More than 100 years ago, Britain’s pioneering railway network enabled its national daily newspapers to reach all parts of the country by breakfast-time. It helped to create the legendary power of Fleet Street. Decades before Rupert Murdoch arrived from Australia, newspaper bosses like the Lords Northcliffe and Beaverbrook were all over UK politics. And, despite their changed fortunes, many of those same dailies still wield real political influence.
Political diaries have chronicled the daily obsession of recent UK Prime Ministers with what the newspapers were saying, even though digital audiences have become much larger. The continuing influence of print is only partly due to the fact that leading politicians are almost as stubbornly ‘pre-digital’ as most of the newspapers themselves. It has more to do with the way Britain’s obsession with daily newspapers is
perpetuated by the country’s TV news networks which spend several hours each day “reviewing” them. Many more people see the front pages than ever think of buying them.
It is 25 years since the then 5m-circulation tabloid famously claimed post-election that “It’s The Sun wot (sic) won it”. But, despite the shredding of its copy sales and profits, the political endorsements of News Corp’s fiery tabloid still make the country’s TV news bulletins during election campaigns. In the Brexit referendum last year, TV coverage was dominated by the headlines of Britain’s politically-biased daily newspapers.
This week, it was claimed that, during the campaign, former Prime Minister David Cameron had privately lobbied for the dismissal of the editor-in-chief of the Daily Mail which was vigorously campaigning for Brexit. It was as if the UK’s phone hacking scandals and the collapse of newspaper sales had done nothing to dent their power.
Brits cannot escape the historic influence of daily newspapers and still can’t imagine life without them. But they’ll eventually have to, because the 10 national daily news brands are suffering the familiar fate of audiences shifting to digital with revenues falling and stuck in print. Twenty years after news first gushed freely onto the internet, the papers are tortured by the technology: the smartphone has shrunk consumer appetites for news, reduced the scope for display advertising, and taken these traditional media even further away from the mass market they once dominated.
The English dream
But the centuries-old newspapers are clinging to the hope that they can be saved by another part of their legacy: the English language. Many see themselves becoming global news providers with an optimism based on not much more than a language shared with the biggest news market of all. It’s a dream that has captivated even the smallest of the UK dailies, which have managed to pile up reasonable digital audiences in the United States. But be warned: the one UK newspaper that has already become a substantial digital brand in the US has found profits no less elusive than at home.
The Guardian is the 195-year-old liberal newspaper which – until 1959 – was known as the Manchester Guardian and was based in the UK’s industrial north-west. The big breakthrough came after its longest-serving editor Charles (C.P.) Scott bought the newspaper which – over 57 years – he had built into a nationally recognised daily. He bequeathed the paper to a charitable trust pledged to maintain its independence and liberal politics and to reinvest whatever profit it made. The pledge has survived the trust’s
conversion into a limited company which now also publishes The Observer, the world’s oldest Sunday newspaper.
The way that this unique ownership structure has emboldened the flagship paper was highlighted by the 20-year-editorship of Alan Rusbridger who took over in 1995. It led the 2011 exposé of phone hacking and criminality by News Corp journalists in the UK, which The Guardian broke wide open with the revelation that the News Of The World had hacked the phone of a child murder victim.
Despite the eventual acquittal of most of the accused executives, it has cost News Corp hundreds of millions of pounds (and counting) in legal costs and compensation. For Rusbridger, it was a Watergate moment and helped to define his newspaper for its new audiences outside the UK.
It came four years after the launch of Guardian America through which Rusbridge sought to capitalise on his already substantial online readership in the US. In 2010, The Guardian and other newspapers including The New York Times and Der Spiegel, produced reports on the war in Afghanistan based on a huge cache of classified documents from WikiLeaks.
In 2013, it won a Pullitzer Prize for its coverage of the US National Security Agency documents leaked by Edward Snowden. The revelations made the paper one of the world’s most visible news services, in much the same way as the once little-known CNN rocketed to global recognition as virtually the only US news organisation in Baghdad at the start of the 1990 Gulf War. But there was a difference.
Unlike CNN 20 years earlier, The Guardian’s economic prospects were not transformed by its scoops. The digital-savvy paper managed to build a big reputation but no revenue, and that’s how it has continued. But it has always had a legion of admirers. In 2012, The Economist described it as “the most stylish paper in the hyper-competitive British quality pack, the wittiest and best-designed, the strongest for features, the one most likely to reflect modern life.”
