The New York Times Magazine
August 13, 2000
Boom Box
The new technology from Tivo and replay provides the ultimate in
television convenience. It will also spy on you, destroy prime time
and shatter the power of the mass market.
By MICHAEL LEWIS Photographs by ALEXEI HAY
It is interesting how new technology arrives. On the one hand,
there is something arbitrary about invention; on the other, every
society seems to get the technology it deserves. Take ours, for
example. The current phase of American capitalism began on Nov. 9,
1989, with the formal collapse of socialism. Suddenly, there was no
need to flavor the free market with a dash of something else. The
little pockets of socialism that had been tolerated when socialism
posed a threat now, overnight, seemed horribly retrograde. Why have
your capitalism diluted when you can have it straight? Since then,
as if by some marvelous coincidence, a lot of new technology has
arrived to enhance market forces. The Internet is one such
technology. It creates new markets and new competition in old
markets and helps to put a better price on everything. In a few
short years, it has pretty much gutted the principles of corporate
socialism -- jobs for life, employee and customer loyalty, all for
one and one for all -- and replaced them with Lord knows what.
On any time line that describes this phase of American capitalism,
you would have to include (in addition to Nov. 9, 1989) April 4,
1994 (birthday of Netscape), Nov. 10, 1994 (birthday of
Amazon.com), May 5, 1996 (birthday of eBay) -- and Aug. 4, 1997.
Aug. 4, 1997, was the beginning of the end of another socialistic
force in American life: the mass market. Forty years from now when
you have your grandson on your knee and he asks you, "Grandma, how
did 50 million Americans ever let themselves be talked into buying
the same mouthwash?" you will say, "Well, you have to know how
things were before Aug. 4, 1997."
That was the day a pair of Silicon Valley engineers named Jim
Barton and Mike Ramsay started their own technology company. They
had no idea what that company might do. It didn't matter: all over
Silicon Valley engineers were founding companies before they had
any idea of what their companies might do; the urge to innovate
preceded the innovation. The Internet had created a climate of
entrepreneurship. It was assumed that even ordinarily smart
engineers with the desire to create something new could do so with
impunity, and Barton and Ramsay were more than ordinarily smart.
They were so smart that a pair of venture capital firms -- New
Enterprise Associates and Institutional Venture Partners --
advanced them several million dollars to get them started, few
questions asked. "Three million dollars was pocket change," Ramsay
explains.
Barton and Ramsay's first idea was to turn the American home into a
network. Computer people have long imagined that the ordinary
American home one day would be fully networked, leaving everyone
else to wonder exactly what that means. Will the refrigerator order
fresh milk directly from the grocery store? Will the furnace and
the fish feeder and the vacuum cleaner respond to commands from the
office desktop? Anything is possible. That was the good part about
home networking as a business idea: the Internet had made it
feasible. The bad part about the idea was that it was hard to see
the point of it. Oh, it was easy enough to get worked up about it
with a fellow geek, but Ramsay and Barton discovered they couldn't
explain their dream to anyone else. Ramsay puts it this way: "When
you build a company around a technology and someone says, 'Tell me
again what this thing does?' you need to be able to say, 'It does
this.' We found that we couldn't say what home networking did."
And so, after a few months, they abandoned home networking. They
went back to their venture capitalists and told them that home
networking was a bad idea because they couldn't explain it to
anyone but other geeks. They had another idea, though. Instead of
transforming the entire American home, they decided to focus on the
one appliance that was the closest thing to the center of attention
in the American home: the television.
Barton had become obsessed with the television a few years earlier,
when he worked at what was then the hottest computer company in
Silicon Valley, Silicon Graphics. In the early 1990's, Time Warner,
AT&T, Microsoft, Silicon Graphics and other big technology and
media companies fell in love with the same idea: that they could
change the way Americans watched television. A new device --
variously known as the telecomputer, interactive television or the
black box -- could be plonked down on top of the American
television to offer the viewer an entirely new experience, one in
which he would be able to e-mail, shop and access a virtual library
of movies from his couch. There ensued a mad scramble, and Barton
was a part of it. He helped to build the only interactive
television that actually worked, installed in late 1994 by Time
Warner in 4,000 homes in Orlando, Fla., and then watched in dismay
as his beloved project was overrun by the Internet. The Internet
did a fraction of what the new TV's promised, but at a fraction of
the price.
_________________________________________________________________
Michael Lewis is a contributing writer for The Times Magazine. He is
the author, most recently, of "The New New Thing."
_________________________________________________________________
Of the few people who dwelled on the way the Internet had swamped
interactive television, Barton may have dwelled on it the most.
