Internet Illusions

1.

Until March 28 of this year, the investment world acted as if the coming of the Internet really had changed the basic rules of finance. Early that month, the Nasdaq average, which is heavily influenced by technology and Internet stocks, had passed 5,100, double its level of six months earlier. Amazon.com—essentially a discount retailer, which had never made a profit and whose most recently reported yearly losses were more than $700 million—had attained a market capitalization greater than that of Boeing. The 3Com Corporation, which makes communications hardware for computers, had just spun off the subsidiary that manufactures the popular Palm Pilot handheld device. A week after its shares began trading, the new subsidiary was valued by the market at $35 billion. The parent company, 3Com, held 95 percent of Palm’s shares—but 3Com’s total market capitalization was only $24 billion.

Clearly this could not last. But day by day traders and analysts kept bidding up Internet stocks. In reality, many were operating on the “greater fool” theory—the expectation that they would be able to unload the overpriced stocks at an even more inflated value before the mania subsided. For public consumption they rationalized their decisions and the Net valuations as reflecting the “new rules” of the information economy, and the “new business models” that made companies desirable even if they had no obvious way to make money.

Then, in mid-March, the Nasdaq headed down. It had slipped from time to time in the preceding year, only to recover when investors feared they might miss the next inexplicable market high. But on March 28, the consistently bullish analyst Abby Joseph Cohen of Goldman Sachs announced in a newsletter that she considered the technology sector as a whole over-valued. In the next five weeks, the Nasdaq lost 40 percent of its value, going below 3,300. (At this writing, it is below 3,200.) Amazon’s market capitalization fell by 75 percent from its peak. By mid-summer, more than a hundred initial public offerings for Internet companies, with projected total value of more than $8 billion, were canceled or indefinitely postponed. A delightfully malicious website named www.fuckedcompany.com made its debut. It mocked the upbeat business magazine Fast Company in its layout and tone, and it publicized the latest alarming news about which Internet companies were about to lay off employees, announce they were “looking for new revenue models,” or go out of business altogether.

The leading chronicler of the Internet economy, The Industry Standard magazine of San Francisco (for which I write a column¹ ), ran a cover story late in 1999 called “Suddenly Rich,” about the way lives were transformed by unimaginable wealth. In September of this year it ran a feature called “The Day the IPO Died,” about entrepreneurs who risked it all on new Internet ideas—and went broke, because venture capitalists had become hyper-selective about Net startups.² In the spirit of fuckedcompany.com, the magazine also instituted its grimly comic “Dot-Com Layoff Tracker,” “Dot-Com Flop Tracker,” and “Ex-Exec Tracker” features on its website, with real-time updates about which companies were shedding which people.³

No one imagined that the Nasdaq’s retreat meant that the Internet was finished, either as a business opportunity or as a source of long-term economic growth. Indeed, the most enthusiastic proponents of the import-ance of “network economics” are now the “old economy” companies, from Ford to Wal-Mart, who say that new information systems will streamline the way they reach customers, manage inventories, and bid for supplies. As Joseph Romm, a former official in the US Department of Energy, has pointed out, the rise of the Internet has already made the economy as a whole more efficient, by reducing the energy required for each increment of economic expansion. Through the first half of the 1990s, before the Internet had any significant business impact, energy consumption grew about as fast as the overall economy did. From 1992 to 1996, the gross domestic product grew by an average annual rate of 3.2 percent, and electricity use grew by 3.0 percent.

During the last four years, however, as businesses relied more heavily on the Internet, they produced more goods and revenue, with relatively less electric power. From 1996 to 2000, the gross domestic product grew about 4.2 percent a year, but electricity consumption rose by only 2.2 percent a year.⁴ Since the Internet depends on banks of mighty server computers running around the clock, this pattern is surprising. But Romm says that the energy costs of operating such networks are trivial compared to the energy they save. For instance, computers, networking equipment, and office automation systems together represent about 2 percent of total US energy demand. If the electricity needed to operate the nation’s telephone systems is added, the total rises to about 2.3 percent. Heating and cooling commercial buildings, and refrigerating or freezing commercial supplies, requires roughly six times that much electricity. Therefore, improved stocking information, which allows grocery chains to reduce frozen-food inventory, can mean large energy savings.

