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Video demand or supply: which came first, the chicken or the egg? - includes related article

Communication World - March 1, 1994

Irving Berlin's famous song "There's No Business Like Show Business" was no doubt right when written. Not any more. These days all business is show business, more or less, thanks to the long-awaited emergence of TV as a company tool.

Today's driving forces are both internal and external: vast changes in the ways companies structure and manage themselves -- and market opportunities with a legion of new business products and services. It's hard to decide which driver fuels the growth in business video most.

Consider the absolute essence of the corporation. More than a decade has passed since the corporate world began its spasm of reinventing itself to meet global competition. Companies have picked up every buzzword concept: restructuring, downsizing, changing the corporate culture, searching for excellence, empowering employees, re-engineering.

Yet so far, too many middle managers still suspect that for all the fancy words, the biggest cultural change in business is the fact that nobody's job is safe anymore. Nearly all the big top-down conceptual changes peter out too near the top.

This is changing now as business communication finally comes of age. An astute observer of business trends, William R. Dunk, puts it this way: "Re-engineering an entire company absolutely requires effective mass communication. You could do a plant or small division with face-to-face meetings. But you can't reach 25,000 people in 100 locations without mass communication, and you can't have that without business video. Paper and ink can't do the job alone, nor do it right. Luckily, the tools are finally economical enough to let companies do the job." Thirty years ago, Marshall McLuhan said television would revolutionize business along with everything else in his predicted global villages. Yet as communication technology exploded and satellites speckled the sky, the growth of business video lagged far behind the industry's rosy expectations. What is different now comes as the result of two transformations.

First, the economic bottleneck that has stopped the fall in the cost of satellite broadcasting has been overcome by a breakthrough in technology. Second, we are seeing an explosion in new uses of television as a corporate tool.

Not just for cultural change and management transformation -- but for training, for rolling out new products, for almost anything a corporation needs to do with its people. Moreover, corporate America's wave of out-sourcing more and more functions has turned video into a powerful ally as outsiders take over and deliver those wares. A new army of independent program suppliers has been born. Electronic Data Systems, a pioneering fount of data management expertise for large corporations, is also a leader in helping companies use the new opportunities in business television. J. Keane Taylor, who runs EDS Video Services for this General Motors affiliate, explains the two-fold technology breakthrough: "Compressed digital video has slashed the cost of transmission, while narrow-casting to very small aperture terminals (VSATs) has slashed the cost of reception."

Digital signals are nothing new. NASA has been showing us close-up digital photographs of the planets for years. The breakthrough comes in delivering good full-motion digital video pictures from only a fraction of the original digital bits. The principle is much the same as that which reassembles your telephone voice from just a portion of your original sounds. That compression allows more than one call to use the same telephone wire. Many more, in fact. Doing this with video, however, is a technical breakthrough of much higher complexity -- with far greater economic worth.

A technical and market leader in digital compression is Compression Laboratories, Inc., whose chief scientist, Wen Chen, Ph.D., is the father of full-motion digital video. CLI's chairman, John Tyson, is a widely respected industry spokesman who cuts through the fascinating scientific chatter. "The power of good digital compression is purely economic," he says. "Broadcasting business video now costs one-eighth, and often far less than an eighth, of what it used to cost. We've broken the bottleneck for transmitting business TV." At the reception end, VSATs are now a decade old, even preceding today's elegant new digital compression. VSATs have brought down the reception hardware cost to a point where companywide networks are economically feasible. Corporate managers wanting to know about VSATs talk to Gene Cacciamani at Hughes Network Systems, another GM affiliate. This leader in VSATs grew out of the late Howard Hughes' treasure of high-tech defense manufacturing. Cacciamani, a Comsat Labs alumnus, uses the auto industry to exemplify the growth in business video. Chrysler's network now has more than 5,000 terminals, and GM's numbers 10,000. Lexus and Toyota also have built networks. Cacciamani says: "The power of these networks is that once they're in place, you can use them to fill as many needs as you dream up in your company."

Wal-Mart pioneers video

One pioneering VSAT user was Wal-mart stores. In the late 1980s, Sam Walton began turning his famous weekly store visits into simultaneous meetings with his thousands of stores by video, instead of going to each one in person.

Understanding all these changes may be like trying to decide which came first, the chicken or the egg. Was it demand driven: the business revolution leading to new business video? Or was it supply driven, with technology galvanizing the markets for its wares?

Back in McLuhan's day, business TV began with companies creating videotapes to ship to various locations for showing on tape deck television sets, a practice nicknamed "Pony Expressing." The brokerage house, Merrill Lynch and Company, was an example of this in the early 1970s. In the infancy of live business video, expensive live transmissions were reserved for crucial management meetings. These teleconferences were usually two-way broadcasts between two or a few more sites via satellite; not programs, but electronic decision-making meetings. Executives of globe-straddling oil companies, for instance Exxon, Shell and British Petroleum, nodded into television cameras with each other across the planet, becoming the business world's version of that horror of television news: "talking heads." Ross Perot's famous political broadcast charts, and Ronald Reagan's before him, grew out of the business world's need for executives to keep from putting each other to sleep. At least charts show each other what they're talking about.

As successive oil price shocks rocked world economies, satellite-fed videoconferencing was touted as a way to save expensive travel costs when managers gather to meet face to face. But they failed to reach their early growth expectations.

Costs start to come down

As more satellites were orbited, the cost declined through competition. But the floor -- the bottleneck -- was reached at approximately U.S. $125,000-$150,000 per month for each video channel. This was because the satellite's working elements, the transponders, were filling up with analog transmissions as business flooded them with video as well as electronic data communication. There never seemed to be enough transponders to break the cost bottleneck at the satellite.

Transponders can use digital as well as analog signals, of course. But in its own infancy, digital compression could not deliver acceptable video quality without too meager compression. It could not free up sufficient transponder space to be space effective.

The new generation of digital video compression multiplies the number of channels which can be jammed into each satellite transponder, expanding the capacity of each satellite transponder exponentially without additional cost. This brings the transmission cost down to U.S. $10,000 $15,000 per month, with the consequent explosion in economic uses and potential demand.

As a result of the cost reduction at both the transmission and reception ends of the chain, more companies now can afford to use business video to reach entire employee populations with vastly more kinds of information. In fact, this cost breakthrough has launched a new industry sector. Now packagers of specialized training programs economically create small, inexpensive satellite networks -- finding niches to sell their wares to corporate and institutional customers. Next time you hear the term "narrowcasting," think of these. Westcott Communications is a leader in business video's niche network market. It already offers 18 separate targeted networks. Average cost per subscriber depends upon facility size and subscription period.

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