Sarnoff’s Law

The first law in this series on ‘Internet Laws’ has nothing directly to do with the Internet. It deals with what came before. And that’s important, because, while few people have heard of Sarnoff’s Law, David Sarnoff was one of the first people to consider the value of media networks. His thinking helped value and define the world of broadcast media in the same way that laws like Moore’s and Metcalfe’s Law have defined digital media and networks – the subject of the next few posts in this series.

Sarnoff’s Law

Sarnoff’s Law is simple – it states that the value of a broadcast network increases in direct proportion with the number of users. So if a broadcast network of 10 users is worth £100 then a broadcast network of 100 users is worth a £1000. This may not seem hugely profound now, but the value of radio networks was a matter of intense debate at the time. In much the same way, in fact as recent debates about the value of digital networks like Facebook and Twitter. An understanding of why and how broadcast networks are valued helps us understand why and how digital networks are valued.

David Sarnoff

David Sarnoff was a giant of the broadcast era. He started working for the radio pioneers the Marconi company first as an office boy, rapidly rising through the ranks as the medium grew to become one of the company’s most senior managers. He left Marconi to help found RCA for GE, running it from its founding in 1919 until a year before his death in 1971, building it into one of the largest media and electronics companies in the world at the time. Under Sarnoff’s tenure RCA helped to invent colour TV, videocassette recording and the 8-track. It also owned and ran broadcast networks including NBC and ABC.

The value of the radio network wasn’t an abstract debate. At it’s heart was a contentious argument about the relative values of different applications of the technology.

Many people at the time thought that the real value of radio was as a peer-to-peer communication system, e.g like ham or CB radio where everyone has a set and talks to each other.

Sarnoff however, believed that the real economic value didn’t really lie in its peer-to-peer application, he believed that it lay with its broadcast application – where one person could speak to many.

And while he was not the only person to believe this, he was probably the most significant one – in his role as the boss of RCA Sarnoff was in a good place to influence GE’s approach. However, despite lobbying his superiors at GE hard he was largely ignored, with many people still believing that radio’s primary application was as a person-to-person communication tool. (Incidentally, there was a big boom in mobile phone start ups around this time as people tried and failed to solve the issue of portable wireless telephony.)

However, Sarnoff wasn’t one to take no for answer, and set about trying to prove his bosses wrong. Home radio sets were just becoming affordable – and Sarnoff knew that people would tune in to the right type of content, all he had to do was find something that everyone wanted to tune into. Enter the Manassa Mauler.

The Manassa Mauler

Jack Dempsey, The Manassa Mauler, remains one of the most iconic boxers of all time – he was the Muhammed Ali of his day – someone who transcended his sport to become a major popular cultural icon of the era.

Sarnoff understood his appeal and decided to take gamble on staging and promoting his next big defence of the World Heavyweight championship against the Frenchman Georges Carpentier in July 1921.

The event was broadcast live with over 300,000 tuning in to hear Dempsey successfully defend his world title. This was almost double the previous audience record for broadcast radio. It also drove a sudden spike in demand for home radio sets to listen to the fight. (A similar thing happened in the UK with TVs and the Coronation of Queen Elizabeth II in 1953.)

By the next year it was clear that Sarnoff’s prediction that broadcasting was the ‘killer application’ for radio was correct. This gave him a great deal of power and influence within RCA and later in the industry as a whole.

Having established that the broadcast application of radio was more valuable (or at least more immediately valuable) than the peer-to-peer application, it’s unsurprising that Sarnoff formulated a law to attempt to explain the value of broadcast networks. He pretty much presided over the commercial launch of both radio and TV in the US, and spent most of his intimately concerned with the commercial value of the networks. So while Sarnoff wasn’t the inventor of broadcast media, he was intimately involved in the early years.

The Significance of Sarnoff’s Law

Sarnoff’s Law is not well known or understood outside academia and a few small sections of the industry. It never entered public consciousness like, say, Moore’s Law.

However, the underlying assumption about the linear nature and value of networks is baked into the way that the broadcast era economy is constructed. This clear, linear relationship between users and value makes planning investment and cost models relatively simple. For example, you know can precisely calculate the value of a network based on the users it has and the value they generate. Sarnoff’s Law helped define business models for broadcast networks, sponsors and content producers. It helped build the worlds of media, advertising and with that the consumer economy.

Yesterday’s papers

And as I mentioned at the start of this post, questions of network value are a matter of considerable ongoing debate. Over the last few years our news has been full of stories about the value of networks. Whether that’s Facebook $100 Bn IPO or the sale of smaller networks like Tumblr, Instagram or Snapchat.

Sarnoff’s Law does not apply to the digital era. He lived in a world in which enormous power was held in the hands of network owners. And while network owners like Facebook and Google are still very powerful, it is a different type of power, with a different type of value. In digital networks people are connected to one another and it is the value of these peer-to-peer connections that have changed the way in which networks are valued. As I’ll explore over the next few weeks, digital network values no longer conform to the linear relationship between the number of users described by David Sarnoff. The value of digital networks is calculated in different ways.

None of this goes any way to belittle the significance of David Sarnoff or Sarnoff’s Law – he was one of the first people to consider and attempt to quantify the value of media networks. His conclusions helped describe and define the media environment that dominated the 20th century. The nature and value of broadcast media is one of the defining features of the twentieth century in the same way that the digital networked economy defines the 21st century. Understanding how analogue broadcast media networks helps us understand how digital networks are valued. Value which is changing our world in different but equally profound ways as broadcast networks changed David Sarnoff’s world.

TL;DR

Sarnoff’s Law describes a linear relationship between users and value for the big twentieth century analogue broadcast networks. Understanding how these networks were valued helps us better understand how new digital networks are valued.

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