purple motes

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AT&T deserves at least some credit for the invention of talkies.   The Warner Brothers purchased their pioneering Vitaphone sound movie technology from Bell Telephone Laboratories in 1925.   Earlier that year, Western Electric and AT&T had created Bell Telephone Laboratories as a jointly owned but separate entity.   The name Vitaphone highlights sound movies' connection to the telephone.  So too did advertisements.  Warner Brothers' billboards promoting their path-breaking sound picture Don Juan (1926) declared, "Warner Bros. / by arrangement with / Western Electric Co. and / Bell Telephone Laboratories presents / VITAPHONE."

Both telephones and talkies exemplified electricity's progressive promise.  A Warner Brothers flier urging vaudeville exhibitors to switch to sound movies shows a naked, muscular, laurel-crowned male.  The flier uses that classical image to represent intellectual progress.   While the ruling Greek god Zeus used thunderbolts to cow his subjects, the classical figure on this flier prominently direct two lightening bolts to Warner Brothers' Vitaphone product.   Electricity was a potent symbol of progress in the 1920s and 1930s:

anything associated with electricity tended to generate awe and respect, as it combined intellectual complexity, the promise of a better future, and the risk of mishandling.[*]

Not surprisingly, the U.S. Federal Communications Commission (FCC), which was formed in 1934, has a seal prominently featuring electricity.  Promoting more awe-inspiring telephone industry innovation will make for a more publicly beneficial communications industry.

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[*] Crafton, Donald (1997) The talkies: American cinema's transition to sound, 1926-1931. History of the American cinema, v. 4 (New York: Scribner) p. 21.

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Video traffic accounts for a large and increasing share of global Internet-Protocol network traffic.  Akamai, CDNetworks, Limelight, and other content delivery networks  received an estimated $400 million in revenue worldwide  in 2008 for distributing video.  That revenue total is expected to grow 20% to 30% a year through 2013.[1]

Telephone companies have long provided video program transmission services.  These services have typically been provided to national television networks, local broadcasting stations, and commercial video service firms. Long-established telephone company program video services provide wire-line transmission of standard-definition, analog television signals.[2]  In 1998, U.S. local telephone companies received about $56 million for jurisdictionally interstate video transmission services.  Figures for subsequent years involve significant estimates.[3]  Local telephone company video distribution revenue in 2008 surely was greater than $40 million.  A figure of roughly $100 million is plausible.[4]  These figures are sizable relative to the total of $400 million worldwide for (digital) video on much more advanced content distribution networks.

Detailed rate element data for the historic Bell-Atlantic Telephone Company service area indicates the type of service provided.  Connections to customer premises (channel terminations) accounted for about 60% of  Bell-Atlantic video service revenue in the late 1990s and 84% in 2008.  Video connections for special events (daily video revenue) accounted for a few percent of total video revenue in the early 1990s and less than 1% in 2008.   Average channel mileage for video network connections was about 5 miles through most of the 1990s, but increased sharply in 2000 and was about 13 miles in 2008.  Single-channel analog video service (Basic Video Service) generated about four times as much revenue as multichannel analog video service.   From 1999 to 2008, revenue from Basic Video Service shifted away from the Premises-to-Hub configuration and toward the Premises-to-Premises configuration.  Digital program video transmission services generated only a small share of total video revenue.  Thus a good model for a major share of Bell-Atlantic video transmission revenue through 2008 is a single, analog video line connecting two premises.

Telephone companies have some important advantages in the video networking business.   Telephone companies have locally ubiquitous networks, established relationships with customers, and understood service characteristics.   For companies that don't consider communications services to be a strategic input to their businesses, sticking with past services is likely behavior.   The aggregate effects of such behavior amounts to a lot of network revenue.

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Data:  Selected data and calculations concerning telephone company video revenue, 1989-2008 (as Excel workbook).   Rate detail for larger telephone company audio and video revenue for demand year 2008 (filing year 2009) (as Excel workbook).

