Guardian
cuts costs but numbers ‘don’t add up’
Britain’s
leading left-wing publisher burned through another £48m in cash in
the last six months. How long can it go on?
By ALEX
SPENCE 10/27/16, 5:30 AM CET
LONDON — After a
summer of steep job losses, staff in the Guardian newsroom are
anxious about their future, but there may be worse to come.
The loss-making
paper is burning through cash at an alarming rate — £48 million in
negative cashflow in the first half of the latest financial year,
according to internal figures seen by POLITICO — and insiders say
they’re gravely concerned despite management’s assurances that
costs are being brought under control.
Executives at the
left-wing U.K. publisher have told staff they’re on track to reach
an ambitious target to break even by 2019, after losing £80 million
from day-to-day operations last year. However, one former senior
executive said they’ll have to go much further if the Guardian is
to survive the vicious headwinds buffeting the newspaper business.
Although the
Guardian has reduced its costs and losses this year, a seismic shift
in the publishing industry — where historic declines in print
income are accelerating while digital advertising revenues flatline
because readers are moving to mobile and Facebook and Google are
taking the lion’s share — means the day of reckoning is closer.
“The
maths just don’t add up,” the former executive said.
Ultimately, the
executive said, the Guardian will have to slash costs by more than 60
percent to survive on the revenues it can generate from digital
publishing. That would involve the sort of radical restructuring the
Independent undertook in March: shutting off the printing presses,
laying off many staff and drastically reconfiguring itself as a
digital publication.
At the current rate,
the Guardian’s investment reserves could be gone within a decade.
At the very least,
another round of job cuts seems highly likely, said another media
insider who reviewed the latest internal figures.
Even in an
optimistic scenario, the newsroom faces a long period of budgetary
restrictions, pay and recruitment freezes, and other forms of “salami
slicing” that could undermine its journalism, insiders said.
That wasn’t the
message when chief executive David Pemsel updated London staff last
week. Revenues (£105 million) and costs (£128 million) in the first
half of the financial year from April to September were broadly in
line with targets and better than the previous year, according to a
copy of the slide obtained by POLITICO. And the bottom line was
improving.
Stripping out
interest, taxes, depreciation and amortization, losses in the first
half were £26 million, an improvement from £32 million in the same
period a year earlier, the slide showed. The gist of Pemsel’s
presentation: We’re on the right track.
However, more than a
dozen former and current Guardian executives, editors and senior
journalists who spoke to POLITICO were not convinced by the
management plan. Those sources, whose views were backed up by
independent media analysts and executives at rival publishers, asked
to remain anonymous because they would lose their jobs, violate
non-disparagement clauses in severance agreements, or jeopardize
professional relationships.
Digital enthusiast
A spokesman for the
Guardian insisted the company is on track to break even, but declined
to discuss specific financial details. POLITICO made repeated
requests to interview editor-in-chief Katharine Viner about the
newspaper’s future over several months, but the Guardian refused.
Two-and-a-half years
after the Guardian won a Pulitzer Prize for its groundbreaking
reporting on the Edward Snowden leaks — a moment that appears to
have been the paper’s high-water mark — it is racing against time
to find a viable commercial model before its substantial, but rapidly
diminishing, investment fund dries up.
The new leadership
team, headed by Pemsel and Viner, distanced themselves from former
editor Alan Rusbridger earlier this year in a messy power struggle.
Rusbridger, who retired in 2015, had been due to chair the non-profit
Scott Trust that oversees the Guardian, but his return was blocked by
the new regime.
Rusbridger presided
over the Guardian unchallenged for two decades, in which he amassed
journalistic accolades and built an audience of hundreds of millions
by embracing the internet more enthusiastically than virtually anyone
else in the British news business. However, when it was revealed that
the Guardian’s financial losses had ballooned, Rusbridger was
blamed — unfairly, some believe.
With Rusbridger out
of the picture, the onus is on Viner and Pemsel, who are being
squeezed from all angles. A long-term decline in print revenue has
accelerated as big advertisers pulled out of the market. The
Guardian’s digital business has gone into reverse as Google and
Facebook swallow online advertising. At the same time, ambitious
expansion, particularly in the U.S., caused costs to mushroom.
