Will Murdoch free the Journal's Web site?

LOS ANGELES (Fortune) -- More than a lot of CEOs, Rupert Murdoch is often willing to muse aloud about his plans. And, at a Goldman Sachs media confab in New York last week the topic of whether to stop charging people to visit the Web site of his newly-won prize, The Wall Street Journal, came up. The first thing the media baron said when asked about it is that he hadn't made is mind up yet, but that "it's certainly on the front burner to decide what to do there." Yet he also went on, as he has before, to point out the bull case for making the WSJ.com free and adding that it "looks like the way we are going."

In many quarters of the media world, free is the new paid. But Murdoch didn't get his News Corporation (Charts, Fortune 500) where it is by following the conventional wisdom. And having just paid an enormous premium to buy Dow Jones, the Journal's challenged owner, is he going to now dismantle one thing it seemed the company had right - its newspaper Web strategy?

Will Murdoch make the Journal's Web site free? Some signs point to yes.

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He will certainly get resistance from some of the top brass at Dow Jones, who have proudly built the most successful paid newspaper Web site, which has nearly a million subscribers. "We have no present plans to change the model," Gordon Crovitz, the Journal's publisher, said in statement released to me. "Of course, we're operating in a dynamic online media environment, and we're always looking for ways to enhance our business news leadership and would make changes as new opportunities warrant."

One of those opportunities might be a new owner telling you what's what. Crovitz and other Dow Jones executives declined to comment further. The debate over whether publishers and other media outlets ought to charge for access to their content online is one of the chewiest of the moment. And the decision to make free material that is otherwise paid for in the "offline" world comes down to two key questions: one, will the web site being free generate more revenue from advertising then a paid site one? And, secondly, once the product becomes free online will people still want to pay for it in print?

On the first question, Murdoch gave this view: he said that the Journal makes roughly $50 million in annual Web subscription revenue, and the short-term hit in revenue might be "$30 million, something like that". However, he went on, "if the site is good I think you'd get much more than that back" by vastly increasing the number of visitors to the site worldwide, and selling more advertising based on that traffic.

As it happens, The New York Times last week also dropped its half-fledged subscription service, TimesSelect, offering a similar rationale: that the potential upside from online advertising greatly outweighs the loss of $10 million or so in revenue from subscriptions it was selling for access to archives and columns at $49.95 a pop. I

It's a compelling point. As Rick Edmonds, a media business analyst at the Poynter Institute pointed out, one of the factors behind the Times's decision was the fact that a large portion of traffic to Web sites comes through links from Google, news aggregators and other outside sources, rather than people just clicking directly to their favorite brands. Indeed, as a fly-on-the-wall attendee at Murdoch's annual digital retreat in Monterey last May, I heard the top newspaper editors at his News Corporation say that as a result of these referrals, a huge majority of the millions who visit their web sites in the U.S., England and Australia do so, on average, a mere once - yes, once - a month.

In the Journal's case, the question of how much it can increase its traffic by simply going free is triply complicated. For one thing, more of the site than you might think is already free to the public (and if you visit it without signing in you are nudged with offers to take out a subscription which can be bought at a hugely discounted rate of $79 for print or online and $99 for both). By knowing exactly who is reading it, the Journal in theory is commanding premium ad rates in the highly competitive financial news category. Secondly, the company already has a free business information site, Marketwatch.com, for which it paid more than $400 million two years ago precisely to serve a mainly consumer/investor audience versus the Journal's primarily professional readers.

Thus it is not clear that a free WSJ.com will immediately get the huge boost in traffic that Murdoch ultimately envisions. Making a free WSJ.com succeed, then, really depends on Murdoch's even more ambitious master plan: to widen the reach of the Journal by making it both more mainstream and global - and to integrate it with the video capability of the Fox Business Network channel he is launching next month in the U.S. Both, needless, to say, are daunting cultural and organizational undertakings.

On the second question of whether a free Journal site will cannibalize paid circulation in print, the answer appears, for now, to be much more clearly in favor of dropping the pay wall. Sure, some people will decide to stop paying in print for something they get for free online; in the case of The New York Times(my former employer), print circulation has continued to grow despite the paper also having the most-visited newspaper website.

A much smaller but very interesting analogy to the Journal because of its business focus is Variety, the journal of all things Hollywood. Last year the trade paper dropped its paid online subscription - it was charging the same as a print subscription, around $300 annually - and made its site www.variety.com free. Charles Koones, Variety's president and publisher, told me that while Variety's print circulation (a much more modest 36,000 or so) has stayed the same for years, unique visitors are up but online revenue is up more than 90 percent so far this year. How did this happen? Like Murdoch's plan to make the Journal broader in its editorial appeal, Koones said that Variety's online plan is to "super-serve" its core professional media audience while also appealing to a "discerning consumer of media and entertainment information" online.

It's a similar story in magazine-land, too. A recent study by Nielsen/NetRatings and Mediamark Research on 23 big monthly magazine web sites found that more than 80 percent of the visitors to these sites did not read them in print.

If you're a pessimist about such things, you might think that it is only a matter of time before people do stop paying to read things in print, particularly as younger people move more of their lives online. And you pray that those online advertising increases will more than make up for declines in print.

If you're an optimist, you come out thinking that rather than devaluing the core product, free online versions of paid publications actually have the opposite effect: the good old print product becomes the premium product for the brand, sort of its deluxe limited edition.

It's pretty clear which camp Rupert stands in.