Like a lot of really smart engineers, Barton has the air of a man
used to figuring things out. Ask him a question, and a little smile
and just a hint of self-satisfaction flickers beneath his light
brown mustache and reminds you, gently, that he knows a lot more
than the answer. But the TV gnawed at him precisely because he
didn't have the answer. He had sunk the better part of three years
into building Silicon Graphics' interactive television, and it had
been a commercial disaster. The box worked. And yet no one cared.
There were several lessons in this:
No. 1: Brilliant gadgets for a mass market do not go anywhere if
the masses cannot afford them.
No. 2: A big company is not necessarily the best place to create a
revolutionary technology.
No. 3: The whims of the American consumer are the eighth wonder of
the world. They can wreak havoc with the most powerful
establishments.
When Barton and Ramsay returned to the television, they had in mind
another black box, at once more and less ambitious than the
interactive television. They called it a personal television
receiver, but never mind about that. It was a black box. The main
thing about the black box was that it had a memory. It could record
any program as it was watched, as well as anything its owner
instructed it to record. This is, of course, what VCR's were
designed to do but didn't, since no American, not even a geek,
could figure out how to make them work. The new box would be simple
to program. It was a VCR that did what it was supposed to do, even
if you were a moron. But it was far more versatile than that. The
viewer could record a great many hours of programming. Or he could
simply tell the box to go out and find him the kind of programs he
liked. If he liked indiscreet women, he could record and store
every episode of "Sex and the City." If he liked intelligent blood
and guts, he didn't need to wait until TNT's Clint Eastwood week --
he could just instruct his black box to fetch Clint Eastwood movies
as they played. Once the box was up and running, the viewer's only
constraint on choice was that the program had to be broadcast by
someone, sometime.
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The black box also enabled the viewer to treat all television --
even live television -- as television he had recorded for his own
private use. All he would need to do is start watching a program a
few minutes after it began. Then, by pressing a button, he could
skip the credits, the huddles, the timeouts, the weather, the
endless clicking of the "60 Minutes" stopwatch and all the other
boring stretches of television designed by producers to lull the
viewers into watching ads. He could also skip the ads.
Over time, the viewer would create, in essence, his own private
television channel, stored on a hard drive in the black box,
tailored with great precision to his interests. His ability to do
this would depend on the amount of computer memory in this box. At
the start, Barton reckoned, a black box that cost $1,499 would be
able to store about 28 hours of programming; one that cost $699
would be good for six hours. But with the price of computer memory
falling by half every 18 months, the price of the box would
plummet: in less than a decade, a black box costing no more than
$100 would be able to store the equivalent of an entire Blockbuster
Video outlet.
There was one other cool thing that the black box did -- though
Barton didn't dwell on it much at first. While the viewer watched
the television, the box would watch the viewer. It would record the
owner's viewing habits in a way that TV viewing habits had never
been recorded. The viewer's every decision would be stored in a
kind of private museum of whims. Over time, the box would come to
know what the viewer liked maybe even better than the viewer
himself. All by itself, it would go and record shows that it
calculated the viewer might like to watch. The box was more than a
box, it was a butler, and the more it learned about its master's
whims, the more it would be able to fetch what its master wanted.
The box had certain advantages over every other attempt to
transform the television -- and there had been many. One was its
phenomenal simplicity. Unlike, say, the VCR, it required almost no
technical aptitude. The black box would turn the television into a
computer but without making any computerlike demands on the viewer:
all the consumer would see was a slightly busier remote control.
Another advantage was price. A revised final advantage was that you
could explain it all to an ordinary human being. When someone asked
Barton or Ramsay, "Tell me again what this gadget does?" they now
had a simple answer: "It lets you watch anything you want to watch
when you want to watch it."
Ramsay and Barton decided that in spite of appearances, TiVo, which
is what they decided to call their new company, was not a maker of
black boxes but a service for people who owned black boxes. TiVo
would help each and every American to create his own private
television channel. Of course, in the beginning, they would need to
build the black box and sell it to the masses. But the black box
was not where the money was -- the box was, in fact, a big money
loser. To kick-start the market, Ramsay, 50, now C.E.O., and
Barton, 42, the chief technology officer, would need to pay some
consumer electronics company like Sony or Philips to manufacture
the black boxes and to sell them below cost. The trick was to get
as many black boxes into the American home as possible. Once the
new boxes were proved to delight their audience, TiVo would then
offer its services to the masses: the company's programming
software would be in millions of new homes either in tandem with
existing cable boxes or, in the future, embedded in new TV sets,
cable boxes or satellite receivers made by companies like Sony or
Philips. Thus, the long-term goal of the black box was to become
unnecessary. "We'll know we've succeeded when the TiVo box
vanishes," Barton says.
The ambition of the thing was breathtaking. The company intended to
plop itself down between the 102 million homes with televisions and
the $50 billion TV industry. Once the box was in place, TiVo would
be the hub of the television industry. The company would come to
know the subtle preferences of each and every television viewer. It
would then be able to charge a fee to anyone who wanted to locate
TV viewers or groups of viewers: networks, cable companies,
advertisers. The trick was to get the box into those 102 million
homes -- and that would cost money. Lots. Ramsay went back to the
venture capitalists and told them that he and Barton needed to lose
between $300 million and $400 million before they became
profitable. Prior to the Internet boom, the capitalists were chary
about sinking one-tenth of that sum into a small, risky venture;
now they didn't think twice. "Instead of saying, 'No,"' says
Ramsay, "they said, 'Great."'
What made the enthusiasm of TiVo's financial backers even more
astonishing was that a rival company had already sprung up. Anthony
Wood, a young entrepreneur, stumbled on the same idea as Barton and
Ramsay at roughly the same time. Wood, who made a lot of money in
computer games, had been frustrated by his inability to persuade
his VCR to record episodes of his favorite show, "Star Trek." He
saw the same big trends that had lighted a fire under Barton and
Ramsay: the falling price of computer memory, the TV viewer's
desire for choice, the continued inability of Americans to program
their VCR's. In early 1998, not long after Barton and Ramsay got
their first financing, Wood generously agreed to accept $8 million
from the venture capitalists Kleiner Perkins Caufield & Byers and
Paul Allen's Vulcan Ventures. He called his new company Replay
Networks.
Another mad scramble to transform the television was under way, but
this time it was more attuned to the spirit of the marketplace --
the approach came from the bottom up rather than from the top down.
"This is the Trojan horse for the computer industry to gain control
of the entertainment industry," says Marc Andreessen, a Netscape
co-founder who invested his own money in Replay. "It is the first
box built by Silicon Valley that is compelling enough that people
want to hook it up to their TV sets."
The new companies were proposing to do politely to the television
industry what Napster was about to do to the music industry: help
consumers to help themselves to entertainment without "paying" the
networks and advertisers. Naturally, this disturbed the television
networks and advertisers. This winter, Stacy Jolna, TiVo's liaison
with the networks, appeared on a panel before the National
Association of Broadcasters. Jon Mandel, an ad executive with
MediaCom, was also on the panel. "He started by calling me and
everyone involved with this technology 'the devil incarnate,"'
Jolna says. "And he went on from there. The basic attitude of TV
executives was that we were somehow going to destroy a $50 billion
business model."
By March 1999, the first TiVo and Replay boxes had already shipped.
By the beginning of this summer, several hundred thousand more
boxes had been rolled out. A Replay box with 30 hours of storage
cost $499. A TiVo box with 30 hours of storage cost $399 -- but
then the company generally charges a subscription fee of $9.95 a
month. Until this June, the companies had sold about 100,000 boxes
between them, and they had done so largely without advertising
their products. Several market analysts estimate that TiVo and
Replay will have sold five to seven million boxes by the end of
2002 -- and that within a decade they will be in 90 million U.S.
homes. But that's just guessing. No one knows how quickly the
companies can arm the entire American population, or even if they
will do so. The black box is not, like the VCR, a winner-take-all
market. There is room for a lot of different companies to sell the
same seditious technology and to coexist happily with one another.
They're seizing control of a $50 billion industry from its
creators; there's more than enough booty to go around.
"The one question our investors did ask us," Ramsay says, "is 'How
long will it take for the TV networks to hate you so much that they
shut you down?"'
T alk to enough people at TiVo and Replay and pester enough people
at the networks and the big advertising firms, and you come to
realize that they have two stories to tell: an official story and a
true story. The official story is believed by practically no one,
not even journalists. It's pure ritual, made necessary by the
desire of everyone concerned not to dwell on the violence about to
occur in a huge industry. The official story is that these new
black boxes won't destroy the television industry as we know it;
they'll merely enable its current rulers to make it an even better
place.
Right from the start, TiVo set out to persuade the networks of this
pleasant notion in the hope of avoiding lawsuits. To do this, they
had to play down a lot of what made their box desirable to a
consumer. Instead of a button that enables the viewer explicitly to
skip commercials, for instance, Barton designed one fast-forward
button with three speeds, which might be called fast forward,
faster forward and faster-faster forward. The TiVo user is able to
speed through the commercials but not skip them entirely: the ad
still makes some sort of blurry impression on the viewer. "Network
psychology is to have a line in the sand mentality," says Ramsay.
"If you're on one side of the line, you're their friend. If you're
on the other side of the line, you're their enemy. Advertising the
ability to skip commercials is on the other side of the line. We
designed the technology so that it doesn't infuriate the networks."
Eighty-eight percent -- 88 percent! -- of the advertisements in the TV
programs seen by viewers on their black boxes went unwatched. If no
one watches commercials, then there is no commercial television.
Replay Networks, now called ReplayTV, at first took the position
that the networks' interests were irrelevant. What the American
consumer wanted, the American consumer eventually got, and so you
might as well give it to him right away. Replay's remote control
has a button marked "QuickSkip," which lets the viewer leap ahead
in increments of 30 seconds, the length of a typical TV commercial.
The owner of the Replay box is thus the open adversary of the
television establishment. "I spent a lot of the first year getting
thrown out of meetings at networks," Anthony Wood admits. Then came
a change of the Replay heart, when Wood was replaced as C.E.O. by
Kim LeMasters, the former president of CBS Entertainment, who saw
the point of network support. LeMasters struck a much more
conciliatory note. Though he wasn't able to scrap QuickSkip, he let
it be known that he would not promote the feature. "The Replay
device doesn't do any good if it doesn't have anything to
broadcast," he says.
And so now the two companies are in roughly the same position of
arguing to the networks that a device that steals their power and
hands it to consumers is actually good for them. They offer two
points to support the case. The first is that the television viewer
is too inert for the television to change. Several times since the
first commercial broadcast in 1939, a new accessory has appeared
that promised a revolution -- the VCR, the remote control, cable TV
-- only to be assimilated without greatly disrupting the existing
social order.
The VCR proved too unwieldy to be used for anything but rented
videos. The remote control enabled people to surf but not so much
that they spooked Procter & Gamble and General Motors and the rest.
Cable TV fractured the mass audience into slightly smaller pieces,
but again, without a huge effect on the economics of the business.
True, the big three networks had 91 percent of the viewing audience
in 1978 and only 45 percent in 1999. But it is also true that of
the $45 billion of television advertising in 1999, $14 billion went
to CBS, ABC and NBC, which is $10 billion more than they collected
in 1978. (Advertisers have, until now, been willing to pay the
networks more for less. It's as if what matters to them is not the
absolute size of an audience but the relative one, and the three
major networks still offer them the biggest.)
The other point is that by making television more appealing, the
black box encourages people to watch even more of it. This prospect
may cast doubts on the future of intelligent life, but it should,
in theory, be good for TV networks. Replay now has actual data to
prove that its new customers watch, on average, three hours more
television each week than they did before they got the box. "Yes,
we're messing with your business," they argue to the networks. "But
in the end, you'll love us for it because three more hours a week
means billions for you in additional advertising revenues." Marc
Andreessen, for one, believes this argument is persuasive to
networks. "They want to believe it because they are seeing data for
the first time that shows young people are watching less and less
TV and spending that time on the Internet."
That's the official story. It's the story that enables TiVo and
Replay employees to interact pleasantly with network and
advertising executives. But as I say, no one could possibly believe
it, and it becomes less plausible every day thanks to the
information piling up inside TiVo and Replay about how ordinary
people use their new black boxes. They use them to undermine, with
ruthless precision, the interests of TV networks and mass-market
advertisers. The owners of the 100,000 or so black boxes that have
already been installed have two distinctly unsettling new habits.
The first is that they don't watch scheduled TV anymore. According
to Josh Bernoff, a television industry analyst with Forrester
Research in Cambridge, Mass., who closely follows both the
black-box companies, viewers "get into the habit of not paying
attention to when the programs are on and just watch what they've
recorded."
Well. If it doesn't matter when programs run, then the whole
concept of prime time vanishes, and with it the network's ability
to attract an audience for a new show simply by broadcasting it
when people have the tube switched on. With it, also, goes the
special market value of prime time -- though the market value of
other broadcast space rises. Ditto the idea of pitting one show
against another by virtue of its time slot. In the age of black
boxes, every show ever broadcast competes against every other show
for the viewer's attention; for this reason, whatever advantage a
network has in the development of new TV shows disappears.
But that isn't the worst news that TiVo and Replay have for the
television networks. The worst news is that no one watches
commercials anymore. Eighty-eight percent -- 88 percent! -- of the
advertisements in the programs seen by viewers on their black boxes
went unwatched. If no one watches commercials, then there is no
commercial television.
And yet -- and here is the punch line -- the major broadcast
networks have done nothing but encourage the new technology. In
August 1999, Time Warner, Disney and NBC, among others, sank $57
million into Replay. About the same time, NBC and CBS, among
others, handed $45 million to TiVo. By the end of 1999, all three
major television networks, along with most of the major Hollywood
studios, the two biggest Hollywood talent agencies (I.C.M. and
C.A.A.) and all the major cable and satellite TV companies, had
either made investments or formed partnerships with both Replay and
TiVo.
There are a lot of explanations for why the networks have rushed to
embrace their own creative destruction, most of them premised on
the idiocy of network executives. Only one of these explanations is
plausible: they feel they have no choice. "If the networks could
roll back the clock and prevent digital technology from ever
happening, they'd do it," says LeMasters of Replay. "But how do you
stop progress? We're offering them the chance to adapt." Tom
Rogers, the former president of NBC's cable division who made the
first network investment in TiVo and Replay, puts it this way: "We
thought that the technology was going to come, and it was better to
have some voice in shaping it than none." It was the promise of
NBC's imprimatur, in fact, that caused TiVo to design its remote
control without what Rogers calls "the ad zapper." By the time
Replay decided that it might be useful to have the endorsement and
money of the networks, the company was too far along to eliminate
QuickSkip, its ad zapper. NBC gave Replay money anyway. "We
couldn't be in a position of being seen to promote a technology
that was intended to undermine the economic support of the
industry," says Rogers, explaining the quiet promise not to market
the feature to consumers. That was in late 1998. Since then, Rogers
has left NBC to become chairman of Primemedia, a holding company
for lots of little niche media. Today, Replay markets its ad
zapper. And one of TiVo's new advertisements features a network
executive being hurled out a window by a pair of goons.
Their indiscriminate hurling of money at both TiVo and Replay
suggests that the networks understand that the companies trying to
commercialize the technology are, in a way, irrelevant. (Why not
just back the one who promises to be less hostile?) It's the
technology that matters; and it's the technology that is sure to
win. "A lot of these guys had their bell rung four years ago by the
Internet," says Steve Shannon of Replay, "and they don't want to be
humiliated a second time." The Internet gave birth to a new
corporate religion to replace the one it killed. The religion says:
change is inevitable. The question now being posed by the
television establishment -- and it emerges from the belly of the
beast as a weak burp rather than a loud blast -- is no longer, "Is
this new gadget going to affect us?" or even "Will this gadget
eventually change how Americans watch TV?" but "When this gadget
changes how Americans watch television, what else will it change?"
A lot.
T he black box obviously does not mean the end of commercial
television, only of commercial television as we know it. It poses
two questions that demand a response from the television industry.
The first is: How do you get people to watch ads when, with the
press of a button, they can eliminate them? The sad truth about
most popular TV programs is that they are poor vehicles for
delivering advertising messages. And the sad truth about ads --
even the ones that cost $3 million to make and win the Golden Lion
at Cannes -- is that the people who watch them really didn't ask to
see them; people are just too lazy to avoid them. The black box
puts an end to that racket. Either the ads will need to become as
entertaining as the programs or the programs will need to contain
the ads, so that they cannot be stripped out. If Jennifer Aniston
wants to remain a Friend, she may need to don a T-shirt that says
"Diet Coke."
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The basic formula for making and selling TV programs hasn't changed
since the beginning of commercial television. The network that
develops a new program assumes it can ensure its success by placing
it in a desirable time slot, when a lot of people happen to be
watching TV. It further assumes that it can pay for it by selling
commercial time during that program. The commercials then get flung
at whoever happens to be watching at the time. The entire history
of commercial television suddenly appears to have been a Stalinist
plot erected, as it has been, on force from above rather than
choice from below. The networks have coerced, or attempted to
coerce, consumers to watch programs and commercials in which they
have no native interest. The advertisers who pay for the
commercials have agreed to believe, without good evidence, that
some meaningful percentage of viewers actually behave in this
manner. They have further agreed to believe, again without good
evidence, that the sort of people who watch a particular program
have a more than ordinary interest in the products advertised on
that program. People who enjoy pro basketball are more likely than
people who watch soap operas to drink beer; therefore beer
companies buy ad time in the middle of pro basketball games.
Against the backdrop of the Internet boom this strikes the newer
sparks of the ad and marketing business as terribly retro. "The
television advertising business," says Tim Hanlon, a media director
at Starcom Worldwide, a large advertising and marketing
conglomerate, "is a science based on specious data." That data,
generated by Nielsen Media Research, uses a sample of 5,000 homes
to determine how many households tune into a given program, not how
many watch the ads. "The measurement we use today is very crude,"
says Daryl Simm, the former head of worldwide media and programming
for Procter & Gamble and the current head of media at Omnicom, yet
another large advertising and marketing conglomerate. "It's an
average measurement of the number of viewers watching an individual
program that does not even measure the commercial break. When you
think about improvements in measuring viewer habits, you think not
about incremental changes but great leaps."
The TiVo and Replay boxes represent the greatest leap of all. They
accumulate, in atomic detail, a record of who watched what and when
they watched it. Put the box in all 102 million American homes, and
you get a pointillist portrait of the entire American television
audience. And that raises the second and more disturbing question
to which the TV industry must respond: what do you do when you
actually know who is watching and why? Already, TiVo and Replay
know what each of their users does every second, though both
companies make a point of saying that they don't actually dig into
the data to find out who did what, that they only use it in the
aggregate. Whatever. They know.
More to the point, they will know, in great detail, the viewer's
interests, as recorded by the black box. Even now, advertisers pay
a lot more for a well-targeted ad than they do for the sort of
near-blind matchmaking that the networks, historically, have made
their chief business. Put another way, an audience of 200,000
people you know intimately might be as valuable as an amorphous
mass of 20 million. After all, a person with a deep interest in a
subject is more likely to watch an ad about that subject. "You and
I may not care to watch a commercial for Preparation H," Josh
Bernoff says. "But for someone with hemorrhoids, it might be the
thing he is most eager to hear about. And he's the one the makers
of Preparation H want to talk to."
This is the market promise of the new black box. It can extract far
more profit from every viewing minute of American television by
creating endless clusters of new and very valuable groups of people
with some common intense commercially exploitable interest. "This
technology will encourage all sorts of niche brands," says Jim
Barton of TiVo, "as well as whole new markets." His favorite
example is the field-hockey channel. Everyone in the world with an
interest in field hockey can punch "field hockey" into their box,
and the box will go and find and record any program having to do
with field hockey. At the moment, there isn't much field hockey out
there on the tube; that will change. The maker of the new
field-hockey related shows will rent cheap time -- at, say, 4 a.m.
-- to broadcast. Field-hockey enthusiasts will simply record the
shows. And -- voil -- a new business is born. "The business is two
guys," Barton says. "One of the guys goes out and acquires
field-hockey content. The other guy calls people who make
field-hockey equipment."
The economics of targeted ads is so compelling that to make them
possible is to make them certain. The formula for a field-hockey
channel that sells only field-hockey equipment or a hemorrhoid
channel that sells only hemorrhoid treatments is endlessly
reproducible. But the same slice-'em-and-dice-'em logic applies
even to such seemingly mass market events as the Super Bowl and the
Academy Awards. The broadcaster that owns the rights to a
mass-market event will be under tremendous pressure to carve the
audience up into little pieces and to sell each piece to the
highest bidder. Once the black box is ubiquitous, an advertiser
need not buy the whole audience; he can buy a piece of the
audience. Of course, General Motors may still buy time during the
Super Bowl -- and pay a lot more for it. The company will probably
use the time differently, though. In a world filled with black
boxes, G.M. might use its 30 seconds to distribute 50 different
commercials to 50 different clusters of consumers. New mothers will
see ads for S.U.V.'s, middle-age people will see ads for sports
cars and so on, and all the little groups will have been identified
for G.M. by the new black box.
But even that is a retrograde example. The operative unit in TV
ratings will no longer be the program but the moment. Advertisers
and networks will know with weird accuracy who and what within each
program best holds television viewers' attention. The black box can
determine which joke in Letterman's monologue prompted certain
viewers to switch to Leno or which medical emergency inspired
viewers to exit "E.R." (If you thought the pressure on entertainers
to be perpetually entertaining couldn't increase, think again.)
M any things will change when television is able to whisper finely
tuned messages to like-minded consumers rather than hollering crude
messages through a bullhorn at millions. One thing that will change
is the price of the messages. If they are to become more valuable,
the targets must shrink, and as the targets shrink, the tools used
to hit them must shrink as well. Not even General Motors can spend
$3 million on an ad that will only be seen by 40,000 people. "We
sort of see this as the changing of television as a medium," says
Hanlon of Starcom. "I know the creative side of our business truly
hasn't gotten this yet; they still see it as a fringe technology.
But they are the ones who will get steamrolled first and most
cleanly."
The people who use the bullhorn are also in trouble. Mike Ramsay
recalls how in late 1997, just after TiVo opened its doors, he
received a call out of the blue from Procter & Gamble's research
division. Along with General Motors, P.&G. is the largest buyer of
television time in the United States; between them, the two
companies ponied up $3 billion of the $45 billion spent last year
on television ads. "These two guys from P.&G. were in a car on a
cell phone down the street," Ramsay says. "They were in the valley
visiting and heard what we were doing and said they'd been playing
with a similar idea in their labs because they knew that, sooner or
later, something like this was going to happen. And they had the
obvious question, 'How do we sell soap now?"'
In this new market, groups are narrower and defined by interests, and
the ultimate interest is . . . Me! The main thing about Me! is that he
always gets what he wants, or at any rate what he thinks he wants.
The P.&G. research division believed that the inevitable collision
of the computer and the television made it far less likely a) that
people would gather in groups of millions to watch TV shows and b)
that people would watch ads that were thrust on them unbidden. But
in P.&G.'s view, this was not necessarily a bad thing. "I'm really
intrigued by this notion that the viewer now will be more
dedicated," says Simm, who ran P.&G.'s media. "He'll have a higher
degree of interest in what he's watching because he has an
investment -- he's gone to the trouble to capture the program. That
investment is going to connect him to the viewing experience in a
way that is stronger than just grazing around. Viewer loyalty has
got to translate into advertising opportunities."
It does -- but for whom? It's one thing for the Internet to poach a
bit of the American attention span from the television. It's
another to transform the television into an Internet-like renegade
force for individualism. The television is the mass market. Without
the television, there never would have been Tide or Rice Krispies
or Alpo but a thousand versions of Tide and Rice Krispies and Alpo.
This may not seem like a big deal to a user of Tide or Rice
Krispies or Alpo, but to a manufacturer of Tide or Rice Krispies or
Alpo it matters very much indeed. For the big brands, life without
television is no life at all. Giant corporations whose sole purpose
is to mass-market consumer goods exist in their current form
because the television shaped the mass market. If television ceases
to be a mass market, the mass market largely ceases to exist. The
question isn't, "How does P.&G. sell soap?" but "How does P.&G.
survive?" It must transform itself from a maker of mass-market
goods into the world's largest boutique. After all, the consumer
would obviously prefer not only the message precisely tailored to
him but the products as well. In this new market, there will either
be hundreds of versions of Tide or no Tide at all.
But why stop there? It isn't just the mass market that is crude and
inefficient and therefore ripe for re-evaluation; it is Market Man
himself. The new technology enables the market to redefine the
consumer along significantly different lines. Instead of grouping
him according to observable traits over which he has little or no
control -- age, race, gender and so on -- the new market will know
him by the decisions he has made about how to spend his time, each
and every moment of which is recorded by his black box.
Nick Donatiello, the head of a San Francisco market-research
company called Odyssey, says that the black box -- along with
related technologies like the Internet -- makes it likely that ads
will be tailored not to outward characteristics but to the more
fundamental attitudes of the consumer. General Motors will run one
commercial, perhaps, for people with a tragic view of life and
another for people with a comic view of life. "Demographics used to
be a good proxy for attitudes," Donatiello says. "In the 50's, you
could tell a lot of things about a person if you knew where he
lived. You can't do that anymore. We've become too fragmented and
autonomous a society."
The process of getting inside a consumer's mind so that you can
then get inside his wallet sounds invasive, and perhaps it is. But
it's nothing personal. TiVo or Replay or some black-box service
company will be able to present some mass-market company trying
desperately to stay alive with 40,000 consumers classified as
People Who Live for Onions. The individual consumer need never be
mentioned by name or separated from his discrete group of onion
obsessives -- at least not yet. Permitting himself to be classified
with ever more intrusive precision is the price the onion obsessive
pays for getting his onions. He may still not like the way the
market classifies him, but this time he has no one to blame but
himself. In that sense, it's rather heartening.
But what happens to people when the market view of them is
different from the one they have of themselves? Do they come to see
themselves as the market sees them? Do they feel more "29-45" or
"male" or "Hispanic" because the incoming commercial signals are
aimed at these specific traits? Will they come to think of
themselves not as white or young or female but as Positivists or
Relativists or whatever other types get dreamed up in response to
the data generated by the black boxes? Stuff like this happens in
America. One paradox of Generation X is that it viewed itself as
ironically detached from the marketplace, when in fact it was
itself created by the market. It grew out of MTV, which came into
being because advertisers found it handy to have young people
stripped out from the rest of us so they might be more accurately
targeted.
I t's a little strange to think of the mass market as a collective,
but that is what it is. People who watch commercials subsidize
people who don't; people directly influenced by ads subsidize
people who watch ads with ironic detachment. This little pocket of
socialism came into being at least in part because the technology
did not exist that could measure, and put a price on, the attention
of individual consumers. The mass market put a price not on
individual states of mind but on the average state of mind of
commercially very different people. It did this because it made no
economic sense to parse in microscopic detail what each and every
one of us did with our attention and why we did it. And so the
market just lumped us together and assumed we all paid more or less
the same attention.
Now, suddenly, the technology has appeared that can unravel the
collective. That it arrives at a moment when all forms of socialism
are on the run is either a magnificent stroke of luck or a good
example of a society getting the technology it deserves. The only
question is how far its logic will be taken -- to what level of
detail will the consumer's state of mind be measured and priced?
But that makes it sound as if it is all some sort of elaborate
conspiracy, beyond anyone's control. There is a pitiless economic
process at work, so gradual that it does not really ever demand to
be noticed. It is a species of economic determinism, the reverse of
the one Marx described. The means of consumption, not the means of
production, are the engine of modern economic life. The consumer's
neurons will be measured and priced only if the consumer wants his
neurons to be measured and priced, because their precise
measurement enables others to give him exactly what he wants. If
this is a conspiracy, it's a whole new kind of conspiracy. The
consumer must conspire against himself.
Maybe the best way to see what's about to happen to the mass market
is to observe what has happened already. To some extent, for
instance, ads have become more like entertainment, and TV
programming has moved in the direction in which it is about to be
shoved much, much further. The few events that really benefit from
being watched live -- sports and awards and sensational unfolding
news -- have a greater gravitational pull, and a greater market
value, than ever. Synthetic events like "Who Wants to Be a
Millionaire" and "Survivor" are prescient, for they involve the
viewer as a quasi participant and require the actual participants
to deploy many vendable goods, thereby offering sparkling
opportunities for product placement. In a "real" world, real goods
and services are more naturally introduced than in a purely
fictional one.
The new black box is really just a fantastically powerful
accelerator of the fragmentation of markets that has occurred in
response to cable television and the Internet. The Internet has
paved the commercial imagination; everyone understands that
something like the new black box is bound to happen to television.
Already there's some rumbling in the netherworld of advertising and
marketing that suggests it is preparing itself for the coming
earthquake. For instance, last fall Starcom began to classify
television audiences not by demographics but by something it calls
"passion groups," which are defined by shared interests. Odyssey
shuns demographics and instead categorizes consumers along the
lines of their fundamental attitudes, giving them funny names like
New Enthusiasts and Old Liners. Procter & Gamble has created a Web
site called Reflect.com that enables shoppers to create their own
beauty products -- a harbinger of an age in which every consumer
will feel free to demand products tailored to him and him alone.
The theme of all this -- and much of what is new in the market --
is that groups are narrower and defined by interests and that the
ultimate interest is . . . Me! The main thing about Me! is that he
always gets what he wants, or at any rate what he thinks he wants.
The mass-market consumer was a character who subjected himself to
some form of coercion. The unmassed consumer needs to want to be
sold.
When a persuasive new technology appears, it is only natural to
wonder what effect it might have on the world around it. But it is
also worth putting the question the other way around: what effect
does the world around it have on technology? That is, what kind of
society gives birth to such a gadget? Nick Donatiello makes the
point that the black box is ideally suited for American life as it
is currently configured, when consumer choice has been exalted to a
fetish. "If you had offered Americans this box 30 years ago," he
says, "they wouldn't have had the same reaction. One of the reasons
people used to watch TV in the 1950's and 60's was for the shared
experience. The metaphor for the country was the melting pot:
people wanted to be the same. People read Time and Newsweek mainly
because other people read Time and Newsweek. Now the metaphor is
the quilt."
This is another way of saying that a technology that was shaped by
one kind of society is being forced to adapt to a new kind of
society. Most of the changes the black box so grandly encourages
are merely extensions of trends under way: decentralization, free
agency, the rooting out of all kinds of antimarket behavior and so
on. Even the birth of the black box itself -- brought about as it
was by obscure entrepreneurs working with venture capital instead
of big companies trying to impose change from the top down -- was,
as the market analysts are fond of saying, on trend. The tail now
wags the dog.
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