Notes:

[1] See Dan Rayburn, "CDN Research Data: Market Sizing and Pricing Trends," presentation at the Content Delivery Summit, 5/11/09, Fig. 2.9.

[2] These services come in a variety of formats for 525 line/60 field monochrome or NTSC color analog video.  TV-1 and TV-2 provide the video diplexed with 1 and 2 channels of video, respectively.  TV-15 provides such video with one or two 15 KHz audio channels delivered over one or two, respectively, separate two-wire channels.

[3] Video service data is combined with audio service data in the FCC's standard Tariff Review Plan (TRP) for filing year 2000 and later.  Moreover, the granting of pricing flexibility petitions beginning on March 14, 2001 has removed some jurisdictionally interstate video service from FCC price cap data. Here's a Verizon pricing flexibility order released on March 14, 2001; a pricing flexibility order for Ameritech, Pacific Bell, and Southwestern Bell (now all part of AT&T) released on March 14, 2001, and a subsequent Verizon pricing flexibility order (2004).  By the 2009 FCC annual access filing, an estimated 74% of special access and trunking revenue that would have otherwise been reported under price caps had been removed from the Bell Atlantic filings.

[4] Larger local telephone companies reported $40 million in program audio and video revenue in demand year 2008.   Revenue figures for both audio & video and video alone show sharp changes in particular years from 2000 to 2008.  For example, in demand year 2000 (filing year 2001), Bell-Atlantic video revenue was $7.7 million, compared to $18.6 million in the previous year.   Bell-Atlantic received pricing flexibility for video and other special-access services about three months before its 2001 filing.  Similarly, Qwest (formerly US West) received pricing flexibility on Apr. 24, 2002.  About two months later, its filing year 2002 (demand year 2001) video revenue shows a large drop relative to the previous year.  Exclusions from price cap regulations plausibly explain these and similar downward jumps in video revenue.  Other sharp changes, like the explosion of Pacific Bell video revenue to $76 million in filing year 2003 (demand year 2002), are difficult to understand.  The Bell-Atlantic and US West video revenue series show periods of sustained growth beween 2000 and 2008.   If telephone company video revenue grew just over 5% per year from 1998 to 2008, the revenue total would be about $100.  This figure would imply that 60% of video revenue has been withdrawn from price caps.  In light of the estimate for Bell Atlantic special access and trunking revenue removed (74%), 60% is a reasonable industry-wide estimate for program video revenue removed from price-caps.

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Jack:  "There will never be another like Walter Concrete.  He was the most trusted man in America."

Jill:  "How do you know he was the most trusted man in America?"

Jack: "Somebody said so on television."

Jill: "...and that's the way it is."

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"Haven't you been around the show world long enough to know that a talking picture is something to run away from?" Sam Warner declared early in 1925 to a radio engineering urging him to consider new sound picture technology for the Warner Brothers' moving picture production and exhibition business.   His brother Harry added, "Who the hell wants to hear actors talk?"[1]   In 1927, the celebrated inventor Thomas Edison put his authority behind this view:

No, I don't think the talking moving picture will ever be successful in the United States.  Americans prefer silent drama.  They are accustomed to the moving picture as it is and they will never get enthusiastic over any voices being mingled in.  Yes, there will be novelty to it for a little while, but the glitter will soon wear off and the movie fans will cry for silence or a little orchestra music.[2]

The Warner Brothers and Thomas Edison soon changed their minds.  In April, 1925, the Warner Brothers purchased sound movie technology that they called Vitaphone.  When Thomas Edison dismissed talking moving pictures in 1927, Harry Warner pointed out that 50 theaters were already equipped with Vitaphone sound picture technology, and that number was growing by five per week.  The Fox Film Corporation sent a crew to demonstrate personally to Edison sound movie technology.  After this experience, Edison changed his mind and described the new sound movie technology as a "distinct advance."[3]

Sound movies destroyed the vaudeville business.  Warner Brothers' Vitaphone advertisements directed at vaudeville theaters declared that a sound movie "puts your whole show on the screen":

No more stage presentations.
No more stage acts.
No more prologues.
No more units.
No more profit-eating overhead and salaries!
No more booking worries.
Check off your overhead and production costs.

