When News Corp acquired Dow Jones in 2007, Rupert Murdoch said he might stop charging for access to WSJ.com.It looked as if the business models of all the quality financial information brands were under threat. But the issues are far more complex, as subsequent developments reveal. Media consultants Hugh Look and Sue Sparks explain.
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This article was written in December 2007. In February 2008, Rupert Murdoch announced an apparent volte-face concerning his plans to abandon the subscription model. At the World Economic Forum at Davos, he commented, according to the Wall Street Journal: ‘The really special things will still be a subscription service and, sorry to tell you, probably more expensive.’ He seems to have changed his mind for precisely the reasons we discuss here. Press deadlines mean that we have not had the opportunityThis article was written in December 2007. In February 2008, Rupert Murdoch announced an apparent volte-face concerning his plans to abandon the subscription model. At the World Economic Forum at Davos, he commented, according to the Wall Street Journal: ‘The really special things will still be a subscription service and, sorry to tell you, probably more expensive.’ He seems to have changed his mind for precisely the reasons we discuss here. Press deadlines mean that we have not had the opportunity to alter the substance of this article other than to add a postscript discussing the implications of this latest twist.
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The acquisition of Dow Jones − owner of the Wall Street Journal, MarketWatch, Barron’s, Dow Jones Newswires and, of course, Factiva − by News Corporation, continues to generate headlines of its own. The widely trailed plan by Rupert Murdoch to convert WSJ.com from a subscription site to a free online resource has attracted particularly extensive comment. This is partly because it is the oldest example of a relatively successful attempt to charge online consumers for ‘news’ and also one of the very few left, as other longstanding subscription sites (e.g. the Economist) have recently bowed to the apparent logic of the online economy and abandoned subscription fees.
Other newspapers have tried, and repeatedly failed, to charge for all kinds of ‘premium’ content, from archives to crosswords, with a recent example being the New York Times Select service. This began in 2005, offering subscribers access to premium content, including columnists, and the archives from 1987, and ended in September last year. Some newspapers, notably the Guardian, have held to the free model since the beginning, braving the barren period following the dot.com crash when other newspapers reduced their commitment to the online medium (in this it was helped both by its ownership structure and by subsidy from other parts of the Guardian Media Group). The Financial Times began as a free service online, and then introduced a subscription model for its full service, before trying to anticipate the WSJ’s move to free access by allowing non-subscribers to look at 30 articles a month without charge.
It has always seemed anomalous for general newspapers to champion the WSJ (and latterly FT) subscription services as a model, since these two papers (and arguably the Economist as well) target business audiences and are therefore properly seen as part of the business information market as much as, or even more than, the ‘news’ marketplace. Subscriptions to them are often paid by companies for employees’ use, or by individuals on their credit cards who later claim the cost back as a business expense. The printed papers are read by relatively small numbers of people, many of whom are seriously wealthy and powerful, the remainder at least comfortably affluent. Maximising advertising revenue was not traditionally about the numbers reading the papers but their worth to advertisers.
The Financial Times was the paper of record in the UK for the purposes of advertising major bond offerings and other so-called ‘tombstone’ notices, a lucrative source of revenue. In terms of consumer advertising, the pages of the ‘leisure’ weekend magazines and supplements to these papers are filled with expensive houses, cars, jewellery and watches − things notable by their absence in much online advertising, as the medium is held not to work well for this type of pitch.
There are some powerful arguments for regarding the online environment as a natural habitat for free content, especially news. Newspapers in print are an indivisible ‘bundle’ of content and advertising. Online, the bundle dissolves; recruitment, automotive, real estate and personal ads have migrated to vertical classified sites, to real estate agencies, dating services and to auction sites like eBay. News is provided by a myriad of sources, from broadcasters’ and news agencies’ sites and online newspapers to blogs and aggregators like Yahoo! and Google News. Financial and shopping advice, book, film, arts and theatre reviews, travel information, hobbies, celebrity news, sport – all are available elsewhere.
