The newspaper has taken on hundreds more staff, but its grand digital gamble has not yet paid off and it is losing money rapidly. Can it survive?by Stephen Glover / March 18, 2016 / Leave a comment
Published in April 2016 issue of Prospect Magazine
Playing his tune: Alan Rushbridger was one of the best newspaper editors of his generation, but lacked commercial success ©Amy T. Zielinsky/Getty Images Let’s agree that the Guardian is a great newspaper whose survival should concern us all. It may sometimes be pompous and self-regarding, but in an age of dumbing down it still carries a torch for serious newspaper journalism—more than ever now that the print edition of the Independent has expired. That the Guardian’s future should be in any doubt is pretty incredible. The Guardian Media Group (GMG), which owns the Guardian and the Observer, had a fund of £740m to support them at the last count. This enormous sum would seem to guarantee the future of both titles and the website for as long as anyone can see. But it doesn’t. GMG figures which emerged at the end of January, and confirmed to me by the company as accurate, paint an alarming picture. Losses in 2015 to the end of March are expected to amount to £58.6m, an annual record. Including leasing costs and capital expenditure, more than £80m in cash has flown out of the window in the last year. At the same time, the value of GMG’s investment fund fell from £838.3m last July to £740m at the end of January, which largely reflects market conditions (although it may have been helped by the recent market recovery). According to its critics, the company has demonstrated its ingrained inability to control costs. On 17th March it announced a new round of swingeing redundancies and other savings. There is another worry. Many journalists on the paper to whom I have spoken question what GMG has termed its “digital-first” strategy, which it has pursued for more than a decade. Might it be that its policy of putting all its journalistic material online without charging readers is commercially unviable? Could the free model be fatally flawed? There are good reasons for thinking so. The Guardian and the Observer (also a paper with a great history) have been losing huge sums of money for as long as anyone can recall. I have totted up the losses that the newspapers have jointly posted over the last 11 years, including this one. They amount to about £340m. Apart from this year, the worst performance was in the 12 months ending March 2012, when the titles lost £44.2m. If you can burn through £340m in just over a decade, a fighting fund of £740m suddenly doesn’t seem so much. As recently as last summer, GMG was giving the strong impression that it had turned the corner. After 20 years as Editor of the Guardian, during which time he had been the messianic driving force behind the paper’s worldwide digital expansion, Alan Rusbridger packed his bags to become Principal of Lady Margaret Hall, Oxford with a spring in his step. He told the British Journalism Review around the same time: “I think for a new editor to come in with a billion pounds in the bank is quite a nice position.” The happy recipient of this slightly overstated largesse was Katharine Viner, the first woman to edit the Guardian since it was founded in 1821. Andrew Miller, Chief Executive of GMG from 2010 and also a public champion of its digital strategy, chose to leave along with Rusbridger, giving the impression that his job was done. When he had taken over, Miller had announced that losses of £100,000 a day were unsustainable. The Guardian and Observer had enough resources to guarantee survival for only five years. Some job losses and other cutbacks duly followed. During his tenure, annual losses roughly halved, and stood at £19.1m—the lowest for a decade—in the year ending March 2015. Yet 12 months later losses have soared, and the mood at the papers has reverted to gloom. Digital revenues, which had been predicted to increase to £100m in the current financial year, are stuck at around £80m, while advertising print revenues have declined by about 20 per cent in 2015, more or less in line with the rest of Fleet Street. It also appears that the brakes that Miller applied when he arrived were taken off in his and Rusbridger’s final years as GMG embarked on a renewed spending spree. As part of its digital expansion, offices in New York and Washington were expanded, and a third bureau opened in San Francisco, while three new offices have sprung up in Australia, part-funded by investment from a local entrepreneur. According to the company’s own figures, in the past three years GMG has appointed 479 more people in both editorial and commercial, bringing its total headcount to nearly 2,000. Worldwide the two newspapers employ just under 1,000 journalists in comparison with a total of 500 journalists on the payroll of the highly profitable Telegraph titles, which have reduced numbers in recent years. Miller’s undisputed contribution was to oversee the disposal of GMG’s remaining 50.1 per cent stake in Auto Trader, the owner of a very lucrative car sales website, for more than £600m. (GMG had cleverly bought into a car magazine in 1982, which later morphed into the lucrative Auto Trader.) Miller was awarded a bonus of £1.4m for doing the deal, which did not go down well with many staff. The new windfall (previous holdings in Auto Trader and other assets had been sold and spent) provided the lion’s share of