The long-term importance of the Internet remains, but for the last six months the financial community has had to act as if traditional rules of price, profit, and valuation apply to this sector, too. Indeed, it’s now hard to find anyone who admits to having ever believed that the web portal Yahoo was “worth” twice as much as the Ford Motor Company.

This year’s election could turn out to be the same watershed for assessments of the Internet’s political impact that March 28 was for the Internet’s economic role. That is, in politics as in business, the spread of high-speed, low-cost networked communications will be a profoundly important long-term source of change. But the most surprising lesson of this election year is how many things the Internet did not affect, and how many old rules still apply.

Starting five years ago, about the time that Bill Gates, the chairman of Microsoft, sent a memo to his lieutenants declaring that the Internet had changed everything about the software industry, people in the technology business began asserting as an obvious truth that the Internet had changed everything about cultural and social life as well. Gates was right about the Internet’s effect on software. His company’s subsequent legal collision with the US government was in a sense inevitable: the company felt that it had to build Internet compatibility into its programs and operating systems, because otherwise they would rapidly become obsolete. To the government, this act looked not like self-defense but like the effort to extend an existing monopoly, in the Windows operating system, to a new area of competition. (The one thing that was not inevitable about the showdown was the tough-guy, “see you in court!” attitude of Microsoft’s lawyers and negotiators. In refusing to admit any fault or misconduct whatsoever, they invited an all-out legal battle, which at least at the trial level they lost.)

But the commentators who emphasized the social and political impact of the Internet were often wrong, or at least premature. At technology conferences and university symposia, a standard list of expected social effects emerged. By allowing people to choose their own sources of information, the Net would simply render unimportant the TV networks and large media companies. By letting oppressed residents of dictatorial nations evade local censorship and learn about the world outside their borders, the Net would undermine tyrants. By letting the citizens of stable democracies learn directly about public issues, it would force political parties and leaders to be more quickly responsive to the public’s enlightened will. By reducing practically to zero the cost of communication, the Internet would liberate politicians from the endless challenge of raising money—no more expensive mailings, no more costly TV time—and introduce a kind of friction-free democracy.

The reader may suspect that I am overstating such predictions. If anything, the reverse is true, since it’s hard now to recapture the “Year Zero” spirit of the early Internet days. John Perry Barlow, for years one of the most celebrated theorists of the Internet’s social impact, famously declared that in the new age, “everything we know is wrong.” In The Social Life of Information, a book published early this year, John Seely Brown, long the director of Xerox’s Palo Alto Research Center, and Paul Duguid, of the University of California at Berkeley, call this style of prediction “endism,” as in “the end of the world as we know it.” They say that “endist” predictions based on advances in computer technology have so far mainly proven to be wrong—for instance, the notion that a computerized, “paperless” office would mean the end of memos, photocopying machines, and printed documents. But discussions of the social and political effect of the Internet have mainly been couched in “endist” terms.

John Chambers, the CEO of Cisco Systems, said in 1998, “What people have not grasped is that the Internet will change everything…. It will have every bit as much impact on society as the Industrial Revolution [but] it will happen over seven years.” Nicholas Negroponte, director of the Media Lab at MIT, maintained that spirit throughout his book Being Digital, published in 1995. Also in 1995, Lawrence Grossman, the former president of NBC News, wrote in The Electronic Republic, “As we approach the twenty-first century, America is turning into an electronic republic, a democratic system that is vastly increasing the people’s day-to-day influence on the decisions of state.”

