July 13, 1994 HUNDT TELLS MAGAZINE PUBLISHERS HE EXPECTS BROAD SUPPORT FOR TELECOM REFORM FCC Chairman Reed Hundt predicted broad bipartisan support for telecommunications reform in an address at the Magazine Publishers of America's Fifth Annual Washington CEO Conference on Tuesday, July 12. He also discussed the impact of the information highway on content providers and said that on that highway "content should be king." . Hundt told his audience that he believed construction of the information highway to be "one of the most important developments in American history" and noted that "print publishing is equal only to TV in its role in defining our culture." "The role of content providers in the information economy will only grow in importance." Hundt said yesterday. "As long as you can access your readers, those who provide information that people want and need as well as those who innovate and adapt to the new media will prosper." "The key to guaranteeing your success in the information age is in your ability to both attract individual readers or subscribers and to continue to assemble an audience for advertising in the cyberspace of the five-lane information highway or in print... And what's the best way to insure access? That I can answer in one word: competition." Hundt told the Magazine Publishers that "that commitment to competition can be found in the U.S. House of Representatives where H.R. 3626 and H.R. 3636, two bills that further competition, were approved overwhelmingly with 423 Yea votes (out of a possible 435).... The future of these bills are now in the hands of the Senate. A bill is currently pending in the Senate Commerce, Science and Transportation Committee where it will get marked up by the end of July and go to the floor for a vote. I am optimistic that the Senate will pass the bill that will be reconciled by a House-Senate conference." "If a bill is enacted, not only will the economy thrive, but so will the magazine industry. In a multi-media world, publish or perish can become plug-in and prosper," Hundt said. Hundt encouraged the publishers to lend their support to the Senate legislation and concluded in part, "You are involved in some of the most important work in our country -- that of creating the information and content that will be carried over the information superhighway. In the same manner that your industry and predecessors played a pivotal role in American history, I know you will play an important role in the information revolution." FCC Chairman Reed Hundt Magazine Publishers of America Washington, D.C. July 12, 1994 Thank you, Claeys for that kind introduction. I also want to thank Don Kummerfeld and George Gross for inviting me to speak before you today. I also want to thank the superb MPA staff, especially Jim Guthrie and Judy Jorgensen. I also enjoyed talking with Bob Teufel, Bill Kerr, Ed Lewis and Jim Cregan. I have a lot to learn from you. In many ways it would be more appropriate that you tell me what the National Information Highway is really about. It is a daunting challenge to be the last speaker in an event that included speeches by Bob Rubin; author Haynes Johnson, a Pulitzer Prize winner, talking about the fall of Western civilization, Rep. Pat Schroeder, Sen. Pete Domenici and Rep. Jim Cooper. I agree with everything the Congress members said. I'm happy to report that the FCC has a good relationship with Congress. I love this job. It's the best job you don't have to get elected to -- if you can't get to publish a newspaper. I get to give lots of speeches . . . What is relationship between speeches & lunch? Well, if you speak after a lunch it means you're very welcome. If you speak before lunch it means be brief. And if you speak before breakfast and you find yourself with no rolls or silverware on the table, it means you're at the cable convention. I want to talk to you today about the construction of the information highway -- one of the most important developments in American history. In my view the information superhighway is first of all the mother of all metaphors. It also is a five-lane communications network comprised of wire, wireless, cable, broadcast and satellite technologies. These lanes are converging and as a result of digitalization all five lanes will be able to deliver the same products. We at the Commission believe this convergence is good because it will generate competition. And our most important role is to promote competition in an industry that is transforming our economy. Along this highway, everyone says content should be king. I believe content is more important than conduit. And in our excessively computer literate world; content is now called software, and software is where it's at. You may not like being called software artists, I mean it as a complement, but it's supposedly better than being a hardware person. At any rate, publishing is where it's at; you are on the cutting edge of the communications revolution. Publishing will be among the first to benefit from competition. Now in Washington, being on the cutting edge normally means that you're visible and attracting attention, which, take it from me, can be good or bad. But Washington is not an unfriendly environment to publishers. Indeed, publishing has always been crucial to our politics and culture. Publishers have always shaped and defined our country. We could go back to the great publisher Benjamin Franklin, whose almanac and other publications, including the Declaration of Independence, helped define America. Franklin is also my predecessor. As a postmaster, he helped build the information highway of the 18th century. He was keenly aware that his product -- his software, ideas and vision for an independent United States of America -- had little value if it did not reach his customers. I am sure you share Franklin's awareness of the importance of ensuring that publications get into the hands of as many people as possible. Publishing helped start the American Revolution and it helped make America a success. The great fear among many was that the revolutionary spirit would go so far that we couldn't govern ourselves. As Alexis de Toqueville said a few decades after Franklin's life in 1835, publications "become more