the group’s investment fund. GMG still also has a stake in the media group Ascential, and recently netted £30m by reducing its shareholding in that company from 33 per cent to just over 23 per cent. When Miller left he was fêted by Campaign magazine, the bible of the advertising industry, which spoke gushingly of “the Guardian’s revival.” Liz Forgan, Chair of the Scott Trust—the body ultimately responsible for the two newspapers, to which GMG answers—sprayed oodles of praise on the departing Miller, as well as the long-serving Rusbridger. “GMG is entering a new period of growth, thanks to the strategic leadership of Andrew Miller and Alan Rusbridger,” she declared. “Together, they have positioned the Guardian to build on its worldwide audience and to capitalise on its new commercial and digital opportunities.” Yet at the end of January, Viner and David Pemsel—Miller’s former deputy and now GMG’s Chief Executive—shocked staff at the company’s premises near King’s Cross Station in London by announcing that running costs would be cut by 20 per cent as a result of the losses. In introducing a new three-year plan, Pemsel’s tone was notably different from the upbeat Forgan a year earlier. “It’s very easy to look back and say the Guardian has made mistakes,” he conceded, without spelling out what those mistakes might have been. Nothing would be ruled out in the cause of cutting costs. “To understand the modern Guardian one has to appreciate the dominant role that Rusbridger played as the newspaper’s visionary and chief strategist” What was striking about Pemsel’s announcement is that it echoed Miller’s warnings to staff when he became Chief Executive, and also what Tim Brooks, then Managing Director of both newspapers, had said a couple of years earlier. (I texted and left messages for Miller, but he did not respond.) The paper has come back to where it was: intermittent cutbacks are reversed by new phases of expansion followed by further cutbacks. Whatever happens, the Guardian and Observer seem always to have a cost base out of synch with their ability to generate revenue. Will it be different this time? GMG’s announcement on 17th March had been awaited by nervous staff for weeks. The UK workforce is expected to be cut by 18 per cent, or 310 jobs, as about 60 commercial and editorial positions remain unfilled. The company hopes that cuts will be made by voluntary redundancies. In a joint email to staff, Viner and Pemsel wrote that the “volatile media environment” had led to an “urgent need for radical action.” The new three-year plan had “one goal: to secure the journalistic integrity and financial independence of the Guardian in perpetuity.” It was also announced that GMG is to give up its ambition to turn the Midland Goods Shed, a former train depot near its King’s Cross offices, into a state-of-the-art events space. This venture, first unveiled in 2014, had been close to the heart of Alan Rusbridger, who had suggested that it might make a significant amount of money. To understand the modern Guardian one has to appreciate the dominant role that Rusbridger played for many years not only as a quietly spoken though steely editor, but also as the newspaper’s visionary and chief strategist. It was Rusbridger who in 2005 argued most strongly that the newspaper should invest £80m in new presses capable of producing a “Berliner” format similar to Le Monde’s in France (in between the size of a broadsheet and a tabloid). Whereas the Times and the Independent were prepared to switch from a broadsheet to tabloid shape (exactly half the size) using their existing presses, the Guardian had to have its own unique and costly arrangements. When I questioned the expense in my Independent media column, Rusbridger sent me a pained email arguing that his newspaper’s printing contract had been due to come to an end within three years, and so the paper had to acquire new printing facilities. But did it? Couldn’t it have accepted the tabloid shape and extended its contract? At the time of its Berliner re-launch, the Guardian had a daily sale of nearly 400,000. Ten-and-a-half years later this has slipped to 165,000, while the Observer’s sales have also slumped. Although such a precipitate decline may not have been foreseeable, the investment of so much money in new presses has not paid off. Moreover, as an executive at a rival newspaper group pointed out to me, the Guardian and the Observer presses lie idle when not producing the papers’ shrunken print run because virtually no one else in the country uses the same format, and so there is no contract work. It’s hard to see the Berliner presses as anything other than a white elephant. “Market leaders such as Mail Online and the Guardian are minnows compared with Google and Facebook” Rusbridger also played a leading role in GMG’s 2009 move from Farringdon to new offices in King’s Cross, complete with their own auditorium. Other senior executives also pushed hard for the move. More humdrum (and cheaper) headquarters in Lambeth were rejected. According to one senior GMG executive, going south of the river was not commensurate with the company’s new ambition for the Guardian to be “the world’s greatest newspaper.” This person also claims that Rusbridger’s “grandiose” philosophy was “spend, spend and spend.” Another former colleague of Rusbridger said: “He drove through the plans, the philosophy, the ideology, but never accepted responsibility for financial husbandry. It