While the dissolution of the bundle is a threat to newspapers’ business models, it does mean that online newspapers can start to be much more differentiated from each other. One possible direction is to subdivide into interest-focused community sites, offering distinct in-depth services to readers and inviting high levels of interaction, including providing spaces for users to become writers and photographers − broadly the direction taken by Guardian Unlimited. In some markets, papers can become a core element of portals: some Scandinavian and French papers have taken this approach.
Content can also go out from sites to where the readers are − for example, being embedded in a customised page such as iGoogle, which goes with the user wherever they access the internet.
The business models remain problematic – can advertising supply enough revenue to support the core, high-quality news and analysis infrastructure? Branding is a major issue with Web 2.0 – will my brand be subsumed into an aggregator’s brand? But there are undoubtedly great opportunities as well as risks.
Hiding editorial content behind a pay wall is an obstacle to taking a full role in this fully interconnected, distributed world, as it tends to inhibit the viral behaviours of blogging and social tagging which harness the readers’ word-of-mouth promotion of content. Paid-for sites can become the online equivalents of ox-bow lakes, cut off from the main flow of the river and in danger of drying up completely. This is one reason given by the New York Times for ending its Select service: ‘Since we launched TimesSelect in 2005, the online landscape has altered significantly. Readers increasingly find news through search, as well as through social networks, blogs and other online sources. In light of this shift, we believe offering unfettered access to New York Times reporting and analysis best serves the interest of our readers, our brand and the long-term vitality of our journalism. We encourage everyone to read our news and opinion – as well as share it, link to it and comment on it.’
But there are also some good reasons for maintaining subscriptions, if that route is open to you. Though online advertising is growing, no one expects it to compensate for the loss of print revenues for years to come, if at all. WSJ.com had 989,000 subscribers at the end of September 2007 (and Barrons.com 113,000), generating at least $50m in revenue each year. Paid subscriptions rose by 25.5 per cent on the same period in 2006. Most newspaper websites make only 5-7 per cent of the total ad revenues accruing to the papers as a whole. Making WSJ.com free could both damage the print sales of the Wall Street Journal and dilute the value of the advertising base by allowing access to all and sundry. Though advertising rates could rise in theory on the basis of reach, they could also be undermined as the demographics of the audience changes. Going free could also devalue the perceived worth of the specialised analysis and information in the paper and threaten its viability.
The jury is out on whether free online access does cannibalise the print readership of papers. A study1 by an economist on the experience of the Washington Post concluded that, to some degree and under some conditions, the print and online editions are not complementary but substitutes for each other. Therefore charging for the online version may prevent some print cannibalisation, but it may not be revenue-maximising. But why risk it if, unlike the general press, you don’t have to?
It is generally considered a good idea to have multiple revenue streams if you can, so why abandon one? Advertising is also highly cyclical, especially in the financial and technology areas so crucial to the WSJ and, while there is a view that online advertising will be more resilient in a downturn than print because it represents better value for money, there’s no actual evidence and no intrinsic reason why it shouldn’t be affected by the business cycle. Subscriptions are also affected by economic conditions, but tend to be more resilient.
Something else horrible may be lurking just around the corner, however. Advertising revenue in general in North America, as in Europe, is showing little overall growth. The increase in online advertising revenue has been achieved almost entirely at the expense of other media (including newspapers, but mainly television) and of direct marketing. Further, the major search engines take a significant proportion of online income: around 40 per cent in the US, but nearly 60 per cent in the UK. This is money that is not available to competing newspapers.
The model of sales for search engine advertising is also very different: the search engines are selling huge volumes of very cheap advertising through keywords; newspapers or their agents have to sell more expensive banner, skyscraper or MPU space to a much smaller group of customers. Because there is usually human agency involved, the sales process is often more expensive. The overall rise in online advertising has provided some cash for all, but conceals the structural issues. Having cut themselves off from subscriptions, can the newspaper websites compete effectively for what will be a more constrained market in the future? And why would the WSJ want to start now?