Sound movies offered all theaters simultaneous choices from a wide catalog of unique attractions:

Take your pick of the stars of operatic, concert, vaudeville, musical comedy, drama, circus, night clubs, and every other field of amusement. Vitaphone brings them all to you -- over 1000 different acts to choose form, and more made every week. Whether it be Rudy Vallee and his Connecticut Yankees; Al Jolson in a song; or Beniamino Gigli of the Metropolitan Grand Opera Company; Willie and Eugene Howard in a vaudeville comedy skit or Charles Hackett, the concert artist -- they're not too big for the Vitaphone program. They're all yours! Million Dollar names for your marquee! The world's greatest drawing cards on your screen! The surest boosters your box office has ever known![4]

Sound movies were as big a disruption for the vaudeville business as the Internet is for today's mass media businesses.

The Keith-Albee Vaudeville Exchange, which ran the largest vaudeville exhibition circuit in the U.S., quickly responded to sound movies.  Its first action was to ban Vitaphone headliners from the vaudeville engagements that it controlled.[5]   But apparently recognizing that such tactics were not likely to succeed, in 1927 Keith-Albee merged with Orpheum theaters. In 1928, Keith-Albee-Orpheum merged with Joseph P. Kennedy's Film Booking Offices of America studio and the Radio Corporation of America to become Radio-Keith-Orpheum (RKO) Pictures.  The Keith-Albee vaudeville business was thus transformed into a part of a major Hollywood (sound movie) studio.

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Notes:

[1] Kirsner, Scott (2008) Inventing the movies: Hollywood's epic battle between innovation and the status quo, from Thomas Edison to Steve Jobs (CinemaTech Books) pp. 17-8.  Lyle Talbot seems to claim to have heard Harry Warner say roughly this some time in 1930 or later.  But that's implausible; by that time Warner Brothers and all the major Hollywood studios recognized that sound movies were the future of the industry.  In 1931, 13,880 of a total of 21,739 motion picture theaters in the U.S. were wired for sound.   See Crafton, Donald (1997) The talkies: American cinema's transition to sound, 1926-1931. History of the American cinema, v. 4 (New York: Scribner) p. 155, Table 6.1.

[2] Crafton (1997) p. 101, quoting Film Daily, 4 Mar. 1927, pp. 1,2.

[3] Id. pp. 101-2.

[4] The text is from a Vitaphone advertising flyer displayed in the Library of Congress exhibition, Bob Hope and American Variety.  The flyer is from the late 1920s, probably 1929.  Similar text occurs in a 1929 Vitaphone advertisement from a July, 1929, issue of Variety.  The above photograph of the Warner Theatre's opening of Don Juan shows underneath the theater overhang a sign stating, "refrigerated washed air."  That's probably a competitive distinction.  Less lavish theaters, particularly vaudeville theaters, probably had less attractive conditions for the audience.  About 14 months later, a photograph of the Warner Theatre's opening of the Jazz Singer does not show this sign.

[5] Crafton (1997) p. 108.

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The U.S. Federal Communications Commission (FCC) has used price caps to regulate large U.S. local telephone companies' rates for jurisdictionally interstate services.  Data filed publicly at the FCC provides yearly revenue totals for service categories defined under price caps.  Such data for the historic Bell Atlantic service area for filing years from 1990 to 2009 is now readily available in a format that makes trends over time easier to analyze.[1]   The historic Bell Atlantic service area accounted for 22% of total U.S. local telephone private-network revenue in 1997.