was as though there were two different universes at GMG—Planet Rusbridger and Planet Money.” These tendencies are widely believed to have exasperated Miller and may well have contributed to an eventual rift between the two men. The editor’s attitude towards controlling costs was not only evident in the decision to lavish money on new presses and delightful new offices. When Rusbridger lured the columnist Simon Jenkins from the Times in 2005, an impressive catch in view of the pundit’s credentials as an establishment figure, he agreed to pay him an enormous sum by the standards of the Guardian, confirmed to me by a person with close knowledge of these matters. The Guardian, although perennially guilty of overmanning, is not known in Fleet Street as a high payer. At the core of Rusbridger’s vision was the conviction that print was dead, and digital was the future. He arrived at this conclusion long before any other national newspaper editor, and some people hailed him as a prophet. Nor could anyone dispute that the Guardian’s website has been highly successful. It is the second or third most visited English language newspaper website in the world. Mail Online is the undisputed leader, with some disagreement over whether the Guardian or the New York Times is number two. This is in one sense a great achievement. In the United States, where the Guardian was previously unknown, it has become a household name in liberal circles, not least because of the paper’s Pulitzer Prize-winning revelations about the National Security Agency, as given to them by Edward Snowden. About one third of the online paper’s 148m monthly unique readers live in the US. The problem is that this journalistic triumph is a commercial disappointment, producing this year only £80m in advertising revenue. Meanwhile, in the 12 months to March 2015, revenues from the much diminished print editions of the Guardian and Observer are estimated to have been about £120m a year, though GMG’s accounts do not specify an exact figure. In other words, the second or third most successful English language newspaper website on the planet is producing significantly less revenue than two national newspaper titles selling a fraction of their former circulation. The digital experience of the Daily Mail and General Trust is not dissimilar. In 2015 the revenues of the Daily Mail and Mail on Sunday were approximately seven times those of the mighty Mail Online. There is a difference, though. The sales of the Mail titles have fared much better than those of the Guardian and Observer, largely because they have been cherished by their management, whereas in the words of one senior Guardian journalist: “Alan Rusbridger put the print edition on the back-burner long ago.” A few digital diehards still maintain that it will all come good in the end. Perhaps it will. But at the moment online newspaper digital revenues are falling far short of expectations. Some analysts blame ad-blocking software which is now used by an estimated 200m people and has had a depressing effect on online advertising revenue. Yet this is probably only a marginal factor. The truth is that even online newspaper market leaders such as Mail Online and the Guardian are minnows compared with Google and Facebook, which command enormously greater audiences. In 2015, Google’s global advertising revenues were £35bn in comparison to the Guardian’s paltry £82.1m. In the past three years, the GMG hired 479 more staff: on 17th March in announced cuts. ©View pictures/REX/Shutterstock Having, in the words of one senior colleague, taken a “huge bet on the digital future,” Rusbridger should perhaps be prone to a few collywobbles as he settles down in Oxford. I sent him two emails and delivered a letter to his house, which happens to be close to mine, asking him whether he would agree to be interviewed as part of this article. After a few days GMG’s press office contacted me to say that, “he won’t be taking part in the piece.” Yet he did recently find time to speak illuminatingly to an obscure website called TheMediaBriefing, stating that “these notions of scale have got to be re-evaluated.” He said that when he left the Guardian last summer, “we were going to make £100m out of digital compared with £80m, and it all looked completely sustainable.” But “everything’s changed in the last six months and is all going to Facebook and we now wonder whether scale is the thing.” However he still does not think that putting up a paywall and charging readers for online access is the answer. “I’ve heard David [Pemsel] saying that it would be madness to do so because of all the things we’ve argued about liberal journalism.” According to a former senior colleague, his suggestion that everything in the garden looked rosy when he left last year is “what has defiantly changed the tone within the Guardian towards Alan.” Is Rusbridger right to stick to his conviction that free online journalism is the best way forward? One way of answering that question is to look at the Murdoch-owned Times over the past six years. When it launched its paywall in 2010, it was selling an average of just over 500,000 copies a day, while the Guardian’s circulation was 286,000. Since then the Times has dropped by about 20 per cent to around 400,000, while the Guardian has plummeted by twice as much in percentage terms to 165,000. During this period the Times has gone from a paper losing a lot of money to one said to be roughly