One apparently plausible motive is that Murdoch wishes to destabilise the Financial Times, the Wall Street Journal’s main international rival. FT.com, however, has many fewer subscribers (around 100,000), generating only an estimated £7m-£9m. This means that the FT has much less to lose than Dow Jones in moving to a free model. There is no reason to suppose it will gain less in terms of advertising revenue: its online ad revenues were up by 40 per cent this year − at the top end of what newspapers have been achieving in online ad growth. If FT.com were to be removed as a force in the market, WSJ.com potentially would have a larger pool of advertisers available to it – assuming it can pick up the readers and advertisers that FT.com would leave behind. It is unlikely, though, that it would be enough to transform the future of WSJ.com.
Other recent developments suggest that Murdoch’s main target is not the FT, but the New York Times, and that he intends to make the Wall Street Journal a more general newspaper. He is pushing already for more coverage of politics and international affairs, for shorter articles and more hard news. It is said that the idea of dropping ‘Wall Street’ from the title to broaden its appeal has even been mooted, though dismissed. This might indicate that his motive for acquiring the paper is as much political as financial, though that doesn’t mean tolerating unprofitability for long.
He could take WSJ.com free and still enhance revenues from the business information market by reconfiguring Dow Jones’s assets online. He has given some hints of that, stating in a call with analysts and investors in November that there may be new verticals developed ‘which would be very deep, and for which we could charge, and that will be an extension, partly, I guess of the newswires operation’. Possibly print revenues could be partly protected by giving print subscribers access to these online premium services.
This is one area where Dow Jones has a major advantage over the FT: the ownership of multiple online assets and brands. Dow Jones had already increased its assets in business information in the last year, acquiring the 50 per cent of Factiva that it didn’t own from Reuters (which has of course merged with Thomson), and disposing of six local US newspapers. In terms of segment revenue in the nine months to September, consumer media (basically the WSJ, Barron’s and MarketWatch) accounted for 63 per cent of revenues in 2006, but only 54 per cent in 2007, of total revenues which rose by 11.7 per cent. Enterprise media (all the Dow Jones newswires, indexes, licensing revenues and Factiva) rose from 22.7 per cent to 35 per cent of the total but, more importantly, represented 67 per cent of operating income in the first nine months of 2007.
The FT has, for its part, signalled that it is looking again at the licensing of its content to Factiva (which looks like a re-run of the FT’s attempt to support its proprietary online service Profile back in the 1980s by withholding the full text of the FT from rivals such as Reuters’ Textline service).
Murdoch could look at the segmentation of the investor audience again as well. Dow Jones had already planned a new personal finance internet business through a joint venture with IAC, owners of (among many other assets) LendingTree and Ask.com; this venture was to combine the personal finance content of WSJ, MarketWatch and other Dow Jones products with IAC’s businesses to create a ‘community-driven web site targeting the broad web-savvy consumer audience’ called FiLife.com, which exists as a blog and is promised as a fully-fledged service by the end of the year. It’s not clear how this plan will be affected by the News Corp takeover and the announcement in November of the break up of IAC, nor what relationship this personal finance site would have to SmartMoney.com, the online version of the personal finance magazine jointly owned by Dow Jones and Hearst.
Nor, to be fanciful, is it clear how Murdoch might deploy information from the WSJ and Dow Jones in a way that appeals to his MySpace customers as they grow into financial responsibility. He has been attempting such integration plays a lot since he bought MySpace, setting up partnerships with other parts of the imperium, including Fox in the US and the Sun in the UK. There is not much evidence either way as to whether this is going to work.
Many others have tried the same thing and many have crashed and burned, usually because the practical problems of implementation suffocate the original clarity of vision – a vision usually evolved for an ideal world in which IT systems are never incompatible, or the true costs and complexities of integration are never underestimated, or (even less likely), executives of rival subsidiaries do not see each other as brutal, unstable predators with whom it is impossible to do business.
