Forced to Make Money? AT&T, Newspapers and Bezos

Here is an interesting statistic. In 1985, right at the forced breakup of AT&T, their revenues were $1.36BN, or $2.47BN in inflation-adjusted 2005 dollars, according to the official government CPI calculator. But in the same 2005, AT&T had revenues in the voice segments alone of $24BN!

What happened in that intervening 20 years? Simple. The government forced a breakup of the AT&T monopoly. It shouldn’t be too surprising; after all, the monopoly was largely government created and enforced in the first place. Because of the breakup, new firms entered the long distance and local exchange markets. With competition, services went up and prices plummeted. In 1985, people regularly paid premium prices for long distance calls. I remember making calls at $1/minute or more. By the 2000s, people paid $20/month to Vonage for unlimited local and long-distance, or $0.02/minute for calls anywhere across the US.

With massive drops in price, the carriers were forced to become even more efficient, essentially making reasonable margin on drastically lower prices. And yet, because of the lower prices, usage (“adoption”) increased dramatically. Not only did this improve the quality of life of hundreds of millions of people, as well as enabling vastly new businesses – could catalog companies exist or be profitable without it? – it turned into a bonanza for none other than… AT&T!

One of my favourite bloggers, Fred Wilson, noted how the delivery mechanism for newspapers, carrying heavy papers on the backs of Ford pickups, is incredibly inefficient, and should have higher costs relative to digital delivery. Yet, despite the high costs of physical newspapers, digital is nearly as expensive as a physical newspaper or paperback book.

The marginal cost of an e-book or e-newspaper is, essentially, zero. The “content owners”, i.e. publishers, are loathe to give up the high revenues, margins and profits inherent in the high price of digital newspapers – even the usually digitally savvy Wall Street Journal raised its monthly prices to ~$23/month, driving many customers away. They are, essentially, living in the 1950s, even using digital delivery methods. They are stuck in the telco world of 1985. Despite the massive availability of information on the Web, people are ready, able and willing to pay for quality, edited, structured content. But their alternative is no longer “newspaper or nothing.” They have a choice.

The moment newspaper publishers realize their opportunity, they might actually turn it around. But it would take a visionary who understands how technology creates new delivery opportunities, higher margins, and hence the opportunity to drop prices, drive adoption and operate very profitably. Anyone know of someone like that who might get into the news business?

About Avi Deitcher

Avi Deitcher is a technology business consultant who lives to dramatically improve fast-moving and fast-growing companies. He writes regularly on this blog, and can be reached via Facebook, Twitter and avi@atomicinc.com.
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