breaking even, while the Guardian is more unprofitable than it was six years ago. A single comparison may not prove the case but it is undeniable that the Times has retained most of its print circulation in a difficult market and earned some revenue from charging its online readers. Meanwhile the Guardian’s sales have been in freefall. Part of the explanation is probably that the paper has adopted an aggressive pricing policy, and is selling for £1.80 Monday to Friday in comparison to the Times’s £1.20, or 80p to those who subscribe to the paper’s digital package. But isn’t it also a reasonable assumption that a significant number of readers of the Guardian’s print edition have switched to the online version, where the same material, and much more, is freely available? That looks like financial suicide since in revenue terms one digital reader represents a minuscule fraction of a print reader. There are all kinds of variants between the Times at one extreme and the Guardian at the other. Many online newspapers have a metered paywall, meaning that a reader may access a small number of articles before being asked to pay. According to research by the American Press Institute, 77 out of 98 US newspapers recently surveyed had a metered paywall. The free model, which has been Rusbridger’s dream, is becoming more of a rarity, though other online British papers such as the Independent and Mail Online still adhere to it. “As for the future of digital, there are signs of a shift in thinking, but not yet of a revolution” Neither Pemsel nor Viner would talk to me for this article—senior newspaper executives are, in my experience, generally more reclusive than the politicians whom their publications hold to account. It is therefore difficult to know what is going on in Viner’s mind. She can hardly be blamed for the financial mess she has inherited, and could be forgiven for feeling that the golden inheritance of which Rusbridger boasted less than a year ago is tarnished. Though there is understandably much gnashing of teeth among Guardian and Observer staff about the latest round of cuts, it can hardly be denied that there is ample scope for savings. Guardian journalists who have worked on more commercially minded newspapers express astonishment at the extravagance and over-manning they encounter at King’s Cross. (I am told that seven Guardian journalists turned up to report the recent Democrat and Republican Nevada caucuses.) Given the failure of previous attempts to reduce costs and keep them down, it is difficult to be optimistic about the long-term success of this round, though it is possible that Viner and Pemsel will make a more effective team than Rusbridger and Miller. Will they be able to see through these really quite draconian savings, and ensure that these are not followed by another phase of splurging money which the company cannot afford? As for the future of digital, there are signs of a shift in thinking, but not yet of a revolution. At a media conference at the British Library on 1st March, Viner said she wants to get more readers to pay for accessing the Guardian website while insisting there are no plans for a paywall. The idea is to expand GMG’s scheme by which paying members already attend special events, though now that the scheme to develop the Midlands Goods Shed has been abandoned a more modest venue will have to be found. In the future members might also be able to read online “premium content” denied to other readers. Without knowing the details it is hard to make a judgement, but it does not look like a sure-fire way of boosting revenue. The key to what happens will not lie only with Viner and Pemsel but also with the Principal of Lady Margaret Hall, Oxford. Rusbridger became the guiding hand of the Guardian, not just in editorial matters, where he was obviously highly competent—“one of the best of his generation,” according to a colleague who is a fierce critic of his financial approach—but also in the commercial sphere, where he wasn’t. Observers say that Forgan, the ex-BBC executive who has chaired the Scott Trust for 12 years, was not inclined to oppose Rusbridger. One executive maintains that “Alan could always bend the Scott Trust to his will, even after there had been some muted objections to his plans at GMG level.” More than anyone in the upper echelons of the GMG, Rusbridger epitomised a public sector ethos of a kind that also holds sway at the BBC. It was as though the Guardian had a God-given right to arcane printing presses and a fine building and worldwide digital fame irrespective of its ability to pay for these things. I don’t know how the paper can ever escape this mindset, particularly in view of a momentous re-shuffle about to take place. Forgan is about to step down. She will be replaced by a chairman who is a formidable operator, and has been used to getting his way for many years. He knows how the Guardian works better than any person alive. Many people on the paper regard his imminent arrival with trepidation. The appointment would be deemed deeply controversial if GMG were a public company since someone who has effectively acted as chief executive would not be expected to return to head the board (a practice strongly discouraged by the UK Corporate Governance Code). For the new chairman of the Scott Trust is its helmsman of many years who both burnished the Guardian’s editorial reputation, and left the newspaper financially vulnerable: Alan Rusbridger.