What Hath God Wrought: Commonality Between the Telegraph and the Internet


Often with the advent of new technology comes speculation regarding the technology’s social, political, and economic effects, both dystopian and utopian.  Such was the case of the telegraph, which caused Briggs and Maverick (1858) to opine:

National health can only be maintained by the free and unobstructed interchange of each with all.  How potent a power, then, is the telegraphic destined to become in the civilization of the world…It is impossible that old prejudices and hostilities should longer exist, while such an instrument has been created for an exchange of thought between all the nations of the earth. (p. 22)

Indeed, their statement could have been made in 2000, rather than 1858.  Of course, similar utopian speculations abound with respect to the Internet.  For example, Shirky (2010) believes that social media will usher in a new era of human creativity and generosity, while Botsman (2010) sees the Internet enabling the rise of collaborative consumption in response to the world’s growing environmental crisis.   In addition, Benkler (2006) describes greater civic engagement in the networked public sphere.  In this sense, the Internet and the telegraph share a similar social response to the technology, as determinists attempt to shape the neo-technological ideologies of their day.  Of course, the Internet, as with the telegraph, will not inevitably alter society in some preordained manner based on the bias of the technology, rather, its social form will be the result of what Starr (2004) describes as ‘constitutive choices’ made today that are based on the foundation of earlier choices.  Therefore, it stands to reason, by understanding the ‘constitutive choices’ of earlier generations regarding the telegraph that this generation can perhaps begin to develop a perspective on upcoming regulatory, commercial, and political choices facing U.S. society.  Through an analysis of the consequences of decisions made during the development of the telegraph, this author finds that government must balance their regulatory efforts to continue to promote Internet industry growth, while protecting the public from commercial interests that would use their dominant market positions to reduce competition through industry consolidation, thereby exerting undue influence over network, and perhaps limiting freedom of expression in the process.

Early Development of the Telegraph

            Prior to the development of the telegraph, information was delivered by U.S. Post Office mail carriers.  Moreover, the U.S. Postal Service only provided service to a fraction of the country and was supplemented by private services such as Wells Fargo and the Pony Express.  Because information was delivered by hand and over enormous distance, news of distant events would arrive much delayed.  The semaphore system, was first developed by the French in 1789 was demonstrably quicker than postal services, however was labor intensive, expensive to construct, and the communication was not private (Holzmann, 1994).  The time delay of the postal service and the inefficiency and lack of privacy of the semaphore system set the stage for the introduction of the telegraph.

While Samuel Morse is popularly credited for the invention of the electric telegraph, others had developed a working telegraph prior to Morse (Mather, 2009; Scherer, 2008).  Rather, “Morse’s merit was to conceive once for all the apparatus by which electrical telegraphy became practical” (Mather, 2009, p. 1).  However, the development of Morse’s invention into a modern telegraph network was built on the foundation of earlier constitutive choices, including the development of a free press, a national Post Office, Congressional funding of schools, and most notably, property rights in the form of patent law (Starr, 2004).  For example, Morse’s invention was dependent on the work of Leonard Gale, an NYU professor that helped him extend signaling distance, through the use of relays (Smithsonian Institute, 2012).  Moreover, Morse patented his invention through the U.S. Department of State’s Patent and Trademark Office, protecting Morse’s ability to share knowledge of his invention and safely develop the technology (Smithsonian Institute, 2012).  Finally, after presenting his invention to the U.S. Congress, the Congress funded the construction of a demonstration line between Washington and Baltimore out of Post Office funds, from which the first message, “What hath God wrought”, was sent (Smithsonian Institute, 2012).  Thus, the development of the telegraph should be credited not only to Samuel Morse, but also to the ‘constitutive choices’ of earlier generations.

Constitutive Choices that Shaped the Development of the Telegraph Industry

            By 1870, a mere 26 years from the transmission of the first message, Western Union owned more than 112, 000 miles of wire and handled more than nine million messages annually (U.S. Census Bureau, 1975).  The remarkable progress of the telegraph industry between 1844 and 1870 is as much a result of the promise of the technology as it is the product of a number of notable constitutive choices that spurred the development of the technology.  Of course, not all of the choices appear to be deliberate.  There is ample evidence that Morse thought the telegraph ought to be an extension of the Post Office (Munro, 1891; Smithsonian Institute, 2012).  Indeed, most European governments ended up nationalizing the telegraph.  However, Morse saw things differently and took his invention and offered to sell the patent to the government for $100,000, but the Postmaster General declined, on the grounds that the proposal “had not satisfied him that under any rate of postage that could be adopted its revenues could be made equal to its expenditures” (Munro, 1891, p. 68).  In addition, it also appears that the U.S. Congress as a whole was somewhat skeptical of investing in Morse’s invention (Munro, 1891; Smithsonian Institute, 2012).  Thus, it appears that the U.S. proclivity to privatize the telegraph, a significant departure from U.S. historical precedent set by the establishment of the Post Office, may have been the result of skepticism rather than a strategic decision.

The decision to allow the telegraph to remain in the domain of the private sector proved to be a boon for economic growth of the nascent industry.  Following the rebuff of the government, patent holders like Morse, sought private capital to erect the needed infrastructure for the telegraph, however, they “had difficulty convincing capitalists of the commercial value of the invention” (Smithsonian Institute, 2012, p. 1).  Most resorted to selling licenses to use the patents, resulting in 50 different companies operating telegraphs by 1851, using a variety of incompatible technologies (Smithsonian Institute, 2012).  This wildcat period for the telegraph industry was paralleled by the introduction of legislation, first by New Jersey in 1845, and eventually by thirty-four states by 1860 (Nonnenmacher, 2001).  The legislation in this period varied state by state, however had common legislative elements and proceeded in two distinct phases, the first being legislation that helped nurture the nascent industry, and the second being legislation that exerted social control of the new technology (Nonnenmacher, 2001).

The earliest telegraph legislation provided right of way for telegraph companies to erect the telegraph poles and wires along public roads, in effect lowering the cost of development (Nonnenmacher, 2001).  In addition, early legislation enacted penalties or made criminal, the damaging of telegraph property (Nonnenmacher, 2001).  Both types of legislation paint a picture of a pro-telegraph, pro-business, legislative environment designed to spur the development of the telegraph.  In describing the legislative environment of the 19th century, Hurst (1956) suggest that the legal order was used “to protect and promote the release of individual creative energy to the greatest extent compatible with the broad sharing of opportunity for such expression” (p. 6).  Companies seeking to exploit the new technology found a willing partner in state legislatures.

However, over time, legislatures also sought to exact a measure of control over the fledgling technology.  In particular, state governments appeared concerned over the growing power and potential undue influence of telegraph companies, and introduced legislation to regulate which messages needed to be accepted and how messages were prioritized for transmission (Nonnenmacher, 2001).  In addition, legislation was also written creating penalties for the unlawful disclosure of the messages (Nonnenmacher, 2001), perhaps resulting from the growing influence of the Associated Press (American Telegraph Magazine, 1861).  These early efforts to exert social control would be only a precursor of legislative efforts to regulate the new medium given the rapid growth and eventual consolidation of telegraph companies.

While the decision to allow the private sector develop the telegraph proved wise from a standpoint of the country’s economic growth, that same decision would have unintended social consequences.  Two early patent holders, Hiram Silbey and Samuel Sheldon, after unsuccessfully attempting to compete with other New York telegraph lines, embarked on a strategy to begin acquiring and consolidating lines and technologies under one company that would eventually become the Western Union Telegraph Company (Smithsonian Institute, 2012), the nation’s first industrial monopoly.  Much of the success of Western Union stems not only from the company’s role as a consolidator, but also from the combined impact of a nationwide rail system, and a nationwide communication system, on U.S businesses and markets.  Yates (1986) describes how the telegraph affected existing forms of economic organization of the period:

In some cases, it favored the formation of large and efficient markets; in others, it favored the emergence of large, integrated firms. By functioning, along with the railroads, to enlarge market areas, the telegraph created the possibility of relatively efficient nationwide markets. (p. 160)

Of course, it followed, that the possibility of efficient nationwide markets attracted capital across a variety of industries to exploit the opportunity.