Darin Barney, of the University of New Brunswick, says in his book Prometheus Wired that in 1995 a Canadian legislator told him, “Most of what you have been taught about traditional politics will be of little value in the years ahead.” Dick Morris, no one’s idea of an understated theorist but still a man who knows about politics, wrote last year in his book Vote.com that the Internet was systematically boiling “intermediaries” out of society—the travel agent was giving way to the on-line travel site, the stockbroker to on-line trading services. The same process was sure to increase the individual citizen’s power relation to large governmental bureaucracies:

Two hundred years ago, Thomas Jefferson had to shelve his vision of a direct democracy in which people made their own decisions at town meetings. The twin challenges of vast distances and limited communications made it necessary for us to select special people among us to go to places like Richmond, Albany, Harrisburg, Atlanta, and Washington, D.C., to make decisions for us. Now we are about the reclaim the power Jefferson would have given us. Through the technology of the Internet, we have overcome the logistics that defeated Jefferson. Again we can move in the direction his vision would have led—toward direct democracy.

A year ago, while getting ready for the presidential campaign, few political analysts challenged the idea that 2000 would be the “Internet’s election,” just as 1960 had been television’s. The prediction seemed to be fulfilled by early February, just after John McCain’s surprise victory in the New Hampshire primary. In every press photo and TV spot in the week after New Hampshire, McCain’s staff made sure that his website’s address www.McCain-2000.com was prominently displayed. Small contributions began pouring in through the website, in a way that temporarily promised to transform the race. One day after the primary election, McCain had raised $300,000 through the site. A day later, he had raised $1 million. A week later, he had more than $3 million. In earlier elections, converting political momentum to cash had been agonizingly slow, because of the wait for people to mail in their pledges and checks. Because George W. Bush’s main advantage was money, if the Internet had allowed McCain to continue to find new money, fast, it would indeed have changed the political situation.

But of course McCain lost. And as Jonathan Koppell, of the New America Foundation and Yale School of Management’s political science department, pointed out in March, even the donors who gave money through the website knew its address only because they saw it on TV or in the newspaper. McCain’s “Internet” victory underscored the importance of the pre-Internet media.⁵ Just as the rise of “new economy” companies had oddly enriched old-media dinosaurs, because Internet companies felt they needed to advertise on network TV and in magazines to get noticed (to say nothing of using billboards and buses), so McCain’s site worked only when people’s attention had been directed there by other means. E-mail and the Internet of course became part of the working environment for this year’s campaign, as they have for businesses and universities. Campaigns send out press releases by e-mail and use websites to organize supporters. But these are new means toward familiar ends, rather than something fundamentally different in politics. At no point since McCain’s surge in February has the Internet even appeared decisive in the strategy or outcome of the campaign.

In the long run, the Internet will surely change politics as much as it changes business. In the Internet world, the current cliché is that trying to estimate the network’s ultimate implications is like trying to foresee today’s overcrowded airline system while watching the Wright brothers’ first flight in 1903. Still, how little difference the Internet has made in this year’s politics is surprising. Consider the ways in which we might have expected already to see its effect.

One sign that the Internet had fundamentally changed politics would be that it took less cash to become a serious political contender. Money mainly goes for TV ads, and if the “intermediaries” of the big networks were losing their prominence, then money would not matter as much. But this election is the most expensive in history. As of mid-September, the Bush-Cheney campaign had raised more than $177 million, and Gore-Lieberman had raised more than $126 million, for a total of $303 million. At a similar point in the 1996 campaign, the two parties had raised a total of $237 million. In 1992, $123 million. George W. Bush frightened off other competitors by the sheer size of his early war chest. Jon Corzine has spent an unprecedented $35 million, much of it his own money, in his race for the Senate in New Jersey. Hillary Clinton and Rick Lazio combined have raised more than $63 million in New York.⁶ In the final year of his presidency Bill Clinton has attended an average of one fund-raising event every other business day, accumulating by mid-September more than $90 million for his party, his vice-president, and his wife.⁷

Another expected effect of Internet politics would be an influx of new faces and surprising contenders, who had used the novel communications channels to get their message out to voters. Yet when the early favorites for the nomination, Gore and Bush, encountered considerable opposition from the “new faces,” Bill Bradley and John McCain, they were soon able to squash them. The final matchup is like something from the Federalist era: the son of a president, and grandson of a senator, against the son of another senator. Compare this to four years ago, when the son of a salesman, Bill Clinton, ran against the son of a grocer, Bob Dole. Even the two minor-party candidates, Pat Buchanan and Ralph Nader, are far more familiar than, say, Wendell Willkie was when he burst on the scene sixty years ago, or Jimmy Carter in 1976.

