only way to jump-start this market is through virtual
sex.

     In the late 1980s the entire Japanese electronics industry was
riding high with the harvest of profits from decades of investment in
consumer electronics.  Deciding that "content is king," Sony and
Matsushita each bought major Hollywood studios.  As these companies
moved on toward HDTV, Western pundits prophesied that Japan would
dominate all advanced electronic industries, from semiconductors to
supercomputers.  Instead, however, the Japanese electronics industry
entered a period of prolonged decline, suffering heavy financial
setbacks and even losing its lead in semiconductors to American firms.

Strategists Focused On Wrong Industry

     From Cerritos to Denver and on to Orlando, Omaha and Castro
Valley, from 3DO to CD-I and beyond, from BroadBand to Raynet, from
Sony to NEC, the current and impending disappointments spring from one
key mistake.  With some notable exceptions, the leading strategists
are focusing on the wrong industry.  You can't get beyond television
by collaborating with TV companies in their long slide to
obsolescence.  You can't create a new information infrastructure by
propping up the old telephone networks with the right to provide
tv-type services.

     The new 3DO and Philips CD-I game machines, for example, both
link to interlaced TV screens that display every other line and then
fill in the gaps on a second sweep.  Interlaced screens mean
cumbersome text and limited graphics.  Interlaced screens doom
multimedia to a fringe videotext fuzz.  Yet these new game players
shun the personal computer and its installed base of 33 million home
units in order to build up a new installed base from scratch,
connecting to visually inadequate televisions.

     Interactivity, almost by definition, is a computer function, not
a television function.  Making the boob tube into an interactive hive
of theater, museum, classroom, banking system, shopping center, post
office and communicator is contrary to the nature of the box.

     Millions of Americans, however, are eager to turn their personal
computers to these pursuits.  Therefore, it is natural that nearly all
the relevant activity is in the computer industry rather than in the
television industry.  The PC world provides an environment totally
alien to the downside dirges of consumer electronics.

     As Peter Drucker has said, an entrepreneur should always heed the
upside surprises.  Upside surprises distract business leaders from a
deadening focus on problems and target them on their opportunities.
In the information economy, the best opportunities stem from the
exponential rise in the power of computers and computer networks,
microcosm and telecosm.  In the computer industry, all the surprises
tend to come on the upside.

     For example, early in 1993 the two leading experts in the field,
Bill Gates of Microsoft and Andrew Grove of Intel, both boldly
predicted total PC sales between 35 and 40 million, up from a
stupendous 32 million in 1992.  In an outcome first predicted in
February by semiconductor analyst Daniel Klesken of Robertson
Stephens, the actual number came in at nearly 50 million, between 25
and 40 percent above the forecasts--during what was widely reported as
a down year for computer companies.

     This drastic surprise engendered waves of similar upside
surprises through the industry.  Despite a chaos of competing
architectures and aspiring standards that meant any particular CD-ROM
would most likely not be playable on your machine, the sales of
multimedia-ready computers rose from a few thousand high-end devices
in 1989 to some three-and-a-half million in 1993, bringing in some $5
billion in revenues.  Despite general disappointment in the quality of
the titles, the sales of CD-ROMs soared from a few hundred thousand in
1989 to nearly five million in 1993.  As a harbinger of the future,
sales of encyclopedias in CD-ROM format surpassed those of book copies
in 1993.

     More important is the explosive rise in networks.  Since 1989 the
share of US computers attached to networks rose from less than 10
percent to more than 60 percent.  Some 15 million are now attached to
the network of networks--the Internet--up from a few score thousand in
1989.  For several years the Internet grew at a pace of 15 percent per
month.

     The fatal flaw of Silicon Graphics, 3DO, AT&T, Raynet, Eon and
QVC is that they are trying to solve the problems of the telephone,
TV, videogame and consumer appliance companies.  The problems of these
separate industries are unsolvable in the face of the integrating
sweep of the computer networking industry juggernaut.  Television
problem solving just distracts computer firms from their huge and
hugely demanding opportunity to usurp phones, televisions and
videogame players entirely with multimedia PCs and networks.  The huge
telecom and consumer firms must be enlisted in their true role:
supplying networks, peripherals and programs for the computer
industry.