However, no industry would capitalize on the opportunity quite so well as the Associated Press.  The Associated Press was originally formed to pool the costs of telegraphy, but in short order become a dominant information monopoly.  The combination of a national news service and a national telegraph network, in the form of a two-headed monopoly, made broadcast possible and raised the concomitant concerns of the impact of commercial interests having to great an influence over the public sphere (Blondheim, 2004).  Indeed, lawmakers concerns were justified for a variety of reasons.  First, the AP and Western Union operated as a cartel, through their various commercial agreements; the AP’s contracts with newspapers forced the newspapers to not accept news from other news services, while Western Union’s contract with the AP forced AP to solely use Western Union (Blondheim, 2004).  “And so Associated Press and Western Union effectively created a criticism-proof information system that married content creation with a national network, and in which few competitors could surface” (Laser, 2011, p. 2). The agreements served to assure their joint broadcast network prevented the likelihood of competition.  Second, lawmakers were also concerned that the companies would use their position as the information conduit between businesses and to the public to serve their interests, rather than the public interest (Blondheim, 2004); a situation that became apparent following the ‘stolen election of 1876’, when Senate investigators found that pro-Republican Western Union was funneling information to the Hayes campaign, “while the AP constantly published propaganda supporting the Republican side of the story” (Laser, 2011, p. 1).  As a result of the growing media power of Western Union and the Associated Press, the U.S. Congress attempted a variety of strategies to regulate the industry between 1866 and 1900, introducing 96 bills or resolutions and publishing more than 48 reports, but failed to legislate a regulatory framework over concerns of infringing free speech (Blondheim, 2004).  Where the Congress had failed to find a rationale for the government’s regulation of the press, in 1900, the Supreme Court of Illinois, in a suit between Chicago Inter-Ocean and the AP, found (Blondheim, 2004):

“Associated Press was of vast importance to the public, so that public interest is attached to the dissemination of that news. . . . It has devoted its property to a public use, and has, in effect, granted to the public such an interest in its use that it must submit to be controlled by the public for the common good.

And so began the government regulation of the communications and news industry, despite Constitutional prohibitions to make no law abridging the freedom of the press, their argument instead being that regulatory control was required to protect a free press.

Discussion

             The introduction of the telegraph brought about sweeping changes to U.S. social, economic, and political institutions creating a series of ‘constitutive choices’ that persist well into the 21st century.  The initial choice to allow the private sector to develop the telegraph into a commercially viable technology, commensurate with a favorable regulatory environment that helped to nurture the nascent industry, would set the stage for the creation of a two-headed monopoly over the nation’s information and broadcast capability.

Indeed, the Western Union and Associated Press cartel was an opportunistic response to a new national market for information by capitalist enterprises, that allowed the companies to prevent competition, assure profitability, and generate wealth through the combination of monopoly power and agenda-setting.  The decision by lawmakers and the judiciary to determine the appropriate role for government and business in assuring freedom of expression and a free press was perhaps the most important ‘constitutive choice’ of the era that developed the legal basis for regulating information and communications.

The telegraph could have developed far differently in the United States.  Perhaps a skeptical Congress could have chose not to fund the initial demonstration line, allowing European countries to take the lead in the new industry, a scenario that could have had dire economic and even military consequences, given the telegraphs role in opening markets.  Another potential scenario could have been to place the entire enterprise under the direction of the Post Office, in which case the two-headed monopoly may never have existed.  However, considering the short sightedness of the Postmaster General, it is equally likely that the technology would have taken far longer to reach its full potential, due to the lack of innovation inherent in public administration.  Finally, the attempt by Congress to regulate the industry could have resulted in a public utility model given the similarity of infrastructure requirements in the power distribution and communications industries.  In any event, while there were serious political, economic, and social consequences based on the constitutive choices made by decision-makers of the period, it is equally clear that the development of the telegraph was critical to the political, economic, and social progress of the nation.

Western Union and the Telegraph Today

Telegraph usage peaked in the 1929 with more than 200 million messages sent and began a long, steady, decline in usage, supplanted by the telephone, radio, television, and eventually email and the Internet as the primary source of communication and news (Freierman, 2006).  The final telegram was sent on January 27, 2006, after which Western Union became a pure financial services company, focusing on money transfers (Freierman, 2006), a situation this author find ironic, given the heavy regulatory requirements in that industry.

Historical Perspective on ‘Constitutive Choices’ in the Internet Era

Like the telegraph, the rapid growth of the Internet has introduced a variety of political, economic, and social concerns regarding how, whether, and in what form the government should intervene in regulating the Internet and the communications and media industries.   Advocates of network neutrality wish to assure no government or commercial restrictions of the network, while commercial interests are seeking legislation like the Stop Online Piracy Act to assure the protection of intellectual property that favors traditional business models.  In addition, the communications and media industry continues to rapidly consolidate, not unlike the period preceding the formation of Western Union.  In particular, media and communication companies like Comcast are beginning to vertical integrate merging the content and network, a situation also bearing a striking resemblance to the Western Union/Associated Press cartel.  Finally, the International Telecommunications Union, an arm of the United Nations, is seeking to regulate the Internet.  With so many ‘constitutive choices’ facing the nation, and indeed, the globe, the public can look to the past to a degree to help formulate a perspective on the future.

