Thursday, January 8, 2015

Did an Understanding of Moore's Law "Save" the 1980s Cable TV Business?

Did an understanding of Moore's Law "save" the U.S. cable TV industry in the mid-1980s, in the same way Moore's Law enabled Microsoft and Netflix?

Maybe so.

Most will agree that it matters greatly whether Moore’s Law continues at historic rates or whether bandwidth advances continue at historic rates. 

The reason is that so many businesses implicitly or explicitly embed such assumptions into business models and expected or potential rates of growth.

And the continuation of that trend has been highly contestable. For three decades, observers have predicted that the rate of improvement simply could not continue, as we would reach the limits of our ability to etch smaller pathways onto silicon substrates. Optimists have countered that we would begin working with different substrates.

Stubbornly, Moore’s Law has, so far, defied projections. Over the past three decades, big businesses, and big bets, have been contingent on Moore’s Law.

Perhaps the biggest early bet was made by a few in the U.S. cable TV industry.

Way back in the 1980s, proposed high definition TV standards threatened to choke off growth of the U.S. cable TV industry, for example.

Still a smallish industry of possibly $30 billion annual revenues, initial standards proposed by Japanese electronics interests and over-the-air broadcasters would have severely disrupted the cable industry’s business model.

At that time, Japanese suppliers dominated and lead the TV set business, and cable operators were struggling with the cost of supporting complicated in home installs of cable, plus TVs, plus off-air antenna service, plus videocassette records and multiple remotes.

All that complexity generated consumer unhappiness.

At the time, the proposed HDTV standards were partly analog, partly digital and might have required about 45 Mbps of bandwidth per channel, at a time when cable access networks were set up to use 6-MHz channels.

In addition to requiring completely new electronics across the network, some also suggested the initial standard would not last more than five to 10 years, requiring yet another “rip and replace” investment cycle at the end of that period.

Astute cable TV industry executives knew they could not easily afford to make major upgrades twice within 15 years. Consumer electronics suppliers would win, because they could expect two waves of device replacement (consumer and industrial) within 15 years.

Broadcasters might also have reasonably assumed they would gain strategic advantages over cable TV, then seen as a direct competitor. Also, given the growing trend to greater realism in TV image quality, the quality of the existing product would be enhanced, at less cost per TV station than a cable operation would face.

Enter Moore’s Law. Few experts at the time believed it was possible to move directly to an “all-digital” form of HDTV, in one step, and yet retain the standard channelization. The reason was simple enough.

Decoding such a signal, massively compressed and processed, would require the equivalent of a mainframe computer in the home.

The issue, though, was whether Moore’s Law actually would continue to improve at historic rates, and therefore provide affordable mainframe computing capabilities. Most believed that unlikely. But a few did bet on Moore’s Law continuing, which would make possible a consumer decoder at a price that, while significant, would still allow cable operators to support HDTV.

To make a longish story short, Moore’s Law remained intact, and it indeed was possible to compress a 50-Mbps “raw” data stream into 6 MHz of bandwidth.

Some would say, in that instance, Moore’s Law “saved” the economics of the whole U.S. cable TV industry.

Some also would note that Reed Hastings of Netflix made a bet on Moore’s Law as well. Earlier, some would argue Microsoft was built on an understanding of the implications of Moore’s Law. What a business could like like if computing or bandwidth were free is the key question.

For Gates, the key assumption was that Moore’s Law would make the cost of computing hardware a non-problem for a software supplier, and also would create huge new markets for computers.

For Hastings, Moore’s Law, as embedded in Internet access prices, would make possible streaming services even lower in cost than mailing DVDs using the postal service.

The point is that, sometimes, a big forecast on a key trend can enable a whole new industry or business, or perhaps save a whole industry or business.

Most other attempts to quantify the future also are subject to uncertainty. So forecasting errors always are possible. In fact, they might be the normal state of affairs.

Philip Tetlock's Expert Political Judgment: How Good Is It? How Can We Know? found that “specialists are not significantly more reliable than non-specialists in guessing what is going to happen in the region they study.”

Sam L. Savage’s The Flaw of Averages points out that plans based on average assumptions are wrong on average, because uncertainty in life is much more pronounced than people generally assume to be the case.

Nassim Talib’s The Black Swan likewise deals with the powerful impact of unpredictable and unexpected developments.

In fact, some would go so far as to say that forecasts always are wrong, to some degree. That isn’t necessarily a bad thing, as minor fluctuations along a predicted trend line nearly always happen. That is true of most economic forecasting, some argue.

That doesn't mean people will stop listening to forecasts, or that experts will fail to make them. Occasionally, though, big bets are made based on such forecasts, no matter how inaccurate forecasts might be.

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