More than two-thirds of Guardian online readers are now outside the UK. In Britain, The Guardian – which once thrived on recruitment classifieds in print – has struggled to reach even 20% of its 500,000 peak weekday copy sales. Like many another UK daily, its high-priced, magazine-led Saturday edition is its only profit-maker (twice the sales and at a 45% higher price than on weekdays).
This week, the embattled company told employees it expected to incur a cash “burn” of about £90m in 2017, following some £100m in 2015, and £200m last year. It is seeking to cut staff costs, reduce the size of its offices and scale back its overseas ambitions. It’s a familiar newspaper scenario but, arguably, The Guardian’s whole ownership structure – and windfall investments – have made it more complacent than most.
Private equity profits
The non-profit parent company has traditionally been organised almost as a private-equity firm, with external shareholdings which have helped to fund newspaper losses and capital investment. These have produced an endowment of some £700m. But, after years of bold expansion – in the UK as well as the US and Australia – The Guardian is now coming to terms with the fact that, unless it stops the losses, even these reserves may run out in 6-7 years.
It is interesting to contrast The Guardian’s global strategy with that of two other UK media brands, the Financial Times and The Economist which built their businesses by investing gradually in US distribution and content, and changing the direction of what had once been UK-focussed journalism. These quiet strategies are both now seen to have been successful in growing sustainable international operations.
The Guardian, by contrast, was more dramatic, evidenced by the descent into seemingly permanent losses immediately after a record 2011 EBITDA profit of almost £50m. Alan Rusbridger’s expansion was more a mission than a business plan. It was all about a free web site, with no plan to sell subscriptions, and only a vague idea of how to grow digital advertising sales in the intensely competitive US market.
The missionary zeal with which The Guardian editor attacked the US has been compared with the way that his nemesis Rupert Murdoch launched the Fox Network in the US or Sky TV in Europe. Rusbridger might even have allowed himself to think he had some of Murdoch’s financial advantages. But he was a long way short.
The Guardian’s financial reserves had been piled up by Bob Phillis, a former CEO whose 50% investment in digital winner AutoTrader eventually produced a profit of more than £600m. The windfall dwarfed minor disappointments in radio and B2B media. The gains would, Rusbridger reasoned, help payroll The Guardian’s global digital development until it became profitable. But that was before all newspapers got caught in the unending avalanche of falling print revenues and only low-growth online advertising. After almost 10 years of pretending that the promise of a bright new future was somehow guaranteed by soaring (free) web audiences, The Guardian and daily newspapers everywhere started to freeze.
In 2015, Alan Rusbridger stepped down as editor-in-chief of The Guardian after 20 years characterised by stand-out investigative journalism but also by a profligacy that saw the newspaper increase its staffing and costs throughout a decade when even its most sleepy competitors were doing the reverse. He was due to become chair of the newspaper’s Scott Trust parent company in 2016. His successor Katherine Viner was elected (yes) as editor by the paper’s staff. It did not take Viner and new CEO David Pemsel long to start dismantling the Rusbridger legacy as part of what quickly became a plan to save The Guardian.
Within 12 months, they announced proposals to cut 250 jobs in the UK. The group’s global headcount – believe it or not – had increased by 479 to 1,960 since its last round of redundancies in 2012 – a rise of 32%. The urgent need for action belied the cool Viner-Pemsel declaration: “Our plan of action has one goal: to secure the journalistic integrity and financial independence of The Guardian in perpetuity.” They added the hope that the job cuts would all be voluntary and that compulsory redundancies would only be considered “if necessary”.
They abandoned an always-optimistic scheme to build an events hub near the newspaper’s fancy new canal-side London headquarters. Rusbridger’s plans for “an open amphitheatre for festivals, acoustic gigs and debate, as well as including an intimate
restaurant with a changing programme of chefs in residence, an armchair cinema, a 3D printing and fabrication lab”, had been developed in 2014 as a physical hub for the newspaper’s online membership scheme. It was aimed to encourage regular readers to pay up to £600 annually, without having to charge a subscription to read the content. The former editor once claimed the hub would produce profits of £10m per year from events and classes. But scrapping the whole project is now said to have saved the newspaper £6m a year in losses. That is hallmark Guardian accounting.
