The Guardian: a dating site which runs a newspaper on the side

Digital first, redundancies second, profits last

Just over a year ago The Guardian announced its new strategy to go “digital first” and move its efforts away from print towards the internet. My post about it at the time was titled, perhaps a little cynically, “throwing in the towel”.

Their plan was to increase digital revenues to £91m in five years, and manage the decline in print revenues along the way.

So, how’s it going?

They announced some figures the other day and they are bleak. Operating losses have increased to £44.2m – a massive 42% increase since they announced their digital first strategy. Newspaper sales are in freefall (down 10% in a single year).

They are responding by reducing editorial budgets and laying off journalists.

Digital advertising revenue is a little ray of light; it has grown by 26% since last year. That sounds impressive until you notice that the new total is just £14.7m. Annually. From a weekly audience of 5.8m people. The surprise isn’t how much they are making but how little – last year it would have been just over £11.5m.

The total digital revenue is a much less awful £45m (up 16.3% but still a long way off their goal of more than double that). The extra money comes from sites like their weirdly successful Soulmates dating service, as well as other unspecified revenues.

Not much of those “other” revenues appear to be from people actually paying for their content – they have only managed to find 17,000 people willing to pay £9.99 a month for their iPad app. Hardly surprising when the same stuff is available for free on your iPad using the built-in web browser.

So it would seem that on the digital side, they make more than twice as much from other services than they do from their editorial websites. Which makes the newspaper website seem like a rather expensive loss-leader for a profitable dating site.

No wonder they’re responding by cutting editorial jobs – how many dating subscribers does a war correspondent persuade to sign up?

Sadly, all this is obvious and predictable, except, it seems, to the Guardian. If they want to be a newspaper, a journalism business, a crusading power and influential voice, then making journalism profitable is key.

The fact is that if you keep making huge losses and have no source of income to pay for them, you’re doomed.

Even if you have the special status of the Guardian, and so can ignore normal commercial realities and make irrational investments in your least profitable products, at some point simple maths will catch up with you. Other newspapers making similarly irrational decisions at least have people with deep pockets backing them.

So the Guardian’s plan seems, still, to be to hang on and hope that at some point their huge online audience turns into a decent business.

Perhaps they’re hoping the hundreds of millions of pounds of content they give for free to millions of commercially worthless readers will result in an exponential rise in lonely hearts reaching out across cyberspace using their peculiarly out of place dating service (certainly a new twist on the idea of “freemium”).

History and common sense suggest that neither thing is very likely. Anyone building a turnaround plan on simple blind hope has, by definition, to be prepared to suspend their rational faculties before they can pursue their plan with gusto.

That’s what they did when they announced their new strategy last year. As the results become clear, though, they need to perhaps try to relocate a few rational thinkers and start making sensible decisions.

They don’t have long. Their figures state that they will shortly have £300m in the bank, having disposed of some assets such as radio at a considerable discount to their book value.

Even if things stay the same for the next few years, unlikely given the unbroken and decades-long failure of the free content model for newspapers, it means they have a little under seven years before they run out of money.

If they keep increasing losses at the current rate, it will much much sooner. And if they think that online advertising is going to cover the £44m gap to get them back to at least breaking even then I’m afraid the fantasists are still running the company strategy.

If things do start to turn around it’s still going to be a race against a dwindling cash pile before anyone can say the problem is fixed, all the more so if they continue to rule out the seemingly innocuous idea of asking people to pay for their most expensive and valuable asset – their content and product.

In the meantime, redundancies all round. Which, with 650 journalists, might not be a bad idea anyway.

But one simple bellwether of success for newspaper companies is their ability to invest in journalism. It is their raison d’être, a simple expression of their success and mission.

When they start to cut this investment merely to try to flatter the bottom line it’s a sure sign that the end is nigh.

Lets hope a bunch of lonely people turn up soon to save the day!

Comments

6 Comments so far. Leave a comment below.
  1. It is a tragic tale – and one of the reasons that the Guardian keeps on making this mistake is because of ideology. The whole group is infected with the idea that free content is somehow ‘cool’and ‘right-on’, and because of that, there will be a pot of gold for those who champion it. Shame to see a long-drawn out suicide
    like this.

  2. How does this compare to paid-for online ‘newspapers’ such as the Murdoch press and the FT, though? If one is to make any true judgement about the suces or failutre of a free-content based system, one needs to consider such alternatives. Why then does it seem that other online services making use of free content supported by advertising work? What of the Googles and Facebooks of this world? Why do they work and journalism does not? Are the burdens of cost perhaps higher?

    Is it perhaps possible that the internet is simply too large and diverse to sustain this level of competition compared to what used to be a small number of national newspapers? Or simply that the Guardian is making bad business decisions not purely related to the free-content model? Or simply that we are used to seeing the Guardian as a newspaper first and want it to remain that way, rather than celebrating the diversification and adapations it is making?

    • Services which use free content and get revenues from advertising work because the content is free. When the cost of your product is zero and the revenue more than zero (however pathetically) then you have a business. Google and Facebook work for this reason, and because the massive scale they can achieve as a result. If you believe, as I do, that content creation ought to be a viable career (this for cultural as well as economic reasons) then it is going to cost more than zero and the additional revenue will have to come from somewhere.

      Consider this: overall the advertising economy has stayed roughly the same over the last few years. By and large what has been happening is advertisers have been shifting their spending towards online and away from traditional media. Also bear in mind that traditional media was never wholly dependent on advertising for its income – in other words the media economy was bigger than the advertising economy and the media was not, and could not be, wholly supported by advertising alone.

      So even if all the advertising spend in the world were available to traditional media (by which I mean those who invest in content creation rather than relying on a free supply) it would still not be enough to support a media sector on the scale of the past as long as everyone makes their products available for free. Given that traditional media’s share of online advertising is pretty low by comparison with Google et al, a continuation of the status quo means we just get a much smaller media economy.

      Not only that: as Facebook and Google have proved, winning in the online advertising game is not about investing in content. Getting traffic other ways is a much better approach. So any investment in content creation which had advertising revenue as an end goal would be a perverse investment. You can get the same revenue for a much lower outlay by using different approaches. So why would anyone rational do it?

      • Which different approaches? I understood the paid-for content model was not working too well either, and traditional print media (which relied partly on the ‘cover price’ and partly on advertising) is in decline, so it almost seems like without the sort of diversification you seem to be criticising, it’s a catch-22 situation.

        And how did commerical television thrive all this time? I suppose it might have done so in aprt by syndication of shows to other broadcasters, video releases and spin-off books to an extent. Perhaps newspapers could do this more with feature and magazine articles (i.e. publish them in book form)?

      • The paid content model is working well for some, less well for others. It depends a bit on how you measure it and how you make your strategic plans. It’s not that the advertising only model can’t work, it’s that it isn’t working for reasons which are well understood. Commercial TV did well, traditionally, by having access to a mass audience and monopolistic, regulated access to limited airwaves. It’s not as happy a picture as it once was for them either, and new entrants only really thrive, by-and-large, as part of a paid platform such as Sky.

        Newspapers have been doing syndication and books and other spin-offs for at least the last hundred years. It’s a nice sideline but nowhere near enough to make a big impact on the overall bottom line. In fact the best revenues come from large scale sales to commercial databases such as Lexis Nexis and Factiva, other newspapers after that, books and things a long way behind.

  3. (By the increased costs, I would imagine the actual costs of creating content, sending reporters to where they need to be, editorial descision making and so on as compared to Google and Facebook which simply provides a framework or access point for the content of others…)

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