Indeed, the narrative that describes the development of the telegraph is instructive, insofar as it highlights the delicate balance between private sector creativity and government regulation in the market for information.  The government should favor policies that continue to promote the possibilities afforded by the new technology, including outsourced manufacturing and services, creative destruction of established industry into new industries, like cloud computing or open source, and free trade agreements that favor countries with an information advantage, like the United States; policies that unleash the creative energy of individuals and businesses.

Moreover, the government should seek to regulate the communications, media, and high technology industries in order to prevent the accumulation of too much power or influence into to few companies.  For example, the Internet is dominated by several giant high technology companies including Google, Microsoft, Facebook, and to a lesser extent Yahoo.  These infrastructure companies have become the de facto standard for consumer interfaces to the Internet and as such wield enormous influence in their ability to select, present, and prioritize Internet content.  It would be prudent to assure a level playing field for additional market entrants, and assure that these firms do not unduly influence the political process through their ability to influence content.

Finally, the government needs to consider carefully, whether to participate in an international regulatory regime over the Internet, given the close relationship between communication technologies and freedom of expression identified during the telegraph era.  In addition, the U.S. high technology and computing dominance is a source of economic growth and competitive advantage in the international marketplace worthy of protection from international regulatory requirements.

Conclusion

Upon examination and analysis of the development of the telegraph, a picture emerges that is neither utopian nor dystopian, and yet demonstrates vividly the link between communications technology and national progress.  19th century entrepreneurs, lawmakers, judges, businessmen, and citizens had to deal with the consequences of the first nationwide broadcast network and the ramifications of choices that defined the development of the technology without experience with broadcast networks or mass media.  However, 21st century scholars and lawmakers have a large body of scholarly work that describes the ‘constitutive choices’ made during the development of the telegraph that suggests that government must continue regulatory efforts to promote industry growth, while protecting the public from commercial interests that would use their dominant market positions to reduce competition, exert undue influence over network, and perhaps limit freedom of expression in the process.

References

American Telegraph Magazine. (1861). Chapters of Telegraph History: Furnished by the American Telegraph Magazine. Rochester, NY: Jonn Brooks O’Reilly.

Benkler, Y. (2006). The wealth of networks : how social production transforms markets and freedom. New Haven Conn.: Yale University Press.

Blondheim, M. (2004). Rehearsal for Media Regulation: Congress Versus the Telegraph-News Monopoly, 1866-1900. Federal Communications Law Journal, 56(2), 300-328.

Botsman, R., & Rogers, R. (2010). What’s mine is yours : the rise of collaborative consumption (1st ed.). New York: Harper Business.

Briggs, C. F., & Maverick, A. (1858). The story of the telegraph, and a history of the great Atlantic cable ; a complete record of the inception, progress, and final success of that undertaking : a general history of land and oceanic telegraphs : descriptions of telegraphic apparatus, and biographical sketches of the principal persons connected with the great work. New York: Rudd & Carleton.

Freierman, S. (2006, February 6, 2006). Telegram Falls Silent Stop Era Ends Stop  Retrieved August 23,, 2012, from http://www.nytimes.com/2006/02/06/technology/06telegram.html

Holzmann, G. J. (1994). Data Communications: The First 2500 Years (pp. 1-8). Murray Hill, NJ: AT&T Bell Laboratories.

Hurst, J. W. (1956). Law and the conditions of freedom : in the nineteenth-century United States. Madison: University of Wisconsin Press.

Laser, M. (2011, May 13, 2011). How Robber Barons hijacked the “Victorian Internet”. Law & Disorder/Civilization & Discontent  Retrieved August 23,, 2012, from http://arstechnica.com/tech-policy/2011/05/how-the-robber-barons-hijacked-the-victorian-internet/2/

Mather, F. J., Jr. (2009, Juky 8, 2009). Morse and the Telegraph  Retrieved August 23,, 2012, from http://www.thenation.com/article/morse-and-telegraph

Munro, J. (1891). Heroes of the telegraph. London,: The Religious tract society.

Nonnenmacher, T. (2001). State Promotion and Regulation of the Telegraph Industry. The Journal of Economic History, 61(1), 19-36.

