The Newseum, a $450 million dollar monument to news industry leadership, currently features an Elvis exhibit: “Elvis! His Groundbreaking, Hip-Shaking, Newsmaking Story.” In the business crisis facing the news industry today, something has to be done to raise revenue and support quality journalism. Maybe Elvises (a good investigative journalist could find a lot of them) would serve newspapers better than sensational crime stories.
The frenzy-inducing appeal of Elvis may not be enough to support the Newseum. The Newseum is less than a mile away from the National Museum of American History. The Newseum’s exhibits differ little from the National Museum’s exhibits. The Newseum, however, has much less content. Moreover, the Newseum charges for admission (“$19.95 plus tax” for adults), while admission to the National Museum of American History is free. The Newseum’s economics look relatively unattractive.
I hope that the Newseum doesn’t try to force the National Museum of American History to charge $20 for admission.
In the late 19’th and early 20’th centuries, local investment in telephone networks drove the spread of telephone service in the U.S. Decentralized network investment made the U.S. a world leader in telephone coverage. U.S. telephone development was especially successful in rural areas. Dis-economies of scale in telephone networks help to account for the success of decentralized investment in early U.S. telephone networks.
While economies of scale tend to be abstractly associated with communications networks, actual communications networks can have dis-economies of scale. The number of possible connections in a telephone network increases with the square of the number of subscribers to the network. Then, as now, any given person typically only calls a small number of other persons. Moreover, the number of persons called grows little with the size of the telephone network. However, designing a switching system that realizes the switching economies that human social behavior implies wasn’t possible early in the twentieth century. Because the number of possible connections provided increased with the square of telephone network subscribers, (manual) switching costs rose significantly with the size of telephone networks.
Data for U.S. telephone companies in 1916 shows that dis-economies of scale were quite large. Average operating expenses per telephone rose with the logarithm of the number of telephones that a telephone operating company served. Average operating expenses per telephone for a telephone network serving a million telephones was about double that of a telephone network serving a thousand telephones. The impetus to consolidation in the telephone industry was not technological economies of scale. Small telephone networks were more cost efficient than large telephone networks.
Small telephone companies were innovative organizationally and technologically. Like libraries, telephone companies arose in a wide variety of institutional forms. They included unincorporated businesses, co-operatives, and private corporations. Some grew out of telegraph companies; others combined telephone service with electricity or construction services. The earliest telephone companies that installed automatic switches were small, independent telephone companies.
Economies of scale in communications networks should not be taken for granted. Local soil, weather, foliage, topology, economic demography, politics, and institutional history all affect prospects for local broadband infrastructure. Decentralized investment in local broadband infrastructure might address more cost effectively local heterogeneity than a centralized investment program could. At the level of softer technology, while Facebook is plotting web domination and Ning is in trouble, don’t under-estimate possibilities for social dis-economies of scale in social networks.
* * * * *
Graph notes: The sample plotted is telephone operating companies with > 1000 telephones, excluding companies with “long” or “interstate” in the company name (companies assumed to provide predominately long-distance telephone service). Most independent telephone companies purchased long-distance telephone service from AT&T. Some telephone companies with < 1000 telephones had abnormally high costs per telephone. No over-all trend in cost per telephone is apparent as telephone network size rises from 500 to 1000 telephones, but some indication of declining average cost per telephone appears for telephone networks up to 500 telephones.
 Milton L. Mueller (1997), Universal Service: Competition, Interconnection, and Monopoly in the Making of the American Telephone System (Cambridge, MA: MIT Press) pp. 15-19 notes that early telephone industry analysts recognized dis-economies of scale in telephone service. Asserted demand-side value of “unified service,” meaning having everyone on the same network, motivated calls for large scale, not supply-side scale economies. Miles of wire per telephone rose with the size of telephone networks. While networks with a high number of telephones per working line, e.g. party lines, were typically small telephone networks, the number of telephones per line did not generally increase with network size. The increase in miles of wire per telephone with increasing telephone network size might indicate greater use of two-wire circuits. But the increase in mileage, from roughly 1 mile per telephone for a 1,000 telephone network to 3 miles per telephone for a 1,000,000 telephone network, is larger than a shift from ground-return to two-wire circuits can explain. Whatever the reason for greater wire mileage per telephone with increasing telephone network size, it also undoubtedly contributed to higher costs.
 Fitting a linear regression to the plotted graph implies operating expenses per telephone of $12.5 for a 1000 telephone network and $23.6 for a 1,000,000 telephone network. Aggregate statistics from the telephone census of 1917, which used a slightly different accounting of expenses, are consistent with cost dis-economies. Bell Companies, which averaged 50,530 telephones per operating company, had average operating expenses of $35.6 per telephone. Independent companies, with average size 1,278 telephones per company, had average operating expenses of $19.9 per telephone. For large telephone networks with n telephones, total operating cost is proportional to nlog(n). More recent abstract analysis of communication network value suggests that communication network value is proportional to nlog(n). See Bob Briscoe, Andrew Odlyzko, and Benjamin Tilly (2006), “Metcalfe’s Law is Wrong”, IEEE Spectrum.
Over the past two years, the number of print distribution boxes outside an Arlington metro entrance has increased slightly. In July, 2008, 30 print distribution boxes stood outside the Courthouse/Clarendon St. metro entrance. The number of print distribution boxes there is now 32.
At least six of those boxes have been abandoned. One of the abandoned boxes is for Bit 0′ Lit. As a little respected but highly insightful communications industry economist predicted, that publication lasted only a short time and was defunct by autumn, 2008. Requiring new boxes to post a bond to ensure their removal would raise business costs of entry, but foster cleaner exit. That trade-off seems to me well worth considering.
The four print boxes installed since July, 2008, offer narrowly focused publications. The broadest of these is Asian Fortune. It is an English-language newspaper serving since 1993 the pan-Asian community in the greater Washington area. Two other new distribution boxes offer publications serving family needs: Washington Parent and Pet Lovers Companion. The Washington Post owns the former, while J&K Marketing Inc. owns the later. More narrowly focused content, both in print and online, allows advertising to be more effectively targeted and thus generates higher ad rates.
The most interesting new distribution-box publication is Energy of the City. The distribution box currently contains a 108-page glossy magazine labeled “premiere issue” and dated Summer 2009. This beautifully produced, high-quality magazine is subtitled “Natural Gas Eco-Friendly Design and Lifestyle Magazine.” Washington Gas, the DC-area natural gas distributor, owns the publication. It includes some advertising and some articles that were probably sponsored. It almost surely isn’t a self-sustaining publication. Energy of the City’s website duplicates the magazine, including the sound of pages turning. That approach indicates an traditional media mentality. It shows little appreciation for new-media opportunities.
Print-distribution boxes located in public thoroughfares provide a valuable information distribution network. Just as for on-street information kiosks, figuring out how to better use print-distribution boxes in our new media circumstances is an important challenge.