Another expected sign of the Internet’s influence would be candidates’ efforts to address “virtual” constituencies, united mainly through electronic means, rather than dealing state-by-state and bloc-by-bloc in traditional machine politics. The one nationwide constituency clearly being addressed this year is retirees—but they are addressed almost every year, because of their high voter-turnout rate. Otherwise the race is being run as a clas-sic battle for undecided voters in “swing states”—Florida, Ohio, Michigan, Pennsylvania. It is because of dynamics like this that Darin Barney argues, in Prometheus Wired, that the old political problems, of power and accountability, will be the continuing problems of the digital age.

Finally, an important sign of an “Internet election” would be that the old media in general, and TV in particular, would wane in significance. But arguably the last three months have reinforced the centrality of TV coverage. The party conventions are mocked as made-for-TV shams, which “no one” watches. Yet each campaign got its biggest boost from the party’s week of convention coverage on TV. According to one Newsweek poll, Gore was ten points behind Bush just before the Democratic convention—and eight points ahead of Bush immediately after the convention,⁸ which in turn was remembered and discussed largely for Tipper and Al Gore’s lengthy on-camera kiss. Both parties and all commentators viewed the televised debates as the most important remaining events in the campaign. And just as in the pre-Internet days, the impressions candidates made via TV strongly affected their standing—Gore’s sighing and strange makeup in the first debate, his greater restraint in the second, Bush’s struggle to avoid malapropisms in both cases.

What the Internet did to NBC, with its Olympics coverage, underscored what the Internet did not do to TV coverage of politics. People stopped watching NBC’s prime-time coverage of the Olympics when they could find out the results hours earlier via the Internet and cable TV. But they kept getting political opinions from television. As Marshall Sella pointed out in September in The New York Times Magazine,⁹ TV may have been more politically influential this year than ever before, because of the tone-setting role of late-night comics. David Letterman, Jay Leno, Bill Maher, and Jon Stewart (of cable’s Comedy Central) together establish images of politicians more powerfully than Johnny Carson, on his own, could a generation ago. As Sella explained, the comics also pose a significant problem for Bush. His stock image—the Idiot—seemed at first more of an electoral problem than Gore’s, the Stiff.¹⁰ Humor websites have also been hard on Bush—the latest, funniest example is www.george-w-dance.homepage.com. But their role is limited and nichelike, in the way talk radio’s is.

The one way in which the Internet has inarguably changed the political result is to boost yet again the ever-faster cycle time of shifts in conventional wisdom. In 1976, when Jimmy Carter ran for president, I worked for him and traveled on his plane. In those pre-cable, pre-e-mail days, you could watch the way the conventional wisdom was disseminated. The several dozen reporters in the traveling press pool would talk on the way to and from events and informally work out a consensus on how the candidate had done. They would file their stories, and type up “pool reports” to share with correspondents who weren’t on scene. The first inkling that the rest of the press had about the tone of coverage was the evening’s news broadcast, with a fuller rendering in the next day’s papers.

Round-the-clock news channels were a step toward speeding the cycle, with breaking news being transmitted instantly and pundits on most of the time too. But they had the drawback of volatility—if you missed them when they were broadcast, it was hard to catch up. The main Internet political sites—Slate, Salon, MSNBC, the sites run by the major newspapers—have made it easier for reporters to compare impressions quickly. This in turn has accounted for ever-faster shifts in prevailing opinion. This helped Gore recover after the Democratic convention, and helped Bush after the first two debates.

2.