     Hollywood may still be full of glamour, but the surest sell sign
for a technology company is still a star-struck CEO.  It is not
altogether reassuring to hear Terrence Garnett, Oracle's
vice-president, multimedia, discussing his boss' place in the
industry.  After schmoozing at a party with Hollywood stars, Garnett
confided to a reporter: "I would have a hard time picturing Lewis
Platt [president of Hewlett Packard] sitting at that party.  I mean,
you look at Larry Ellison and you could see him in that environment.
I couldn't see Jim Manzi [president of Lotus Development] or Philippe
Kahn [president of Borland] there. They don't look good in Armani."

     The most Hollywood-savvy executive of Silicon Valley is Jerry
Sanders of Advanced Micro Services.  Star-struck at age 20 and bent on
becoming a star, he discovered shortly afterward that actors are
mostly fungible functions and their glamour mostly meretricious.
Rather than trying to get rich in Hollywood, he decided to enjoy
Hollywood on his own terms after he got rich in Silicon Valley.

     The irony is that technology companies actually hurt the movie
business more than they help it.  The central message of Life After
Television for the film industry is that the new technologies are
targeted directly at Hollywood.  Today some 70 percent of the costs of
a film go to distribution and advertising.  In every industry--from
retailing to insurance--the key impact of the computer networking
revolution is to collapse the costs of distribution and remove the
middlemen.  The movie business is now mostly middlemen.  In an
information industry such as the movie business, distribution costs
will predictably plummet if the movie business embraces networking.

TVs And Telephones: Change Or Crash

     Anyone with access to the information superhighway will be able
to distribute a film at a tiny fraction of current costs.  Moreover,
webs of glass and light will free the producer from the burden of
creating a product that can attract miscellaneous audiences to
theaters.  Instead, producers will be able to reach equally large but
more specialized audiences dispersed around the globe.  Rather than
making lowest-common-denominator appeals to the masses, film makers
will be able to appeal to the special interests, ambitions and
curiosities of individuals anywhere, anytime.

     Limiting these opportunities at present are both the bottleneck
of telephone nets and the runaway costs of film making.  Personal
computers will not only pulverize the costs of distribution, they will
also drastically diminish the costs of actual film production.  Today
leading directors can still imagine that they alone command the
capital to deploy the new digital production and editing tools.  But
any capability now costing a few hundred thousand dollars is sure to
cost less than $20,000 in five years.

     Just as digital desktop publishing equipment unleashed thousands
of new text-publishing companies, so the new digital desktop
video-publishing systems will unleash thousands of new filmmakers.
The video business will increasingly resemble not the current film
business, in which output is 100 or so movies a year, but the book
business, in which some 55,000 new hardcover titles are published
annually in the US alone.  After all, scores of thousands of
screenplays are already written every year.  In the next decade
thousands of screenwriters will be able to make and distribute their
own films.

     Hollywood, meanwhile, will move toward providing enhanced
experiences through virtual reality and other expensive technologies.
The current harbinger is Circus Circus' Luxor resort in Las Vegas, a
gigantic pyramid that is briefly the world's largest hotel.  Luxor is
not just another Vegas casino: It serves chiefly as a dormitory for
six ride-film theaters on the first floor.  Luxor cost some $375
million to build.  The largest expense was the $40 million invested in
the ride-films at the heart of the project.  The individual who made
these films was Douglas Trumbull, formerly Hollywood's leading
supplier of special effects and now an enemy of the Hollywood
establishment.  He is pioneering the new technologies of theatrical
presentation--a field abandoned by Hollywood in the 1950s when
antitrust laws were interpreted as barring film companies from owning
theaters.  Trumbull's first ride-film hit, the incandescent Back to
the Future, The Ride, saved the Universal Theme Park in Orlando and
set a new technical standard for the medium.