Suddenly, the
Guardian’s investment reserves, flush after selling its stake in
the Auto Trader classified advertising business, didn’t seem so
plentiful.
That cushion, which
stood at £838 million in 2015, was meant to sustain the
not-for-profit publisher for generations, assuming an annual return
of 4-5 percent and more moderate operating losses. By April, the fund
had fallen to £765 million. At the current rate, it could be gone
within a decade.
"The
Guardian did not think carefully enough about the status of the
material being offered," the readers’ editor wrote
Management announced
a new plan in January to reduce costs by 20 percent. Pemsel’s aim,
he said at the time, was to break even by 2019. As part of the
cost-cutting, 278 staff in the U.K. left in a round of voluntary
redundancies over the summer. Another 40 jobs are set to go in the
U.S. this month in a second, unplanned round of job cuts. As POLITICO
reported in September, the American business, once considered vital
to future prospects, is now a financial millstone. It lost $16
million last year.
Insiders credit
management with at least trying to tackle the cost base.
“They are doing a
lot of the difficult stuff,” said one former senior staffer. “They
are taking those decisions and getting on with it.”
Pemsel is
restructuring the advertising operation to make it more competitive
and seeking commercial partnerships to generate new revenues. And a
drive to wring more income from readers is showing encouraging early
signs.
Attempting to draw
on its readers’ strong affinity for the brand, the Guardian is
asking them to voluntarily pay £49 a year to help secure its future.
About 1,500 new members are signing up each week, Pemsel told staff
last week. More than 250,000 people are now regularly paying the
Guardian in some form, whether as members, print subscribers or
customers of the premium tablet and smartphone apps.
Some believe the
Guardian should stop prioritizing traffic growth and focus on a core
group of readers who are willing to pay for articles.
The hope is that
this will be supplemented by philanthropists and charitable
foundations willing to finance public-interest journalism projects,
such as the funding it has received from the Gates Foundation to pay
for reporting on international development.
In the newsroom,
though, staff worry that it won’t be enough.
“I
don’t know a single person who thinks membership is going to solve
[the commercial challenges],” said one journalist.
Question marks hang
over sources of new revenue, the prospect of further job losses, the
future of the U.S. operation, how long the printing presses will keep
running and whether the Guardian can keep giving away journalism for
free on the internet.
While Rusbridger was
blamed for the commercial mess, the new team seems to be pursuing
broadly the same strategy, insiders said: printing a paper seven days
a week, giving away articles for free online and asking readers for
contributions rather than putting up a hard payment barrier online.
“We haven’t
really seen a replacement to the Rusbridger vision emerging,” a
former senior executive said.
Rusbridger ruled out
the subscription model used by competitors such as the Times of
London, Daily Telegraph, Financial Times, Wall Street Journal and New
York Times because he believed the Guardian wouldn’t be able to
attract a sizeable audience in the U.S. — and thereby attract large
advertisers — if readers there had to pay.
Regardless of
whether it charges readers or not, the paper’s survival will depend
on drastically reducing costs.
Over time, insiders
said, opposition to the paywall became an article of faith. It was
seen as out of line with the paper’s global, progressive ethos. But
with the advertising-supported online model now in serious doubt,
there are those who believe the Guardian should stop prioritizing
traffic growth and focus on a core group of readers who are willing
to pay for articles. Privately, even Rusbridger now believes in the
need for a paywall, according to one person close to him. Rusbridger
declined to comment.
“What’s
the point of throwing Alan off the top of the building if you’re
not going to put up a paywall?” asked one senior
Guardian journalist.
So far, management
doesn’t appear to be thinking about a paywall, but regardless of
whether it charges readers or not, the paper’s survival will depend
on drastically reducing costs. The previous management drew up plans
to scrap the print edition, according to another former executive,
but backed off for fear of internal resistance. Likewise, the
newsroom has never seen compulsory redundancies and the union still
has considerable clout.
Time is running out.
“We know that the trajectory is you just eventually run out of
money,” said one senior journalist.
Authors:
Alex Spence
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