They were right. Within six months, three of the biggest ever takeover bids had been announced, all triggered by the opportunities and fears raised by multimedia. The shake-out had begun, but how will it end? What will the multimedia industry look like? Who will win, who will lose?
In its narrow sense, multi media is simply the simultaneous display, on a computer or television screen, of a number of different 'media' such as text, pictures, graphics, voice, music and film. This in itself has uses. Multimedia programs stored on CD-I and CD- ROM discs have brought a new dimension to education - a multi media encyclopaedia now contains film clips, for example - as well as extra subtlety to computer games.
But it is the broader sense that brings up dollar signs in executive eyes. Multimedia display is possible because the different media have been digitised, or turned into a common language consisting of millions of binary digits. This process allows the transmission of vast quantities of data down telephone lines - especially if those lines are 'broadband', made of heavy copper or fibre-optic cable.
Optical fibre, which has 250,000 times the carrying capacity of an ordinary telephone wire, still makes up a tiny percentage of any telecom network. It is expensive, and no-one could see any real use for its astonishing capacity.
Until, that is, multimedia arrived. Business people and politicians suddenly realised that the multimedia products available on CD could be sent down a phone line, and that a whole new raft of 'on-line' multimedia products would be feasible if there was a broadband network - an 'information superhighway' - to carry them. These could include home shopping, interactive games, videophones, video-on-demand (films piped down the phone lines), tele-schooling . . . A new industry was in the making.
Companies started to manoeuvre themselves into position. The US telecoms companies believed they could one day be threatened by cable television companies, which already had broadband lines going into homes. At the same time, telecoms and cable groups decided that the value of the material that could be digitised and pumped down the line would inevitably increase. So it would do them no harm, they thought, to own the companies that produced it.
US West, the ''Baby Bell' telephone company based in Denver, paid dollars 2.5bn ( pounds 1.7bn) last May for a 25 per cent stake in Time-Warner Entertainment, which not only owned more films and television programmes than anyone else, but was also the second biggest US cable company.
In September, the cable giant Viacom bid dollars 8.2bn for the last independent Hollywood studio, Paramount. Immediately, there was a counterbid from QVC, the TV home-shopping chain run by Rupert Murdoch's former lieutenant, Barry Diller. After a five-month battle, Viacom prevailed, but only after its bid had reached dollars 10bn. In the course of the struggle, each side brought in a Baby Bell to support it: Nynex of New York would invest if Viacom won, BellSouth if QVC did. In November, Bell Atlantic, the US east coast telephone company, said it was merging with Tele-Communications, the biggest cable company of all. Together they would have sales of dollars 33bn, putting the group at number six in the Fortune 500. The next month, Southwestern Bell said it was linking up with Cox Enterprises, putting dollars 1.6bn into a partnership that would own most of Cox's cable network.
Two weeks ago, Bell and Tele- Communications announced they were calling off their deal, blaming the 'unsettled regulatory climate'. But the pattern is set, and there will certainly be more giant deals.
Sumner Redstone, chairman of Viacom, called his new empire a 'global media powerhouse of unparalleled proportions'. Viacom said it would concentrate on building up its CD-ROM business and would also expand its cable operations. The first vertically integrated multimedia empire - involving a Baby Bell, a cable company and a rich supplier of material - had arrived.
Or had it? There was another group, well-established, that was starting to look increasingly like a multimedia empire. Mr Murdoch's News Corporation owned Twentieth Century Fox, Fox Television and more national newspapers than anyone else in Britain and Australia. He also controlled BSkyB, the satellite channel that provided most of the material for Britain's cable companies. Mr Murdoch said his ambition was to build a 'global highway' - this was the language of multimedia.
Deals have a habit of gathering their own momentum. Many people - notably lawyers and merchant bankers - have an interest in pushing them along, whatever their benefits. But others are already wondering whether groupings that link 'contents providers' with 'pipeline operators' are necessarily sensible.
Vertical organisations run contrary to modern management theory. The ideal company, the consensus goes, does not own its suppliers and outlets, it buys from the most competitive producers and sells through the most competitive retailer.
