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The economist John Maynard Keynes once said, “When the facts change, I change my mind. What do you do, sir?”7 No apostle of central planning could live through Europe’s Fascist and Soviet
so a general repudiation of the whole logic of centralization was a natural fact of the Cold War era.
There is a certain waste implied in having, say, two gas stations on a single street corner, and in this sense, as Vail insisted, monopolies are more efficient than competition.
But what prevented monopoly and all centralized systems from realizing these efficiencies, in Hayek’s view, was a fundamental failure to appreciate human limitations.
In 1982 Vint Cerf and his colleagues issued a rare command, drawing on the limited power they did have over their creation. “If you don’t implement TCP/IP, you’re off the Net.”16 It was with that ultimatum that the Internet truly got started, as computer systems around the world came online.
The Internet of the 1980s was a mysterious, magical thing, like a secret club for those who could understand it.
The film industries and broadcast networks recombined with the new cable industries and networks in a novel form, giant conglomerates on the model of Time Warner that spanned industries in new ways. Meanwhile, AT&T, broken up in the 1980s, by the first years of the twenty-first century managed to re-create itself, reestablishing the essential lineaments of the Bell system.
The information empires created in the 1980s shared many of the worst aspects of both open and closed forms. The new giants had much of the power of the old, without the noblesse oblige. And by the late 1990s it began to seem inevitable that just two industries, the Bell companies and the media conglomerates, would soon control everything in the world of information.
Ted Turner hardly needs introduction. Yet while he is known to the public mainly as the larger than life, bipolar enfant terrible who founded CNN, his greatest claim to immortal fame may actually be his role in opening up television and founding an entirely new industrial model.
He did so by making practical the use of cable lines not just to carry individual broadcast stations but as a platform for a national TV network.
inevitably informs it, often no less than the technology underlying it.
ownership of something big as a path to immortality in the fashion of the ancient epic heroes and emperors, that Turner transformed the cable industry.
The answer to this necessity lay in access to AT&T’s long distance network, and this would become the secret weapon of the broadcast networks. A show produced in New York would be carried around the country over AT&T’s long lines or microwave towers: from the 1920s through the 1960s there was still no other way of constituting a network. And so, to a degree many have forgotten, the broadcast triopoly and the telephone monopoly were intimately linked.
There was the cheap, low-tech alternative of taping shows and mailing the videos. That was how, for instance, Pat Robertson’s Christian Broadcasting Network got its start.
He did it by substituting as his conduit the new technology of satellites for AT&T’s long distance lines. With a satellite, you could take a single station signal, like that of Turner’s WTCG in Atlanta, beam it up into space, and then beam it back down to a cable operator in, say, New Jersey or Michigan.
To give credit where it is due, the use of satellites to carry television was not an idea that originated with Turner. The Home Box Office Network (HBO), under Gerald Levin and others, had done so since 1972 in order to offer so-called pay TV,
But pay TV, however significant an innovation, was less an assault upon than a complement to the networks. Turner, in contrast, by making his WTCG available across the country on basic cable, was going head to head with the Big Three.
Turner’s business model was simple. Overhead was limited, for the most part, to costs of operating his station—paying for access to content (say, old films), and leasing time on a communications satellite. Meanwhile, cable operators (e.g., companies like Cablevision) would pay Turner a fee in exchange for the right to make his channel available to subscribers. Turner would also sell advertising spots on his channel, based on the audience it could be expected to reach.
his programming hardly offered a brave new world. Essentially, his was a network of reruns and specialty content like wrestling and cartoons. WTCG carried old sitcoms such as I Love Lucy and Green Acres, cartoons of yesteryear like The Flintstones and Speed Racer
In less than a decade nearly a dozen cable networks were launched, including the Entertainment and Sports Programming Network (ESPN),
The networks, from their beginnings, were aimed at the broad middle of American society, while cable pursued racial minorities (BET and Telemundo), perennial students (Discovery and History), news junkies (CNN), and people who didn’t realize they were obsessed with the weather.
Before the rise of great media empires of the 1920s and 1930s, the United States, far from a united culture, was, almost by technological default, a house divided according to class, ethnicity, region, and other factors. Perhaps region most of all, for entertainment and culture were necessarily local. Early radio, before NBC, comprised hundreds of local stations, each generating its own content, however humble.
Likewise, before the Hollywood studio gained ascendancy, local theaters decided for themselves what films to show. And of course before the telegraph, newspapers were necessarily local. In this sense, cable television’s undoing of the mass, or national, media culture was merely the undoing of a transient twentieth-century invention. In the nineteenth century, as now, there was little common information for any two randomly selected American citizens to discuss, even if there had been a water cooler.
an open medium has much to recommend it, but not the power to unify the country.