Scherer, F. M. (2008). The Historical Foundations of Communications Regulation. Cambridge, MA. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1296112&http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1296112

Shirky, C. (2010). Cognitive surplus : creativity and generosity in a connected age. New York: Penguin Press.

Smithsonian Institute. (2012). History of the Telegraph  Retrieved August 22,, 2012, from http://historywired.si.edu/detail.cfm?ID=324

Starr, P. (2004). The creation of the media : political origins of modern communications. New York: Basic Books.

U.S. Census Bureau. (1975). Historical statistics of the United States, colonial times to 1970. Washington, DC: U.S. Department of Commerce, U.S. Census Bureau,.

Yates, J. (1986). The Telegraph’s Effect on Nineteenth Century Firms. Business and Economic History, 15, 149-163.

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#NBCFail: A Traditional Media Company in a Digital World


“Sport and mass media enjoy a very symbiotic relationship in American society” (McChesney, 1989, p. 49).  Indeed, from the first closed-circuit televised broadcast of the Olympics in 1936 to the digitally-delivered Olympics of 2012, the Olympic games provide a compelling environment with which to explore the nature of the symbiosis.  In particular, the London Olympics, the first to have a immersive digital media experience in addition to the traditional broadcast experience, sheds light on the conflict created by new forms of media and how new media threatens traditional commercial mass media business models in the world of sports coverage, perhaps upsetting the symbiotic balance.  NBC Universal, which owned the broadcast rights to the London Olympics in the United States was heavily criticized for their coverage, accused of forcing audiences into viewing paradigms of an earlier era, failing to use new media to its potential, and putting the commercial interest over the public interest (Deitsch, 2012; Holmes, 2012; Moore, 2012; Stanley, 2012).  Most of the criticism centered on NBC’s failure in three dimensions, real-time versus prime-time, cultural deafness in a global village, and tone-deaf coverage selection, prompting a new Internet meme, #NBCFail(Sandomir, 2012; Stanley, 2012).  Despite the criticism, NBC’s coverage was a commercial success with the largest audience in media history (CNN, 2012).  The London Olympics demonstrate that the mass media is dealing with a new reality as a result of a networked audience.  Mainstream media organizations occupy a liminal existence between traditional mass media business models and new media expectations, attempting to step into the digital world while remaining tied to earlier paradigms.

Little does more to reflect the symbiotic relationship between media and sports as much as the financial arrangements between the media and sporting agencies.   In the case of the London Olympics, NBC paid the International Olympic Committee $1.18 billion for the exclusive U.S. broadcast rights to the games (BBC, 2012),  fees that provide the bulk of International Olympic Committee revenue (Associated Press, 2008).  One could argue that the games would not exist in their present form without IOC broadcasting revenue streams.  Moreover, with such hefty prices for broadcasts rights, NBC needed to assure that their coverage would generate significant advertising sales to make the broadcast a commercial success in a media environment where audiences have been fractured between traditional mass media and networked media.  At risk, was not only the commercial success of the deal, but also NBC’s brand reputation in delivering a high-quality media experience that serves public interest in the media event.

By all accounts, the NBC broadcast of the Olympics was a commercial success.  NBC had originally expected to lose $200 million on the broadcast, but ended up making a small profit as a result of larger than expected advertising revenue (Heistand, 2012) and the largest audience ever recorded for any media event (CNN, 2012).  Moreover, NBC executives have linked to their primetime success to their digital programming, suggesting their digital coverage drove viewers to primetime audiences and calling their move into digital coverage “a big, bold, swing” (Heistand, 2012, p. 1).  However, critics have argued that NBC’s digital coverage was missed opportunity because the network continued to think of coverage in traditional, monopolistic terms, assuming that viewers didn’t mind not seeing the events live, and couldn’t get the information elsewhere (Stanley, 2012).  Indeed, NBC’s choice, to delay coverage until primetime, or only offer live digital streams to paying cable customers angered many viewers, although savvy Internet users streamed live coverage directly from the BBC using Internet proxies to circumvent NBC (Moore, 2012).  Rather than a bold move into digitalized networked communication, NBC appeared to use digital content simply to draw the audience to primetime coverage, their traditional revenue source.

