Why FT.com Charges for Subscriptions

Jeff Bercovici has an interesting interview this weekend with John Ridding, the chief executive of the Financial Times. He does his best to defend the FT's weird and counterproductive online pricing model, and it's worth reading between the lines of some of what he told Jeff. Take this, for instance:

On the numbers front we've seen what we want to see, which is the growth of traffic and the growth of registrations, and we've been pleased with the subscribers. That's got to play out a bit, the subscriber element, because the idea is you're constantly funneling them through, and we're not sure yet how the old subscribers will react, but so far so good.

Note that Ridding starts off by saying that he's happy with traffic growth as well as the increase in registrations; he seems less sure about the subscription side of things, saying that it's "got to play out a bit". My feeling is that when he says that "so far so good" he means that so far subscribers haven't unsusbscribed because they can get (most of) the same content for free. I'd wager that the new-subscription rate has actually fallen substantially, because now people can read much more of FT.com without subscribing, and it'll take people a while to reach their quota of 30 stories and then be asked to subscribe.

What's more, I suspect that the 30-story quota isn't really being enforced very strongly. Do you know anybody who's tried to read an FT.com story and has been unable to do so because he's exceeded his quota? My gut feeling is that people can in reality read much more than 30 stories per month before being locked out of the site: the FT has no real interest in preventing its most loyal readers from visiting the site to get their news and analysis.

So why does it have the online subscription rate at all? Why not make everything free? Ridding answers that question:

And then the other dimension is the corporate consumer channel. For us in particular, being who we are -- this specialist business publication -- the corporate channel is very important, and I think it has very substantial potential which people don't always factor in.
And to utilize that channel effectively, it's very useful to have that subscriber pricing threshold because otherwise we're not going to have a price level for the corporate market.

You could be forgiven for not understanding a word of this. When Ridding talks about "the corporate channel," what he means is the way in which FT content is delivered over Reuters screens and other ways that information gets "pushed" to financial professionals. The FT makes a lot of money from this screen-based delivery system (which is entirely separate from the website), and it reckons that banks and institutional investors and other buyers of screen-based information won't pay more than the regular subscription rate. If all the same content is available on the web for free, goes the thinking, the FT's sales force will find it much harder to ask people to pay for it on their screens.

Later on in the interview, Ridding says that "we want more subscribers because it gives a stability to the business". Ad spend is volatile; subscription revenue is much more predictable. And in fact the FT has been hiking its cover price in an attempt to boost those subscription revenues, with quite a lot of success.

But in the world of print newspapers, the best you can hope for from subscription revenues is that they will offset printing and distribution costs: they certainly don't come close to paying for the cost of newsgathering, which is paid for not by subscription revenues but by advertising revenues. Given that printing and distribution costs online are (to all intents and purposes) zero, any subscription revenues from FT.com are pure gravy. Gravy's nice, but it's not necessary.

So expect the FT to continue to charge a nominal rate for its FT.com subscriptions, but not to be too worried if those revenues fall off a bit, so long as pageview growth and CPMs remain strong. The nominal subscription rate will get paid by the large number of readers who aren't spending their own money; it will also make it easier for the FT's sales force to sell into that "corporate channel". And all of that is good for the FT's bottom line.

But in the long term, the FT is losing its chance to cement itself as the go-to site for financial news and information. When WSJ.com goes completely free and FT.com retains all its registration and subscription firewalls, Rupert Murdoch will be incredibly well placed, in this winner-takes-all world, to pick up a huge proportion of the fast-growing ad revenues in the online financial space.