The broadband era has been a period of major innovation, including the first steps of a potentially vast new e-book market. But is the Internet as we know it—the platform that has fueled such innovation—at risk?
Yes, says "net neutrality" defender Tim Wu, who argues in his timely new book, The Master Switch: The Rise and Fall of Information Empires, that we now stand at the edge of a historical slippery slope, a step away from a slide into another period of major corporate dominance, with potentially far-reaching consequences.
Already, 2011 is setting up to be a make or break year for the Internet. On December 21, the FCC will vote on whether to extend net neutrality principles, a measure cable companies oppose.
But what makes the potential erosion of net neutrality even more troubling, Wu observes, is a corresponding wave of "vertical" mergers and partnerships in media. For example, cable provider Comcast recently acquired the NBC Universal network. And this summer, Google offered a "proposal" with Verizon that, if adopted, would have allowed for a two-tiered Internet—public and premium. "The recent Google/Verizon proposal and the Comcast/NBC Universal deal suggest a return to an age of vertical integration of content and transportation," Wu tells PW. "But when the people who control access to the gateway begin to discriminate, there are serious risks," he says, "both in terms of an open market and free speech."
What does this mean in practice? It means that Comcast, which owns its own on-demand movie service, can now charge Netflix a fee for speedy delivery of movies over its network, a development that could hinder Internet innovation, Wu says, by favoring entrenched corporate giants over cash-strapped but forward-thinking startups. Had there been a "two-tier Internet" in 1995, he explains, Barnes & Noble would have destroyed Amazon, Microsoft would have crushed Google, and Skype would never have been launched. "We'd all be the losers."
Widely praised—including a PW Best Book of 2010 designation—The Master Switch is a fascinating look at the cycle of technology and media development over the past century, and implications for the future. "Markets are born free," Wu writes, but soon enough a "would-be emperor is forging chains."
Historically, the greatest would-be emperor, Wu notes, was AT&T, a company so powerful it was able to delay the answering machine for decades to protect revenues from public phone use. Is another AT&T set to emerge in the Internet era? "It's definitely possible," Wu tells PW. "I don't know if it's Apple, Google, Facebook, or Comcast, Verizon or AT&T, or a mixture of these companies, but the conditions are definitely there for the rise of a monopoly—and one with the kind of power we have not seen in decades."
With e-books and digital publishing just getting started, PW caught up with Wu to talk about the market forces shaping the digital landscape.
In the Master Switch, you write about the effects of mergers and large conglomerates over the past century. Should we be more wary of the giants now emerging in the digital content business?
It isn't that I am necessarily down on conglomerates—I actually think conglomerates are very interesting creatures. In the '70s, one of the things that helped Hollywood films be so creative was that conglomerates bought studios. GE owning Universal Studios looks like an attractive model because GE makes $187 billion a year, so, in theory, it can support all kinds of films, and can even risk losing a couple hundred million dollars. That is nothing for GE; in film terms, however, that money could support hundreds of independent producers.
What I'm concerned with is vertical integration. For example, when a cable provider like Comcast owns a network like NBC, it is in position to directly influence what TV shows people can watch. There's a real danger when the people who move information are too closely linked with the people who sell information. One of the conclusions of my book is that we're probably going to have monopolies again. There is almost an inevitable cycle. But we have to be careful they're not discriminatory monopolies—that we don't let anyone be in position to decide in any sort of absolute terms what content the public can get to.
With so many new devices, services, and offerings, it can be hard to see the downside of such consolidation initially. How is this bad?
The problems come over the longer term. As the information world becomes more monopolized, particularly in the Internet age, there are benefits. Anyone who uses Facebook will agree that it's convenient to have one social network where everyone is. And Google is the best search engine. But eventually every monopolist begins to direct more attention to defending its monopoly than to creating better products. In the book, this is what I call "the Kronos effect," for the god Kronos, who spent his time eating his own children after an oracle said one of them would dethrone him someday. There's a critical turning point when monopolists stop making better products and start trying to destroy better products in order to preserve their power.