Moreover, criticism extended to whether NBC understood how the world had changed as a result of networked communication.  NBC       appeared to be deaf to the multi-cultural nature of the Olympic broadcast, opting to select coverage primarily of U.S. athletes and with color commentary that appeared to understand little of the world outside the United States.  For instance, Moore (2012), described viewers embarrassment of the spectacle:

Having to watch trained TV anchors link Kazakhstan to Borat, describing Luxembourg as a central European nation, note that Uganda’s athletes come from the country of Idi Amin, mispronounce the names of Niger and the Cote D’Ivoire, and otherwise support every ugly American stereotype. (p. 1)

While NBC may be excused their coverage selection given that competition for revenue drives programming choices to the lowest common denominator (McQuail, 2010), the mono-cultural commentary displays both arrogance and ignorance of multicultural character of the global village enabled by the networked world.

The widespread criticism suggests that NBC appeared to underappreciate a variety of audience expectations, including the desire for the shared experience for live Olympic coverage, the expectation of niche, tailored content inherent in the digital world, and the desire of the audience to view the Olympics anywhere, anytime, and on any device.  The resulting outcry from audience members over NBC’s botched monopoly coverage showed up on Twitter with the hashtag #NBCFail, however NBC executives appeared to discount the outcry as dissent from small minority (Richter, 1985), an attitude that demonstrates their misunderstanding of the network form of mass communication.  For example, while over the last three days, there have been a mere 19,800 tweets with the hashtag #NBCFail, those tweets have made more than 15.5 million impressions (Hashtracking, 2012).  Furthermore, the popular #NBCFail meme has transcended Olympic coverage and has entered popular Twitter discourse on NBC’s coverage of football, the mars rover, the election, NBC Nightly News, and even their fall line-up.  While NBC’s Olympic coverage has been a commercial success, the damage done to their brand may be incalculable.

The #NBCFail meme is symptomatic of NBC’s failure to meet the expectations of an audience that become accustomed to new media in a networked world.  Audiences expect to get coverage anywhere, anytime, and on any device.  In addition, audiences have higher expectations of the social nature of global media events, expecting platforms than enable them to share the experience in a multicultural setting.  However, while traditional media companies have the financial power that affords the opportunity for exclusive coverage of global sporting events, they are at the same time, unequipped to transition their business models inline with higher audience expectations, given it requires them to creatively destroy the very business model that provides that financial power.  In fact, #NBCFail could have as easily been #ABCFail or #CBSFail, given most mainstream media organizations occupy a liminal existence between traditional mass media business models and business models that center around new media expectations.

References

Associated Press. (2008, November 18, 2008). EBU urges IOC to stick with European broadcasters  Retrieved August 12,, 2012, from http://sports.espn.go.com/espn/wire?section=oly&id=3710990

BBC. (2012, August 14, 2012). London 2012 was ‘biggest ever US TV event’  Retrieved August 19,, 2012, from http://www.bbc.co.uk/news/entertainment-arts-19253273

CNN. (2012, August 13, 2012). Nielsen: 2012 Olympics most-watched event in U.S. TV history  Retrieved August 19,, 2012, from http://marquee.blogs.cnn.com/2012/08/13/olympics-closing-ceremony-a-ratings-win/

Deitsch, R. (2012, August 10, 2012). Mark Lazarus responds to criticism. London 2012  Retrieved August 19,, 2012, from http://sportsillustrated.cnn.com/2012/olympics/2012/writers/richard_deitsch/08/10/NBCs-Mark-Lazarus-responds-to-criticism/3.html

Hashtracking. (2012, August 19, 2012). #NBCFail  Retrieved August 19,, 2012, from http://beta.hashtracking.com/ht-pro-rpt/cjeffers-nbcfail-2012-08-10/

Heistand, M. (2012, August 12, 2012). NBC: ‘We took a big bold swing’ with digital coverage  Retrieved August 19, 2012, from http://www.usatoday.com/sports/columnist/hiestand-tv/story/2012-08-12/NBC-London-Olympics/57015258/1

Holmes, L. (2012, August 6, 2012). Good Business, Bad Quality: How NBC Is Both Right And Wrong On The Olympics  Retrieved August 19,, 2012, from http://www.npr.org/blogs/monkeysee/2012/08/06/158198998/good-business-bad-quality-how-nbc-is-both-right-and-wrong-on-the-olympics

McChesney, R. W. (1989). Media made sport: A history of sports coverage in the United States. In L. A. Wenner (Ed.), Media, sports, & society (pp. 315 p.). Newbury Park, Calif.: Sage Publications.

