Raise your hand if this sounds familiar: You're an American teenager, and you've suggested to your mother that you be allowed to do something very fun but very stupid, and you justify it by saying, "Everybody else is doing it!" She gets that look on her face and says, "If all your friends decided to jump off the Brooklyn Bridge, would you do it, too?"
Mom's rhetorical query was, of course, aimed at activating your common-sense gene, the one that tells you, "Gravity is inescapable. Concrete is hard."
It's the same gene, incidentally, that tells us, "Companies make more money by charging for stuff than they do by giving it away for free." And it's that gene that finally kicked in in the mind of News Corp. (NYSE: NWS ) emperor Rupert Murdoch yesterday.
On Thursday, common sense won at News Corp. Murdoch announced that he will not, in fact, begin giving away free access to WSJ.com, the Wall Street Journal's online cousin. It will not join The New York Times (NYSE: NYT ) , The Washington Post (NYSE: WPO ) , and oh so many other pro bono content providers to Google (NYSE: GOOG ) and Yahoo! (NYSE: YHOO ) . It will not offer up its best stuff for free online and not shoot its hard-copy circulation in the foot.
Now, on the site in question, writers are working hard to spin this story as the end result of a process of long deliberation. Quoting Murdoch from his Thursday speech in Davos, WSJ.com asserted that although it will "expand" its free content, "The really special things will still be a subscription service, and ... probably more expensive." On which subject WSJ.com continued: "Speculation had been rife in recent months that News Corp. ... would make WSJ.com a completely free site. Mr. Murdoch had signaled he was contemplating dropping the subscription model to broaden the Journal's online audience and boost its Web-advertising revenue."
"Speculation"? Hardly. To the contrary, Murdoch was quoted in November: "We ... expect to make [WSJ.com] free, and instead of having 1 million [subscribers], having at least 10 [million to] 15 million in every corner of the earth."
Call me a jump-to-conclusion-ist, but that sounded pretty darn definite to me. Definite enough to spark a debate here at Fool HQ over the wisdom of the move. Definite enough to get my Foolish colleague Rich Duprey to thinking up a game plan for how he would deploy his subscription dollars when WSJ.com went free-for-all.
The way I read it, this isn't Murdoch contemplating and ultimately rejecting the idea of dropping subscription fees. This is Murdoch doing the math, coming to a conclusion ... and then doing a 180 on that conclusion when the math changed.
Now, happy as we are here at the Fool to point out freebies and help you avoid overpaying on your newspaper subscriptions, what really gets us up in the morning is the chance to warn you about overpaying for terrible stocks (DryShips, anyone?)
In furtherance of that latter task, Murdoch's latest rethink suggests that there's a real risk looming for investors in companies such as the aforementioned Google, Yahoo!, and ValueClick (Nasdaq: VCLK ) . I remember how Murdoch warned at his recent shareholders meeting, "You are going to see quite a few more shocks, particularly in Europe, and they are going to spread around the world."
That got me to pose a rhetorical question of my own: "Is now the right time to eschew predictable, recurring subscription revenue in favor of advertising revenue that's about to get 'shocked'?"
My guess is that between then and now, from his vantage point as head of the world's largest media empire, Murdoch saw something happening in the advertising markets that convinced him today is not the time to "go free."
If you're contemplating investing in a company that depends on online advertising for its profits, I strongly suggest you follow Murdoch's example, and wait for the outlook to brighten.
Word from your mama.
The Motley Fool? Still free: