David Sarnoff’s Big Idea

The first Consumer Electronics Show I attended was the third or fourth one they ran—sorry, I don’t remember exactly—back in 1969 or 1970. It was in Chicago in late spring. My cousin was a magazine publisher out of New York and I skipped school to schlep boxes for him and pull booth duty, handing out books and subscription forms. I sat across the aisle from some hippies with a thick, grimy newsprint tabloid called Rolling Stone, who were putting psychedelic San Francisco rock acts on their little bandstand all through the convention, making the publication ghetto a hot, happening area of the show floor.

Not that the convention was really about rock music or stereo systems. That medium and those devices were a little subculture in CES then, though they’d grow to dominate it in a few years. No, CES started out as a show mostly about selling television sets.

TV was a mature industry already, with giant companies that would last forever making the technology: companies like Admiral, Zenith and the incomparably important RCA. Nobody was selling the concept of TV anymore, in the way that the whole concept of other businesses needed to be sold. A world without TV was already inconceivable. Lots of guys in blue suits were simply selling bigger screens (maybe 17 inches!) and better color (maybe red!).

Well, there was this very energetic Japanese guy my cousin knew, who had a concept of TV as something small and portable, with a battery. But everybody knew Japan was where they made cheap novelties, so not too many people took Akio Morita’s concept of mobile video seriously. And anyway, the battery was really, really big.

Another flaw: Morita had no special programming that would compel people to use his device. He was to make that mistake again and again, with other devices, until he made the opposite mistake.

But, back to 1969 or 1970. Brigadier General David Sarnoff was still running the Radio Corporation of America—RCA—which he had created out of the American division of the Marconi Radio Company for its purchaser, General Electric, some 50 years before. In a memo to GE execs in 1920, Sarnoff laid out a strategy for combining a broadcasting network with consumer receiver sales, each helping to sell the other. This idea worked. It resulted in RCA’s National Broadcasting Company and many a competitor and spin-off, and monstrous radio, and eventually TV market penetration and an economy propelled by advertising and consumer purchasing. This idea is still working.

In 1969 or 1970, companies working that idea afresh included Motorola, already edging away from its TV and radio receiver businesses and bringing the Sarnoff strategy to a portable paging network.

Meanwhile, audio companies, FM broadcasters and record labels were starting to work a variation on the great Sarnoff idea that made the original look old-fashioned. They formed a cooperative ecosystem that sold music, media and gear. Specialists in each area could stick to their knitting and produce best of breed, and they all came to dominate the CESs of the 1970s together. A stereo- or quad-sound equipment maker such as Harman Kardon or Fisher or Marantz could attain quality that left RCA audio equipment in the dust, while RCA Records lost share to the likes of the new Warner Music and NBC Radio lost it to thousands of new little FM stations. (Arguably, this whole development was set off by the Johnson Administration pulling the FCC out of the historic clutches of RCA so that it could begin to license many more stations. Lyndon Johnson owned a radio station, after all.)

This ecosystem allowed start-ups to play specialized variations on the Sarnoff theme too. A prime example is Dolby Labs, which got its noise reduction used by content creators and therefore, also, by equipment makers who would advertise that they used it and therefore convince more content creators to use it. It was a business model that would strongly influence Microsoft and Intel a few years later.

In the late ‘70s, the rock/stereo boom years for CES were succeeded, for a couple of years, by CB radio. Unlicensed spectrum, users supplying the programming and no network construction costs combined to three-up the Sarnoff formula. The result: CB companies made so much money so quickly, they needed to burn some of it off on amazing parties at CES. I remember one with a giant CB handset in the middle of some endless Las Vegas space, looking like the monolith in 2001: A Space Odyssey, surrounded by 18-wheelers loaded with smorgasbord.

By the time the unlicensed spectrum got too crowded and the CB boom crashed, CES was into the first videogame boom. Consoles and cartridges may have been as much a Gillette (razors and blades) as a Sarnoff (programs and gear) strategy, but these are not unrelated concepts. Activision had so much money that needed burning off at CES, they had the grand ballroom of Chicago’s Ritz Carlton done up as a jungle, thousands of guests in costume, caged gorillas and other live game around the room, and dead game and live women on the buffet.

“Dead game” may not have been an auspicious party concept. The fortunes of those great tech companies, Atari, Mattel and Commodore, hiccupped. CES mostly missed the PC boom that replaced those game-oriented machines. It missed much of what moved the economy in the 1980s and ‘90s. Tech innovation and spending shifted away from consumers towards business, and one of those booming tech businesses was TV broadcasting. Expanded TV station licensing and cable in the U.S. and abroad, and then the Internet boom, required your intrepid reporter to hit too many other trade shows that did catch those waves: NAB, NATPE and NCTA, all still with us but still not yet—if ever—again at their ‘90s attendance peaks, and the dear departed Western Cable Show, Internet World, Comdex (250,000 attendees at its height) and many others. Best of all, and still loaded with sinful parties and major deals, were and are the international TV conferences: IBC, MIP-TV, MIPCOM and the smaller fry. So CES fell off my calendar for nearly a couple of decades. It fell off lots of other calendars too; the spring show in Chicago bit the dust, and attendance in winter in Las Vegas fell to maybe two thirds of the peak years.

But the peak years are now back at CES. And, again, it’s all about Sarnoff’s big idea.

I may have thought it was a matter of following the fun parties, but I now see there was a more important, underlying reason I missed a generation of CES (and surely looked like an aged ghost to old friends of the 1980s when I started to reappear at the shows in 2002). Technology change was slowly gathering force, in those missed years, to enable new consumer media devices. Sure, the PC was a heck of a device, in the ‘80s, and the Internet, in the ‘90s, became a heck of a medium. But both of these began as business tools (again, including the businesses of making and selling audio and video). It was when these innovations started to join into a consumer medium and consumer PCs mostly used for that medium—in other words, into that classic Sarnoff combination—that the Internet boom really skyrocketed and CES started to get interesting again.

And now—writing from Las Vegas in January—the Sarnoff strategy is busting out all over. Perhaps there’s too much of it: wireless phone companies taking on iTunes with downloads to cell phones and video on the way, satellite radio with downloads and video on the way, and so-called HD Radio surely can’t all be viable businesses in competition, can they? (“HD Radio” is particularly troubled, since at best it’s got way lower “D” than a decent analog signal. So do all the other above media, but the news for satellite and telephone is they’re moving to downloads that can asynchronously provide fine quality, while HD Radio has been engineered to make downloads hard to do. And satellite radio and wireless telephony are already entrenched media: do not bet on HD Radio succeeding against them.)

Some other new Sarnoff combos in competition with each other: the Akimbo deal with Movielink; AOL, ESPN, MTV, NBC and Turner Broadcasting, among many others, offering video for Intel’s ViiV platform; Microsoft’s Windows Media Center both running over ViiV and competing with it; Crown Castle’s Modeo vs. Qualcomm’s MediaFLO...and all of this vs. broadcast HDTV just as consumer HD receivers start to hit strong market penetration. TV broadcasters have cause to be worried, especially when an executive of a major broadcast network recently told me in private, “We are a broadcast network transitioning into a content provider.”

With all this Sarnoff-strategy new media/new device competition, is TV broadcasting’s case as hopeless as HD Radio’s?

Hardly. Only Blu-ray and HD-DVD disks, of all the new media devices shown at CES, offer HD. And just as VCRs not only didn’t kill SDTV because they were mostly used for rentals, so HD disks can be more helpful than hurtful to broadcast. Once somebody’s invested in a gorgeous display to watch rented movies, they will not settle for watching a football game on Web video...until that Web video is also in HD. So broadcasting’s only true enemy is the coming of real broadband, at least 50Mbps, to the home. They’ve got this all over South Korea already, and they’re getting it in France. But at present rates in the U.S. it will take some 20 years to build it out, and at least 10 years to reach critical mass in terms of affecting program rights and ad revenues.

If you’re a TV broadcaster, you’re safe from General Sarnoff for another decade. Go back to sleep.

If you’re a program maker or owner, though, now is the most exciting of times. Go make a deal with some washing-machine-maker to put your shows on their Web-connected spin cycle.

Neal Weinstock is editor-in-chief of Weinstock Media Analysis and can be reached through www.weinstockmedia.com.