Copyright c 1994 by Nicholas Johnson The Cinemathek, Internationales Fernsehfest Koln [Cologne, Germany] June 7, 1994, 9:30 a.m. Television in the Electronic Supermarket: The Confusion of Interests An Introduction to the political economics of the Superhighways by Nicholas Johnson* Cologne is now one of the great media capitals of the world. It continues to grow in size and global influence. Many of you here have helped create that reputation. But at least one of the reasons is this very conference. The Cologne Conference is certainly establishing itself as one of the most prestigious gatherings of its kind in the world. So I would like to thank the organizers for including me this year. The State Chancellery, the Broadcasting Regulatory Authority -- and especially my friend Lutz, Dr. Hachmeister, Director of the Adolph Grimme Institute. And of course his associate and my former student, Ben Kieffer. They -- indeed everyone here -- have gone out of their way to make my stay a very pleasant one indeed. Many Americans look to Germany as the homeland of their grandparents. My grandfather came from Germany. So that adds a bit of a family tie and pride to my own respect for the accomplishments of the German people over hundreds of years -- in art, literature, music, film, television, the sciences, and technology. Today that takes the form of quality German media, some of which we have seen here at this Conference, and the science and technology of telecommunications. Which brings me to the topic you have asked me to talk about. Change is occurring in every facet of what we used to call "television," and at an accelerating rate: the content, means of distribution, industry structure, regulation, technology, economic equation, and impact upon (and role of) the audience. A part of this change is called "interactive television" -- whether through the information superhighway or on stand- alone devices. These are subjects about which I not only can, but do, speak for many hours during the course of the academic year at the University of Iowa College of Law, where I teach. So it will not be easy to tell you everything I know in 20 minutes. Actually, my hosts have made my task somewhat easier than that. They have asked that I focus on the political economy of the information superhighway. They asked that I draw upon my experience as a United States government official, a former Commissioner of what we call the Federal Communications Commission. And to talk about three aspects of this new digital world. (1) What are the telecommunications goals of the Clinton Administration? What does government want out of this? (2) What are the goals of the global mega-firms in telecommunications? And, (3) what about the public? What are the users going to get? That is what you have asked me to address, and I will try to do so. There are some rather significant preliminaries which I am going to skip for the moment. Preliminaries like: "what on earth are you talking about?" What do we mean by the "information superhighway"? Is it just "smoke and mirrors"? An illusion? What difference will it really make? Telecommunications is not only my business, it is my hobby. I am a radio amateur and computer hobbyist, and I love to talk about, and play with, all the new gadgets. But as what we call a telecommunications "policy wonk" I also love to talk about telecommunications public policy. And I realize that the best public interest is not the same as either the hobbyists' interest or the greatest profit-making opportunities for those in the telecommunications business. And I realize that throughout this conference there are a great many other presenters who also like to talk about the new technology -- such as Kathleen Black's presentation yesterday morning about the response of her newspaper industry to the new technological and competitive environment. So rather than risk never getting to the questions asked of me, we will start with them, then fill in a little background, and finally return again to those questions and whatever additional ones you may ask during our question period. 1. What do governments want? Obviously, I speak only for my own. You can tell me about the telecommunications policies and motivations of your own officials. Moreover, although I follow the issues, and spend more time than I would like in Washington, I am not a member of the Clinton Administration and do not speak for it. Let me tell you briefly how I feel about American politics and government in general, the current Administration in particular, and its telecommunications policies most of all. Any U.S. President has four handicaps. First, we have permitted the American political system to be heavily dominated by money. There is public money for Presidential campaigns. But a U.S. Senator from a large state must raise $10,000 a day in campaign contributions. That's every day, seven days a week, 365 days a year, throughout the six years of his or her term. Think of that. Look around the room right now. Which of your friends here could you ask for 16,000 DM right now? And then which ones would you ask tomorrow? And the day after that? We no longer have political parties in the United States. At least not in the sense that you have in Germany -- and that we used to have. We have 535 members of the U.S. House and Senate. And they represent 535 political parties. I have been a candidate in primaries for the Senate and House. To do that you do not need the permission of a party official. You must raise your own money, hire your own staff and media consultants, run your own get-out-the-vote campaign, and come up with your own issues. Once elected you owe little or nothing to either political party -- and you can vote accordingly. President Bill Clinton, or any other U.S. President, has little or no control over the votes of members of Congress -- even those within his own party. Secondly, the special interests that contribute the millions of dollars to political campaigns obviously want something for that money. I once calculated that every dollar contributed to elected officials returns $2000 in benefits from government. It is a very sound investment for a business. It is very difficult to get Congressional approval for