     Life After Television did not merely predict a technical
revolution; it predicted a cultural upheaval.  Moving authority from
elites and establishments to creators and customers, the new
technologies drastically change the cultural balance of power.
Shifting the optimal target of commercial art from vulgar taste and
sensations to special interests, curiosities, hobbies, ambitions and
artistic aspirations, digital multimedia machines will transform the
marketplace and elevate the culture.  Only by addressing the new
opportunities will companies prosper and prevail.

     Computer networks are the pivotal technology of the new era.
They are the chief engine of the division of labor--the force of
creativity and specialization that Adam Smith identified as the key
driver of economic growth.  And they are the reigning spearhead of the
creative destruction that Joseph Schumpeter saw as the key to all
economic progress.  The domonetics of computer networks are active and
dynamic rather than passive and diversionary.  Unlike games and
movies, computer networks endow people with new powers of
self-improvement and wealth creation. They free individuals from the
shackles of corporate bureaucracy and geography and allow them to
collaborate and exchange ideas with the best colleagues anywhere in
the world.  Computer networks give every hacker the creative potential
of a factory tycoon of the industrial era and the communications power
of a TV magnate of the broadcasting era.

     The accelerating spread of computer networks in the early 1990s
explains the high sense of opportunity and possibility in an economy
otherwise in the doldrums.  To prevail all industries will have to
adapt to network powers and constraints.  This means telephone and TV
companies will have to change or crash.  It also means that to fulfill
the promise of the Information Age, computer companies will have to
adapt to the laws of the microcosm and telecosm.  They will have to
stop dallying with game machines and set-top boxes, stop their
infatuation with Hollywood and embrace the empowering promise of their
own machines.

     Leading any list of companies that grasp this reality are Apple
and Intel.  Both have made large strides in the past year toward the
overthrow of the establishments of consumer electronics, telephony and
television.

     Although Apple suffered sharp setbacks in 1993, the "teleputer"
strategy launched by John Sculley in recent years began to bear fruit
that same year in such pioneering products as the Quicktime multimedia
operating system, the Macintosh TV and the Mac Quadra 840AV.

     First came the Mac TV, which boldly subsumed a full cable-ready
television set in a Macintosh computer, together with a stereo CD-ROM
drive, all in one chassis.  Connectable to a VCR, camcorder, laserdisc
or videogame player, the Mac TV cost around $2,000 and signals a new
epoch.

     Moving still closer to the teleputer ideal of the multimedia
production center is the Mac Quadra 840AV.  Standing for audio-visual,
the AV fulfills the ultimate promise of the teleputer as a device that
can not only display digital video but also store, edit and transmit
it.  With input port for all TV standards--including the European PAL
and the American NTSC and studio modes S-video and composite
video--the Quadra AV can convert analog images to a digital bit stream
to be stored, edited and then transmitted.  The AV can also function
as a phone and stereo and contains an advanced digital signal
processor that imparts powers of speech recognition and synthesis.
Rivaled as a multimedia machine only by the most costly and powerful
Silicon Graphics Indy workstation, the Quadra AV is unique in its
pattern-matching and voice-recognition features.

     In early December 1993 in Tokyo, Apple introduced the latest
version of Quicktime running Moving Picture Experts Group (MPEG
standard) video at 30 frames per second on a Mac Quadra.  Fujitsu
Ltd.'s announcement that it was licensing the technology for its own
line of video computers signified a growing awareness that Quicktime
was becoming a worldwide multimedia standard even before the Kaleida
multimedia system and the so-called Power PC emerged from an Apple-IBM
partnership.

     Fulfilling Sculley's promise of usurping both phone and
television set, these new computers and their software represent the
first generation of the multimedia era.  Already an upside surprise,
the Quadra 840AV moved quickly to the forefront among Apple
best-sellers, showing that Apple can still do best in the marketplace
through genuine innovations.  These technologies do not ape the price
points and form factors of consumer electronics; they do not hunker
down or twist themselves into pretzels to fit in a set-top box.  These
products extend the PC imperium into new territory.

     However, in a world with Intel chieftain Andy Grove aboard, Apple
cannot rest on its teleputer laurels.  Intel is still more fiercely
focused on the prize.  As Grove says: "The PC is it. That sums up
Intel's business plan and rallying cry."  Scorning the obsession with
set-top boxes elsewhere in the industry, he explains: "The PC is
already in 30 percent of the nation's homes.  How long will it be
before these new set-top boxes are in 30 percent of homes?  And what
will PCs be doing by then?  The PC is not any one thing.  It is a
continuing phenomenon, and every couple years its definition changes.
The Intel goal is to make sure that the living organism of the PC
evolves in the right direction to continue as the dominant interactive
appliance in both home and business.  The PC is not a fixed product
but a continuum.  By contrast, the set-top box is a stationary
machine.  The set-top box won't have the volume, the installed base,
the software or the adaptability of the PC.  By the time they get all
the necessary functions into the set-top box at the right price point,
the PC will be controlling the TV as a mere peripheral." Grove's
warning is exactly on target.

Bandwidth Frees Computers' True Power

     Bruce Ryon, Dataquest's chief multimedia analyst, observes: "If
you talk to the cable set-top box guys, they are all saying that they
are not going to get to the price points they need until three to five
years out."  After three to five more years of Moore's Law, the PC
will be a multimedia machine with some eight times the power and
storage capacity at the same price that brought nearly 50 million unit
sales in 1993 and, according to Robertson Stephens' Klesken, promises
to bring some 55 million unit sales in 1994.  At this pace, within
four or five years, PC penetration into homes will pass 60 percent.

     Virtually all these PCs will be connected to networks--most of
them with 10 megabits per second or more of bandwidth--and most will
run internal buses (linking processors to memory and display) at rates
of close to a billion bits per second, ample for full-motion video.

     These new PCs being prepared at Intel and Apple will merge with
the new tools of the information superhighway.  Technologies of fiber
optics and wireless communications, glass and air, they are advancing
as fast as the microchip technologies of sand. Together they will
consummate the computer revolution and wreak a new revolution in
telecom.

     Until endowed with broadband connections, the computer is a
cripple that devotes huge portions of its processing power merely to
compressing, decompressing, coding and decoding its data for the
telephone system bottleneck.  It is because of this bottleneck that
the true power of the PC remains obscure to many observers.  It is
because of this bottleneck that the TV and consumer electronics
industries can imagine themselves a significant rivals to the PC.  But
once provided with broadband communications, the PC will come fully
into its exponential harvest from microcosm to telecosm.

     As Grove points out: "Infinite processing power will get you only
so far with limited bandwidth.  But the coming era of nearly free
bandwidth will liberate the computer to fulfill its powers.  Just as
the 1980s saw the demolition of the vertical structure of the computer
industry, so the 1990s will see the demolition of the vertical
structure of the communications industry."

     To accelerate the day, at the December 1993 Western Cable TV
Show, Intel announced that it is developing a new computer on-ramp for
the information superhighway.  In league with General Instrument and
Hybrid Technology, Intel demonstrated a modem to connect computers to
cable TV coax at Ethernet speeds of 10 megabits per second.  One of
several firms preparing to release computer powers onto cable
networks, Intel has the manufacturing clout and marketing power to
make cable PC a widespread reality.

     To prepare for this new era of broadband teleputing, Intel is
introducing a new bus standard, PCI, that runs at video speeds--around
a gigabit per second.  With Apple's recent endorsement, PCI seems
likely to become the prevailing system for personal computer internal
communications.  At the same time, Intel announced a full desktop
teleconferencing system.  Doggedly pursuing the dual goal of
integrating both voice and video with the computer, Intel is far more
ready to exploit the new era than firms panting after Paramount and
Nintendo.

     Nonetheless, neither the Intel nor the Apple machines bring
nirvana.  As multimedia guru Eric Hoffert of Apple points out, the
consummated teleputer requires 10 key advances.  They include an
asynchronous transfer mode (ATM) interface, fast real-time
compression/decompression chips, a full 64-bit microprocessor, a
real-time operating system that can schedule events for specific
times, internal buses that run the gigabits-per-second of raw
high-definition video flows, networked multimedia standard software to
sustain new applications, and improved human interfaces for multimedia
communication and access to media databases.  Furthermore, the
teleputer will demand huge storage devices for the many gigabytes of
data in ambitious multimedia projects.  Finally, it will entail new
ways of encrypting and metering information so that the creators can
be paid for each access rather than requiring customers to "buy the
reservoir," as Wave Systems chief Peter Sprague puts it, "every time
you want a drink of water."

     Although these capabilities are available today, their cost
remains in the scores of thousands of dollars.  Without these
features, even the AV and the Indy suffer nagging limits in storing,
processing, editing and transmitting the full-motion, full-screen,
high-resolution digital video of our dreams.

     Indeed, if this were the television industry, such a machine
would remain a dream for decades to come.  But in the entrepreneurial
crucible of the PC industry, all these dreams can come true at the
remorseless pace of Moore's Law.  Within the next five years, cheap
desktop machines could not only show digital movies of full quality
and resolution, but also create, edit and transmit them.

     With this development at hand, all through Wall Street a warning
is whispered: "The train is leaving the station." Content is scarce.
If you don't get it now, you will be left behind with the nerds in
polyester.

     So why didn't Andy Grove join the race with Viacom's Sumner
Redstone, QVC's Barry Diller and all the rest for the grand prize of
Paramount?  Couldn't someone at Intel find him an Armani suit?
Paramount is worth $10 billion.  Intel is worth around $25 billion.
It could easily swallow up the movie giant and combine the Intel
computer and communications tools with Paramount's creative treasures.

     Even more significant, though, if the train is leaving the
station, where is America's sometimes richest man, the world's leading
digital software tycoon?  Most of the prerequisites for the multimedia
teleputer are software projects now under way at Microsoft.  Why
didn't Bill Gates join the Hollywood rush?  He is famously pursuing
content, digitizing famous works of art.  Like Grove, Gates commands a
company worth close to $25 billion.  Gates could scoop up Paramount
into his content venture, Continuum Productions, and become as famous
and fashionable as he is rich.

     But Gates is the epitome of PC domonetics.  Gates doesn't even
own a TV set.  Without mentioning movies or games, he can spiel off
dozens of detailed ideas for applications for the digital highway in
the time it takes John Malone to list his market tests and caveats.
Gates invested nearly 10 years of fatigue and futility, money and
energy in the CD-ROM market as an alternative to TV.  Today's triumph
of the CD-ROM is a supreme vindication of Gates' PC strategy.  Why
should he abandon it now?

     Train leaving the station?  Gates told Forbes ASAP, "That's a
joke."  Gates has always acted on the assumption that Microsoft--or,
more generally, the PC--is the train and he is driving it.  In 1985 he
declared: "Television is passive entertainment.  We're betting that
people want to interact, choose different paths and get feedback from
the machine about what they have really learned." Almost a decade
later, in the January 10, 1994, New Yorker, he was still making the
same point.  Calling interactive TV "a really bad name for the in-home
device connected to the information highway," he stated: "The bottom
line is that two-way communication is a very different beast than
one-way communication...  A phone that has an unbelievable directory
[and] lets you talk or send messages to lots of people, and works with
text and pictures is a better analogy than TV...  Because TV had very
few channels, the value of TV time was very high so only things of
very broad interest could be aired on those few channels.  The
information highway will be the opposite of this--more like the
Library of Congress but with an easy way to find things."  Exactly the
message of Life After Television.

     Gates did not hustle after Hollywood.  Barry Diller and Michael
Ovitz had to seek him out in Seattle.  Bill Gates has fiercely focused
Microsoft on the PC culture.  In the NT operating system, he is
pushing a system with multimedia interfaces, which thrusts Microsoft
into the middle of the fray in computer multiprocessing and computer
networking.  That is the heart of the new era.

