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Friday, January 07, 2011

The Master Switch by Tim Wu

Ars book review

by Timothy B Lee (December 20 2010)

The Master Switch: The Rise and Fall of Information Empires (2010), Tim Wu, 366 pages, Knopf

Is the open Internet doomed? That's the warning of The Master Switch, an engaging history of American communications technologies over the last 130 years. Tim Wu, the Columbia law professor who coined the term "network neutrality" almost a decade ago, argues that information industries inevitably go through alternating periods of open and closed. If past is prologue, Wu argues, today's open Internet will become tomorrow's walled garden.

The Master Switch is the latest installment in a recurring genre. In 1999, Harvard law professor (and Wu mentor) Larry Lessig wrote Code and other Laws of Cyberspace, in which he coined the aphorism "code is law" and predicted that commercialization would lead to the demise of the open Internet. In 2008, Harvard law professor Jonathan Zittrain penned The Future of the Internet and How to Stop It, in which he coined the term "generativity" and predicted that user concerns about viruses and spyware would lead to the demise of the open Internet.

Wu also predicts the demise of the open Internet, but he frames it as part of a broader historical pattern in which open industries inevitably become closed. The early 20th century certainly offers examples of this pattern, which Wu dubs "the cycle". The great information industries of that era - telephone, radio, and movies - all enjoyed a brief period of free-wheeling competition before they fell under the control of a handful of large firms. But when we get to the second half of the 20th century, Wu struggles to find examples that continue the pattern. Since about 1960, what we've seen hasn't so much been a "cycle" as a secular trend of ever-increasing openness.

Maybe the open Internet will survive after all?

The closing of the American media

Wu's story begins in the 1870s, when a tiny telephone company founded by Alexander Graham Bell was struggling to survive against Western Union, America's great telegraph monopolist. After a round of patent litigation, Western Union agreed to leave the telephone business in exchange for a share of Bell's revenues, making Bell an undisputed telephone monopolist.

The expiration of the original Bell patent in 1894 inaugurated telephony's first "open" period, when thousands of small telephone companies, known as independents, entered the market. Yet the Bell Company's large-scale, exclusive control over long-distance lines and cozy relationship with the government proved too much for the little guys. The Bell Company acquired some of the strongest independents and drove many others out of business. In 1913, the company settled a pending antitrust suit by signing the Kingsbury Commitment, an agreement in which the government recognized AT&T's status as a de facto monopolist in exchange for AT&T accepting a variety of public interest obligations.

Wu tells a similar story about the early movie industry, but with an important twist: here, the independents won their battle against the initial patent monopolist. The opponents of the Edison Trust fled to California and formed a rogue movie industry in Hollywood. The location was ideal because they could easily flee across the border when the authorities showed up in search of patent-infringing equipment. Yet this industry's open period was also short-lived. Once they vanquished the Edison Trust, the Hollywood studios formed a cartel of their own that would dominate the industry for decades to come. And in 1934, these studios instituted the Hays Code, an ambitious private censorship regime that kept controversial (read: interesting) material off the silver screen.

The radio industry's open period in the 1920s was to prove equally short-lived. In the 1930s, the Federal Communications Commission helped two companies - NBC and CBS - form a radio duopoly that would endure for decades to come. (NBC originally operated two national networks; the FCC forced it to spin one of them off to create ABC in 1943.) When television arrived in the early 1930s, the FCC wouldn't even let its inventors enter the market, preferring to wait for NBC's parent company, RCA, to introduce its own television technology in 1939. As a result, television was dominated by these radio incumbents from the outset.

Breaking the cycle

Hence, by mid-century, each of these communications technologies was in the grip of one or a few large companies. Yet everything began to change in the 1960s. Hollywood abandoned the Hays code in 1968, ushering in a golden age of cinema in the 1970s. The FCC allowed a startup called MCI to begin offering long-distance service using microwave radio technology, the first step in a process of deregulation that culminated with the 1984 breakup of AT&T. And the Nixon administration repealed regulations that had limited the growth of cable television, creating a platform that would eventually provide robust competition for broadcast television networks.

If Wu's theory of "the cycle" is correct, these trends toward openness in the 1960s and 1970s should have been followed by contrary trends in recent decades. But Wu struggles to come up with examples of industries that have become more closed since 1980. The two examples he does mention aren't very convincing.

Wu argues that the consolidation of the Baby Bells marked a turn toward a closed telephone market. Yet this reading ignores the broader trends in that industry. The average American household in the late 1980s - after the breakup - still had only one choice for local telephone service. In the 1990s, cable companies entered the telephone market and cell phones became affordable and ubiquitous enough to offer a serious alternative to a land line. And since the turn of the century, a variety of VoIP providers, including Skype and Vonage, have given consumers still more choices. The telephone industry is clearly more competitive today than at any time in the 20th century.

