As George Bernard Shaw put it: 'We have established what you are, Madam; we are now merely haggling over the price.'
Newspapers have never been in any doubt about whether they charged for what they do; not only was it fair, it was morally right. It's still the case; speaking at ISBA's annual lunch last week, Times editor James Harding dug out that old saw about how giving the paper away undervalues journalism. I saw The Independent's Simon Kelner float that line four years ago, and it was nonsensical then, too. Why?
First, there is no moral equivalence between cost and value. In a marketing-led world we charge consumers what the market will bear, with the objective of maximising profits. If the optimal price is zero, that doesn't imply anything about the value of the input, merely the output. Media-owners have been giving away content for years; ask ITV, TalkSPORT and Metro whether they're happy with that model.
Second, circulation has continued to decline since NewsCorp cut off free access to its broadsheet websites. In terms of digital subscriptions, 101,036 have been sold to The Times and Sunday Times, including the website, iPad app and Kindle version. However, the two papers lost 174,050 readers over the past year, giving a net loss of 73,014.
Most telling, though, wasn't the sales figures. Harding enthused about how the iPad enabled it to show pictures of the March tsunami in Japan, hours after the paper had gone to press; nothing that wasn't available free online, or that TV hasn't given us for 40 years.
Herein lies the critical challenge for The Times; its competition is no longer just papers. It is vying online with rivals that have no heritage of charging consumers, and no ambitions to start.
Beyond the moral posturing, there should be a straightforward equation to resolve, with ad revenue, traffic and subscription price as the variables. Theoretically, there is an optimal outcome of price = zero and higher ad income, or a paid sub with lower ad income.
Yet this traditional model assumes just three variables; and one of the biggest IPOs to date in the US might just give the lie to that.
Zynga gives away all its products.
In four years, it has created the world's biggest social gaming company, with the top five games on Facebook and more monthly users there than its next 15 competitors combined. Games like FarmVille are played by 230m a month, and in two years its quarterly revenues have risen from $16m to $235m.
Zynga's revenues come from selling advertising, but mainly from virtual goods that players can buy in-game, customising characters or building and decorating their farm or city. It's a business model pioneered by Korean social network CyWorld, which sold furniture, wallpaper and music to decorate users' homepages as far back as 2003.
At launch, Zynga was dismissed as a low-end, niche player that could never be as compelling as a console game. Now, the Wall Street Journal values it at $19bn, twice as much as EA Games.
What Zynga has achieved holds important lessons for the newspaper industry. It has created rapid market penetration, loyal customers and high revenues by innovation in product and business model. In doing so, it has left incumbents behind and created competitive pressure for old revenue models by changing consumers' expectations of what and how they pay.
There is no moral high ground here, and consumers know what they want. Now we're just haggling over the price.
- Andrew Walmsley is a digital pluralist
30 SECONDS ON ... ZYNGA
- Zynga was founded in 2007. The company's mission is to 'connect the world through games'; it aims to 'create a future where social gaming is a daily habit for everyone'.
- It claims to have 60m active daily users of its games, which are accessed via Facebook, Myspace, iPad, iPhone, Android devices, Farmville.com and the Yahoo! portal.
- Zynga currently offers several games. Three are similar in set-up: CityVille (in which players build their own virtual settlement 'from a small town to a thriving metropolis'); FarmVille (growing produce and raising animals in an agricultural setting); and FrontierVille (virtual homesteading in the wilderness). For fans of more adversarial gaming, it offers Mafia Wars and Empires & Allies; and enthusiasts of more traditional games can pit their wits in Words With Friends or Texas Hold'Em Zynga Poker.
- The business has grown rapidly, last year alone entering partnerships and joint ventures with Facebook, Dreamworks and American Express. It also acquired gaming companies and developers worldwide, including XPD Media, Unoh, Challenge Games, Conduit Labs and Newtoy.
- Zynga's latest initiative is PrivacyVille, a game-style tutorial to help users learn more about online privacy issues and access further resources.