For some time, I’ve had my doubts. Two weeks ago, Paid Content pointed to a report from Bear Stearns analyst Spencer Wang that challenged that conventional wisdom: arguing that WSJ would need to grow traffic by a factor of 12 to make the numbers worthwhile.

Because I thought the $6 CPM Wang used was extremely low, I thought there was a way WSJ.com could recoup $78M it currently generates in subscription revenue, if it wanted to.

Yesterday Henry Blodget added that indeed, Murdoch might do no such thing.

Truth be told, I think that given all of the ad inventory that Murdoch owns (IGN.com, MySpace.com, AmericanIdol.com, all Fox newspapers and TV stations’ websites, MarketWatch.com, Barrons.com), why would he jeopardize and cannibalize (wow, I sound like Reverend Jesse Jackson there) that lucrative $78M in subscription revenue for the potential to make it up in ad dollars. I agree with a lot of Blodget’s points… but let’s just run some numbers and see how Mr. Murdoch could make it happen:

- Just to explain some of the numbers: the main page and category index pages are very valuable, so I think they can get $50 CPM if they have 1 or 2 ad impressions.

- From my experience as a VP of Sales of a free, ad-supported mid-sized publisher, I think WSJ.com would get 10% of its ad inventory from the main page (right now, it gets 90%, probably, because search engines do not read the inside pages… but a free site where search engines drive in traffic to inside pages would make that number fall down)

- Then, a lot of traffic would funnel down to the category pages (Technology, Careers, Health, Asia etc.). From my experience, a lot of advertisers prefer this more targeted landing page, so they can maintain a high and healthy CPM.

- The “inside pages” simply refer to articles page, which will be broken down into targeted buys and run of site ad buys. Clearly, the targeted buys yield a higher CPM (basically, think an ad for Mercedes-Benz in cars as opposed to an ad for Dubai in cars…)

- All sites have some remnant, which in this case is different from run of site in the sense that it’s a network buy. I know this sounds blasphemous to the WSJ.com, and by network, we do not mean third party ad networks… but rather, the ad networks that News Corp. is planning to roll out soon.

- Let’s assume 5% goes unsold… which I think will not be the case for WSJ.com… but to make this realistic.

The sums of those rows add up to 100%… to estimate how many video streams WSJ.com can generate, I took 15% of total impressions. I’ll spare you the 1,000-word explanation as to why.

As per CPM rates for video, let’s face it, rate cards are notorious for being too high and never maintained, so if WSJ.com has a rate card of $90 CPM, then they probably sell out at $75 CPM. Quite rich.

This also excludes any search revenue, contextual text ads revenue or sponsorships… can a site like WSJ.com generate $100M in ad revenue per year? Yes. After all, its peer NYTimes.com generates $300M off 45M uniques.

If you look at my numbers, WSJ.com can somewhat seamlessly swap out the subscription revenue for advertising revenue with the same traffic. Of course, a free site would indeed jack up impression levels and reduce CPM rates a bit… but the argument for why the WSJ.com should go free has never been about mathematics alone.

Update:

- OpinionJournal.com - Sign of things to come?
- WSJ starts march towards free.