any legislation that is seriously opposed by those who have given the money. During this past week there has been an enormous amount of media attention given to allegations of misappropriation of funds by one very powerful member of the House, Rostenkowski. But the media misses the issue. The real threat to American democracy comes, not from however many thousands of dollars he may or may not have illegally taken from taxpayers. It comes from the millions of dollars that he, and his colleagues, have legally taken from campaign contributors. Third, a relatively small number of all Americans actually voted for President Clinton. This is both because only about a half of those who could vote bother to vote for anybody. It is also because, in the last election, a significant percentage of voters voted for a third candidate, Ross Perot. Fourth, because we have repealed "the fairness doctrine," requiring some balance in radio and television programming, conservative broadcasters are now running hour after hour of attacks on the president on radio and television talk shows. In my judgment, these are the four most important reasons for President Clinton's difficulties. He would acknowledge that he has made some mistakes. But he is about as qualified as anyone likely to come out of our political system. He is bright. He was a Rhodes scholar at Oxford. He is politically experienced in governing one of our states. He showed tremendous political skill in winning the election as President. He has a very, very talented wife as a partner. He is one of few U.S. Presidents in recent history who can talk without cue cards. He actually understands the issues, enjoys learning about them, is factually very well informed, and can speak in complete sentences. He cares about government and what it can do for people. All of this is relevant in understanding my government's approach to telecommunications -- or any other -- policy. It is no criticism of Bill Clinton to say that, working within the kind of political system I have just described, he simply must go along with much of what the rich and powerful -- big business and its lobbyists, lawyers and trade associations -- want. Unless he does so he risks becoming even less effective than he is now. The Administration cares about telecommunications policy because, unlike his predecessors, President Clinton believes government has a positive role to play in society, and he wants to leave his mark on some legislation. Beyond that, he, and especially the Vice President, Al Gore, have a special interest in the capacity of telecommunications to reshape everything from the American economy and international competitiveness to its educational system. Having said that, what they want -- whether it's telecommunications policy or health policy -- is the ability to create enough support from the wealthy and powerful to permit the Administration actually to enact legislation in a Congress dominated by big money. They know the difference between powerful speeches and powerful lobbying. 2. What do the mega telecommunications and media corporations want? Just a slight advantage over all their competitors. I don't think they are very ideological -- except in their unified opposition to anything they might characterize as "regulation." So long as a business can make money by addicting teenagers to tobacco, providing what the industry calls "replacement smokers" for the 450,000 Americans it kills each year, it will make money that way. If it can make more money capturing the entire North American continent in a fish net made of optic fiber cable, then it will make money that way. 3. What does the public get out of this? "Bottom line," as we say: additional loss of privacy, higher phone and cable TV bills, more advertising in the home, and a lot of services every marketing pilot test run so far indicates nobody wants. So those are some brief answers to the questions you asked me to talk about. You know, of course, without my telling you that much of what I have just said would be highly inflammatory in the U.S., and that many of my fellow citizens would disagree with me. So what you have heard is only my opinion. You also know that I am speaking only of the American experience. But it is highly likely that, as you, too, go the way of privatization, commercialization and competition in telecommunications and media, that you will also have to deal with many of the same problems that we have. Now let me back up and start over again to give us some shared background. A few moments ago I gave you a very full single sentence about recent changes in the media. Let me repeat it a little more slowly and fill in at least some details. Change is occurring in every facet of what we used to call "television," and at an accelerating rate: the content, means of distribution, industry structure, regulation, technology, economic equation, and impact upon and role of the audience. The changes are so great that we really need a wholly new vocabulary even to talk about what is going on. "Television" used to be distributed by over-the-air broadcast stations. Now it comes to us from communications satellites to home receiving dishes, land-based microwave distribution services, coaxial cable television, videotape rental stores, CD-ROM disks and more conventional "floppy disk" computer media, "video games" -- even our own "camcorders'" production of video, whether of family gatherings or of sufficient general interest to be broadcast more widely, such as the amateur tape of the Rodney King beating in Los Angeles. The "Internet" is thought of today primarily as a global computer network of networks, an electronic spider's web linking 20-to-30 million computer users' distribution of textual material. But it is already being used for some distribution of "radio" (audio signals) and "television" (video). The television industry used to consist of over-the-air broadcast stations and the "networks" that both created programs and distributed them to the stations. Now "record companies" make "music videos" seen "on television." Most cable television program suppliers are neither old line television networks nor broadcast station owners; a studio and a satellite uplink dish is all they