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!