The Master Switch: The Rise and Fall of Information Empires


A recount of the wars behind the rise and fall of the 20th century's great information empires and examines whether this dynamic could repeat itself today, with one giant entity taking control of America's information

The Rabbit Hole is written by Blas Moros. To support, sign up for the newsletter, become a patron, and/or join The Latticework. Original Design by Thilo Konzok.

Key Takeaways
  1. The Cycle - the transformation of industries from open to closed. Has happened with telephones, radio, film and other information industries and the author asks whether this can happen with the internet (he believes it is likely to happen)
    1. Information is fundamentally different from other commodities and if this cycle is inevitable rather than a trend, the practical consequences may be staggering
    2. The Cycle is a battle between those who favor open industries against those who favor closed - decentralized vs. centralized. Today is different in that the two sides are as evenly matched as ever before
    3. The Cycle is broken out into the following parts - genesis of the information empires, consolidation, technological innovation to breakthrough the powerful consolidated behemoths and/or federal government stepping in to reduce monopolistic powers
  2. Theodore Vail led AT&T during its peak and was an incredible leader. He did not believe in competition but rather monopoly as he had soon competition and the incredible strife and inefficiencies it brought
  3. Much like the idiom, "we are what we eat" it is equally true that the information we are exposed to shapes our thinking and behavior
  4. The grand monopolies tend to start with two lone inventors trying to solve a concrete problem - Bell and Watson with Bell Co., Wozniak and Jobs with Apple and the same holds true for radio and television. However, an invention is often "in the air" and many people in diverse parts of the world often come to the same conclusion at the same time - simultaneous discovery. The lone, outsider inventors are ever important because they have distance/perspective to disrupt that others within the system often don't
  5. There is a difference between sustaining innovations (improvements on current technologies but don't disrupt the market) and disruptive innovations (threatens to displace products altogether)
  6. Any new, disruptive technology brings with it the hopes that it will ameliorate all of a society's problems. These open mediums grow so quickly and so profitably because they have some mix of entrepreneurialism, capitalism and humanitarianism at play
  7. Founder's Myopia - the original founders don't see the true potential of their invention or simply don't take it all the way. Telephone was not simply a better telegraph like Bell originally thought. This trend is seen time and again through history
  8. The cost of entry, the investment it would take to reach a customer, is central in determining whether an industry is open or closed
  9. JP Morgan, the greatest monopolist in history, approached Vail wanting him to run what would become the greatest telephone monopoly ever built - AT&T with the motto: One System. One Policy. Universal Service. AT&T combined with Western Union and got a monopoly in long distance communication and rather than employing a scorched earth policy as before, he instead enticed competitors to merge with him. Like John D. Rockefeller's motto - join and prosper or perish.
    1. Once under attack from the government, Vail took the unprecedented tactic of asking the government to regulate him but that they be just and fair. Their one big concession was to sell Western Union but WU was quickly receding and was able to side step being broken up and paving the road for AT&T to gobbling up competition and become a patriotic cause. The enlightened monopoly should do good as it does well
    2. Vail was a monopolist, but a benevolent one who believed in the good he was doing for the country
  10. Zukor became the founder of Paramount Pictures and was the first to bring over the classy, European style movie which the French dominated to America. It can be said that he was the founding father of Hollywood as well
  11. Outsiders alone have the power and/or the will to challenge dominant incumbents
  12. Due to the monopolistic film trust in the 1910s, LA became a hotbed for illegal filming because it was close enough to the Mexican border. It was in this era that Universal, Fox and Warner Bros. were founded. It was a long shot that Hollywood would succeed over the East Coast trust as the East Coast were led by Edison and other powerful Anglo-Saxon business magnates with money, patents and a first mover advantage whereas the Hollywood studios were led by scrappy Jewish immigrants. The independents in the film industry would succeed where those in the phone industry didn't because they were able to see and invest in the next step in film innovation
  13. AT&T seemed likely to dominate radio too as they had a monopoly on long, transnational lines but Radio Company of America (RCA) was soon formed so that an American company would hold all the radio patents for national security reasons. The head of RCA, David Sarnoff, soon brought a lawsuit to AT&T saying that they were infringing on RCA's patents and the courts agreed, barring AT&T from the broadcasting industry. RCA soon after founded NBC, becoming vertically integrated and owning both the radio devices as well as the content
  14. Zukor's Paramount soon came to totally dominate the film industry across America in the 1920s, transforming the film industry from totally open to closed and controlled. They would become the most powerful broadcasting conglomerate for the next several decades
  15. As the industry trends towards controlled, the most dominant company or companies tend to become resistant to change and innovation because they are worried about altering the status quo.