McQuail, D. (2010). Mcquail’s mass communication theory (6th ed.). London ; Thousand Oaks, Calif.

Thousand Oaks, CA: Sage Publications.

Moore, H. (2012, July 30, 2012). NBC fail shows network’s commitment to ‘the last great buggy-whip Olympics’. Olympics 2012  Retrieved August 19,, 2012, from http://www.guardian.co.uk/commentisfree/2012/jul/30/nbc-fail-buggy-whip-olympics

Richter, P. (1985, December 12, 1985). General Electric Will Buy RCA for $6.28 Billion  Retrieved August 12,, 2012, from http://articles.latimes.com/1985-12-12/news/mn-16152_1_general-electric-will

Sandomir, R. (2012, July 29, 2012). Olympic Viewers Have a New Reason to Complain, and the Means to Do It. Olympics  Retrieved August 19,, 2012, from http://www.nytimes.com/2012/07/30/sports/olympics/nbc-olympics-delay-and-streaming-bring-complaints-on-twitter.html?_r=1&pagewanted=all

Stanley, T. (2012, August 6, 2012). NBC’s Olympic coverage has been a damning indictment of outdated monopoly media  Retrieved August 19,, 2012, from http://blogs.telegraph.co.uk/news/timstanley/100174920/nbcs-olympic-coverage-has-been-a-damning-indictment-of-outdated-monopoly-media/

 

 


The NBC Olympic Broadcast: A Case Study of a Media Conglomerate


Every four years, athletes from around the world gather in one city to compete in what some consider the greatest sporting event in the world.  According to Nielsen Company (2008), nearly 70% of the world’s population tuned in to watch the 2008 Olympics in Beijing, or more the 4.7 billion sets of eyeballs.  The staggering figures suggest that the Olympics may be more of a media event than a sporting event.  Moreover, without media funding, it is unlikely the Olympics would exist, given that television rights fees make up most of the International Olympic Committee’s revenue (Associated Press, 2008).  In fact, NBC paid more than $2.2 billion, a staggering sum, for the television rights to the 2012 London Olympics (Associated Press, 2008).  Only a large and well-funded media organization can afford to bid on the rights, much less be able to successfully monetize such an event.  While a large media organization is needed to enable events like the Olympics, what is the make up and character of such organizations, how are they successful, and most importantly, what are the implications for the public?  Through the examination of NBC as a case study, this author has noted that greater media concentration has potential negative implications for both audience content and the U.S. political and regulatory processes.

NBC Corporate Background

            The National Broadcasting Company, or NBC, was born from the early days of radio as an offshoot of an AT&T-GE-Westinghouse-RCA collaboration (Benkler, 2006).  In 1986, to avoid the threat of hostile takeover, RCA, the parent company of NBC, was purchased by manufacturing giant, General Electric (Richter, 1985).  In 2011, Comcast Inc. cleared FCC regulatory hurdles and won approval to purchase a 51% controlling interest in NBC Universal from General Electric, despite media watchdog concerns over one corporation’s power to both create and deliver content, an industry first (Reardon, 2011).  With the acquisition of NBC Universal, Comcast has become “a leading provider of entertainment, information and communications products and services” (Comcast Corporation, 2012, p. 1).

The Post-NBC Acquisition Comcast Media Business

   Comcast Corporation is a $55 billion vertically integrated media conglomerate with a market capitalization of more than $92 billion comprised of five operating segments, cable communication, cable television, broadcast television, filmed entertainment, and theme parks (Comcast Corporation, 2012).   The cable communication segment is responsible for 67% of their revenue, being wired directly to more than 50 million homes and “serving 22.3 million video customers, 18.1 million high-speed Internet customers and 9.3 million voice customers” (Comcast Corporation, 2012, p. 3).  Moreover, with the acquisition of NBC Universal, Comcast increased its content assets to more that $14 billion worth of annual revenue spanning cable and broadcast television stations, the Telemundo and NBC broadcast networks, film production, and digital properties like Television Without Pity, iVillage, Daily Candy, Fandango, and perhaps most importantly, online video service Hulu (Comcast Corporation, 2012).  While some have been skeptical of vertical integration strategies following the AOL/Time Warner debacle, Comcast executives have emphasized that the NBC Universal acquisition is not aimed at creating synergy between segments, suggesting rather it simply makes financial and strategic sense for Comcast shareholders (Knowledge@Wharton, 2009).  Given the lack of focus on synergy, what does Comcast hope to gain through becoming a content provider?