Wu's other example of a recent turn away from openness is similarly unpersuasive. Free Press, which counts Wu as its chairman, decries the "Big Six" media firms that own a large fraction of the nation's media outlets. But whatever else you might say about today's situation, things have hardly gotten worse since 1980. At that time there were only three major television networks. Today, each of the "Big Six" own dozens of cable channels that didn't exist in 1980 - a more open industry by almost any standard.

A similar story can be told in the film industry. The number of major Hollywood studios hasn't changed very much since 1980. And Wu himself concedes that Hollywood has become more open to the work of outsiders in recent decades. He points to Miramax, a studio that got its big break when it discovered Sex, Lies, and Videotape (1989) at the Cannes film festival in 1989 and turned it into a modest mainstream hit. Disney acquired Miramax in 1993, and it became so successful that other Hollywood studios created Miramax-like subsidiaries to discover and promote the work of independent filmmakers. (Miramax was recently sold by Disney to private investors.)

The secret of Miramax's success was precisely that it was not tightly controlled by its corporate parent, and could therefore seek out opportunities its parent company had missed.

From scarcity to abundance

The example of Miramax points to a more general trend: as the number of outlets per media conglomerate grows, senior executives are inevitably forced to give their subsidiaries more autonomy. In the early days of radio, television, and movies, national distribution networks were extremely expensive to build and operate. Human labor was cheap in comparison, so these early media conglomerates micromanaged their use to squeeze out every last dollar in profit. The result was bland, formulaic news and entertainment.

But as costs fell, micromanaging became a bad business strategy. Today, NBC's parent company, GE, owns dozens of cable channels, ranging from A&E to the Weather Channel. It simply doesn't make economic sense for senior GE executives to pay attention to what's airing on SyFy or the USA Network. They couldn't watch it all even if they wanted to. This means that individual producers and performers at these channels enjoy more practical autonomy than their predecessors in previous decades.

And the Internet is accelerating this process. If it's impractical for senior GE officials to watch everything that airs on GE cable channels, it's physically impossible for Google employees to watch every YouTube video users upload. As the costs of distribution continue to fall, major information companies have no choice but to stop micromanaging. Mark Zuckerberg might crave control every bit as much as the heads of earlier information empires, but it's simply not possible to run a social network the way a network or movie studio was run in 1950.

Wu points to Apple's App Store as a model for the Internet's future as a walled garden. While there's plenty to criticize about Apple's restrictive rules for approving iPhone apps, it's important to maintain a sense of perspective. Even with the restrictions of the app store, the iPhone is far more generative than the Motorola RAZRs and Nokia 1100s it was replacing. More importantly, the iPhone is losing ground to Google's relatively open Android platform, and Apple has recently bowed to criticism and relaxed some of the App Store's most controversial restrictions. The iPhone might not be as open as we'd like, but the smartphone market as a whole is moving in the right direction.

Protecting the open Internet

Wu devotes the final chapter of his book to discussing how to thwart the impending destruction of the open Internet. Unsurprisingly, he endorses network neutrality, the concept he invented a decade ago. He also argues for what he calls a "separations principle" that would prohibit vertical integration across layers of the networking stack. He suggests that under the separations principle, transactions like the Comcast/NBC merger that combine content and network firms would be prohibited.

Although Wu doesn't mention patents in his final chapter, the early chapters of the book read like a brief for patent reform. Patents played a central, and generally negative, role in the development of early communications technologies. Patents locked all competitors out of the telephone market from the late 1870s until 1894. Not only did this likely slow the rate of technological progress, but it also gave the Bell Company what turned out to be an insurmountable head start in developing a national telephone network and helped it to establish a de facto monopoly.

For its part, the Edison Trust attempted to use its movie patents to establish total control over the fledgeling movie industry. Only members of the trust were allowed to make movies, and they churned out short, plotless films that often served as novelties alongside "live comedy routines, dancing monkeys, and other vaudeville acts". The independents' decision to set up illegal studios in Hollywood was driven not only by commercial motives but also by a conviction that the Edison Trust was strangling a promising medium.

We're lucky that today's Internet is not encumbered by patents to the same degree. Yet patents continue to be a significant threat to the open Internet, and the stories in The Master Switch help us to imagine how bad things could be if the patent bar gets its way.

Wu's final chapter also makes no mention of spectrum reform, but once again the lessons of history seem pretty clear. During the 20th century, the FCC used its power over the electromagnetic spectrum to prop up incumbents and lock out challengers in the radio and television markets. Reforms to free up more spectrum for modern digital networks and to prevent the FCC from micromanaging their development would ensure that the FCC doesn't harm competition in the 21st century as it did in the 20th.

Finally, Wu makes the important point that eternal vigilance is the price of the open Internet. Corporations have a long history of gaming regulatory systems to their advantage. This is why a well-informed and vigilant public is essential to preserving competition. The network neutrality campaign of the last five years failed to pass any new legislation, but it may have served a useful purpose by getting the public thinking about how and why the Internet works the way it does. The debate helped to ensure that if network providers try to undermine the open Internet in the future, they'll face a broad public backlash.

In the long run, this kind of consumer awakening may matter more than any specific legislative proposal.

Bill Totten


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