Commercial strategy at The Guardian under fire

Reliance on digital ads and a tepid membership scheme are just two issues that need addressing, Gideon Spanier writes.

The Guardian: revenues have suffered from slower-than-expected digital ad sales
The Guardian: revenues have suffered from slower-than-expected digital ad sales

Losses at The Guardian are getting worse. The title has reportedly burnt through £70 million in the current financial year, raising questions about the lack of an internet paywall and its dependence on advertising and sponsorship to fund online expansion.

The chief executive, David Pemsel, and the editor-in-chief, Katharine Viner, will address staff about redundancies this month.

Digital was offsetting print decline 12-18 months ago but revenues have suffered due to slower-than-expected digital ad sales and a print slump. Investment in The Guardian US and Australia has also incurred heavy costs.

Commercial staff fear they could bear the brunt of cuts as the company has an informal policy of not making compulsory redundancies in its large editorial team. A merger with the Sunday title, The Observer, is possible but journalists are likely to resist.

Does The Guardian have the right commercial strategy? It cannot afford to keep losing large sums, even if it is a not-for-profit cushioned by £1 billion of investments. 

Pemsel faces a string of problems. First, reliance on advertising looks increasingly risky, even with 157 million monthly unique browsers.

It’s not just that upmarket rivals including The New York Times and the Financial Times have metered paywalls. One observer says: "There’s been a structural change to the digital ad market which has moved against them faster than they expected. Money is flowing to programmatic and the large platforms, whether that’s Google or Facebook."

Second, native advertising has limitations, particularly given The Guardian’s ethics. Guardian Labs, set up to create branded editorial content, has won admirers. But costs have risen sharply across the commercial operation. The 450-strong sales and distribution unit has grown by nearly 20 per cent in size compared with two years ago. "With hindsight, they went too rich, too fast," another source says.

Third, there are doubts that The Guardian’s voluntary membership scheme is bringing in significant revenue, and plans for an events hub in King’s Cross are on hold. There isn’t a strong incentive to make readers pay, the same source suggests.

Fourth, Guardian Media Group, lacks advertising scale after spinning off assets including regional papers and radio. A 50 per cent stake in Auto Trader was sold cheaply and GMG must hope it has not undervalued its stake in the Cannes Lions owner Ascential, which announced a float last week. Proceeds from the former have gone into GMG’s investment fund, which is exposed to the stock market and not without risk.  

The paradox is that print remains key even though circulation has halved since 2009 to 166,000. Coverprice revenue brings in about £60 million a year. Digital was worth £82 million out of revenues of £215 million last year.

Those close to The Guardian insist its strategy remains on track, arguing Guardian Labs and membership remain rich in opportunity.

In any case, Rob Norman, Group M’s chief digital officer, thinks it’s too late for a paywall as "it would be almost impossible to hit 500,000 paying subscribers", and the FT and NYT "started from a far higher circulation base".

That said, Norman is a fan of the title’s journalism and how it is betting on "non-indigenous" markets: "Their online reach is astonishing and deserved. If they can’t survive by monetising that, it says a lot about the market for non-indigenous news."

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