What does all this mean from the point of view of the professional user of business information, rather than the private investor? The move of WSJ.com away from a paid model (assuming it does go ahead) appears to be a response to the pressures which are leading to news as a category becoming free (offline in the form of free commuter papers, as well as online). This move of news from paid to free (though radio and TV news was also overwhelmingly free of course) is not necessarily paralleled in all areas of information provision (or even media – ironically, perhaps, Murdoch is a major beneficiary of the trend for television to move from a free advertising-supported model to a paid subscription model).
For example, looking at Hearst Business Media, which has products targeting industry professionals in the electronics, automotive, medical/pharmaceutical and finance segments, it is striking that it has moved in the last decade from being largely a print business with significant dependence on advertising to being one where 80 per cent of its products are electronic and it has hardly any advertising revenue, relying on subscriptions and licensing.
These electronic products may be web-based but they are not on the open internet; they are embedded in the workflows of professionals. For example, ZynxOrderTM, ‘a web-based knowledge management system that brings evidence-based best practices into the clinical work flow’, or Algorithmics, ‘the world’s leading provider of risk management solutions and services to help financial institutions understand and manage their financial risk’.
Such services are also fundamental to Thomson’s approach to the markets for professional information, with workflow solutions targeted at legal practices, tax professionals and a whole range of financial segments, including asset managers, hedge funds and private equity groups. Thomson has a similar revenue profile to Hearst Business Media, with 80 per cent of total revenues derived from electronic products, software and services and 82 per cent of total revenues coming from subscription-based products and services. The market seems to be bifurcating, with more general, non-actionable information forced to be free and advertising-supported, and specialist, high-value information willingly paid for by the user, but only if it really delivers the goods in terms of increasing productivity and profitability.
Users are now faced with many competing sources for their news. As we have seen, the range and quality may decline under increasingly fraught competitive conditions. Papers like the WSJ and the FT have always promoted the quality and objectivity of their analysis and commentary as well as their news reporting: could this provide the Plan B? Perhaps not: the web is awash with comment and analysis, much of it trivial and a good proportion downright wrong, perhaps even deliberately so in some cases.2
- Online advertising is growing, but newspapers are having to fight very hard for a decent share of it
- Since most of them can’t hope to charge consumers for content, they are looking for other sources of revenue, particularly through renegotiating the terms on which their content is aggregated by search engines and other intermediaries
- It is not a foregone conclusion that WSJ.com will go free but, even if it does, there will still be premium content that can and will be sold
- The Dow Jones offerings are likely to become more targeted at niche markets, with what is offered to financial professionals being distinguished more sharply from what is aimed at the mass of private investors
- There are risks in the process: WSJ could find itself being dumbed down, with specialist staff and resources cut back if advertising revenue doesn’t make up the losses from subscription income and if the ‘quality’ of the readership is too diluted
- Dow Jones could face problems at both ends of the business information market in that Factiva may not be perceived as adding enough value to justify its charges compared with free information available on the internet while, on the other hand, Dow Jones isn’t able to match the workflow-based solutions on offer from the likes of Thomson-Reuters targeted at the very sophisticated end-user
- Newspaper executives should at least start thinking about the ‘much less money’ scenario, and how they might survive it
- Users of business information services and the professional information community might also begin to think about what they might do if the things they rely on start to wither or degrade.
Nevertheless, free sources of comment and analysis such as the Huffington Post have established a presence and mindshare that rivals that of some leading newspapers, even if the quality is still uncertain in many cases. Technical analysis in areas such as business news may be a more reliable premium product than socio-political commentary, but for how long? It is in the interest of many commentators and analysts to promote themselves and, for some, providing free content may be an excellent way to do it. One less reason to subscribe to a traditional newspaper-based online service – but also one less reason for even reading it.