A few months later, as the true scale of the financial problems became clear, the Scott Trust abruptly withdrew the offer of its chair to Rusbridger. The decision came after weeks of not-too-discreet campaigning by anonymous staffers who told rival papers he was to blame for the crisis that was enveloping The Guardian. The pressure became irresistible and, after more stilted eulogies to the man who “has set the standard for journalistic leadership in the digital age”, Rusbridger was out in the cold.
He was left to make his own gloomy off-stage predictions about prospects for the newspaper. In an interview with the Financial Times, Rusbridger said that Facebook had sucked up nearly £20m of The Guardian’s digital advertising revenue in 2015. He said it had forecast online revenues of £100m. In the end, the newspaper’s digital turnover was £81.9m – down 2.3% on 2014 “because it all went to Facebook”. They were taking all the money because “they have algorithms we don’t understand, which are a filter between what we do and how people receive it. This is going to get worse because they have a means of distribution which we simply can’t cope with and the more people switch on to these devices, the more problematic that question is going to get.” No mention of high costs.
Months later, Rusbridger’s great American dream came under the spotlight with an announcement that its team of 140 people in the US would be reduced to 100, even though the newspaper’s web site was “now among the top five digital newspaper platforms in America”.
To restore profitability, The Guardian ambitiously aimed to double reader revenues by 2019 — from their current level of £30m — partly through its membership scheme (currently said to be up to 200k) in which readers could pay £5-60 a month. It would also try to increase online native advertising. Of course.
A partnership with Vice
This apparent push for new revenues may now benefit from the recently-announced partnership with the accelerating Vice Media. It’s a deal which just might eventually lead to a full-blown merger but which will initially provide Vice with access to original investigative news reporting from a unit of dedicated Guardian journalists, and the Guardian with access to Vice’s video production skills, distribution platform – and its global audience of millennials. It will include co-branded special reports that will air across Vice’s news offerings, including ‘Vice News Tonight’, Vice and HBO’s new nightly news programme in the US, and the Emmy award-winning weekly news magazine series ‘Vice on HBO’.
Shane Smith, Vice Media’s co-founder and CEO, knows that the deal (like those with other major media organisations) will not harm his prospects for a lucrative IPO, probably coming in 2017 and the self-confessed long-time Guardian subscriber said: “This partnership provides a test case for the way forward in multi-platform exploitation of content. And when that content is the foremost investigative news in the business it becomes even more imperative. Real, fact-based, trusted news has never been more important and this partnership, I am very excited to say, will provide just that.”
He almost sounded like one of The Guardian family whose Scott Trust bosses have forever seemed to congratulate themselves on the “unique structure” which enables them to concentrate on journalism rather than worry too much about short-term financial pressures. But some of The Guardian’s challenges are familiar enough:
- Its revenue remains mostly in the UK printed newspaper while its audience is increasingly digital and global
- It is uncompetitive for the scale of digital advertising needed to compensate for the continuing loss of print revenue
- Most of its reader-users do not pay for access to its content
In addition, there are the home-made problems, created by The Guardian’s optimistic assumption that it can succeed on a global basis even though it has yet to prove viability in the UK.
So much of it comes back to traditionally high costs. The real problem of newspapers everywhere is that they are trying too hard merely to adapt their existing businesses models when, arguably, they should be starting again with new services, costs, revenue and skills: a whole new business model.
Consumers have changed
True, they are cutting staffing and other costs. But the whole basis of these traditional media has been comprehensive coverage, which belonged to an era when most readers depended on a single source for all their news and information and also did not know (or care) whether the content was exclusive or not. The newspaper was a one-stop shop. By contrast, most consumers now expect to get their information from a range of ‘always on’ sources. They often have a clear understanding of what is exclusive. And, while they might still want to receive the non-exclusive, general coverage imitated elsewhere, they will not pay for it. Technologies have changed consumer appetites for news as for much else.
Most daily newspapers do have some valuable, distinctive coverage, including exclusive news, columnists and reader-generated content.
But, for many, the majority of their pages (and people) are still dedicated to the coverage of news and other content which is widely available – and mostly free. The 30 UK newspaper journalists massed outside Downing Street for a recent statement by the UK’s Prime Minister (which would be all over the web and broadcasting hours before they could even print it) tell the story of an industry locked in the past.
