Life After Television, Revisited

Originally published at Forbes ASAP

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?

What they’re saying about Life After Television

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.

George Gilder

Senior Fellow and Co-Founder of Discovery Institute
George Gilder is Chairman of Gilder Publishing LLC, located in Great Barrington, Massachusetts. A co-founder of Discovery Institute, Mr. Gilder is a Senior Fellow of the Center on Wealth & Poverty, and also directs Discovery's Technology and Democracy Project. His latest book, Life After Google: The Fall of Big Data and the Rise of the Blockchain Economy (2018), Gilder waves goodbye to today's Internet.  In a rocketing journey into the very near-future, he argues that Silicon Valley, long dominated by a few giants, faces a “great unbundling,” which will disperse computer power and commerce and transform the economy and the Internet.