Quantify the Indirect

Monday, January 21st, 2008

A few weeks back, I watched this video of Chris Anderson (editor of Wired and author of the Long Tail) discuss his new book, Free. His assertion is that as technology brings the relative price of a commodity closer to zero, a business should treat that commodity as "free" and sell something else.

I really like this idea, but I think it is imperative for businesses to quantify the shift rather than just jump in with blinders on.

Here's an example in the form of Chris' smackdown of Spencer Wang's analysis of a free WSJ.com:

There is one thing clearly missing in this analysis: the indirect benefits of the Wall Street Journal reappearing in the online business conversation that it has largely ceded to others due to its subscription wall.

For instance:

* What about the new newspaper subscriptions that a 6x increase in web traffic will generate? (Print subscribers are typically worth five times what online viewers are worth, due to the higher effective CPMs of print media.)
* What about the increased buzz and respect that the ability for bloggers everywhere to link to wsj.com stories will engender, bringing the paper back to the front of mind of media buyers and thus bringing in more ads?
* What about the fact that, in a fierce competitive battles with its cross-town rival, the the New York Times, once nytimes.com went free, wsj.com had no choice but to do the same to maintain mindshare with an audience who are increasingly shifting online?

I don't know how to quantify any of those factors, but I know they're all non-zero, and in the case of second, at least, could be large.

I'm sorry, but if you can't quantify the impact you can't include it in the analysis. It might be a feel good in a discussion with the board, but at the end of the next fiscal year Lucy's going to have some 'splaining to do. Of course, with a little noodle work, you can show that even under a conservative scenario the WSJ is going to do better under an all-free model. It just isn't going to come in the form of paid subs.

(Analysis after the jump...)

Paid Subs

With an ad-driven content site, we might expect about 0.1% of visitors to purchase paid print subscriptions.

Really? How did I arrive at this number?

Quantcast puts the NYT daily traffic at about 1.5MM unique visitors per day. The NYT maintains a subscription portal at nytimesathome.com which has an average of 2.8K unique visitors per day. Let's be very generous and say that just over half convert. This works out to 1.5K subscriptions per day, which happens to work out nicely 0.1% of the 1.5MM.

(Believe it or not, I didn't fudge this as much as it looks. I actually wrote down 0.1% and then thought I ought to see what the "real" number might be.)

Alright, now we need to figure out how many visitors the WSJ will get with their new and exciting, all free format. I will use Wang's peer analysis of roughly 6X pageviews increase as the "break-even" analysis is ridiculous.

Quantcast shows the NYT running at 3.25 pageviews per visit. The WSJ currently runs 2.71 pageviews per visit. If we split the difference, the new WSJ might get 3 pageviews per visit. This should put us at 240MM visitors per year. The NYT averages 2.92 visits per unique so that brings us to 82MM unique visitors.

If 0.1% of those visitors convert to paid print subscribers, the WSJ will see 82,000 subscriptions These are not incremental subscriptions, just raw subs. At $100 a year, that's $8.2MM. A nice and tidy sum, but not something I'd include in my analysis of free versus paid content considering they are drawing $78MM for WSJ.com subs today.

Ad Revenue

I have to agree with Chris that $6CPM is way too low for the WSJ. They ought to be able to draw double that figure at least. At $12CPM, they are just about at break even. At $15CPM, they are $20MM to the good.

Conclusion

At worst, going free will be break even. Yet, a free WSJ.com should bring in 4.9X more visitors than it does today (taking the difference between traffic increases and pages per visit). This increase will provide substantial opportunities for email address acquisition, RSS subscribers (more advertising), along with other ancillary sales. I'm sure that the WSJ folks have figures available for the value of an email address and their revenue from ancillary sales (and list rental).

So unless there is a major impact on offline paid subscriptions to the WSJ, it seems like the all-free model is the way to go. Paradoxically, Wang doesn't think this will be a problem:

A potential risk to the free Web site model is the breakdown of the Wall Street Journal's print subscriptions, but Wang considers this unlikely given steady growth of the New York Times's print subscriptions after offering free online content and because the core Wall Street Journal reader has above-average disposable income.

"We think a large portion of [Journal] readers also appreciate the physical hard copy of the WSJ, particularly for those who commute to work in the morning," he said.

[Via: TradingMarkets.com]

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