PC's Superior Demographics

     The reason Gates and Grove are not interested in Paramount is no
mystery.  They don't need it.  They already command a much larger,
faster-growing, more creative and more promising vehicle for their
capital.  Selling nearly 50 million units in 1993, at an average price
some four times higher than that of a TV, the PC is not only a bigger
market than television and movies put together, it is also a better
market in every way.  In 1992 the US computer industry commanded total
sales of $161 billion, compared with $104 billion in total revenues
for TV and films.  The revenues from computer hardware sales were more
than six times the revenues from TV sales, and home computer sales
were growing 10 times as fast.  More important, the demographics of
the PC industry are far superior.  Television buyers are median
American couch potatoes who pay some $400 for their machines.  PC
buyers mostly come from the upper income quintiles, usually have
higher education and pay an average of some $1,500 for their machines
and then put out another $1,500 or so for software and peripherals.

     Most crucial of all is the difference in the use of the two
devices.  While TV watchers use their machines to lull themselves and
their children into a stupor, PC users exploit their machines to
become yet richer and smarter and more productive--and still better
able to exploit future computer advances.  The PC customer is also the
creator of new applications and add-on devices.  The TV is a
consumption product.  The PC is a supply-side investment in the coming
restoration of the home to a central role in the productive dynamics
of capitalism, and the transformation of capitalism into a healing
force in the present crisis of home and family, culture and community.

     How can this be when the computer is so often condemned as a
divisive and polarizing force in American life, the tool of an elite
of nerds, a weapon of dehumanizing bureaucracy?  These charges were
partly valid for the mainframe computers of old.  But as the PC gains
communications powers and evolves into a teleputer, its social,
cultural and political impacts change completely.  As it ushers in a
life beyond TV, it becomes a powerful force for democracy,
individuality, community and high culture.

     The leading-edge computers always go first to the elites who can
use them best and help develop them for others.  All new technologies
are first purchased by elites and mastered by them before they reach a
larger public.  The PC plays a role in contemporary culture resembling
the role of the Model T automobile in 20th-century industrial culture.

     Owners of the Model T could not simply jump in and drive the
machine.  They had to learn how to maintain and repair it.  Many of
them learned how to take it apart and put it back together.  They
became an industrial elite with the mechanical skills that won two
world wars and propelled the US to the forefront of the world economy.

     Similarly, the linked PCs of today and the teleputer networks of
tomorrow seem formidable--difficult to get in and drive.  At times
they appear to be the tools of a new elite.  But teleputers feed on
the most rapid learning curves in the world economy, and in proportion
to their powers are the cheapest technologies in history.  Just as the
TV, once an exotic tool of elites, became even more ubiquitous in
America than the telephone or the automobile, the teleputer will end
the decade not as a luxury but as an indispensable appliance.

     It is companies that shun the PC of today in order to cater to
the TV, consumer electronics and telephone industries that will end up
in luxury backwaters.  They will resemble the companies that catered
to the mainframe trade early in this decade, or those that catered to
the horse business early in this century.  They may find exotic or
intriguing niches.  Yet just as the real action was not at Churchill
Downs or the Peapack Hunt Club but in Detroit, the real action
today--the source of wealth and power--is not at Nintendo or Sega,
Hollywood or QVC.  It is in the scores of thousands of computer and
software companies that make up the industrial fabric of the
Information Age--the exhilarating new life after television.

                              #####

 Forwarded to the Digest for redistribution by:

                           Gordon Jacobson
                     Portman Communication Services
                            [phone]
     [e-mail]                          [e-mail]
  MCI Mail ID:  385-1533                   Channel One BBS - Cambridge, MA

      ----------------------------------------------

This essay will become a permanent file in the Telecom Archives in the
near future, in the section of the archives where George Gilder's essays
are kept. Watch for it there when you need to refer to it in the future.


PAT