necessary as men become more equal and individualism more to be feared. To suppose that they only serve to protect freedom would be to diminish their importance: they maintain civilization." The importance of the civilizing role of publications in keeping the balance between the rights of the individual and the role of the community has grown no less challenging in our time. And publishers throughout our history have struggled to help us find the right balance. Some historians say that the golden age of publishing was 100 years ago at the beginning of this century. Magazines like McClure's and Outlook were the magazines whose expos‚s led the progressive movement. Magazines at that time not only reported history; they created it. Ida Turnbull had a major impact on American business history when she published the expos‚ on the Standard Oil Company trust at the turn of the century. Teddy Roosevelt was a magazine editor before his second run for the presidency. Magazines at that time appealed to a literate public and invented a kind of public policy sensationalism. They used purple prose to describe the corrupt Senate, the octopus-like monopolies, or stomach-turning beef packing practices. Of course, publishing in addition to being praised has always had detractors. I read yesterday that thirty-one percent of journalists say best word to describe coverage of O.J. Simpson is "efficient." Number one response from non-TV journalists was "jackal," followed by words describing other predatory animals. This is a true story. To all those journalists who called themselves efficient -- I say -- no one knows you better than yourself. But the fact is that print publishing is equal only to TV in its role in defining our culture. Both have histories of attracting attention but on balance it's better that the attention is paid. Whatever else, the Simpson event is a lesson in our criminal justice process, which really is a model of fairness. And the sensational expos‚s of publishers a century ago really did create the antitrust law, the FDA, and much of our political history for the better. Not surprisingly publishing has had a major impact in my life. I'm one of the oldest people appointed to the FCC. Despite this, I don't remember de Toqueville personally. But it is true that I not only read but also subscribed to Boys' Life, Popular Mechanics and Mad Magazine. Every week my family read Life, Look, and the Saturday Evening Post. And when my parents were not around I also occasionally peeked at the pictures in National Geographic. In the 1960's, I briefly acted as a publisher of my college newspaper. Into my office one day walked in an obscure would-be cartoonist with an off-beat humor and drawings of very poor quality. But we were young and we printed anything. I figured it couldn't hurt. It didn't. His name was Gary Trudeau. And Doonesbury went on to make publishing history. In the meantime, I hoped not to be a publisher, but merely an employee of a publisher. Not a publisher of a magazine, just a mere newspaper. My reference: Britten Hadden. But I couldn't write clearly enough to reach their audience and I used too many $2 words. Too much of an Ivy Leaguer. I asked them to explain in words I could understand. They said I was prolix and hyperbolic. Oh, I said, now I understand and that is how I came to work for government. Over the course of my life, and the careers of those of you in this room, publishing has gone through a major transformation. The most important development in marketing in the 20th century is market segmentation. This is especially true for publishing. Since 1970, the number of general consumer magazines has more than doubled, with almost a third of that increase coming in the last three years. More and more your market consists of specialized-niche publications. Byte Magazine is not about food but in fact its about digitalization. Wired Magazine is about cyberspace, and is jam-packed with advertising. The information highway at the very least is good news because it's something to publish magazines about. You've always reported on economic change. The US has led the world in change. Look at how our economy has changed. Iron and textiles were the most important drivers of the economy in the 18th century. Railroads and steel performed that job in the 19th. For the 20th century it was electricity and automobiles. Each transformation has moved our economy toward more high-valued products. Our businesses are moving up the food chain. As publishers you have reported on all these developments. You've published magazines about these industries. And you've always kept up with the pace of change. In keeping up with change, you've depended on two revenue streams: first, your ability to attract and reach readers who subscribe to your magazines or buy single issues. Second, your ability to assemble an audience for the purposes of advertisements. Judging from what I read, you have been very successful on both counts. Between 1980 and 1993 annual combined circulation per magazine issue increased by more than 80 million, nearly four times the circulation of the 1970s. At the same time, magazines during recent years have been more successful at increasing total ad revenues than other ad-supported media. I've been told that ad revenues for magazines for June 1994 were up 13.3 percent over June 1993, and that if you keep this trend going, 1994 should easily be the best year for magazine advertising since 1989. We see similar growth rates in cable and broadcast industries, but I find it particularly interesting to note that this trend is also taking place in the magazine industry. The role of content providers in the information economy will only grow in importance. As long as you continue to be able to access your readers and generate advertising revenues your industry will be successful. After all, between 1980 and 1991 revenues from end-users (i.e., purchases of magazines) as a share of total magazine revenues increased from 49 percent to 53 percent. As long as you can access your readers, those who provide information that people want and need as well as those who innovate and adapt to the new media will prosper. But this task is not automatic or easy. As the