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Free Would Need 12x Traffic To Offset Loss; DJ Buy To Shave A Penny From NWS: Analyst

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Turning into a free site would require a 12x increase in traffic growth to offset the lost revenue, according to a new report from Bear Stearns analyst Spencer Wang. revenue is currently pegged at $78 million annually, based on an estimated 989,000 subscribers paying $79/year. Including non-subscriber traffic, the company claims 122.4 million monthly page views. Based on an estimated CPM of $6 and a few other assumptions about sell-through rate and ad impressions per page, Wang arrives at the 12x conclusion.

So that’s the math, but is it achievable? That’s where things get dicier. More after the jump….

If only grew to the average of its peers (, CNN Money, MarketWatch and Yahoo (NSDQ: YHOO) Finance), the site would only be about halfway to the 12x goal. To really see direct revenue growth from going free, it would require the site grow as big as Yahoo Finance itself. That would obviously be a huge challenge, since Yahoo Finance is a portal aggregating content from multiple third party sources. Note that in August, an analyst at Lehman estimated it would only take a 2x-3x rise in traffic to offset the revenue loss. That analysis didn’t spell out the expected CPMs though — it only referred to them as “high” — so that could explain some of the difference.

But even this doesn’t tell everything. As Wang notes, $78 million in revenue only accounts for an estimated 4 percent of Dow Jones (NYSE: NWS) revenue, so from a strictly financial stance, it doesn’t much matter either way to News Corp. If Murdoch does set free, as is widely presumed, there will likely be a broader strategic rationale than simply wanting more ad revenue in the short term.

Meanwhile, for News Corp.’s fiscal year ending June ’08, the Dow Jones buy will likely shave a penny from earnings, according to Wang. This is based on higher interest payments and an expanded share count. (Click on the chart below for a larger version.)


18 Responses to “Free Would Need 12x Traffic To Offset Loss; DJ Buy To Shave A Penny From NWS: Analyst”

  1. Hmmm… $6 CPM's are really quite low. I would assume if WSJ went free that the cumulative ad space on each page would increase. Seems like $6 CPM would be reasonably easy to achieve. I've heard some analysts state that $10-15 CPM is achievable from Google Adsense alone. Wonder why they used $6?

  2. I agree with James, 6$ CPM is not that low considering that advertising competition is making prices drop a lot. Now any web savvy person can start up an ad network which prevents such outrageous prices such as 90$ CPM from occurring.

  3. Michael Carlton

    Michael Rodov makes the point very plain: it's the unique value that is the issue. Not the medium. And it's not only in WSJ online and print. The exclusive access to WSJ in Factiva is a critical driver of that product, which will presumably never get NYT or FT archives in future. And, of course, Dow Jones Newswires is a stand alone: unlike Bloomberg and Reuters' news services. So the WSJ is critical to its value too.
    Murdoch's strategy appears actually to rely on moving further away from specialist business news and towards opinion-driving political agendas in a head-to-head positioning contest with NYT. In that sense, he's probably opening space for others to occupy the valuable position in business news. People like Morningstar.

  4. $6 CPM may seem low, but it's not that low since the audience has been diluted and many of their key advertisers use ad networks which provide greater efficiencies, hence driving down CPMs for sites like Note that "ratecards" can be very deceiving, so the $90 CPM for video likely includes additional impressions as added value which brings the net CPM down.

  5. Who else wants to drink the kool aid? The error with this analysis goes beyond simply overlooking that "advertisers pay a premium for high end consumers (such as paid WSJ subscribers), and much less for general readers" as Barry points out above. The error is that this analysis is comparing CURRENT (paid & ad) revenue against POTENTIAL FUTURE (ad-only) revenue.

    The future with advertising-only is bleak. If the WSJ increased its online audience by 100x on a free ad-only model, it still wouldn’t justify cannibalizing the $1B print (ad & paid) model. There is hope left in a future business model for paid content. It will come for publishers who have enough confidence in the value of their premium content to hang in there.

  6. The error in this analysis is that advertisers pay a premium for high end consumers (such as paid WSJ subscribers), and much less for general readers.

    By setting the WSJ totally free, Murdoch will giove up BOTH the subscription revenue AND the high end advertiser revenue that now graces the paid subscriber

    Sometime ago, I proposed a hybrid model: Move the WSJ/Dow Jones archives out from behind the subscription-only firewall. Keep the most recent WSJ subscription only — perhaps 30 days, but certainly no more than 90 days maximum.

    That solves all problems nicely . . .

  7. Greg Zorthian

    I don't think the lost subscriber revenue figure is correct. More than half of the subscribers are bundled with newspaper subscriptions and are either free or highly discounted. Therefore, the $79 per sub figure seems way too high, maybe twice what DJ is currently getting. Combine that with a higher ad CPM assumption and trade off of going free doesn't look as daunting.

  8. John C. Smith

    Haven't seen the analysis — but $6 cpm is definitely way too low.

    WSJ can probably command a $15-20 effective cpm (net of sell-through) — although it would take 12-18 months to ramp up if they go free.

    So I'd say they'd only have to 3-5x their traffic to make going free pay off in terms of interactive revs.

    Print cannibalization is another matter entirely, however, and might be a deal-killer — unless Murdoch is looking at this w/ a very long term view (5-10 yrs) — which of course he well might be.

  9. Jim Spanfeller

    Not mentioned here (as Sue Sparks correctly points out) is the impact that going free would have on the base print product. If the net effect of such a move was to depress offline circulation (and how could it not be such) then the overall impact to the company would be much, much bigger.

    That said, on their current course (paid) the WSJ as a brand is quickly becoming less relevent. Rupurt understands this and as such he knows he has to make the move of going free…which could cost the company many more millions then these numbers suggest. But to compete in the new marketplace for on demand business news and insights…well their really is no other choice.

  10. Sue Sparks

    I think the broader strategic rationale mentioned is probably Murdoch's desire to move the WSJ to a more mainstream position where it can take on the New York Times. Otherwise, it seems to me that two revenue streams are better than one – though this isn't something that's open to most newspapers. When you say it doesn't make much difference either way, I think you may not be factoring in the possible loss of print subscribers if goes free.

  11. interesting that with all the hype around CPMs going the way of the titanic, top analysts are still valuating based on it. There are so many more creative ways to integrate Brands into the community of WSJ that can draw millions in new revenue per month. Focus on adding value to the advertiser in ways that add value to the readers and you have win-win all the way around. Goes to show that if you're a hammer everything else still looks like a nail.

  12. I agree with the comment that $6 CPM seems way too low for WSJ. I understand WSJ has video ads and they are charging upwards of $90 per CPM for 15 second pre-roll ads. That information is from their video sales sheet. Now, that Murdoch owns WSJ there are all sorts of opportunities to leverage existing video news assets, and as online video usage increases I suspect those revenues will increase as well

  13. Excellent and important analysis from Bear Stearns. While free content makes sense for the vast majority of web publishers, it's not a be-all end-all for those who have content 'worth' selling. Ad sales, especially if you're an independent publisher without other interests (as FOX does), can be fickle, while paid-content limits growth but also provides far steadier revenues.