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NYT Magazine, Sept 24, 1995


How the Propeller Heads Stole the Electronic Future

The silver-haired media monopolists follow their 500-
channel dream. They haven't reckoned with the 500 million
channels of Netscape and the Internet.

By Steven Levy.


If you want an arbitrary date for the burial of the
500-channel dream, Aug. 9, 1995, will do just fine. On
that morning, the public had its first crack at buying
stock in the year-old Netscape Commumcations Corporation,
which makes software that helps people navigate the
Internet and set up "sites" that Net surfers can visit.
What happened next is already the stuff of high-tech
legend. The offering price of $28 per share shot up
within minutes to a vertiginous $75 until finally
settling at $58, a price that valued the
as-yet-profitless company at well over $2 billion. A
month later, it was trading at about $53.

The initial news reports focused on the instant
millionaires at Netscape, including a 24-year-old
computer programmer, Marc Andreessen, who emerged from
the stock offering with that all-important first $58
million. But the real significance of the event was not
that another bunch of propeller heads had joined the
ranks of the super-rich. Aug. 9 marked the moment when
Wall Street finally realized what had been becoming
increasingly apparent to computer users: a set of highly
technical but reliably standardized communications
protocols known as the Internet had established itself as
the real key to the electronic future. That future would
be made not by silver-haired telephone- and cable-company
executives in Denver, New York and Washington, building
an empire around a golden goose called pay-per-view
television, but by companies like Netscape and their
customers.

In short, the end of the 500-channel dream. This was a
myth constructed by the masters of the media, people like
John Malone of Tele-Communications Inc. (T.C.I.), Ray
Smith of Bell Atlantic and Sumner Redstone of Viacom.
They believed that the television set would extend its
domain from the center of the entertainment universe to
the worlds of commerce and information. Despite their
promises that the new era of digital media would be
marked by increased competition, they assumed that their
companies would keep their hands on the valves of a
limited information pipeline. But for consumers, the
dream offered only two differences, really, between what
the public has now and what will be available in the
future.

*The same programming but more of it*. Instead of getting
50 or 60 alternatives when you plopped down in front of
the tube, you'd get a lot more. Five hundred was the
number that stuck in people's minds.

*So-called interactive programming*. The interactivity
comes in makng choices: pressing buttons to choose
programs and, above all, to buy things. The living-room
television would be a cash register of sorts, enabling
Dad, Mom, Junior, Sis and probably even the faithful dog
Astro to buy more programming -- and buy more everything,
from pizzas to Dustbusters.

The operators of those systems, like T.C.I. and Time
Warner, would act as gatekeepers, deciding which
entertainment channels, pay-per-view events, banks,
retailers, publications and data bases would reach
consumers. There were tremendous opportunities to make
money, not only from monthly fees and pay-per-view
charges but also from percentages of every transaction.
And then there was the wealth of information about
consumer buying habits generated by the aggregation of
buying choices made by pressing those buttons. This, too,
would be sold and bartered.

For the past few months the silver-haired guys have been
arranging expensive technology tests in places like
Orlando, Fla. They have been wooing Congress for
favorable regulations. They have been frantically merging
and making alliances. But meanwhile, a different vision
of the media future has begun to form -- totally under
their radar. It moved from the academic and scientific
communities, then to the business world, then to
politics. As it grew and grew, it suddenly became clear
that this new vision had the potential to pull the plug
on the 500-channel dream.

This is the Internet and its most interesting subset, the
World Wide Web. It is based on unlimited channels of
communication, community building, electronic commerce
and a full-blown version of interactivity that blurs the
line between provider and consumer. You don't need an
Arthur Andersen report or even a cyberpunk science
fiction novel to envision how this new model of the
future will work. Millions are already participating in
it. Its nascent form -- albeit with often sluggish
performance and frequent system crashes -- has spread
like digital wildfire.

In short, the information superhighway, font of a
thousand bad metaphors, is already here. But it's not
about sitting on a couch and pressing a button to order
"Dumb and Dumber." It's about Web surfing, open systems
and freedom.