There is one other way in which the Internet has not counted in this election, which points toward a larger way in which it will eventually affect politics. Early this year, when “Net economics” still seemed to have rewritten the rules of finance, political debates were full of discussion of Internet-related issues. Some involved the social consequences of the Internet’s growth. Would a “digital divide” aggravate the separation between educated white and Asian Americans and people with little education, especially from Hispanic and black minorities? Could Internet companies be trusted with all the personal, medical, and financial data they were collecting? Could parents find any way to protect their children from the violent and pornographic material on the Internet?

Some of the discussions involved the Internet itself, as a business. How should copyright holders be protected, when digital versions of music, movies, and books could be copied and downloaded virtually free? What about taxation? Was there any good reason to prolong the current fiction that since sales over the Internet don’t happen in a physical place, they should be exempt from any state’s sales tax? (Answer: There is no good reason. Politicians preposterously argue that sales tax would harm the development of this “fledgling” industry. They’re really just afraid to offend any of the potential donors associated with it.)

Representatives of computer and Internet companies formed a political action group, called TechNet, to lobby on these issues and others—especially in favor of maintaining trade relations with China, a crucial future customer, and expanding the so-called H-1B visa program, under which some 115,000 skilled technicians from overseas are granted entry to the United States each year. Nearly half of these come from India and are destined for work in the US computer industry. In October, Congress voted to raise the annual ceiling for H1-B visas to 195,000.

Both the Bush and the Gore campaigns support the increase in H1-B visas and oppose sales taxes on the Internet. But no Net-related issue received attention in either candidate’s acceptance speech, in the vice-presidential debate, or the first two presidential debates. Part of the reason (as Jacob Weisberg explained in Slate¹¹ ) is that the states where tech issues matter most are for now politically least crucial. California, Washington, Massachusetts, and New York are assumed to be safely in Gore’s camp; Texas (with Dell and Compaq) and Virginia (with AOL) are safely with Bush. In the states where the battle is being fought, votes aren’t won or lost over H-1B visas.

A further reason is that the new rich of the high-tech era are confusing to the parties. Ten years ago, people who worked in the computer industry gave a total of only $1.2 million to political candidates. In the first half of this year, they gave at least $22 million.¹² Ten years ago, contributions were split fifty-fifty between Democrats and Republicans, and they are split almost the same way now. Michael Dell, of Dell Computers in Austin, has been a leading donor to George W. Bush. So has John Chambers, the CEO of Cisco (which makes routers, hardware that directs traffic on the Internet). John Doerr, the leading venture capitalist of Silicon Valley, has been an aggressive fund-raiser for Al Gore. So has Marc Andreesen, cofounder of Netscape.

Because of its ongoing war against the Clinton administration’s Justice Department, several Microsoft officials have become prominent Republican donors. The company itself contributed $100,000 in cash (plus software it valued at $900,000) to the committee running this year’s Republican convention. Robert Herbold, Microsoft’s chief operating officer, told Bloomberg News in August that George W. Bush would be “good for the US in favoring innovation and the free market system.”¹³

I had lunch with a small group of Microsoft employees at the time of the Republican convention. Half argued that anyone associated with the company had an inescapable duty to oppose the Democrats, since they’d threatened to dismantle the company. The other half argued that issues other than antitrust—environmental policy, abortion—might still justify supporting Democrats. Meanwhile, the Democratic candidate for the US Senate from Washington State, Maria Cantwell, is raising money from Microsoft executives and other members of Seattle’s software elite (and using some of her own wealth from her work at Real Networks, which itself was founded by Microsoft veterans) to finance her run against the Republican incumbent, Slade Gorton.

The antitrust case against Microsoft, which has confused the fund-raising picture in the Northwest, is in a way the key to the next big intersection of technology and politics. The Internet business is to a surprising degree concentrated in the zone between San Francisco and San Jose, and its leaders tend to regard Microsoft, 750 miles to the north, as not really part of the same game. Microsoft’s antitrust troubles are a source of general amusement in California, where many of the company’s competitors are based and where executives believe they are more polished in handling politics and public relations than Bill Gates and his colleagues.