The fact is that much of the content produced by daily newspaper journalists is never used: large amounts of content are discarded every day. Many journalists are engaged in amending or re-writing perfectly adequate content provided by news agencies. Newspaper journalists still concentrate on widely-available news coverage rather than on anything exclusive or special. The ‘commoditisation’ of news can be an opportunity for publishers but only if they play to their real strengths in original comment, analysis and reader engagement.
So, it is with The Guardian which is exhorting its “supporters” to fund their journalism “for less than the price of a coffee a week”. The appeals say: “Like many other media organisations, The Guardian is operating in an incredibly challenging financial climate. Our advertising revenues are falling fast. We have huge numbers of readers, and we are increasingly reliant upon their financial support.”
But it’s only part of the problem. Lulled by some levels of self-induced hysteria about the threat to the future of journalism if newspapers cannot survive, publishers had all but abandoned their search for a viable business model simply because (they feared) there was not one to be found. The Guardian’s headlong-into-the-wall expansion strategy has been almost satirical. It is ironic that the newspaper whose private equity investments have ensured its very survival so far, has itself become such a messy business.
For all its history, not-for-profit ownership, liberal politics and exceptional journalistic traditions, The Guardian is also just another daily newspaper that inflated its costs because advertising revenues rose to pay for them. Now, with newspaper advertising set almost to disappear, the company must build a new business model based on revenue primarily from readers.
While The Guardian is more adventurous than many of its peers in pushing readership revenues from membership, the whole operation is weighed down by over-staffing. The 1,813 employees recorded in the company’s last statutory accounts was an increase of 18% in three years. Editorial and production staffing was up 17% and sales/support/admin was 19% up: it’s as if there was no crisis, and the comparison with other UK daily newspapers is pretty damning too.
More journalists, higher costs
According to its last statutory accounts, The Guardian employs 600 more people (and 50% more journalists) than the Daily Telegraph and only 10% fewer than the Daily Mail Group (three newspapers which together make almost £100m of profit). The average ‘total cost’ of a Guardian employee is £83k, which is almost 19% higher than either the Mail or the Telegraph, and The Guardian’s revenue per employee is just 50% of each of these rivals. The 250 UK jobs that the newspaper has been seeking to cut through its too-good-to-refuse redundancy schemes will take staffing levels back only to where they were four years ago.
Could such newspapers concentrate their resources on columnists and exclusive content and use Reuters/AP/PA agency feeds for most of the general news (the stuff readers can get for free somewhere)? If The Guardian reduced its editorial staff by some 50% to, say, 600 people, that would reduce total operating costs by more than £50m. It could help make them safe.
Nobody is saying that such an adjustment would be easy to achieve even over the long-term, perhaps least of all on a newspaper which is not really a business at all. But the overall numbers emphasise just how much traditional media must change in order to survive.
Inspiration in the US?
The Guardian has replaced its US boss with one Evelyn Webster, the former Time Inc vice president, but only – so far – on an interim basis. Coming from a low-cost British magazine background, she may find it relatively easy to re-write the company’s US business model after her years of helping to turn round the Time Inc super tanker in the US and UK. She may even find The Guardian’s unreal economics rather amusing. In 2015, Guardian US lost $15.9m on revenue of only $15.5m.
The Brit publisher might just start to look more like the next CEO of The Guardian’s whole business than merely a New York-based stand-in. But, meanwhile, the gritty Ms Webster may want to talk to her UK bosses about Mother Jones. This liberal American digital “magazine” recently made the headlines by being the first to publish that salacious document about Donald Trump’s alleged activities filmed in Russian hotel rooms – before it was published by BuzzFeed.
The San Francisco-based Mother Jones (MoJo) is an impressive, reader-supported, non-profit news organisation which does independent and investigative reporting on everything from politics and climate change to education and food. It has an audience of some 10m worldwide and also publishes an award-winning, 200,000-circulation magazine.
It was named after Mary Harris Jones, a trade union activist and opponent of child labour early in the 20th century, and has been operating successfully since 1976. MoJo published exclusive stories throughout the Gulf War and in successive presidential elections. In June 2016, its award-winning 35,000-word investigative report on the state of private prisons detailed the experience of its journalist who worked undercover as a guard for four months. The story eventually inspired the US Department of Justice to stop contracting with private prisons.
Mother Jones shares the values and, presumably, many US readers with The Guardian. It even asks its readers
regularly for donations, subscriptions and membership fees in the same way, so perhaps the UK newspaper should even be encouraged by its evident financial stability. But no.