Why did the stock market go bonkers for Netscape, a
year-old company that not only operated deep in the red
but also warned in its prospectus that it did not intend
to make any profits "in the foreseeable future?" Only one
reason: the Internet

If the 500 channel dream on the TV screen is the old
future, the new one is the Internet on the computer
screen. Think of it as a combination book, radio,
magazine, mailbox, conversation parlor, bulletin board,
billboard and, one day, television set. Install what is
known as a browser program -- the most popular is
Netscape's Navigator -- and you're cruising the World
Wide Web. Your screen is a selection of signed baseballs
up for auction, a tour of the Louvre, a zine (a
self-published magazine) on the life of a teen-age girl
in Canada, a multimedia repository of General Electric's
public relations documents, the complete text of the
Congressional Record. Millions of possibilities await
you, and getting to them is easy. Anything can be wired
to anything else on this World Wide Web (thus the name)
by moving the cursor to a highlighted word or image with
an embedded link to another location.

Web travelers do not just travel by links, of course --
they can go directly to any Web site. The interesting
thing about the sites is their equality. Like phone
numbers, or addresses on letters, these addresses have no
favored positions; in terms of gaining access to homes,
ABC, Disney and Sears have no inherent advantage over
Joe's Video or the corner pizza parlor. (For help in
knowing what's available, people are already adopting the
first of a new breed of electronic guide services, like
the popular Yahoo Web site, a sort of Baedeker's of the
Net.)

At first, Web traveling seems like a fascinating but
perhaps frivolous diversion. But then you consider the
next step -- commerce. Secure creditcard transactions are
already possible, the ability to charge for time spent on
a link is currently being implemented and companies like
Visa, Mastercard and newer entities with names like
Cybercash and Digicash (and, yes, Microsoft) are
concocting Net-based technologies that work just like
cash. And then you begin to realize why some farsighted
people in the media industries are terrified of the World
Wide Web. Every home is potentially a video conferencing
center, every independent film maker is potentially a
widespread broadcaster, every business is potentially a
global marketer. A single twisted idea and a rudimentary
sense of layout can transform a voiceless outcast into a
cult publisher. Now that's interactivity.

The 500-cable-channel tests are just the beginning of a
long process. The Net, meanwhile, has millions of people
on it, now. It will take a decade or so to upgrade the
Net to carry high-quality video services, but most
everything else is feasible now and better suited to the
desktop than to the TV room. You can't easily read a
newsletter or a bank balance on a television set that's
20 feet away. So by the time the cable and telephone
companies get their systems in order, millions of
Americans will be riding the I-way from their dens and
offices, not their living rooms. Sure, eventually the
electronics of computers and televisions will be
indistinguishable, but by then the road to information
nilvana will have been laid -- and the ethos will be that
of the Internet.

In that ethos, the people who provide you the pipes to
move information have no say in what content moves
through those pipes. They collect no information on their
consumers' buying habits, and they certainly do not get
a piece of the transactions that occur over their wires.
The guys in the middle -- those with the 500-channel
dream -- will thus be cut out of the best part of the
action.

The masters of the media have taken notice, and lately
they've been hedging their bets. Still, they have yet to
grasp that the Internet can never be merely another
profit center in their dreams of empire. Their power is
based on monopoly, on controlling distribution. But the
Net is built to smash monopolies. Instead of a
gatekeeper, users get an open invitation to the
electronic world and can choose whatever they want. "If
there is a market for 500 channels," says James
Barksdale, Netscape's president, "imagine the market for
5 million, 50 million, 500 million!"

Now, this new vision doesn't portend poverty for the
media masters. There's still a place for movie studios,
television producers and music publishers -- the Disneys
of the world -- in this new, content-driven universe. The
phone companies will provide Internet access to the
masses. And the couch-potato style of television will
probably always be with us.

But it won't be business as usual for the media masters.
It's entirely possible that beginning novelists,
musicians and even film makers will choose to distribute
through the Web. And it's almost inevitable that one day
soon, a John Grisham, an R.E.M. or a Roseanne will grasp
the advantages of ditching the media company and selling
directly to the consumer.

A year ago, people were buzzing about the proposed (and
eventually aborted) marriage of Bell Atlantic and T.C.I.
Now people are talking about Disney and Cap Cities, CBS
and Westinghouse, and Ted Turner and some other
television network. But if the World Wide Web shatters
the current paradigm of distribution, the channel
capabilities of cable systems and even networks will be
severely devalued. Anyone will be able to set up a new
channel or storefront on the virtual highway, for free,
asking permission of no one and accepting income directly
over the wire.

This is why John Perry Barlow, co-founder of the
Electronic Frontier Foundation, calls the current vave of
media realliances "the rearrangement of deck chairs on
the Titanic."

The iceberg, of course, is the Internet.

----------

Steven Levy is a columnist for Newsweek. His last article
for the New York Times Magazine was "The Unabomber and
David Gelernter."