With an open medium, one has diversity or fragmentation of content, and with it, differences among groups and individuals are accentuated rather than elided or repressed.
United Artists’ approach to filmmaking, the approach that had become emblematic of the art in the 1970s, based on prizing the independence of directors and glorifying artistic innovation. Heaven’s Gate was the auteur film from hell and led directly to the financial collapse of United Artists and its subsequent sale to MGM, marking the beginning of the end for the second open age of film.
Steven Ross, a onetime funeral home director who pioneered a new way of organizing the entertainment industry. Unlike a freestanding firm like United Artists, Ross’s firm, Warner Communications (today, Time Warner Inc.), held dozens of media concerns and other properties under a single roof. This vision would spread throughout the 1980s and 1990s to become the dominant industrial organization for movies, music, magazines, newspapers, book publishing—all forms of content once called “
The fact that a single big failure, Heaven’s Gate, could take down an entire film studio made it starkly obvious that all the studios needed better ways of protecting themselves against disaster. As we shall see, defense against financial meltdowns was perhaps the driving reason for the rise of the media conglomerate.
shape and tenor of our current entertainment world are largely owing to the imperatives of risk management in a world where failure had become catastrophically expensive.
Another way of saying this is that the entertainment industry is the classic, indeed definitive, example of what economists call a “hit-driven” industry.
a few hits will outperform the rest, sometimes by several orders of magnitude.
hits are not so easy to predict. Sometimes a film comes out of nowhere and makes a killing,
faced with selling something people don’t ultimately need; they have to want it.
there are times when the desire for entertainment seems like a need—for instance, on a long flight.
As we shall see, the structure of the entertainment industries makes no sense apart from an understanding of the ways they manage risk. These range from the obvious—for instance, betting on well-known stars or directors (more typically the former) and the sequel (rerunning a past success in the hope that lightning will strike twice)—to somewhat esoteric systems of financial management and joint accounting aimed at diffusing success and failure over a broad balance sheet.
The Edison cartel of 1908, for instance, fixed prices aggressively to make sure that, across the industry, costs would never exceed revenues. Likewise, the cartel’s enforcement of a certain homogeneity of product—simple plots, short films, no stars, and a ban on most imports—had the effect of ensuring that one film was as good as (or as bad as) another; by making all their offerings “fungible,” as an economist would put it, the cartel sought to iron out the discrepancy between the hits and flops, making the fate of any one film that much more predictable. The vertical integration of the
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Ross’s answer to the problem of entertainment failures was far more imaginative: he hedged the Warner Bros. film studio volatility with the steady revenues that came from unrelated businesses. Through the 1970s and 1980s, his acquisitions in the name of cash flow also included, at times, cleaning services, DC Comics, the Franklin Mint, Mad magazine, Garden State National Bank, the Atari video game company, and the New York Cosmos soccer team. Obviously, not every choice fit the rubric of “communications,” but it was
portfolio. One, of course, was among various media. As we’ve said, record albums, television shows, and books are all subject to the vicissitudes of “hit-driven” industries. Collecting a group of media companies together is a means of
sharing the risks and benefits across platforms,
Ross’s trick was to hedge the uncertainty of entertainment products as a whole with much more reliable sources of income.
Under the Warner Communications umbrella sheltered not only films and music but parking lots, rental cars, and funeral parlors (his former m
The conglomerate structure looked like a real boon to entertainment and culture. The capacity to absorb heavy losses could, in theory, provide breathing room for creative experimentation, a way to do the worthy, if riskier, projects. The profits from GE lightbulbs alone could keep dozens of great directors working indefinitely, or fund thousands of Sundance-style films.
In addition to alleviating the volatility of cash flow in the movie business, and giving its master a new set of toys, the conglomerate served a more familiar purpose of empire building: material self-enrichment. For
Could a mogul fairly pay himself less than a movie star? In the 1990s, Eisner, for instance, famously awarded himself $737 million for five years of work.13
Among the oldest and perhaps the most intuitively apt strategies had been sticking with bankable stars.* A development engendered by the success of investing in star-driven films was the pursuit of film franchises. It
films could come to be seen as, in effect, a delivery system for an underlying property.
From a twenty-first-century perspective, the problem with these films as a business proposition is clear: they don’t build the value of an underlying property. A film like Cleopatra either makes money or it doesn’t (it didn
with a desire for ancillary consumption once the experience is over.
a film like Transformers or Iron Man doesn’t just earn box office revenue, but it demonstrably drives the sale of the associated toys, comic books, and, of course, sequels.
Unlike almost every other commodity, information becomes more valuable the more it is used. Consider the difference between a word and a pair of shoes. Use each a million times: the shoes are ruined, the word only grows in cachet. Every time you utter the word “Coke,” “McDonald’s,” or “Lululemon,” you are doing the brand owner a small service of marketing.*
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