information highway unreels itself, you face important questions as to how you can continue to find and reach your subscribers? And how can you continue to assemble an audience for advertisers? There are technological and policy answers to these questions. Here is the technological answer: I'm not sure. A characteristic of the communications revolution is that the availability of the technology always precedes the understanding of the best use of it. If we do not yet understand the best uses of the technology, don't worry. Someone will figure it out eventually. Radio was first used by AT&T not as we use it now, but rather as a broadcast telephone booth that people could use to communicate to others. Advertising-on-the air did not really begin until Albert Lasker, on a show called Amos & Andy, began to announce that the program was sponsored by Pepsident toothpaste with an additive called Irium. AT&T had an idea, it did not work out as expected, while Lasker's idea essentially spanned a new era for advertising. I like to think of Benjamin Franklin as the founder of Internet -- after all, he was a postmaster and pulled down electricity from the heavens. If he'd lived a little longer he would have put the two together and given us E-Mail. But is Internet only a kind of E-Mail? Or is it like the radio, an example of "everything except the idea." Someone is going to make a fortune with the Internet which currently has at least 20 million users. But I don't know who or how. The policy answer of how your industry will continue to reach your audience is something I know a little more about. The key to guaranteeing your success in the information age is in your ability to both attract individual readers or subscribers and to continue to assemble an audience for advertising in the cyberspace of the five-lane information highway or in print. I suspect that the essential interest you have is to have a direct, brand-identified, personal access to your consumers over the information highway. That was true in Ben Franklin's time and it's just as true today. Access is our job. And what's the best way to insure access? That I can answer in one word: competition. Radio did not thrive as an AT&T monopoly. It thrived when it became a competitive business by providing many ways for advertisers to find market segments. The FCC keeps getting proposals to make some new technology a monopoly. For example, long ago, AT&T approached us with an idea of offering mobile telecommunications service through cellular phones for which they estimated there would be market of 900,000 phones at the end of the decade. Well cellular phones today have more than 17 million subscribers and with the advent of PCS, the mobile communications market may grow to include an additional 84 million subscribers. We need to push for competition. That commitment to competition can be found in the U.S. House of Representatives where H.R. 3626 and H.R. 3636, two bills that further competition, were approved overwhelmingly with 423 Yea votes (out of a possible 435). Chairman Dingell, Brooks, Markey and Congressman Fields and members of both sides of the house are to be commended for advancing this historic legislation. These bills establish a series of safeguards that would govern the offering of electronic publishing services by the Bell companies. I believe these safeguards are critical to the future of the magazine industry in the information age. The future of these bills are now in the hands of the Senate. A bill is currently pending in the Senate Commerce, Science and Transportation Committee where it will get marked up by the end of July and go to the floor for a vote. I am optimistic that the Senate will pass the bill that will be reconciled by a House-Senate conference. Congress is currently considering two great issues that will affect the future of our nation: health care and communications. If all goes well, the percentage of GNP spent on health care, currently at about 1/6 of the GNP, will go down. And the percentage spent on telecommunications information and entertainment, also about 1/6 of our current GNP, will go up. The best way to get 1/6 of our economy to continue growing is to push for competition in all five lanes of information highway -- wire, wireless, broadcasting, cable and satellite. All five lanes may be used by publishers to gather information on customers, form groups for the purposes of focused advertising, and possibly approach the ultimate segmented market -- the market of one. Boys' Life becomes each boy's individual life. Passage of telecommunications legislation is no less important than passage of a health care bill. According to the Council of Economic Advisors, passage of legislation like that under consideration will dramatically improve the U.S. economy during the next decade by adding more than $100 billion in 1994 to the gross domestic product (GDP), creating more than 1.4 million jobs, and increasing private sector investment in U.S. telecommunications in excess of $75 billion. Furthermore, it is estimated passage of this legislation will add more than 500,000 new jobs in sectors other than telecommunications between 1994 and 1996. If a bill is enacted, not only will the economy thrive, but so will the magazine industry. In a multi-media world, publish or perish can become plug-in and prosper. You are involved in some of the most important work in our country -- that of creating the information and content that will be carried over the information superhighway. In the same manner that your industry and predecessors played a pivotal role in American history, I know you will play an important role in the information revolution. I hope you'll find time while in Washington to communicate to your Senate friends. With all that the Senate has on its plate, it needs to hear from you why telecommunications reform is needed now. Now the rest of us need to speak up and your voice will make all the difference. I am wildly optimistic about the future. As Benjamin Franklin was fond of saying, "a secret can be kept by three people when two are dead". This is really true. But because you've been hospitable, even while we are all alive, I'll let you in on a secret: this bill can pass.