Last week, Henry Blodget made a good point about WSJ.com going free:
The first indication that you WSJ holdouts may not suddenly get your free lunch is this: Murdoch’s owned the thing for several weeks now and it hasn’t yet gone free.
Unfortunately, that’s pretty much the only good point that he made. I like Blodget’s attempt at contrarianism, and he does admit that even he still thinks that WSJ.com is going to to go free. (If he really thinks it isn’t, I’m very happy to take that bet.) But Blodget has put the anti-free argument out there, so I feel compelled to respond.
First, says Blodget, Rupert Murdoch doesn’t want to give away "a growing revenue stream of $75 million + in free money". Au contraire, that’s exactly what any smart media mogul would want to do in this situation – and Rupert Murdoch is definitely a smart media mogul. The reason is that the revenue stream is not "free money" at all – it carries an enormous opportunity cost.
Murdoch is a newspaperman to his toenails, and he understands the first rule of newspaper economics, which is that circulation is everything. A newspaper doesn’t sell news to consumers: it sells consumers to advertisers. Consumers, and consumers’ attention, are hugely valuable things: they always have been, and they always will be. And the more of them that a media mogul has, the richer and more powerful he becomes. That’s why Murdoch bought MySpace – one of the smartest acquisitions of the digital era. And that’s why Murdoch is going to want as many people as possible to read WSJ.com. To wall them off is to voluntarily give up consumers – and that’s something Murdoch’s never done.
Second, says Blodget, Murdoch might want to preserve the WSJ’s "exclusivity". What? The WSJ is the second-biggest-selling newspaper in the Americas, and that’s only if you count USA Today as a newspaper and not merely an an annoyance which people trip over when they leave their hotel room in the morning. Any newspaper with a daily circulation of over 2 million is no one’s idea of exclusive. Indeed, it’s the WSJ’s very ubiquity which makes it so valuable. People read the WSJ because everybody else does: it’s literally must-read material for an enormous number of business professionals. No one is going to stop reading the WSJ, or read it less often, just because the website, like all other newspaper websites, becomes free.
Third, says Blodget, WSJ.com can charge premium ad rates as a result of its known audience. This is true, up to a point. I don’t know what WSJ.com’s ad rates are, or how much they might have to come down if the site went free. Frankly, no one knows that – the only way to find out is to do it. But the worst-case scenario would be that the WSJ went free and pageviews barely budged. That would be a sign that the readership hadn’t changed, and so CPMs could stay high. If CPMs go down, its only insofar as pageviews go up. And if WSJ.com’s readers actually get richer as a result of the site going free – which is possible, if the site starts getting a lot of new traffic from businessmen in countries where no one buys web subscriptions – then it’s entirely possible that CPMs would not come down at all.
Fourth, Blodget is worried about cannibalization: readers dropping their print subscriptions if they can get all the same content online. Again, Murdoch is a newspaperman, and he’s put his content online for free at all (I think) of his other newspapers. He’s done it dozens of times, he knows the effect on circulation (not nearly as big as many newspaper publishers feared), and he knows it makes sense anyway.
Finally, Blodget says that "once you go free, you’re never going back," and that Murdoch wants to keep his options open. Which is a bit weird. The reason that people don’t go back after going free is that free makes more money. And there have been attempts to go paid after being free: think of Slate, or the NYT’s op-ed columnists. They weren’t very successful attempts, but they were genuine attempts all the same.
Blodget also gets the argument why WSJ.com should go free wrong. He says it hinges on the idea that an increase in traffic "will immediately offset the lost revenue" – and that’s simply not the case. Murdoch won’t make WSJ.com free in order to increase News Corp’s quarterly cashflows. He’ll do it to increase the value of the WSJ as a global property, looking decades into the future. The WSJ is one of the few franchises in the world which has the ability to get the daily attention of the elite class in every country. But in order for that to happen, it has to be free.
Blodget is also worried about WSJ.com’s inventory.
Do you think the WSJ Online sells out its inventory now? Our guess is it doesn’t. So what do you think will happen when that inventory gets multiplied by 10X? Revenue goes up 10X? No. Revenue per page goes DOWN 10X…and then the company prays that its salesforce can start to steal market share from other players.
Murdoch is perfectly good at selling online inventory, and when he bought the WSJ he also bought Marketwatch, which is expert at doing just that. When WSJ.com goes free, it immediately tops the list of a hundred different advertisers who want to reach a large and affluent audience. Yes, it will hope to steal market share from other players – but those other players will not primarily be other websites, they’ll be network TV shows which skew rich. The cost of reaching a rich viewer on network TV has been rising steadily; now, finally, advertisers will have an alternative way of reaching that demographic. Online adspend is still tiny as a percentage of TV adspend; that is certain to change, and Murdoch is going to want to be ahead of the curve and have a first-mover advantage as it happens.
So why hasn’t WSJ.com gone free already? My guess is simply that Murdoch wants to announce the move with a bang, not with a whimper. He could take the present crappy website and make it free, but it wouldn’t get an enormous traffic boost, because it’s crappy. Better to build a completely new best-in-the-world website and make that free at launch. The first day that WSJ.com is free will be the first day that millions of people really get to explore the site. Rupert Murdoch wants that day to be a great one for those people, not a disappointing one.