The Guardian, whose whole global strategy has been built on its digital US operations, can draw little comfort from MoJo’s success for two reasons.
Firstly, The Guardian is self-evidently British not American. Its appeal for support sounds captivating enough: “Since you’re here…we have a small favour to ask. More people are reading the Guardian than ever but far fewer are paying for it. And advertising revenues across the media are falling fast. So you can see why we need to ask for your help.” But you don’t need any of the current antipathy to ‘globalisation’ to believe that readers are more likely to support something that is owned and operated locally. People support local charities more than global ones. So, while The Guardian might attract subscriptions in the US, a meaningful level of donations is a long-shot.
Secondly, Mother Jones is nothing if not a modern news organisation with annual staffing costs of only $8m – less than those of The Guardian in the US alone. But, then, the total MoJo staff is about one-third of The Guardian’s current US team. In every sense, Mother Jones is easy for readers to support.
Getting fit to compete
The threat to The Guardian’s role as a liberal voice supported by its readers may also come closer to home from the emergence of crowd-funded operations like the Netherlands-based De Correspondent which uses its readers to good effect in its role of providing serious journalism. Its philosophy was summarised by The Drum as “100 physician readers know more than one healthcare reporter. So when that healthcare reporter is prepping a story, they…ask those with first-hand knowledge of the issues – from doctors to patients – to volunteer their experiences.”
The site, which eschews breaking news and advertising, was launched in 2013 on the back of a recordbreaking $1.7m crowdfunding campaign. It has an editorial staff of just 30, and now has 50,000 paying members (mostly in the 17m-population Netherlands) paying €60 a year. And it’s got its sights set on the English language market. This is just the kind of service that – like Mother Jones – can compete for the hearts, minds and money of liberal readers everywhere. The rising success of De Correspondent will itself inspire well-managed imitators in other markets. That’s why The Guardian needs to get organised, learn from these community projects, and stop behaving like the kind of profligate multinational company its journalists are quick to criticise. That means bringing its whole business under control.
The Guardian needs to think the unthinkable. That may mean having to cut as many as 1,000 jobs (almost 60% of its global workforce) in order to stop the cash “burn” and accommodate the continuing decline in advertising revenues. That would be more than three-times the global 290 staff reduction currently planned. Perhaps the “right” number is somewhere in between, but this is real pain. News is becoming a much smaller business and publishers must face up to it – if they want to survive. The Guardian must decide on the viable scale for its future and how it will down-size to achieve it. The changes themselves will incur further heavy costs in the short-term. We should assume that the new strategy might (eventually) include:
- Big cuts in print costs through a reduction in the number of weekday editions. A change in format from its distinctive Berliner size, the 2005 adoption of which reportedly cost £80m. The change back seems farcical but would now enable it to share printing facilities with other UK newspapers. The Guardian will be closely watching Fairfax in Australia, which has reportedly been planning to eliminate weekday printing – sometime – of its daily newspapers, the Sydney Morning Herald, Melbourne Age and the Australian Financial Review. The sales figures show that a large proportion of readers of The Guardian – like those of its UK peers – want the printed newspaper solely at the weekend. So, printing only across the weekend (i.e. Friday, Saturday, Sunday and Monday) must be a working possibility.
- Staffing (which accounts for some 50% of all operating costs) reduced to less than 1,000 people, with the US and Australia editions, perhaps, becoming cost-sharing collaborations with other local news organisations – including Vice.
- An online ‘freemium’ model whereby reader-users-members can read only the news for free but will have to pay for columnists, campaigns and exclusive content. Whisper it quietly but, if it starts to get online readers to pay enough, will The Guardian make its printed edition (of whatever frequency) free to readers, alongside the UK’s successful Metro and the London Evening Standard? How about free on weekdays and paid-for at weekends?
Such a 3-4 year agenda could halve the operating costs of The Guardian and preserve something like current revenue levels, albeit with hundreds of millions of pounds of restructuring and redundancies. That seemingly unlikely combination would make it safe. But this week’s announcement of repeat losses was intentionally scary. The calm assertion that the legendary news brand is one year into a three-year turn-round cannot disguise the urgent need to accelerate the cost-cutting. The persistent loss-making is a reminder that The Guardian’s survival depends on much more than the high-minded words of its founding fathers. It really could fail.
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