How Transistor Radios and Web (and Newspapers and Hi-Fi radio) are Alike

Reprinted, with permission, from The Cole Papers, June 22, 2005

By Rich Gordon

Fifty years ago next month, Consumer Reports magazine brought news of an intriguing product: the first transistor radio small enough to fit in your pocket. The Regency TR-1, manufactured in Indianapolis using technology perfected by Texas Instruments, was a feat of American engineering know-how. But in its July 1955 issue, Consumer Reports was not impressed.

“Though its transmission of speech was adequate under good conditions, its music transmission was quite unsatisfactory under any conditions,” the magazine wrote, criticizing the radio for hissing, whistling, squealing and doing a poor job of replicating bass notes. “At low volume the sound was thin, tinny and high-pitched and at higher volume the distortion increased.”

In short, the TR-1 was a lousy radio. But it set in motion a chain of events that ultimately would upend an entire industry — the proud American radio manufacturers that just a few decades earlier had brought the world into the broadcast age.

The story of the TR-1 resonates today because of the striking parallels with the recent history of the news industry. Perhaps by understanding what happened with radios we can gain some insights into technology changes we can see happening around us.
Except where otherwise noted, this history of transistor radios is derived from The Portable Radio in American Life, by Michael Brian Schiffer (The University of Arizona Press, 1991).

The fact that the TR-1 had poor sound fidelity is noteworthy not just because of the way its history illustrates the relentless march of technological improvement that has characterized the past half-century. It also helps explain why American radio manufacturers — Westinghouse, RCA, Zenith, GE, Raytheon — didn’t channel more resources into making portable transistor radios.

The American manufacturers had built their fortunes making radios powered by vacuum tubes, an older technology that produced high-quality sound but could not easily be shrunk to portable-radio size. By the 1950s, most American homes had several radios, including at least one large one, often crafted from beautiful polished wood, that the entire family could gather around — and be proud to show to friends and neighbors — in their living room.

Although American companies invented the transistor and were the first to build a “shirt-pocket radio,” it was Japanese companies that capitalized on the new technology. Leading the way was a tiny company called Tokyo Telecommunications Engineering Co., that would put out its first transistor radio — not small enough for a pocket — in August 1955.

Tokyo Telecommunications needed a brand name for its radio and came up with the short, but catchy, word Sony. A couple of years later, the company would adopt Sony as its corporate name.

By the late 1950s, Sony had been joined by dozens of other Japanese companies that competed with each other to produce an enormous variety of small transistor radios.

“To American radio makers, the shrinking derby made no sense for consumer products; smaller products would simply sound tinnier,” Schiffer writes.

Furthermore, profits on the tiny radios were small, price competition was feverish, and the U.S. electronics industry was achieving record profits with high-fidelity radios, black-and-white TVs and military contracts for electronic equipment. U.S. companies were also “gearing up for a big color TV push,” which promised revenues and profits much larger than portable radios offered, Schiffer says.

Made in Japan — 94%
The American manufacturers’ lack of interest in the portable radio market is interesting considering how quickly the market was growing. Sales of portable radios in 1958 exceeded 5 million. Two years later, that figure had doubled. In 1965, Americans purchased more than 21 million portable radios. Ninety-four percent were made in Japan.

The rapid growth in sales was not fueled by the consumers who had bought the earlier generation of high-fidelity radio consoles. Sony’s march to dominance in consumer electronics was, instead, driven by a uniquely American phenomenon: rock ‘n’ roll.

“When the Regency TR-1 debuted in late 1954, Elvis Aron Presley still made a living driving a truck,” Schiffer writes. “Rock and roll was not yet a household word, much less a big business. Largely because of Elvis, that would soon change.”

The postwar Baby Boom generation responded powerfully to rock music. Bill Haley’s “(We’re Gonna) Rock around the Clock,” released in 1955, became the first rock record to hit No. One on the Billboard charts. Elvis charted his first No. One single in 1956. Radio stations, led by Wins in New York City, adopted rock formats. “Top 40” stations popped up in every major market in the nation.

While young people were tapping their feet (and, scandalously, swiveling their hips), their parents were none too pleased to hear their raucous music blaring from their living room consoles. “Small transistor portables, equipped with ear plugs, elegantly solved the rock and roll problem,” Schiffer says. “By bestowing these radios as gifts, parents could wall off the offending music, insulating themselves from its erotic drives.”

The transistor radio’s portability also drove its popularity among a generation of young people who came of age in the 1960s. Foreshadowing today’s earbud-wearing iPod users, teenagers and young adults in the 1950s and 1960s were able to take their music with them wherever they went.

American manufacturers, through their own inaction, allowed Sony and other Japanese companies to serve this growing market. They could make more money on black-and-white TVs, then color sets. And they didn’t think the Japanese firms could become competitive any time soon in the TV market.

