August 11th, 2007

The Case for Freeing the WSJ Online

By Catherine Holahan
Business Week

Ever the risk-taker, Rupert Murdoch may be planning to gamble the newspaper's significant Web subscription revenues on the growing Internet ad market

For The Wall Street Journal Online, going free will come at a high cost. The daily financial newspaper is one of the few major publications to successfully charge for access to most of its online content, earning roughly $79 a year from each of its nearly 1 million Web subscribers. Once incentives and other free offers are taken into account, some analysts estimate that the paper will bring in more than $65 million this year from WSJ Online subscriptions alone.

But soon-to-be owner Rupert Murdoch seems willing to sacrifice that revenue in return for the possibility of earning many millions more from online advertising. In an Aug. 8 earnings call for News Corp. (NWS), which plans to acquire Journal publisher Dow Jones (DJ) for $5.6 billion, Murdoch said both companies are debating making free, though there are no concrete plans yet. “I think it would be an expensive thing to do in the short-term. In the long-term it may be a wonderful thing to do,” said Murdoch.

The dominant strategy among online publications is to attract as many millions of visitors as possible with free content, then leverage that mass audience to run ad campaigns for big brands. It’s easy to see why newspapers have chosen this route with all the advertising dollars flowing online.

Competing for Online Ad Dollars

Analysts expect that the U.S. online ad market will swell from about $17 billion this year to between $26 billion and $30 billion in 2011. In June, JupiterResearch estimated that this market will grow more than 20% in 2007, after expanding 40% last year. A significant amount of that growth has come at the expense of print advertising, which has been declining rapidly for several years, including a drop of more than 6% in the first quarter from a year earlier. Print subscriptions also have suffered with people finding they can get news from a variety of free online sources, including new, online-only publications, professional blogs, and news aggregation sites.

Even prominent publications such as Gannett’s (GCI) USA Today and The New York Times have decided that offering most, if not all, of their content for free is the best way to successfully compete for ad dollars against the myriad of other free online news sources. Before launching its online site, USA Today executives briefly considered charging for subscriptions, says Chet Czarniak, the site’s managing editor. That idea was quickly abandoned. “From time to time there may be a discussion about charging for content, but it has never really taken serious hold,” says Czarniak. “So much content is free and I think that a lot of times if you put a price tag on it, there is a good chance someone will go elsewhere.”

The Journal has succeeded in selling subscriptions in part because its financial analysis is widely considered unique and more timely than what is available for free. “Luckily, we enjoy this position of having this great content that people want to pay for,” says Daniel Bernard, general manager of The Wall Street Journal Online. “We are a must-read for people.” That prestige is one of the reasons Murdoch wanted the Journal to begin with (see, 5/14/07, “Crazy Like a Fox").

Subscription vs. Ad Revenue

Still, other leading papers also widely regarded as must-reads have adopted a largely free online model. More than 97% of The New York Times is available, for free, on its Web site. But the company also charges $49.95 per year for Times Select, which includes online access to the print edition’s columns, editorials, and archive. Yet now the Times may be reconsidering whether to charge online at all, according to an Aug. 7 report by the New York Post. Times spokeswoman Catherine Mathis did not deny the report outright, saying only that the company is always evaluating different approaches. The online business, she notes, has been growing, with subscriptions increasing from 220,090 in April to 224,580 in June.

But even for one of the most recognizable daily papers in the world, subscription revenues can’t compare to online advertising revenues. In 2006, Times Select generated $10 million. In the second quarter alone, the company’s total Internet revenues grew 23%, to $80.9 million, a tally that includes ad sales from The Boston Globe’s online edition,, and other sites. By itself, is expected to pull in an estimated $175 million in revenue this year, according to Lehman Brothers’ (LEH) analyst Douglas Anmuth.

Shifting Audience and Ads

If The Wall Street Journal Online was to go free, some say it could see even greater online ad revenue than the Times. Already, the Journal makes an estimated $75 million from ad revenue, according to Anmuth. “A free, likely with access to a larger, re-energized ad sales force, would likely see an increase in visitors and subsequently ad revenue, potentially siphoning ad dollars from the incumbent premium financial sites,” wrote Anmuth in an Aug. 3 note to investors. Some analysts predict that a free would attract 10 times the site’s current monthly traffic of 2.6 million unique visitors, including the nearly 1 million subscribers (the Journal does offer some free online content).

Anmuth says the Journal currently charges, on average, about four times more than the Times for each ad shown on its Web pages. It commands this higher price despite a smaller online audience because the Journal’s readers are seen as business-minded, college-educated professionals with significantly above-average wealth—the sort of audience that advertisers, particularly makers of luxury goods, want to reach.

If the Journal were to significantly expand its audience by moving to a free model, it would no longer be able to command the same premium because the audience would be more diverse, says Dorian Benkoil, a senior consultant at Teeming Media and a former editor and manager for online publishers including Mediabistro and Fairchild Publications. However, it is unlikely the advertising rates would fall to the Times’ level since the Journal’s content would still indicate to advertisers that each reader is interested in business. Benkoil estimates a $29 million loss in annual revenue during the first few years of a free, even after traffic begins increasing.

Over time, however, as online traffic increases to 10 million or more globally—a number most analysts think would not be a stretch for the Journal—the significantly larger audience and resulting increase in ads shown should more than make up for the lower ad rates and lost subscriptions. If anyone can endure such a hit, it may be Murdoch. “He invested in the Boston Herald for five or six years before he turned it around,” says Benkoil.

Behavioral Targeted Advertising

For both the Journal and the Times, there’s an even more important consideration than the extra ad revenue from increased traffic. There’s also the opportunity to exploit all the information that can be gathered from a larger stream of visitors. This information on surfing behavior can be shared with other Web sites those readers visit so they can be shown more relevant ads. Advertisers typically pay more for these targeted placements, and so the Web site is more than happy to share some of the revenue with the newspaper site that provided the information.

This behavioral targeted advertising, as it’s called, is growing in importance online. Over the next four years, $9.6 billion is expected to be spent on ads targeted by a user’s past online surfing activity, according to research firm eMarketer (see, 6/22/07, “Google Is Watching You"). Behavioral targeted ad companies, such as Tacoda, give data providers 20% of the ad revenue for the information they use to serve the ad.

The Journal currently does not use its information to target ads outside of the Dow Jones network. If it did, its traffic would be worth significantly more. Tacoda, which was purchased last month by Time Warner’s (TWX) AOL for about $275 million, already works with the Times to deliver ads on other sites based on which newspaper sections its readers visited, thereby indicating their interests.
Risky Business

Of course, helping target ads on other Web pages runs the risk of eroding the price of the ads on the newspaper’s own site. After all, if a company can buy a Journal subscriber on a site other than, there is not as much reason to pay the Journal’s higher rate—save for the positive brand association, says Benkoil. Still, the bottom-line result would undoubtedly be positive, Benkoil says.

With all that potential, some may wonder why the Journal doesn’t hurry and free up its Web content. The answer, aside from the immediate pain of lost subscription revenue, is that the ad business is risky. In economic downturns, marketers are quick to cut their ad budgets. Subscribers aren’t as quick to forgo the expense of a daily newspaper. Yet it’s a risk that Murdoch—a man known for taking chances—is unlikely to shy away from.


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