The Case for Freeing the WSJ Online

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If the Journal were to significantly expand its audience by moving to a free model, it would no longer be able to command the same premium because the audience would be more diverse, says Dorian Benkoil, a senior consultant at Teeming Media and a former editor and manager for online publishers including Mediabistro and Fairchild Publications. However, it is unlikely the advertising rates would fall to the Times' level since the Journal's content would still indicate to advertisers that each reader is interested in business. Benkoil estimates a $29 million loss in annual revenue during the first few years of a free WSJ.com, even after traffic begins increasing.

Over time, however, as online traffic increases to 10 million or more globally—a number most analysts think would not be a stretch for the Journal—the significantly larger audience and resulting increase in ads shown should more than make up for the lower ad rates and lost subscriptions. If anyone can endure such a hit, it may be Murdoch. "He invested in the Boston Herald for five or six years before he turned it around," says Benkoil.

Behavioral Targeted Advertising

For both the Journal and the Times, there's an even more important consideration than the extra ad revenue from increased traffic. There's also the opportunity to exploit all the information that can be gathered from a larger stream of visitors. This information on surfing behavior can be shared with other Web sites those readers visit so they can be shown more relevant ads. Advertisers typically pay more for these targeted placements, and so the Web site is more than happy to share some of the revenue with the newspaper site that provided the information.

This behavioral targeted advertising, as it's called, is growing in importance online. Over the next four years, $9.6 billion is expected to be spent on ads targeted by a user's past online surfing activity, according to research firm eMarketer (see BusinessWeek.com, 6/22/07, "Google Is Watching You"). Behavioral targeted ad companies, such as Tacoda, give data providers 20% of the ad revenue for the information they use to serve the ad.

The Journal currently does not use its information to target ads outside of the Dow Jones network. If it did, its traffic would be worth significantly more. Tacoda, which was purchased last month by Time Warner's (TWX) AOL for about $275 million, already works with the Times to deliver ads on other sites based on which newspaper sections its readers visited, thereby indicating their interests.

Risky Business

Of course, helping target ads on other Web pages runs the risk of eroding the price of the ads on the newspaper's own site. After all, if a company can buy a Journal subscriber on a site other than WSJ.com, there is not as much reason to pay the Journal's higher rate—save for the positive brand association, says Benkoil. Still, the bottom-line result would undoubtedly be positive, Benkoil says.

With all that potential, some may wonder why the Journal doesn't hurry and free up its Web content. The answer, aside from the immediate pain of lost subscription revenue, is that the ad business is risky. In economic downturns, marketers are quick to cut their ad budgets. Subscribers aren't as quick to forgo the expense of a daily newspaper. Yet it's a risk that Murdoch—a man known for taking chances—is unlikely to shy away from.

Holahan is a writer for BusinessWeek.com in New York.