Included within FCC price caps are non-traffic-sensitive rates for network connectivity.  Examples of such connectivity are voice-grade lines and DS1 (1.54 Mbps symmetric bandwidth) lines.  Historically such connectivity has been categorized as trunking and special-access services.   Trunking typically is voice-service connectivity sold at wholesale to other telephone companies.  Special-access service typically is sold to businesses other than telephone companies to provide private network services.

Price-cap revenue categories for the historic Bell-Atlantic service region show a large shift to higher-bandwidth connectivity from 1989 to 2008.   Revenue reported in a given filing year for previous-year demand at current rates provide an estimate of revenue in the previous calendar year.[2]  Using this dating for estimates, voice-grade connectivity in 1989 accounted for 53% of total price-cap connectivity revenue.  By 2008, the revenue share of voice-grade connectivity had fallen to 1%.  DS3 connectivity (44.7 Mbps symmetric bandwidth), in contrast, rose from a revenue share of 1% in 1989 to 27% in 2008.

The stability of price-cap revenue categories obscures part of the shift to higher-bandwidth services.  In 1989, "Digital Data Service (DDS) and other high-capacity (HC) services" accounted for 9% of connectivity revenue.   All this revenue was for DDS services, which were used for digital connectivity with bandwidth less than 100 kbps.  By 2008, the revenue share of "DDS and other HC"  had risen to 29%.   Revenue within this price-cap category, however, had shifted to new, high-capacity data services, including dark fiber and connectivity with bandwidth greater than 100 Mbps.

Actions under the FCC's pricing flexibility order and other forbearance and waiver orders have removed a large amount of revenue from price caps after 1999.   Total connectivity revenue under price caps (trunking and special-access revenue, minus revenue for tandem-switched transport and per-minute interconnection charges) in the historic Bell Atlantic region grew 127% from 1989 to 1998.   Total connectivity revenue under price caps for Bell Atlantic fell 40% from 1999 to 2008.   Total connectivity revenue under price caps in 2008 was only 26% of what total connectivity revenue would have been if it had grown from 1999 to 2008 at the same average rate as it did over the previous decade.    Thus a rough estimate of the share of revenue removed from price caps for the 2009 filing is 74%.

The removal of revenue from price caps is associated with a shift in price-cap connectivity revenue toward more rural areas.  Rates for DS1 and DS3 connectivity in the historic Bell Atlantic region have been differentiated by three geographic zones since 1993.  As DS1 and DS3 connectivity in the Verizon's National Discount Plan illustrates, moving from zone 1 to zone 3 is associated with greater inter-office mileage and a lower ratio of channel terminations to inter-office links.   These patterns indicate that zone 3 is the most rural zone.  From 1995 to 1999, zone 3 accounted for about 29% and 12% of DS1 and DS3 revenue, respectively.  From 2000 to 2008, the revenue share of zone 3 increased to 49% and 31% of DS1 and DS3 revenue, respectively.

The removal of revenue from price caps has important implications for analyzing price-cap data.  Price-cap data were the basis for relatively good estimates of bandwidth in use from 1989 to 1999.  Without additional, specific data on bandwidth removed from price caps, price-cap data no longer can provide comprehensive estimates of bandwidth in use.  In addition, the shifting coverage and composition of price-cap revenue must be considered in interpreting price indices constructed from price-cap data.[3]

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Data:  The summary data discussed above is available in more detail as a web page and an Excel file.  Also available is the full dataset of price-cap revenues for price-cap reporting categories for the Bell Atlantic Service area from 1992 to 2009.

Notes:

[1] FCC price caps went into effect in 1991.  The initial price-cap filings included 1990 rates and 1989 service demand (base period demand).

[2] Rates for individual service elements tend to change slowly.  To the extent that current rates are less than average rates for the previous year, the estimate for previous year revenue is an over-estimate.  The analysis above focuses on revenue trends over time and revenue distributions.  If the extent of over-estimate does not differ across years or across services and zones,  the over-estimate does not affect the figures calculated above.  Moreover, any over-estimate is not likely to be significant relative to the broad revenue patterns described above.

