The case for charging to read WSJ.Com

First of two parts

Proponents and opponents of paid content often invoke the subscription model at the Wall Street Journal Online as the reason for why their point of view is right.

In the following guest commentary, Bill Grueskin, former managing editor of WSJ.Com, sorts through what he calls “a few common myths” to provide insights into why and how the Journal came to be the most prominent pay site on the web. He left the Journal last summer to become the dean of academic affairs at Columbia University’s Graduate School of Journalism.

By Bill Grueskin

February 2005 was a tough month for those of us who worked at the Wall Street Journal Online, where I was in my fourth year as managing editor. A slew of media experts were telling the world that we were making a mistake of historic proportions by keeping WSJ.Com a paid site.

The criticism usually followed the same route. First, the author would invoke the obligatory paean to the Journal’s historic greatness. That would be followed by a tsk-tsking that the Journal had walled itself off from the “conversation” and thus was en route to irrelevance, followed by obsolescence.

Then, the elixir: Take down the subscription wall, make the site entirely free, and rake in those huge mounds of advertising revenue (time frame for that TBD, but trust us, it’ll come) that will more than compensate for the sudden absence of circulation revenue.

So, author Michael Wolff told a software trade group that February that the Journal was once “one of the truly astounding information franchises.” But then, he invoked ominously, “something happened” in the mid-1990s. “The Journal kind of disappeared. The Journal went out of the conversation as a point of influence…. It seemed to, if not stop existing, at least stop mattering.”

Wolff didn’t drop his argument there. He says he had “spent a lot of time thinking what happened because … it feels something of a puzzle and a little bit of a tragedy.” Applying the same rigorous research to his remedy as to his hypothesis, he determined thus: “The answer is the online thing. I think the fact that the Journal felt that it was powerful enough to charge, and for a long time everyone regarded the Journal's activities online as the ultimate. They had unlocked the puzzle. In fact, I don't think they did. I think they locked themselves into a puzzle.”

Shortly thereafter, Wired columnist Adam Penenberg warned, more in sorrow than in anger, that the Journal “is in danger of becoming irrelevant.” Penenberg applied more stringent standards to reach his conclusion than Wolff, not by quoting anyone from WSJ.Com or citing usage data, but by typing “Enron” and “Wall Street Journal” into Google search and finding only a few results. And so, Penenberg concluded, anyone doing research online (“and there are a lot of us”) were stymied from seeing Journal stories, and the Journal would become an unknown entity to a new generation of web users.

Penenberg made no mention of the fact that WSJ.Com’s subscriber base was growing more than 10% a year, or that overall Web traffic was growing faster, or that WSJ.Com had by then embarked on an aggressive effort to make individual stories freely available to bloggers and other third-party sites.

There was no need to, because he was able to quote blogger J.D. Lasica who was also thinking he might just (but hadn’t yet decided to) drop his WSJ.Com subscription because he was finding it so hard to link to Journal stories.

Four years later, the world is a different place. Major metro papers are closing or whittling back publication of their print editions. Most of their online sites are generating 10% or less of the advertising revenue that the print versions did. And suddenly, the Online Journal is being cited for its prescience and examined for whether it could be a model for struggling news organizations.

Amid all of that, I see a lot of theorizing about why the Journal now attracts nearly 1.1 million subscribers. Some of it came from a discussion last week hosted by the Los Angeles Times which involved two friends of mine, Jeff Jarvis (author and journalism professor) and Alan Mutter, who writes this blog. I asked Alan if I could use his excellent blog to offer another perspective.

There are a few common myths about how the Journal got to where it is.

The most common is that, as Jeff says flatly in the L.A. Times debate, “Its subscription fees are paid on expense accounts.” There. He just states it as if it is, channeling Jane Austen, a truth universally acknowledged. In fact, I recall several years ago that a Dow Jones executive said publicly that a survey of WSJ.Com readers showed less than a third of subscriptions were expensed. Of course, no one knows for sure, because subscribers aren’t required to disclose this to anyone other than the IRS. But the idea that the model is not replicable because of tax laws is unsupported.

Second, Jeff questions, as have others, how much the costs of acquisition, retention and commerce management weigh against online subscription revenues. In fact, churn was never very high at the Online Journal – far less than at most newspapers or magazines – and the marginal costs of new online subscribers were pretty close to zero. Most of the acquisition cost amounted to some cheap advertising and a couple of percentage points to the credit-card company. Otherwise, unlike in the print world, there’s no additional cost in delivery, paper, ink or such.

Third, many people dispute the idea of WSJ as a model because the site provides business information. There is both myth and truth to this. The truth is that, both emotionally and intellectually, readers can more easily find financial value (and justify paying a subscription) for a Heard on the Street stock analysis than a dispatch from the Baghdad bureau. Same goes for paying for someone plunking down $800 for a new refrigerator and deciding to subscribe to Consumer Reports. But if financial sites are such easy marks for subscribers, why are Fortune, BusinessWeek, Forbes, CNNMoney and even Bloomberg all free online?

One day last month, a Columbia Journalism student asked me in class why WSJ.Com had started as a paid site. This moment reminded me of the scene in Annie Hall (about two minutes into this), where Woody Allen produces Marshall McLuhan to refute (OK, I get the irony) a pompous Columbia instructor pontificating about the media.

At the class, I turned to my co-instructor, Peter Kann, former CEO of Dow Jones and the person ultimately responsible for the paid strategy.

“I made the site paid because I was ignorant, “ Kann told the class. “I didn’t know any better. I just thought people should pay for content.”

Next: Can the WSJ model work elsewhere?

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