Podcast Audio | Posted by Phil Leigh on November 14, 2009
During the first three decades of the twentieth century the most promising invention was radio.
Scientists could see a clear evolutionary path for the technology that would revolutionize everyday life. The trip from the dots-and-dashes of Morse code, to audio transmission, and eventually to television, was all a matter of learning how to manipulate the electromagnetic spectrum. Unlike a fanciful speculation like teleportation, such things were undeniably possible within the theory underlying Maxwell’s equations.
In 1912 the day following the rescue efforts prompted by Titanic’s SOS signals, American Marconi shares jumped in price on the stock exchange. From 1919 to 1929 revenues for RCA (Radio Corporation of America) rose from $2 million to $180 million, translating to a compound annual growth of nearly 60%. In 1928 RCA stock increased from $80 to $420 per share. It had formed the National Broadcasting Company in 1926. From a growth and stock perspective RCA was the Apple, or Google, of its time. But unlike (I trust) today’s Apple and Google it would compromise its innovative instincts in a Faustian bid to hold back the clock.
Entering 1929 everything looked rosy from both a business and technological viewpoint. Recorded music was at the threshold of major advances from the pending launch of high quality vinyl long-playing standards. Two young television companies, Jenkins Television Laboratories and Television Laboratories, Inc., issued public shares. Both were respectable, although Jenkins utilized a mechanical image scanning technique that was much inferior to the CRT methodology developed by Television Labs. Despite the promising vantage point, broadcast television would not become a reality for another 17 years.
Two developments strangled television in the cradle. One was the economic depression which also destroyed consumer demand for new recorded music formats. The second was RCA’s efforts to monopolize television. Companies like Jenkins and Television Labs found it hard to maintain funding as the financial markets collapsed. In 1932 RCA bought a nearly bankrupt Jenkins and put its technology on the shelf.
Essentially, RCA was making too much money from radio to welcome the advent of television. For example, despite the Great Depression radio advertising grew from $27 million in 1929 to $185 million in 1939, thereby recording a 21% compound annual growth rate. Simultaneously, NBC grew even faster as it increased its share of stations.
Since RCA controlled nearly all key wireless patents competitors could not introduce new products without licensing at least some RCA rights. In the matter of television, however, RCA faced a formidable rival at Television Labs where founder Philo Farnsworth pioneered CRT scanning. Ruthlessly, RCA attacked Farnsworth’s company with a multi-year barrage of legal patent challenges designed to bleed them white financially. When Television Labs gained temporary funding from Philadelphia Storage Battery (Philco), RCA threatened to deny renewal of key licenses for Philco radio products.
The Farnsworth-RCA struggle unmistakably echoes the David-and-Goliath drama. For example, as a boy Philo entered the Naval Academy with the second highest entrance examine score, but dropped out after a few months to focus on television. Despite having no college degree he was funded by San Francisco businessmen who unwittingly became the first venture capitalists. To demonstrate the safety of air travel for advantageously speedy business trips he took his wife aloft only to have her shout, “If you don’t make (the pilot) land, I’ll jump!”
While the radio Goliath did not exactly win, its holding action combined with the Great Depression and the advent of World War II, delayed commercialization of television for nearly two decades. By that time Farnsworth was sadly alcoholic and worn out.
Today the situation is similar. Revolutionary media changes are predictable based upon Internet and semiconductor technologies. Unfortunately, we have stupidly led our economy into great difficulties. We bought houses we could not afford based-upon the obvious folly that prices would always go up and we could sell for a profit to an even greater fool. Our bankers lent money to unmerited borrowers simply because the lenders could divert the risks to the taxpayer while keeping all the rewards. We let ourselves forget that things that can’t continue forever, won’t.
While the stock market recovery over the past year suggests that things might soon return to normal, rising unemployment and thinner consumer wallets cannot be ignored. No matter how promising our innovative products and services consumers need money to buy them. The new “normal” is not going to be so comfortable.
Simultaneously, much like RCA in the 1930s certain powerful companies today would welcome a delay of innovations. Again, like RCA, they typically only want to compete in the court room or in Washington. They don’t want any changes unless they make them.
Before he died in 1971, Farnsworth recovered from alcoholism and drug addition. Occasionally he was able to take on the role of obscure but venerated industry statesmen. When asked what he thought would be the future of television, he responded with a question:
“What do you want it to be?”
“If you can imagine something, sooner or later you may achieve it; conversely if you don’t imagine it, then there is no hope of it becoming a reality.”
The natural evolution of media is toward the Internet. The advantages of immediate access, collaborative contribution, and massive economical distribution are overwhelming.
Is that what we want media to be?
To learn more about how your business can exploit or adapt to such changes, feel welcome to contact us. You may also want to consider buying our research reports Third Generation Television and Future Developments in Video Advertising.