Why A Vertical Media Business?

In an era shaped by media convergence, it is no surprise Comcast might wish to be more diversified.  New technologies have reshaped the media industry and forever separated content from delivery, as consumers now expect content anywhere, anytime, on any device (Jenkins, 2004).  In describing what is at stake in the converging media market, Jenkins (2004) suggests that “the way in which those various transitions play themselves out will determine the balance of power within this new media era” (p. 34).   Some have suggested that Comcast’s acquisition of NBC Universal is a hedge against the risk of media convergence, allowing Comcast to avoid being commoditized into a ‘dumb pipe’, or said otherwise, simply a channel among many (Knowledge@Wharton, 2009).

Furthermore, the ownership of digital properties may position Comcast to be successful in converged future.  For example, in addition to the typically lucrative prime time coverage of the 2012 Olympics, NBC also offered live streams of Olympic events, where a only 10 events drew more than a million live streams (Hiestand, 2012).  While the digital advertising revenue was a fraction of the more than $1 billion in prime time advertising, the digital presence help draw viewers to the prime time coverage (Hiestand, 2012).  In addition, given Comcast’s nearly 23% share of broadband (Taylor, 2011), the much of the bandwidth intensive streaming occurred through Comcast’s ‘dumb pipes’, conceivably driving demand for increased bandwidth.  Finally, given the recent and very public Viacom and DirecTv programming spat over content costs, it is clear that Comcast may be insulated from the impact of rising content prices for a significant portion of their distributed content, given their ownership stake in NBC.  While there appear to be clear benefits to Comcast, critics worry over the implications of media concentration for society.

Implications of Vertical Media Concentration

            For instance, McQuail (2010) suggests policy issues arising from media concentration include the affect on pricing and content.  While there does not appear to be evidence of rising prices for Comcast cable or broadband, there does appear to be a conflict of interest between Comcast’s television and film production and their digital properties.  For example, both Fandango and Television Without Pity are digital properties that influence audiences by providing reviews, criticism, and content for film and television content respectively.  A cursory analysis of content by this author of content presented on the Television Without Pity web site, found that content regarding the television shows American Idol, a Fox property, and The Voice, a competing Comcast property, were invariably favorable towards The Voice.  Perhaps The Voice is simply a better show, or perhaps there is ownership influence over the content.  McQuail (2010) warns that independence from owners or outside political or economic interests is a structural condition for effective media freedom.  While the fate of the free world may not hang in the balance because of a review of American Idol, there are additional implications of Comcast’s growing concentration of media power.

Indeed, because media freedom requires independence from political and economic interests, limits to media concentration are important (McQuail, 2010).  With Comcast’s acquisition of NBC Universal, and $55 billion in annual revenue, Comcast has become one of the largest media companies in the world with important political and economic interests and the influence to affect their interests.  For example, Comcast spent more than $20 million in 2011, and another $8.5 million in the first half of 2012 on lobbying, putting them among the top ten largest spenders, where they lobbied ‘net neutrality’ legislation, FCC programming issues, and their acquisition of NBC Universal (OpenSecrets.org, 2012).  In addition, Comcast is a member of the American Legislative Exchange Council, a Republican-backed bill mill that favors free markets and limited government (sourcewatch.org, 2012).  Comcast sits on ALEC’s Communication and Technology Task Force, helping Republican legislatures draft model bills on issues like a.l.a. carte cable pricing, cable video franchising, and municipal broadband (ALEC, 2012).  Of course, much of the draft legislation is favorable to Comcast’s business interests.  For example, ALEC’s position on efforts by municipalities to offer broadband is to put safeguards into place to protect private providers, and they are drafting model bills in support of their position to be available to legislator members of ALEC, should they be needed (ALEC, 2012).  It is clear that Comcast is using their market dominance and profits to affect the regulatory landscape and promote their continued growth.  The implication is fairly straightforward; massive media conglomerates are able to use their considerable economic and market power to exert influence on both the political and regulatory process, with the potential for negative consequences for consumers.

Conclusion

            As media events typified by the Olympic continue to grow in size, complexity, and audience share, only the world’s largest media conglomerates are positioned to effectively fund and deliver these events to a global audience.  However, as the Comcast example shows, there are significant societal implications of continued media concentration.  Specifically, greater media concentration appears to have potentially negative implications for society that include greater influence over both content, and national political and regulatory processes.

 References

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