The biggest stories of my career —

One of the biggest stories of my career — as someone who covered telecom industry — happened fifteen years ago: The 1996 Telecom Act was the start of the liberalization of an industry that had been vertical with very little competition. What followed was an amazing transformation of the staid calling industry — not necessarily for the better.

The basic tenets of the 1996 Telecom Act

One of the basic tenets of the 1996 Telecom Act was unbundled access to the telecom facilities of the local phone companies, which meant competing phone companies could access the so-called “last-mile” that led to people’s homes over the incumbent carrier’s network. The change in law created an insane amount of competition, and turned the economics of the business on its head. It led to kamikaze-style pricing of phone minutes. Voice had been the primary source of revenue for phone companies for near a century.

The increased competition was coupled with the arrival of Internet and Internet-based telephony. That allowed rivals just as cable companies to furthermore take away voice clients. Skype, Vonage and others only added to the phone companies’ misery. Today, phone companies are happy to give away voice-minutes as long as you buy data from them.

The crowded Virgin America red-eye flight to New York

Mostly because as I sit in the crowded Virgin America red-eye flight to New York, I’m thinking about the media business and the parallels I see between it and the media industry. In the media industry, we’re seeing an unbundling of a highly vertical business, with the most lucrative parts being siphoned off by Internet-based low-cost rivals.

When competition got too intense, different types of media companies merged. It was something that made perfect sense. Time Inc., CNN, HBO — all became Time Warner — and it was a good example of such cross-platform synergy. When they applied the same logic to Internet by buying AOL, it blew up in their face. You’ll see why.

The media companies as creators of media

Many of us confuse the media companies as creators of media and content. In reality, their barrier to entry was ownership of distribution platforms. Such as telecoms of the past maintained their nearly monopoly by controlling the last mile of the network, the media companies maintained their money machine by controlling the distribution network: trucks, radio waves and television frequencies. The arrival of cable loosened their grip, now not as much.

Then came the Internet, which meant the distribution network was no longer in accordance with control of a select few. This saw the rise of new media entities just as CNET And such as the distribution network was accessible to all, new open-source tools just as WordPress came to market, making it easy for anyone to become a publisher of their own newspaper. With that began the great unbundling of the media business: something which continues today.

In the past, a typical big city newspaper would have multiple elements: national and international news, sports, entertainment, business, travel, food, and real estate. These segments would bring in readers, which in turn would get the much-needed advertising dollars.

For sports, you don’t need the back page; taking everything into account, you have SBNation, DeadSpin and ESPN. For innovation news, you have TechCrunch; for analysis, you have GigaOM. For food-related stuff, you visit Zagat, Yelp, Epicurious, FoodSpotting and Foursquare. When it comes to entertainment news, PopSugar, Gawker, and thousands of other sites will keep you as busy as you want. Classifieds are for Craigslist. The brand advertising has followed, decamping from the pages of newspapers and television screens to these new media entities. In a post last fall, I wrote:

The needs of a new kind of information consumer

Because these new media are attuned to the needs of a new kind of information consumer, it’s hardly a surprise that media’s single largest source of earnings — advertising dollars — are getting sliced and diced in pursuit of this elusive, always transforming, info-savvy media consumer. Unfortunately, the media is used to selling page views, impressions and massive audiences: metrics as archaic as drinking on the job and smoking in a doctor’s office.

In 2005, the newspaper industry had revenue of around $47 billion. Today, it is half that amount. The radio and television industry have gone through the same compression. TV advertising declined 21.2 percent from $52 billion in 2008 to $41 billion in 2009, and fell a furthermore 12 percent in 2010 according to the Yankee Group.

Today, no one cares if Rupert Murdoch’s Fox Network or the USA Network carries House. What matters is House. The show has been unbundled from the distribution network, which in turn has shifted the value to the show and the not the distribution platform.

The traditional model work online?

Why doesn’t the traditional model work online? Finally, the web is too fragmented, too loosely coupled, and too nascent to fit comfortably into a media conglomerate as they exist today.

That CPM has become a millstone around the industry’s neck in this new Internet-centric environment, which has a lot more transparency Today’s media industry, regardless of individual companies’ businesses, is a slave to page views and video views. Demand Media and the AOL of today are no different from the low-cost and flat-rate VoIP (Voice over Internet Protocol) providers: selling cheap, search-optimized pages for nano-pennies.

And such as SMS, IM, Facebook and Twitter started to siphon away conversation minutes away from the traditional phone system, we are seeing something similar happen to the media industry as so then. The chase for page views is going to face a whole different set of challenges from the likes of Facebook, Zynga, Netflix and Twitter. These services are siphoning off attention from what we have so far known as media.

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