[3]  In 2009, for the service groups generating the most revenue, channel termination rates for zone 3 were 17.5% and 10% higher than rates for zone 1 for DS1 and DS3 services, respectively.  See DS1 and DS3 zone pricing comparison sheet.

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U.S. print newspaper and magazine advertising revenue is falling sharply.  In the first quarter of 2009, newspaper print advertising revenue declined 30% compared to the first quarter of 2008 ( $5.92 billion in 2009 Q1; $8.42 billion in 2008 Q1).  Magazine rate-card-reported advertising revenue, which does not take into account discounting likely to be more significant in more difficult economic times, declined 20% ($4.18 billion in 2009 Q1;  $5.25 billion in 2008 Q1).  These declines are associated with the current, major macro-economic contraction.  However, these sharp declines in newspaper and magazine advertising are not just a macro-economic effect.  They also indicate deep structural changes in the communications industry.

The current newspaper and magazine advertising revenue contraction is much more rapid and significant than that associated with the Great Depression.  From 1929 to 1931, newspaper and periodical advertising revenue fell only 23% and 25%, respectively.  The revenue decline subsequently accelerated and amounted to 31% and 42% for newspapers and periodicals, respectively, from 1931 to 1933.  Because periodicals have a higher share of subscriber revenue than newspapers, the more rapid decline in periodical advertising was offset to an extent by periodicals' greater revenue diversification.  The opposite comparative business model effect operates with the current more rapid decline in newspaper advertising revenue and newspapers' greater dependence on advertising.

Print media almost surely will remain a significant feature of the public landscape.   Now, however, every person can operate an astonishing, virtual multi-media printing press that the Internet provides globally.  How persons use print media undoubtedly will change enormously, and so too will the traditional business of newspapers and magazines.

Note:  Here's U.S. Census data concerning the revenue structure of U.S. newspapers and periodicals from 1880 to 2007.   Available also as an Excel file.

Update: Now includes data through 2008 from the 2008 Services Annual Survey, Tables 3.1.1 and 3.1.2.

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The brilliant Michael Nielsen observes:

The contrast between the science comment sites and the success of the amazon.com reviews is stark. To pick just one example, you’ll find approximately 1500 reviews of Pokemon products at amazon.com, more than the total number of reviews on all the scientific comment sites I described above. The disincentives facing scientists have led to a ludicrous situation where popular culture is open enough that people feel comfortable writing Pokemon reviews, yet scientific culture is so closed that people will not publicly share their opinions of scientific papers. Some people find this contrast curious or amusing; I believe it signifies something seriously amiss with science, something we need to understand and change.

Science, like some types of blogging, occurs within a field of intense status competition.  Leaving reviews on Amazon doesn't.  That's a key explanation for the much different human behavior in commenting on scientific papers and leaving reviews on Amazon.

Can intense competition for (social/group) status occur without persons carefully regulating with whom they communicate and what they write?  Communication and sociality evolved together, hence at least some aspect of communication and sociality are likely to be difficult to change independently.  Wikipedia limits individual status competition by pushing into the background the names of contributors.  At the same time, among active Wikipedia contributors who become socially engaged with each other, all the usual types of human communicative behavior undoubtedly occur.   In evolved human psychology, males are likely to be more behaviorally oriented toward status competition, while females are likely to be more skilled in social communication.   In science, which imperfectly encompasses female and male scientists,  quite complex and obscure patterns of communication can easily occur.

Changing assets in scientific status competition can lead to more public goods.  Nielsen insightfully describes how this  occurred with the development of scientific societies and scientific (public) journals.   Open source software projects invest contributors in the success of a common, public symbolic work.  I have no doubt that new communication technology can help science operate in a way much more beneficial to the public than science currently does.

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