Murdoch free wsj.com plan raises risks for Pearson

LONDON Sun Aug 12, 2007 11:18am EDT

News Corp. chief Rupert Murdoch makes a comment to reporters as he leaves a midtown Manhattan office building following meetings with several key members of the Bancroft family who control Dow Jones & Co. Inc., June 4, 2007. Murdoch has said he might make the Wall Street Journal's Web site free, a shift that could compel Britain's Pearson to do the same with the online version of its Financial Times. REUTERS/Mike Segar

News Corp. chief Rupert Murdoch makes a comment to reporters as he leaves a midtown Manhattan office building following meetings with several key members of the Bancroft family who control Dow Jones & Co. Inc., June 4, 2007. Murdoch has said he might make the Wall Street Journal's Web site free, a shift that could compel Britain's Pearson to do the same with the online version of its Financial Times.

Credit: Reuters/Mike Segar

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LONDON (Reuters) - News Corp.'s Rupert Murdoch has said he might make the Wall Street Journal's Web site free, a shift that could compel Britain's Pearson to do the same with the online version of its Financial Times.

Numis Securities analyst Lorna Tilbian said any move by Murdoch to make wsj.com free has to put pressure on Pearson, while Dresdner Kleinwort's Usman Ghazi estimates a potential hit of up to six percent on earnings per share.

"You can resist if you don't want growth," Tilbian said.

Wsj.com is one of the Web's most successful subscription businesses with a $99 annual charge and making it free would be aimed at lifting online ads from an anticipated jump in readers.

"It would be an expensive thing to do in the short term. In the long term, it may be a great thing to do," Murdoch said this week as he sketched his plan for the future of Dow Jones.

Earlier this week, newspaper reports said the New York Times was mulling whether to stop charging Web users for access to its columnists and editorials.

Pearson's Texas-born CEO Marjorie Scardino has said the FT and Wall Street Journal differ in their strategies.

To a point, say analysts.

Dresdner's Ghazi said he doubted the average reader saw much difference between the two newspapers.

"If the Wall Street Journal goes free, the marginal buyer of the FT is going to say 'hang on, why am I paying for a service I can get for free elsewhere?'"

Pearson's interim results last week showed ft.com subscribers were up 12 percent on the year at 97,000. This came as cover prices on the FT paper rose in the UK, Europe and the U.S. The FT's circulation rose 1 percent to 450,000.

The Journal's circulation is around 1.7 million, although this swells to around 2.7 million when its Asian, European and online users are included. The wsj.com site alone has 983,000 paying users with the Asian and European journal-branded newspapers selling around 80,000 copies in each region.

CASH OR CLICKS

Ft.com subscriptions range from 99 pounds a year to 400 pounds, meaning revenues from online subscribers come in somewhere between 10 million to 38 million pounds.

Assuming this went and the loss directly hit the bottom line Dresdner's Ghazi estimates the potential impact on Pearson's earnings per share at 1-6 percent.

"The danger here is that ft.com is forced to go free in the wake of a free WSJ which in turn hurts print subscriptions."

This could have a much "more material earnings exposure of 10 percent" given total circulation revenues for the pink-printed FT newspaper are around 80 million pounds, he said.

UBS analysts said in a note on Friday that if wsj.com is made free, any loss for Pearson should likely be limited given the Journal's weaker European operations and because the bulk of ft.com competition in Europe already comes from free Web sites.

"Even assuming a worst case scenario, where all these (Web) subscribers were lost, there would only be around a 7 million pound impact, suggesting only around 1 percent downside risk to group profits," UBS media analyst Polo Tang said.

Scardino has described the FT as a niche paper with a broad global reach focused on leading policy, political and financial players, adding that the Journal was a high-volume, mass market U.S.-focused paper with a similarly aligned advertising base.

"We have been competing against Dow Jones for a very long time and we have been beating the Journal and we think we can carry on doing that," she told reporters in a results briefing.

She added: "There are very few newspaper proprietors who know what we know about niche publications. I think all of the News Corp newspapers are general interest, mass market consumer papers. That is what they know."

Renewed concerns about the fate of the FT may reignite calls for Pearson, which generates the lion's share of its revenue and profit from education publishing, to ultimately sell the paper.

Although Scardino sanctioned the sale of Pearson's French business newspaper, Les Echo, this is one disposal she has repeatedly said she has no intention of making.

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