Murdoch to Pay a High Price for Free WSJ.com?

Rupert Murdoch has finally said that the Wall Street Journal Online would go free -- a widely expected move to boost the paper’s online audience – but it might not prove to be the smartest move yet.

Reuters did some number-crunching for us:

- Most analysts estimate Murdoch will need to recover between $50 million to $75 million in annual subscription revenue for WSJ.com.
- Let’s assume that WSJ.com’s annual subscription revenue is the midpoint of estimates, or $62.5 million.
- Then let’s assume that Dow Jones charges $30 per advertising unit, which is measured in CPM, representing cost per thousand views. (Estimates on how much Dow Jones charges range from $25 to $115, with most premium ads sold around the $30 range.) So that means each ad view is worth 3 cents.
- By dividing $62.5 million by 3 cents, you get about 2.1 billion, which is the total number of times the ads have to be seen per year to recoup the subscription revenue.
- Next, we need to figure out how many visitors WSJ.com has to attract to get 2.1 billion ad impressions. We looked at comScore data, which indicated viewers from around the globe on average visited WSJ.com about 1.8 times in September, during which they checked out about 12 pages each.
- So assuming each page sells two ads at $30 CPMs, and multiplying that by 12 months, Vorhaus figures each user will need to view about 518.4 ads each year.
(1.8 × 12 × 2 x12 = 518.4)
- Dividing 2.1 billion ad impressions by 518.4 ads equals 4.018 million unique visitors per month required to recoup the estimated $62.5 million in lost annual subscription revenue.
comScore data showed WSJ.com attracted about 3.1 million unique visitors in September. In other words, WSJ.com needs to boost traffic by about 130 percent.

Besides losing the $100 million in subscription revenue from its online site, the plan could also undercut Dow Jones's Internet news archive Factiva and its Dow Jones Newswires, which offer Wall Street Journal content that is unavailable anywhere else, Dow Jones spokeswoman Christine Mohan said.

Naturally, there are arguments made for free access. It would open up one of the world's premiere business news sources to all readers, attracting a flood of online advertising revenue and spreading the paper's reach around the globe.

Still, I’m skeptical. By removing the price tag, Murdoch would lose the paper’s sense of exclusivity and potentially devalue its brand. Also, the worst thing that newspapers can do is to use the websites to compete with their papers and cannibalize themselves by giving their product away for free. It wouldn’t come as a surprise if the Journal’s paying subscribers migrate to the free website.

Moreover, the market for online advertising may have peaked already. Borrell Associates projects that the growth in online advertising for newspapers could decline. Daily and weekly newspapers are on track to generate $3.2 billion this year, an increase of 23 percent from the previous year. In 2006, online advertising in newspapers rose 30 percent from 2005.

Clearly, Murdoch is prepared to pay a hefty price for making the Journal free - and for what it’s worth, maybe it shouldn’t be that way.