But in the last two years, the Internet economy as a whole has become a tremendous engine of concentration and conglomeration. The industry’s self-image is still vaguely that of the outlaw and upstart. But several forces pushing toward a more concentrated economic structure have all affected Internet businesses at the same time.

The Internet obviously depends on systems of communication—telephone wires, cable connections, wireless transmission networks. Until four years ago, these had been treated as separate industries, regulated by different agencies of the federal government. After passage of the Telecommunications Act of 1996, they became one big blob of “bandwidth.” Bandwidth is the tech industry’s term for the speed at which information can be transmitted. Before the Telecommunications Act, different sources of bandwidth—telephones, cable and broadcast TV, cellular phones, and the Internet among them—were separated from one another as businesses, and often operated as regulated monopolies. One company—one of the “Baby Bells” produced by the breakup of AT&T in the early 1980s—provided local telephone service in each region, and these companies weren’t allowed to offer long-distance service. One cable TV company served viewers in each area. Its rates and offerings were subject to public regulation. In most areas, two cellular telephone companies were licensed to compete with each other, and each had to pay steep fees to the local phone system to have calls connected to land lines. A limited number of long-distance companies competed against each other. And a small number of broadcast TV stations were licensed in each city.

The pre-1996 system discouraged the growth of huge media conglomerates, because, say, a television network couldn’t buy a telephone company. But as Reed Hundt explains in his delightful book You Say You Want a Revolution, it also discouraged the investment in new bandwidth necessary to realize the potential of information technology. Adequate bandwidth for that purpose would mean high-speed Internet connections, via cable modems or advanced telephone lines, to homes and businesses (rather than slow connections via modems on normal phone lines). It would mean full connections for classrooms in schools across the country, and a far more robust system of cellular and wireless communication than is now in place.

Hundt, who was a high school friend of Al Gore’s and a classmate of Bill and Hillary Clinton’s at Yale Law School, was the chairman of the Federal Communications Commission during Clinton’s first term. His book, whose climax is the passage of the Telecommunications Act, is the drollest and most honest-sounding memoir of public service I have seen in many years.¹⁴ Such books are usually prolonged exercises in score-settling. Hundt gets in his digs, mainly at the business moguls he was supposed to regulate, but he is artful enough that the self-deprecating anecdotes and throwaway lines come across as genuinely funny rather than implicitly boastful:

In early January 1997, I sat with my team in one of our early morning conferences and read out loud an article reporting that I was a “spineless weasel” because of my refusal to block the giveaway of digital television spectrum to the broadcasters.

Blair [his chief aide] responded, “No one thinks ‘spineless’ is fair.”

Hundt’s book describes the grand bargain the Telecommunications Act was designed to carry out. It would remove most of the limits that kept one kind of bandwidth company from buying or merging with another—but, at least in theory, it would replace the old, regulated monopolies with genuinely competitive markets. By removing restrictions, it would give companies an incentive to invest in new cables, wires, and transmission systems. By introducing real competition, it would hold prices down. Or that at least was the concept.

Not surprisingly, the cable, telephone, and TV companies were far more enthusiastic about the first part of the bargain than the second. A wave of mergers began that continues to this moment. AT&T bought the leading cable TV company, TCI—plus a leading Internet company, Excite@Home. AT&T now uses TCI’s cable lines to bring Internet service to homes. The biggest on-line company, AOL, bought Netscape, the main competitor to Microsoft in the browser business (browsers being the software for viewing Internet sites). Then AOL bought Time Warner, which already included the cable network CNN. The idea behind these combinations and others is that companies are looking for as many routes as possible into the home or business where people will buy “information services”—a broad category that now includes local phone calls, long-distance calls, wireless calls, TV programming, on-line delivery of movies and other entertainment, plus Internet content itself. And the drive behind the mergers has been—consistent with most business logic, and exactly contrary to what Hundt and others had hoped for—to preempt competition before it can arise.