need. Book publishers and computer software firms put "television" on CD-ROM disks. Video game manufacturers sell both the "computers" and the cartridges that can be played through a television set. The "film industry" sells -- for resale and for rental -- its "films" on videotape. Film makers are using their talents to make upscale video games. Online computer "information utilities" that began, like CompuServe, as text-based information services, are becoming, like Prodigy, a more colorful and graphic source. And now the "telephone companies" want to get into the act, offering "cable television" and computer "database" services over their telephone wires (that are increasingly becoming the glass product we call "optic fiber"). Newspapers, concerned about declining readership, and telephone companies getting into their "classified ads" business, offer information by fax, over voice telephone lines, through computer online services (such as Mead Data's Nexis), and want to offer "television" services as well. The same communications satellite that brings me the NBC evening television news brings me the New York Times the next morning (sent to a printing plant in the midwest, printed, and distributed). So who's in the "television business" today? Virtually everyone who has anything to do with information and entertainment. As the "television industry" has changed, so have the attitudes of regulators and politicians toward the companies involved. The U.S. Federal Communications Commission has gone through a period of "deregulation" starting in the late 1970s. It believes that this is an age of electronic channel abundance rather than the 1930s' scarcity, and that "the marketplace" will provide consumer protection enough. Today's FCC lets stations broadcast what are called "infomercials" -- program length commercials disguised as programs, interrupted by conventional commercials for the same products. There are actually "home shopping" channels that program nothing but sales pitches. Telephone companies, once strictly prohibited from operating cable systems, are now merging with some of the world's largest cable corporations. With rare exception, the government is standing idly by, ignoring, or sometimes even encouraging, the move toward both shoddy programming and mergers. When Time and Warner merged an executive was asked the reasons for the merger. "Because," he said, "there will someday be only five firms controlling all the media on planet earth, and we intend to become one of them." If you consider that an unlikely prediction look at the music industry. There are already five firms controlling well over 90 percent of the world's music. Conventional television was, by technological design, essentially a totalitarian communications system. It had to be controlled by a very small elite. Those in control decided upon its content. It could communicate only in one direction: from the central control point to the masses. Although most communications devices came equipped with a microphone (such as a telephone, audio tape recorder, or video camera), the television set did not. When I wrote How to Talk Back to Your Television Set (in 1970), it was, quite literally, impossible to talk back to your television set. The additional change bordering on "interactivity" involves an electronic mediated experience in which the viewer participates. The participation may take the form of a conventional video game -- one played on one's home television set. But it could also involve playing against someone far distant: through cable television, the Internet, or an online information utility. It may involve sending messages to someone else, or entering comments in a "computer conference." This can either be done in real time, in synchronous fashion, or asynchronously (when a comment, or message, sent at one point in time is responded to later). But the economic engine for interactive television in most future scenarios is cash transfer -- from the viewer to the seller. The seller may be selling programming: a sort of electronic, automated videotape rental store, in which the viewer pays for each program watched rather than by the month. Or the seller may be offering actual merchandise on, say, a "home shopping" channel. Rather than requiring the viewer to call an 800 number and place an order with a credit card, the viewer could simply press a button on the TV set (or, more likely, the remote control device). A previously-entered credit card number and shipping address would be flashed back to the seller, whose computer would automatically bill the account, and prepare a shipping label. Thus, "impulse buying," normally limited to those pushing shopping carts down supermarket aisles, would enter the home. The potential multi-billion-dollar home selling market may be what makes executives drool, but it is seldom mentioned when selling interactive TV to regulators and potential customers. The promotional literature does not emphasize this invasive, ever-present electronic sales pitch, but rather the potential for education and culture. Put five choices on the remote control and interactive television becomes an educational multiple-choice exam machine -- offering immediate feedback and grades. Warner's experiment with "Qube" in Columbus, Ohio, years ago involved viewers indicating potential football plays to coaches in a real-time game, or feedback to President Jimmy Carter while he was giving a speech. So what issues does this leave us with? There are a great many more than I can discuss in 20 minutes. But here is a sampling. The definition. As is by now obvious, at the outset there is no clear definition of what is meant by either the "information superhighway" or "interactive television" -- whether the content, technology, or economic purpose. A recent conference on the subject in the United States ended in disagreement. The demand. Whatever interactive television may turn out to be, it is not clear that anyone wants it -- especially with a multi-hundred-billion-dollar price tag for the information superhighway. Most of the proponents are electrical engineers, enthusiasts and hobbyists (like myself) who say "gee whiz" a lot, want one of everything electronic, and spend most of