Of course, they were wrong. Japanese companies ultimately were able to make TVs as well as — and ultimately, better than — American firms. The foothold they established with transistor radios ultimately enabled the Japanese manufacturers to dominate the world market for consumer electronics. At least part of the reason was that the teenagers of the 1950s and 1960s came to trust brands like Sony and Panasonic; when they got older and had money for stereos and TVs, they kept buying Japanese.

The story of transistor radios is a perfect case study in “disruptive technology,” a concept popularized in the 1990s by a Harvard Business School professor named Clayton Christensen. Christensen’s book, The Innovator’s Dilemma, published in 1997, was widely read during the dot-com boom.

In that book and two others published since (The Innovator’s Solution and Seeing What’s Next), Christensen says disruptive technologies follow a common pattern:

They generally produce inferior performance based on the prevailing standards of the market (for instance, lousy sound compared to vacuum-tube radios).

They enable products that appeal to a new, underserved group of customers (teenagers rather than their parents).

The new products — and markets — are less profitable than the ones attracting the attention of leading companies (American radio manufacturers), so they don’t compete vigorously.

While the traditional market leaders stand by, companies that capitalize on the new technology (Sony and others) keep improving it until it becomes competitive with its predecessors.

The traditional market leaders fail to adapt to the new technology, their sales plummet, and a new generation of market-leading companies is born.

Cautionary tale
For the newspaper industry, confronting the technologies of the Internet, the story of the U.S. radio industry should be cautionary. The parallels are powerful, and the disruptive technology framework quite useful in understanding what we see taking place in our society.

A web site is inferior in many ways to the newspaper. It is a poorer medium for reading. It’s harder to scan and browse. And as so many have noted, you can’t take it to the bathroom (or you couldn’t until WiFi).

Yet, it’s clear that a new generation of consumers prefers web sites to newspapers, because this generation values different things in media. Last year, the Online Publishers Association’s “generational media study” found that young adults 18-34 consider the Internet their first choice for weather, sports scores and stories, national news and breaking news. Older adults (35-54) were less likely to turn to the Internet first for these types of information.

It’s not that young people distrust newspapers. In fact, according to the on-line group’s study, young adults trust newspapers more than older adults do. (Fifty percent of those 18-24 agree that “I trust the news I get in newspapers,” compared to just 35 percent of 35-54-year-olds.) It’s just that young adults don’t consider newspapers important to their lives.

Just 17 percent of people 18-24 say “Reading the newspaper is an important part of my day,” the study found. Among those 35-54, more than twice as many (38 percent) agreed with that statement.

As today’s young adults get older, it seems quite clear that their on-line and print usage habits will remain different than those of their elders. Like the young adults who kept buying Japanese consumer products as they got older, they are likely to keep relying on the Internet for news and information.

Some might argue that the parallel between the radio industry and the newspaper industry is imperfect because a radio is a device for conveying content, while newspapers are in the business of creating content. But that’s exactly the wrong point of view. Newspapers’ problem in the Internet age is not, mostly, their content. It is, instead, the package (or device) the content comes in that compares unfavorably to the Internet in the eyes of young people.

Hence the imperative for the newspaper industry: engage young adults on the Web. There are some encouraging signs. Newspapers across the country have launched new products for young adults, usually new print editions (weekly and daily) that have strong on-line components. And a surge of investments in Web properties (The New York Times Co.’s purchase of About.com, Dow Jones’ acquisition of Marketwatch.com — there have been no fewer than six major web investments by traditional media companies in the last seven months, totaling almost $1.6 billion) suggests that the newspaper industry is recognizing the need to compete in the electronic marketplace.

At the same time, though, there are indicators that the newspaper industry is making the same mistake that the radio industry did: focusing on the traditional customers who deliver the highest profitability. The most frightening indicator: the newspapers’ extraordinary on-line profits.

According to Borrell Associates Inc., a Portsmouth, Va.-based consulting firm specializing in local media strategy, newspapers claimed an average profit margin of 68 percent on their on-line operations last year. This is partly because most newspapers aren’t allocating the full costs of running a web business to their on-line bottom line. But it’s also because they are concentrating on the Web as a vehicle for serving the same customers they make the greatest profits from in print — classified advertisers.
Christensen’s framework suggests this is typical behavior for a market-leading business confronted by a disruptive technology. Rather than capitalize on the technology to serve a new consumer market, traditionally successful companies seek first to use it to enhance their services to their traditional customers.

Newspapers that take disruptive technologies seriously should, instead, be creating new interactive products geared to young people. And web sites are only part of the picture.

After all, thinking back to the lessons of rock ‘n’ roll radio, portability may be the most important media attribute for young people. And a new generation of portable devices — cellphones, iPods and PlayStation Portables — might be today’s transistor radios.

For more information on the Regency TR-1, Dr. Steven Reyer of the Milwaukee School of Engineering has produced a fabulous Web site at http://people.msoe.edu/~reyer/regency/. I am indebted to Dr. Reyer for the photo of the TR-1 (a radio from his personal collection).

Posted June 24, 2005 02:41 PM