Why Advertisers Won't Desert a Free WSJ.com

In the wake of the latest news about WSJ.com going free, the old arguments against such a move have been emerging from people who think they're smarter than Rupert Murdoch. They're not.

The main argument is summed up by Barry Ritholtz:

The Journal can and does charge a premium for their ads because of who is presently willing to pay for the service -- both in print, and online: Those consumers advertisers find extremely attractive.
I remain am unconvinced that saying to advertisers "Come see all of our readers who can't or won't pay $79 per year for the WSJ.com" is a strategy for selling more high end luxe brands.

Ans assist comes from Carl Fremont of Digitas, quoted in the NYT:

In addition, he said, as Web sites post more ads, “I think we run some risk of alienating the audience through oversaturation, and we could see a decline in audience response.”

I think Barry and Carl are missing some really huge trends here, both in advertising and in the consumption of media. Firstly, online advertising isn't even close to being a mature market: it's growing very fast, and shows no signs of slowing down. As people spend more and more time online, the total eyeball-hours pie continues to grow; meanwhile, the proportion of all advertising dollars which is spent online is still much lower than the proportion of all content-consumption hours which are spent online. So the fundamentals of the web-advertising business are strong.

At the same time, however, the fundamentals of the subscription-firewall business are weak. WSJ.com's present-day subscribers skew old – they're the kind of people who are used to shelling out for newspaper subscriptions. In order to justify paying for the online content, they basically have to be comfortable with two propositions: (a) it's reasonable to pay for content; and (b) when I pay for my newspaper I pay for the content therein.

But increasingly content consumers are not comfortable with either of those propositions. Most of them don't pay for a newspaper at all, and are not used to paying for content in that manner. And those of them who do pay for a newspaper consider themselves to be paying for the physical object: after all, newsprint and delivery costs are very high. If you subtract those costs from the price of a subscription, it turns out that the cost of the content itself is actually zero, or negative.

What this means is that the universe of people willing to spend money for an online subscription will shrink, steadily but inexorably, even as the total number of people consuming business and financial news online skyrockets – especially in places like India and China.

Don't think that advertisers don't know this. They need to reach their potential buyers somehow, and the fact is that the vast majority of those potential buyers are not going to be paying for online subscriptions. If WSJ.com goes free, it can deliver an order of magnitude more of those potential buyers than it ever could if it retained its subscription firewall.

Now, will the WSJ's CPMs go down when the firewall is dismantled? Probably, yes. But there are two reasons they're so high right now, and only one of them is the perceived exclusivity of the audience. The other is the supply constraint: the WSJ's inventory is very low. Telling the WSJ to keep the firewall in order to keep ad rates up is like telling a newspaper to increase its ad rates by accepting no more than three ad pages per day. Sure ad rates will rise, but it won't do anybody any good.

Now, will increasing inventory mean "oversaturation", and "a decline in audience response"? Well, it seems to me that that's a much bigger problem for advertisers than it is for publishers. Publishers can and do work with advertisers, but ultimately what the publishers provide is an audience: it's up to the advertisers to appeal to that audience. If they try to do that with offensive ads which slide over text and animate themselves and generally are more annoying than impressive, then they might well find their audience response declining. But luxury advertisers, especially, like to consider themselves a notch up from Ron Popeil ads on the television: they're not just about getting people to click on links or to "Call Now!". So really it probably depends on what kind of "audience response" you're looking for.

But the big picture is unambiguous. Rich people are reading fewer newspapers. They are watching less TV. They are spending lots of time on the internet. If you want to reach those people, you're going to have to go online. And if the WSJ wants to provide those people, it's going to have to go free.