their time with others who share their enthusiasm. Whenever another interactive television experiment fails -- as virtually all market tests have -- the enthusiasts are stunned, and confident that with a little tweaking of the details the next try will surely be a popular, and financial, success. It isn't. The fact is that most of the information and entertainment most of us consume, most of the time, involves very little interactivity on our part. Newspapers, radio, television, book clubs -- all involve a willingness by the consumer to let someone else decide what is going to be put into one's brain. The control. The single most important telecommunications public policy question is the common control of both "content" and "conduit." It is bad enough that we may end up with five firms controlling all the media on planet earth. But that condition will arrive much sooner, and with much more devastating effect, if those five firms also control all of the world's telecommunications networks and switches. There is no reason why a telephone company should not be permitted to carry someone else's cable television service over its telephone lines (or, more likely, optic fiber). To permit it to do so only increases competition in what is today cable television. It will reduce costs, lower prices, increase programming choice for viewers, and potential outlets for producers. Everyone gains. But there is every reason why a telephone company should not be permitted to carry television programming which it owns. The reasons, of course, go to diversity in the marketplace of ideas. The U.S. Supreme Court has ruled that those who own newspapers and broadcast stations have not only a First Amendment right to speak, but a First Amendment right to silence all those with whom they disagree. Once a phone company owns the information it transports there is little reason not to give it the same constitutional rights to censor as other media owners have. Moreover, even if it is required by law to carry the content of its competitors, there are virtually unlimited ways for it to disadvantage a competitor: everything from degraded signal quality, to delays in repairing outages, to direct marketing to the competitors' customers. Information rich and poor. Because telephone and cable companies would like to focus their services on those most able to pay for them, there is a requirement of "universal service" by phone companies, cable companies, and talk of a similar standard for the "information highway." The problem, of course, is that even if the optic fiber does pass through the neighborhoods of the poor that doesn't mean they can afford (1) to have it brought into their home, (2) the equipment to make it useful (HDTV screens, computers, fax machines, picture phones), (3) the monthly charges to access pay-per-view performances or online services (some of which run as much as $200 an hour), or (4) the training courses to operate it all. Coupled with present levels of functional illiteracy, high school dropouts, and poverty, the "information superhighway" and "interactive television" may very well simply widen the growing gap between the information rich and the information poor. Process. Finally, there is the question of process. How will our telecommunications policies be formulated? Who will be at the table? We have hundreds of so-called "public interest groups" in the U.S. that care about communications policy in the public interest. How can their voices be heard, their concerns taken into account? In conclusion, that we have entered an electronic information age seems clear. Fewer than three percent of us can produce enough food for all. Manufacturing and mining are also heavily automated. Over half the work force is employed by "the information industry." That it is an unmixed blessing is less clear. It offers us electronic goods and services that are confusing at best, desired by few, efficiently used by fewer still, and wasteful and harmful at worst -- solutions looking for problems. Employers can spy on employees like never before. The government wants to know how to break everyone's encryption system so it can spy on the employers as well. Our names, addresses, phones and preferences are collected by some firms and sold to others. And yet, through it all, progress is made. Academic researchers conduct experiments, and write reports, by means of the Internet that would formerly have taken years. CNN brings live news reports to all the citizens of the world -- information formerly not even available to royalty. Television viewers choose from among a far wider selection of programs than thought possible only a few years ago. Nexis offers subscribers instantaneous access to the full text of hundreds of publications. As usual, the technology outruns our capacity even to read and comprehend the manuals. Think how many VCRs around the world are at this moment flashing "12:00"! It certainly outruns our capacity to identify -- let alone think through, and propose policy solutions for -- the numerous, complex and far ranging social, economic and political issues posed. But I hope this verbal photograph may have provided a little insight in that direction from at least one American's point of view. _________ * Nicholas Johnson, Commissioner, U.S. Federal Communications Commission 1966-73, is the author of How to Talk Back to Your Television Set and Test Pattern for Living, and teaches communications law at the University of Iowa College of Law. Box 1876, Iowa City IA 52244 USA; 319-337-5555; fax 319-335-9019; Internet: 1035393@mcimail.com # # # *** Copyright c 1994 by Nicholas Johnson. Conditions: This material is copyright by Nicholas Johnson. However, permission is hereby granted to download, copy and distribute the text to others if (1) the text is not altered, and (2) there is no charge to the recipient, and (3) this copyright notice and conditions are attached. It is a copyright violation to distribute this material altered, or without the copyright notice and conditions attached, or to use the material in any way for which remuneration is received without the prior permission of Nicholas Johnson. Contact: 1035393@mcimail.com; Box 1876 Iowa City IA 52244; 319-337-5555. *** END OF FILE