The AOL-Time Warner merger has been especially controversial, because of the many layers of the new information economy that would be combined in this new company. Time Warner includes a number of cable TV systems, and has alliances with AT&T, which controls others. The merged company would, therefore, run about half the cable TV systems in the country. These would increasingly be a vehicle for high-speed Internet access, since Internet data can travel over the same cables that carry TV signals. AOL, which behaves more and more like Microsoft the bigger it becomes, would then be in a position to deny access to Internet sites or services that compete with its own offerings. This is one of several reasons why antitrust regulators in the US and Europe, working in obvious if unacknowledged concert, have kept suggesting new conditions before they will approve the deal. (European regulators have effectively forced Time Warner, as a condition for approving the AOL deal, to call off a merger with the British music publisher EMI. US regulators have made clear that AOL would have to let competing Internet companies reach customers via its cables, and that the alliance with AT&T’s cable TV systems might have to be sacrificed.)¹⁵

The pressure toward merger, and the natural desire of companies to thwart competition and recreate monopoly, will for the foreseeable future be the real impact of the Internet on politics—and by extension on culture. A monopoly in the steel industry only raises prices. Monopoly in media and communications has more profound effects. The revised edition of Robert McChesney’s 1999 book Rich Media, Poor Democracy documents the way previous alliances in the media world are being extended to the Internet. McChesney, a professor at the University of Illinois, is the current leading practitioner of the A.J. Liebling-I.F. Stone school of analyzing press content by analyzing press ownership. His book chronicles the ways in which the growth of media chains has meant a contraction of range of opinions. This book is the latest documentation of a familiar but convincing argument: that as “news” becomes just another product sold by big media companies, it becomes more of a commodity, more entertainment-based, and dumbed-down. The Internet makes it possible for individuals to set up their own news sites, McChesney says, but that’s no substitute for “real” news organizations:

As a rule, journalism is not something that can be done piecemeal by amateurs working in their spare time. It is best done by people who make a living at it, and who have training, experience, and resources…. The corporate media giants have failed miserably to provide a viable journalism, and as they dominate the journalism online, there is no reason to expect anything different.

McChesney also echoes Hundt’s outrage over what they both consider the most expensive failure of public policy in the last decade. This is the success of the big broadcasting networks—ABC, CBS, and NBC—in getting, free, rights to digital spectrum that might properly have cost them $60 billion or more.¹⁶ Hundt pioneered the idea of auctioning spectrum—the right to broadcast in certain frequencies—to companies that want to offer new cell phone service, rather than granting the right to licensees without charge.

The big TV broadcasters have for decades enjoyed the free right to broadcast their signals. In the mid-1990s, they persuaded Congress to grant them additional free rights to large amounts of digital spectrum, on the argument that they would use it to bring extra-sharp high-definition TV to customers. They haven’t done so, and instead are preparing to use their access to the spectrum to sell high-value digital services. Cell phone companies had to bid billions of dollars for similar spectrum in which to develop their products. There was—and is—no argument besides sheer political muscle for the broadcasters getting this gigantic subsidy.

The Hundt and McChesney books also suggest the way antitrust law will have to evolve, to take account of the structure of new industries and the effect new monopolies might have. Hundt, who convincingly presents himself as a champion of new technologies and new business arrangements, says the competition will be more effective and profitable if companies have a clear idea of what public interests they are supposed to respect. “It would be legitimate to legislate political and cultural aims, as long as they were honestly stated so they could be discussed,” he told me. These aims might include public-affairs programming that media companies would have to carry, rather than concentrating almost exclusively on whatever gets the highest ratings. Also, he argues that antitrust regulation will have to be international, since communications companies operate in at least North America and Europe, and regulators are de facto coordinating efforts now.

Previous waves of industrial change—the mills of the early nineteenth century, the integrated factories of the early twentieth century, the mechanized farms of the post-World War II era—changed living patterns and income levels. But they also had an impact through the legal responses they provoked. This could be the biggest immediate effect of the Internet.

—October 18, 2000