It seems as if we are going through a period in which participants in the sector are gathering strategic assets but using them tactically as they feel their way towards a future that may well include structural change as well as cyclic trading conditions. For the time being, the intelligent capitalist (and Murdoch is a very intelligent capitalist, whatever else he might be) buys solid strategic assets carefully, and then seeks ways to employ them that do not wreck their core business – such as removing subscription barriers that yield less than the advertising potential. However, the core business must remain strong if these assets are later to be used strategically, so it will be essential for the WSJ not to sacrifice its main values in its drive to compete more widely. At the same time, the clever money may make quite a few long-odds bets, but only with small stakes.
One important question hangs unanswered over the cityscape: what might this mean for the long-term sustainability of important information resources that professional users rely on? It is possible that the move to free will force the end of some business news services, and in turn that could cause a problem for the supply of current content that retrospective services need to create their databases. For example, however unlikely it sounds, at some point in the not-too-distant future, owners of newspapers may decide that their money might be better invested elsewhere, or they might force managers operating on increasingly tight budgets to make cuts that damage the value and even viability of the newspaper as an objective and informed source: this might well start a cycle of decline as readers abandon the websites and the value to advertisers falls.
It is possible that the collaborative model, populated by writers and analysts who are not mainly in it for the money, could fill some of the gap, but only if their marketplace gives them a robust view of the quality that is expected, and some sense that there will be a reward of some kind. It seems a good time to be involved in experiments to bring free content into a more sustainable space, and to increase its sustainability by increasing its diversity.
Professional information provision has had its scrape with destiny: a few years ago, many in the sector feared losing access to important resources as the whole ghastly Dialog/MAID hybrid seemed to be sliding into the sea. It was saved in the end, but the lesson should not be overlooked. Dialog was at least a secondary resource and it would only have been access that was lost, not original content. But that is what might happen to newspapers and other important primary sources if there is a shakeout in the free model. Key resources are not guaranteed – nor is their continuing quality.
Postscript
The recent economic turmoil does not bode well for display advertising-based models (although it might not do so much damage to search advertising). News Corp seems to have recognised that adding millions of new readers might not only be difficult and expensive, it may also be unrewarding in the long term. As we noted, the premium content was always likely to be valuable enough to justify a subscription. It is easier to take that subscription away later, when the advertising model might be proven, than remove it now and face the challenge of reintroducing it in a few months to an audience that will have become used to a free service.
There is still room for caution, though. Even if the WSJ steps back from the edge, others may still take the plunge. Some may even be encouraged in the belief that the WSJ is leaving a gap. Competitors such as the FT may breathe a sigh of relief, but the underlying situation remains unchanged: there is very little high-quality, sustainable revenue to be found by either general or business newspapers. The WSJ sticking to its current model does not make it any easier for other newspapers to introduce subscriptions if they have nothing unique to offer. No tide has turned.
In the meantime, the hand of the best-quality blogs may be strengthened. Their lower costs leave them well placed to operate effectively on these lower revenues, and the WSJ decision has just taken away some competition that might have worried them.
For those publishers who do find a subscription model, or even some high-quality advertising revenue, costs in many cases continue to run well ahead of revenues and profit is still elusive. ‘Much less money’ remains the overwhelming problem.
References
1 M. Gentzkow. ‘Valuing new goods in a model with complementarity: online newspapers.’ American Economic Review, 97(3). June 2007 (http://faculty.chicagogsb.edu/matthew.gentzkow/
research/print_online.pdf).
2 We should not forget Sturgeon’s Law: the great SF writer Theodore Sturgeon, when asked in the 1950s if it was true that 90 per cent of SF was ‘crud’, replied ‘Yes, but so is 90 per cent of everything’.
Hugh Look (hugh.look@rightscom.com) and Sue Sparks (sue.sparks@rightscom.com) are Senior Consultants at Rightscom Ltd.
Updated: 20 February 2008