Will Wall Street Journal Go Free?

UPDATE/NOTE: A corrected version of the math in this post is at Rebuilding Media.

In the last paragraph of one of the many stories in today's Wall Street Journal about the purchase of parent Dow Jones, Rupert Murdoch is quoted as saying if the paper went completely free it would be a "wash" financially. It would certainly be a huge step to go free (and one I'd be perfectly happy with, paying as I now do.) Let's explore whether Murdoch's assertion is really likely to be true.

First a few assumptions:

- The soon-to-be 1 million paid subscribers referred to in another piece in WSJ are paying full price, $79.
- There are seven million unique visitors and 90 million monthly pageviews, as WSJ claims. (That's almost 13 pageviews per unique.)
- The two display ads per page (large rectangle, narrow skyscraper) run at an average CPMs of $35 and $20 (reasonably possible rates for a targeted, subscription audience in a financial/business publication). The performance based ads at the bottom are together worth an effective CPM of $12. (I know that may be high, but there are a lot of them, and it's the Journal.)
- 80% sellout on average in all ad spots (some spots will be without paid ads in some instances, there has to be some room for ad serving and so on).
- Each pageview is equally valuable.

So, we've got, yearly:

- 1 million subscribers * $79 = $79 million from subscription

- 90,000,000/1000*.8 * (35 + 20 + 12) = $4.8 million monthly in advertising * 12 = $58 million in ads

Grand total: $137 million revenue from subscription and ads.

Murdoch predicts in the piece that a free site would have 10 times as many visitors and five times as much advertising. But the number of pageviews per unique would drop significantly, because a lot of the traffic – especially new traffic – would be inbound single hits or quick dips from blogs, search engines and so on. The ad rates would also drop because advertisers could not be convinced they were buying as exclusive a subscription audience. Let's take Murdoch's assertions as true and assume:

- Pageviews per unique will drop to a more normal news industry standard of 4 per unique. (We'll also assume that by "visitors" Murdoch means "uniques".)
- Ad rates will drop to 60% of their previous levels
- A lower level of sellout on pages (as Murdoch acknowledges in saying ads won't go up as much as visitors will).

So we have:

- 70 million unique visitors at 4 pageviews per = 280 million pageviews per month.
- Five times as many ads, an ad rate we'll cut in half, and 60 percent sellout.

Which in my estimation comes out to a total of about $40.5 million.

At 80 percent sellout it's $54 million. Even at the same number of ads per page, that's still only $108 million.

Now, maybe to Murdoch the difference between $137 million and $108 million is so small as to be pocket change and therefore "a wash." Or maybe my assumptions or math are way off (if you want a spreadsheet with my calculations, just ask and I'll send it.) But that's still a lot of newsroom jobs for that extra $25 million, or more than $90 million under the poorer ad scenario

Plus, subscriptions are pre-revenue, cash collected up front that can then be spent over time. They're great for cashflow and provide a "float." Ads on the other hand are typically paid months after they're billed, and can be a real problem for cashflow. Subscriptions also tend to be more stable in down times than advertising, which can be canceled with little notice. Subscriptions are a more stable business and take less overhead to maintain.

I don't see that making a successful subscription product like the Journal free makes economic sense. Tell me what's wrong with my thinking.

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