KEY POINTS:
NEW YORK - Rupert Murdoch's plan to stop charging for access to The Wall Street Journal's website looks certain to increase online profits but could hurt other parts of Dow Jones & Co Inc business.
Free access 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 venerable business paper's reach around the globe.
But the plan could undercut Dow Jones' 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.
Dow Jones' Enterprise Media division, which includes Factiva and Newswires, contributed only 35 per cent of revenue but accounted for 67.2 per cent of segment operating income in the first nine months of the year.
"The exclusivity of Journal content provides value beyond the website," Mohan said.
The exact impact is hard to come by, but Journal Publisher Gordon Crovitz said at a media industry conference in October that Dow Jones reaps more than half a billion dollars in subscription revenue across the company's offerings.
News Corp Chairman Murdoch began touting the benefits of a free Journal website even before agreeing to buy Dow Jones for US$5.6 billion ($7.49 billion) earlier this year.
He made his most forceful comments in Adelaide, Australia, this week, when he told shareholders he wants to boost WSJ.com's 1 million online subscribers to as high as 15 million "in every corner of the earth".
Murdoch's remarks caught Dow Jones executives by surprise. Some disagreed with the plans, said sources familiar with the matter. Hours after the remark, Dow Jones' consumer media group revenue chief Michael Rooney told newspaper business magazine Editor & Publisher that assumptions the Journal's website would be free are "jumping the gun".
Rooney added, "You don't just flip the switch."
The Journal would lose an estimated US$63 million in subscription revenue by making its website free.
Recovering that in advertising sales would require boosting traffic by 130 per cent, based on calculations by Reuters and Mike Vorhaus, managing director of Frank N. Magid Associates and a veteran media industry consultant to Dow Jones, New York Times Co's namesake newspaper and Time Warner Inc's online unit AOL. (To understand how we calculated the figures, please visit MediaFile http://blogs.reuters.com/mediafile/ )
Few doubt Murdoch's logic, given that as much as 80 per cent of financial website visitors leave after refusing to pay subscription fees, according to Vorhaus, and given the rapid growth of internet advertising.
But the analysis, based on variables such as average price for what WSJ.com charges for advertising and estimated traffic data provided by measurement company comScore, is more complicated, the Dow Jones spokeswoman said.
Gauging the precise impact is a guessing game on Wall Street. In August, Lehman Brothers estimated WSJ.com would need to attract two to three times more visitors to recoup subscription revenue. Other analysts say it would take four times to 10 times more unique visitors to the site to offset the losses.
Then there's the fear that offering the Journal's stories for free would hurt the print edition, which has about 1.7 million paying subscribers.
"What they have to do is greatly multiply the number of online users, the time spent by those users who make the online Journal really a daily homepage, and they need to guard against the erosion of print circulation and print advertising because those are likely to accelerate once they make the online product free," Outsell Inc media analyst Ken Doctor said.
In a free world, Dow Jones would face other concerns. The amount it could charge advertisers could drop; traffic metrics such as the average number of pages viewers visit could fall, even as more people visit the site.
Dow Jones also could attract more readers who do not fall into its traditional base of elite, business readership, something that could cost them with advertisers.
"We would expect to see some dilution in CPM and in monthly pages per visitor," Dow Jones' Mohan said. CPM is the standard unit for ad prices measured by cost per thousand viewers.
Driving Murdoch's ambitions is an opportunity to put a dent in bigger rivals, said UBS media analyst Michael Morris, such as Yahoo Inc's Yahoo Finance. He estimated Yahoo Finance, the Web's leading business news site, should log US$250 million to US$300 million in ad revenue next year.
By some measures, WSJ.com generates about US$130 million to US$140 million in revenue. About half of that comes from ads, one source said. That is just a fraction of the US$2.1 billion in revenue that analysts expect Dow Jones to post this year, according to Reuters Estimates.
"The business-focused niche is underserved right now," Morris said. "Given that Yahoo Finance is the biggest provider and they're an aggregator, I believe there's an opportunity for Dow Jones to seize."
In recent months, the Journal has offered some of its content for free, such as blogs and some news articles in Web searches. Users who submit WSJ.com stories to Digg, a news and content sharing site, will also make them freely available to other readers.
These tests, Mohan said, have had little impact on ad pricing for now.
"I think it's do-able," said Vorhaus, who estimated Dow Jones could recoup subscription revenue in as little as three years.
- REUTERS
