THE LIKELY IMPACT OF A FREE WSJ.COM
With almost 50% of WSJ.com revenue from subscription fees, moving to a fully ad-supported model would have likely been a difficultdecision at an independent Dow Jones, particularly when the print-based advertising revenue was faltering. Holding all else equal, in order to recoup $65 million in lost subscription revenue, we estimate WSJ.com would have to increase page views by 2x – 3x, which we view asunlikely in the near-term, even as a free site. However, we believe that moving forward the property must be viewed within the greater context of News Corp’s portfolio of assets both online and offline.
Taking a more holistic view of WSJ.com, that $65 million inpotentially lost subscription revenue appears far less significant in light of both the $5 billion acquisition price paid and NewsCorp’s projected 2007 revenue of $28.6 billion (estimate by Lehman Brothers Cable and Satellite Analyst Vijay Jayant)
.Furthermore, Lehman Brothers Publishing and Advertising Analyst Craig Huber projects that WSJ.com subscription revenue will grow only11% in 2007, decelerating to single digit growth moving forward. While the subscription model likely helps WSJ command higher CPMswithin its walls right now, as the company can point to a more engaged and demographically attractive reader, we believe that a free, fully-ad supported model will prove to be more sustainable long term and the benefits of expanding reach and gaining share of overall onlineadvertising dollars will outweigh the opportunity, and absolute dollars, associated with the paid subscription model. Other potentialalternatives exist of course, such as making MarketWatch the more mainstream free website (it’s already free) and keeping WSJ.com as apaid, premium site (i.e., doing very little with the current models, but possibly doing more cross-branding/content sharing), or a makingWSJ.com more free, but continuing to wall some premium content behind a subscription fee, similar to NYTimes’ TimeSelect program.While less dramatic, these alternatives appear less likely in our view given the global appeal and opportunity associated with the Wall StreetJournal brand, future advertising potential based on current ad yield on WSJ.com, and a desire to grow the influence of the WSJ brandglobally, making it a more valuable centerpiece of News Corp’s future, multi-media, business-news services.
We believe a potentially free WSJ.com poses the greatest immediate threat to Yahoo! Finance, AOL Finance, and MSN Money, theleading financial news sites on the Web
(we note that page views to Yahoo! Finance are were down 27% in 2Q07 – which seems like asteep decline even if we attribute some of the decrease to the impact of Ajax-based functionality on the site, which lessens page refreshesand thus, page views). If News Corp moves more aggressively toward building out WSJ.com’s national and political news coverage (whichhas been suggested), we believe the competitive threat would extend further to the general news sections of the portals, including MSNBCand CNN. The potential rise of WSJ.com as a more formidable financial news hub is consistent with the theme of verticalization of the webwhich we believe has been occurring online in recent years. We believe users are increasingly turning to distinctive, specialized brands for higher-quality vertical content, rather than relying on a one-stop-shop for less in-depth content across disparate categories like sports,finance, or technology.
While we believe a free WSJ.com could more aggressively siphon ad dollars from the major finance portals, like Yahoo! Financeand MSN Money, we also expect that these portal-based finance sites will continue to attract an audience based on the broadappeal of their content.
We believe the audience size of WSJ.com is not simply limited by its subscription fee but also by its moresophisticated content. Not unlike its print version (which only introduced color photography in the past few years) the WSJ.com is simplynot for everyone (in its current form). Additionally, we believe the portal sites’ heavier concentration on personal finance, real estate, andfunctional stock/company look-up tools will help these sites maintain relevance and an audience. However, making WSJ.com free andproviding it with greater distribution domestically and internationally, which WSJ.com could achieve via News Corp’s existing properties,including MySpace (potentially a stretch given the quite different content and user base), other Fox sites, as well as the company’sbroadcasting, cable, and satellite operations (assuming WSJ could exit its CNBC content-sharing partnership prior to 2012), couldsignificantly expand the site’s reach and popularity over time.
THE FINANCIAL NEWS CATEGORY
We believe the online financial news category is largely dominated by the big three portals, Yahoo!, MSN, and AOL, with Forbes and DowJones rounding out the top 5 in terms of unique visitors domestically (see Figure 2). Given the broader demographic reach of portals ingeneral, the content across the big three tends to feature more personal finance articles (home buying, managing debt, retirementplanning), in addition to general business news and financial market data. Financial content has evolved and expanded across these sitesto meet the demand from financial services advertisers.
According to data from the IAB, Financial services was the 2
largest onlineadvertising category in 2006, representing 16% of total U.S. online advertising (see Figure 4). Financial services is also one of themost penetrated online advertising categories, with 17% of the category’s total spending occurring online in 2006, behind only theComputer/Software category, based on data from Advertising Age
. Given both a relatively high CPM and a large enough audience toattract meaningful total advertising dollars we believe the financial sector represents one of the highest value segments for the major portals.
We estimate that the finance verticals of the major portals could represent 10%-15% of each company’s overall displayadvertising revenue.
In reviewing the top sub-segments within Yahoo!, MSN, and AOL, the finance sites are among the highest pageview-generating verticals on each portal (see Figure 3). Further adding to this already competitive category, IAC announced on March 9that it would partner with Dow Jones to build a community-driven personal finance website, incorporating content from the Wall StreetJournal and MarketWatch with content and tools from Lending Tree and Ask.com. This site is expected to launch in late 2007 or early 2008.
Within Fox Interactive Media’s current portfolio of sites, there is a clear gap in terms of premium financial content which WSJ.comwill likely fill. FIM’s portfolio is currently dominated by MySpace with only IGN and FoxNews.com generating page views near themagnitude of the finance verticals at the major portals.
Based on our estimate that 10%-15% of the display advertising at the major portals is driven by the finance verticals, we estimate that at Yahoo!, Yahoo! Finance will drive $160 million - $250 million in 2007, or applying a 45% EBITDA margin, roughly $75 million - $115 million in annual EBITDA. Using similar assumptions, AOL Money & Financewill drive $98 million - $150 million in revenue and MSN Money will drive roughly $50 million - $70 million in revenue. Therefore,
inaggregate we estimate the 3 major portals could drive roughly $350 - $450 million in 2007 advertising revenue
representing akey opportunity which a recharged WSJ.com could pursue.