  16. The best antidote to innovation is over regulation. Over regulation kept the electronic television, mechanical television and frequency modulation radio (FM) from becoming their own, dominant industries
  17. Bell Labs became an innovation hub and would come to win 7 Nobel Prizes - notably for the invention of the transistor and the discovery of the wave-like behavior of matter
  18. Monopolies tend to degrade as they age and towards the end of AT&T's dominance, they even destroyed many very lucrative innovations in order to keep other entrants out of the market
  19. The Hush-a-phone ordeal wasn't a worry for AT&T because of the success of the product (which ended up being limited) but because it represented their losing control of the industry and innovation
  20. The Catholic Church, the White House and the film industry all worked together and embraced a curation system to make films less obscene. There was nothing to challenge the status quo and the largest megaphone for social critique and communication was silenced for over 3 decades. Anything even remotely similar today would get voted down immediately for limiting free speech
  21. The situation with television was very strange in that the government and the FCC were effectively deciding when a product which was totally harmless to the public had reached an acceptable technological standard and was ready for sale
  22. An alternative definition to genius - smarts combined with capital
  23. Industry structure determines the freedom of expression in the underlying medium
  24. AT&T was particularly close and entangled with the government but in fact every dominant information empire has had close relations with the government - "communication is the foundation of democracy"
  25. Bell was finally broken up in 1984 to much controversy, disrupting the film and telephony industries and in the short-term the quality and service declined too
  26. One should never underestimate the power an entrenched industry has in resisting innovation
  27. Since being broken up in 1984, AT&T has largely rebuilt itself as the enticement of scale is almost magnetic. However, it lost its sense of civic duty whereas the old conglomerate held doing good for the nation in line with profits
  28. Ted Turner is of course known for founding CNN but his biggest accomplishment may be the opening up of cable television and creating an entirely new business model, a national cable network
  29. The close of United Artists in the 1980s was the second "closing" of the film industry and an important step in The Cycle
  30. Steve Ross was the CEO of one of the world's original conglomerates, Time Warner, and set the standard for how to lead and run massive enterprises, later influencing Michael Eisner of Disney and Barry Diller at Paramount
  31. Movies are trending towards sequels and series as they tend to make money and add value to the underlying property. Batman, Shrek  X-Men, Harry Potter all spur people to consume ancillary products and merchandise
  32. Nearly 20 years after its break up, AT&T would become just as dominant a monopoly as it had previously been and this consolidation of power was likely helpful in the government's attempt to spy on the general public
  33. The Cycle hit a bump in the road in the early 2000s as what was predicted by this model didn't come to pass. Microsoft stopped buying media, Disney rebuffed Comcast's merger and the AOL/Time Warner merger faltered badly. The Internet acts counterintuitively to how the media industry has always been rewarded - control of the customers. AOL/Time Warner was not able to block other media or content and once a user logged onto the internet, was free to access whatever they wanted
  34. Google could be considered the holder of today's master switch with the internet. It turns connections into networks, helping to determine who will be heard. It is the open structure of the internet rather than overwhelming ownership which keeps Google dominant. Companies like AT&T succeed by being big and integrated, owning everything whereas Google succeeds by doing only one thing, but doing it better than anyone else (being the gateway to an organized internet). However, Google's lack of vertical integration is also a vulnerability
  35. AT&T and other cable companies' ownership of the broadband pipes is why net neutrality, providing access to content on the internet without favoritism, is such an important topic for Google and other internet companies. It is their sole access to the customers
  36. Today's battle between open companies like Google and Verizon and closed ones, centralizers, like Apple, AT&T and Hollywood. Abundance and social revolution, self-expression vs. a controlled, curated, "best of everything" approach
  37. The author recommends a separationist view to the government's role in information media as it is destructive to a free economy and the technological growth of these industries. Google best exemplifies this separationist tendency
  38. Believes we are towards the peak end of the information golden age and we may soon see a proliferation of integration amongst media and information technology companies. The internet, while espousing and showing the power of an open system, goes against the historical trends of The Cycle and we should therefore we wary of any "this time is different" thinking. The internet is not infinitely elastic as many think as it relies on finite, physical pipes and a few number of companies which control the switches, or our access to it and this may in fact lead it more prone to centralization rather than less
What I got out of it
  1. An amazingly in depth study of the media and telecom industries starting radio, film, telephony, cable and the internet. Information knowledge is ever important and benefits from economies of scale which is why consolidation has been so common in the past. The Cycle is an industry trend in the information industry which has seen early-stage, open industries transition to being closed

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