There is a case for ignoring this theory in multimedia: because there is a limited amount of content, owning it rather than buying it not only ensures access to it, it can also deny access to others. News Corporation owns MASH and can decide which other television companies can show it.
But Jeff Miller, a partner at Andersen Consulting, says this logic is faulty. 'Blockbuster did not have to own movie production studios to become a very successful video distributor,' he says. 'Nor did QVC need to manufacture merchandise in order to become a thriving alternative to traditional shopping.' It is true, he says, that programming will rise in value as companies vie to use it - 'but that prospect does not justify these mergers'.
Nigel Backwith, Andersen's partner in charge of telecoms, believes a new species of multimedia company will emerge but that it should not include content providers. 'If it is to get critical mass, it must be ubiquitous and not tied into a particular brand of content,' he says. The new companies will be co-ordinators rather than proprietors: 'They will buy broadband capacity from phone companies, they will have the software that allows material to be put down the pipe, and they will have sales and marketing operations.'
Telecom companies might have a stake in such groups, but would keep them as arms' length operations. Other shareholders might include advertising agencies and 'systems integration' specialists. These last, which include Andersen Consulting, use their computer expertise to solve complex information technology problems. They will be in demand throughout the multimedia chain: software will be needed to encode the information, to make sure it is sent to the right place in the right form, and to translate it into a useable form at the other end.
It seems that some telecoms companies at least follow Andersen's logic. There has been much publicity about BT's proposed video-on-demand service, by which films would be piped down telephone lines into televisions. But BT stresses it wants to operate the distribution system, including the powerful computers that store the digitised information, but does not want to provide the information itself. It will leave that to the other shareholders in the video-on- demand company - Pearson, London Weekend Television and Kingfisher. Granada, the BBC and a Hollywood studio have also agreed to provide programming for trials.
Deutsche Telekom seems to be following a similar path. It has just announced that it is linking up with Bertelsmann, the media conglomerate, and KirchGroup, a big shareholder in the Axel Springer publishing group. The three are forming a separate joint venture called Media Service, which should eventually distribute pay- per-view, home shopping and other multimedia services.
Where then will this leave today's emerging multimedia giants? If the Andersen theory is right, Viacom will eventually have to dismantle its vertical empire, while News International will have to choose between running television stations and providing content. If it is not, of course, the two groups have a headstart in the race of the multimedia giants.
Meanwhile, other companies are edging themselves into position to take advantage of multi media, while yet others are (or should be) looking nervously at the potential damage it could cause.
If system integrators bring expertise throughout the multimedia chain, another sort of software company could find itself playing a pivotal role at the sitting-room end. Apple with its Macintosh, and later Microsoft with its Windows 'interface', took much of the bafflement out of operating computers. Something similar will be needed for viewers to be able to operate the computer cum television cum telephone of the future without throwing a brick through its screen.
Eventually a standard 'navigation system' is likely to dominate, and Microsoft is hoping it will own it. It is already working with Intel and General Instrument to produce a control box that uses 'Windows Telephony', a specially developed control package.
Nicholas Negroponte, at the Media Lab of the Massachussetts Institute of Technology, believes navigation systems will eventually have to go far beyond an extension of Windows. 'You don't want to click and open until you get the document you want,' he says. 'Instead you would rather press one button and tell the secretary to get the letter.' The secretary will not be a human one, of course, but an intelligent 'personal digital assistant', who will interpret your requests and learn your habits.
'How do you select which movies you want to watch?' Mr Negroponte asks. 'Most often you take the advice of someone you know who will recommend something that really will appeal to your personal preferences.' His sister- in-law plays this role for him so, he says, 'we should spend the next 20 years building sisters-in-law'. The technology needed for a hi-tech sister-in-law is formidable, but whoever develops one should hit a jackpot.
Whether or not they are part of vertical empires, the 'contents providers' will do well out of multimedia, and none better than Hollywood studios. The potential is vast. Their films and television programmes can be digitised and sold on CDs. They can be used for on-line video-on-demand. They can 'chopped up' for use in educational programs.
In the aftermath of the so- called Japanese invasion of Hollywood - Sony bought Columbia in 1989, Matsushita bought Universal the next year - there was much hand-rubbing in the US. The Japanese did not understand Hollywood, they had paid too much, they had - for the first time in their oversuccessful lives - stumbled in the mud.
Now it seems they have not been so silly after all, though more by accident than design. There is no doubt the Japanese did get their fingers burnt in Hollywood, and now there are mutterings that Sony is trying to pull out of Columbia. One of the reasons, though, is that it can get such a good price. As the battle for the control of Paramount showed, studios have become the most desirable beasts in the corporate West.
While only one company can own - and sell - Gone With the Wind, others can produce new high-quality multimedia material, and those that do this will flourish. Many will be in education or entertainment. Bill Gates, Microsoft's founder, has said that more than half his company's revenue will come from multimedia products by 1998. Microsoft has a shareholding in the British publisher Dorling-Kindersley, and the two have jointly produced educational multimedia CD-ROMS.
Multimedia could provide a bonanza for fleetfooted hardware companies. Whoever makes the most successful 'set-top box' - the device to decode and feed digital information into the television- computer - will have a vast market. Likewise, manufacturers of the massively powerful computers that can store and transmit digitised film and other data. US companies such as Silicon Graphics have a clear lead here. Any group with advanced fibre-optic and laser technology, such as Canada's Northern Telecom (which owns STC, the inventor of fibre optics) will also be well placed.
It is a racing certainty that one day the Japanese consumer electronics giants will move in on multimedia in force. But not yet. The Japanese are not strong in software and are happy to follow in American footsteps. 'We are waiting for standardisation,' said Atsushi Asada, vice-president of Sharp, the electronics company.
The list of potential losers must be headed by the video cassette industry. Companies that make VCRs will adapt by switching production to the new hardware, but what of video rental shops? They will have to diversify to CD-ROM rental - as Blockbuster already has in San Francisco.
Traditional media suppliers will be damaged unless they turn the situation to their advantage. People will still buy newspapers to read on trains or planes, but not for the information they need for their jobs. Articles from most serious newspapers are already available on-line and on CD, but with a time delay. Publishers will have to produce instant versions of their papers, which can be tailored by special software to the needs of individuals. People will be prepared to pay more for a two-page tailored newspaper than they will for a 40-page untailored one.
Conventional broadcasters will have to adapt, too. If video-on- demand does establish itself, programmes-on-demand will follow. Oracle, the American software company that is providing BT with its video-on-demand computer, has already announced a 'media server', which will allow viewers to assemble their own timetables. The BBC and CBS may have to sack their continuity announcers, and concentrate on programme production.
If information superhighways are to make economic sense, advertisers will have to be tempted on to them. If 10 lanes are 'freeways' - with traffic paid for by advertisements - the other 10 lanes will not need to raise as much by tolls, the paid-for services.
This will provide a conundrum for the advertising industry, and companies that crack it will grow mighty. Why should anyone look at advertising when there is so much else available? The Americans believe that in the broadband world the 30-second slot will be like a needle in a haystack, and that the answer will be 'infomercials' - programme-length advertisements that viewers actually choose to watch. Creating these will stretch the advertising industry's talents to the full.
Or, advertisements could be tailored so finely that they really do offer the viewers what they want. Using information collected from past on-line shopping sprees, a supermarket might offer a 10 per cent discount on a beer it knows a household likes. If that increased sales by more than a tenth, the supermarket would make money on the deal. Again, the real winners would be the software companies.
Multimedia could be the making or breaking of Viacom and News Corporation. It will also create a new generation of high-flying companies and high-flying people. The next Bill Gates could be Bill Gates - or somebody else. Whoever invents the better on-line shopping mall, or an interactive game that grips the world, will be worth a million or two. Whoever comes up with the 'killer application' - the product that turns interactive multimedia from an intriguing new service into something everyone has to have - will be counting his fortune in billions.
Adapted from Multimedia: Now and Down the Line, to be published in May by Bowerdean Publishing, London, SW15, at pounds 9.95. Fax: 081 788 0938.
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