Abstract
How does a cash-strapped newspaper persuade people to pay for membership when they can get the biggest benefit for nothing?
The future is digital, goes the mantra, but how do we pay for the content, the reporting, the journalism? Particularly when the customer, the reader, has shown little inclination to pay for news online. The presumption (hope?) has been that once digital dominance is established (and it almost is), the advertising will move online and thus fund the journalism.
But what if the beneficiary of this revenue is not the publisher of the news website and employer of the news gatherers, the journalists? This is the problem facing online news providers, particularly those that do not charge for content. The big two UK newspapers in terms of online audience are the Daily Mail and The Guardian. Neither charges for its site; both announced cost-cutting and redundancies in 2016. These are very different organisations – the Mail part of a listed public company, the Guardian owned by a trust. The latter's problems are the greater just now.
How different it all looked at the end of May 2015. Alan Rusbridger's 20-year editorship of The Guardian had just come to an end. After a series of farewell events, where management and editorial colleagues effusively praised him for his leadership, vision, inspiration, wisdom and foresight, he was “banged out” of Guardian HQ, near King's Cross station in London, to head for the less frenetic atmosphere of Lady Margaret Hall, the Oxford college where he was to become principal. It was au revoir, not goodbye, for, as he reminded the guests at his many exit parties, he would be back in little over a year to take over the chair of the Scott Trust, owner of the Guardian Media Group (GMG), publisher of the Guardian and Observer newspapers and digital platforms in the UK, US and Australia. He shared stages at his leaving parties with his successor as editor-in-chief, Katharine Viner, and Dame Liz Forgan, chair of the Scott Trust. The smiles and tributes gave no hint of what was to come.
Rusbridger's legacy seemed secure, editorially and commercially. He had an international reputation as one of the great editors, who had grasped the digital future while rivals were concentrating on print decline. His career had been crowned with a Pulitzer Prize for the Edward Snowden revelations, following numerous awards for the WikiLeaks, phone-hacking, cash-for-questions and other investigations. He had built The Guardian's website into one of the world's leading news platforms. And, he said, he left GMG in good financial shape. When I interviewed him shortly before his departure he drew attention to digital revenues “rising strongly”, to the cash and investment fund (reserves) standing at £842million with more to come from the future sale of the stake in Ascential, the magazine and events group. “I think,” he said, “for a new editor to come in with a billion pounds in the bank is quite a nice position.”
The joy didn't last long
The joy of her “inheritance”, if she had time to see it that way, did not last long for Viner. Andrew Miller, chief executive of GMG, left soon after Rusbridger and was replaced by David Pemsel. Viner and Pemsel quickly became the new controlling axis at The Guardian, and it soon became evident to them that the financial situation was well removed from Rusbridger's “quite a nice position”. The figures looked considerably worse than the previous financial year. A combination of falling advertising revenues (print and online) and mounting costs (particularly staffing) meant that unless action was taken quickly, a crisis was not far away. Viner and Pemsel addressed the staff in January 2016 to outline a three-year strategy to cut costs by £54million a year, the equivalent of 20 per cent.
When GMG's annual report was published in July 2016, it confirmed the seriousness of the situation and the need for the Viner/Pemsel rescue plan. The total pre-tax loss was £173million. The operating loss (earnings before interest, tax and other deductibles) was £69million. And the cash and investment endowment fund had dropped by £74million to £765million over the financial year. The maths was not difficult: losses at this level, and an endowment fund reducing at this rate, meant the future was finite. Rusbridger told Media Briefing in March 2016 that when he had left The Guardian at the end of May 2015, “we were one month into a new financial year and everything looked fine. We were going to make £100million out of digital compared with £80million, and it all looked completely sustainable. The last Scott Trust meeting I was at they were saying everything's changed in the last six months, and it's all going to Facebook.”
So what brought about this sudden deterioration in The Guardian's fortunes? Put simply, lack of expected growth in online advertising revenues and rapidly increasing costs, particularly in the area of staffing.
On the BBC Radio 4 Media Show in July 2016, Douglas McCabe, of Enders Analysis, said losses of £1million a week were not sustainable. There would be redundancies and cost cutting. The Guardian had overestimated how much advertising revenue it would get from print. But digital revenue was also going down. This was unexpected. Online advertising was moving away from news sites to social media, increasingly to Facebook and Google. The Guardian's cash pile was depleted and might last 10 years at this rate. Losses at current level were not sustainable in the short term.
Viner described the situation in March 2016 at the London (British Library) conference of Newsworks: “Journalistically it is an absolutely brilliant time. It's thrilling but at the same time the commercial model is undermined at all points. Fewer people are buying newspapers; advertisers are leaving print; digital advertising is going to Facebook and Google – quite dramatically so last year – instead of news organisations.” She developed her theme in a long and wide-ranging piece in The Guardian (print and online) entitled “How technology disrupted the truth”.
“Facebook, which launched only in 2004, now has 1.6billion users worldwide. It has become the dominant way for people to find news on the internet – and, in fact, it is dominant in ways that would have been impossible to imagine in the newspaper era … This means that social media companies have become overwhelmingly powerful in determining what we read – and enormously profitable from the monetisation of other people's work.
“Publications curated by editors have in many cases been replaced by a stream of information chosen by friends, contacts and family, processed by secret algorithms. The old idea of a wide-open web has been largely supplanted by platforms designed to maximise your time within their walls, some of which (such as Instagram and Snapchat) do not allow outward links at all.
“But the trouble is that the business model of most digital news organisations is based around clicks. News media around the world has reached a fever pitch of frenzied binge-publishing in order to scrape up digital advertising's pennies and cents. (And there's not much advertising to be got: in the first quarter of 2016; 85 cents of every new dollar spent in the US on online advertising went to Google and Facebook. That used to go to news publishers.)”
By the time the full detail of The Guardian's financial position was revealed in July 2016, some of the strategy to deal with it was already being implemented. Viner and Pemsel had outlined “Project 2021” to staff six months earlier – with cuts of £54million a year being sought. Pemsel told them the new management team needed to safeguard The Guardian in perpetuity as it bridged the transition from print to digital. “Growing the cost base more than revenue is simply not sustainable.”
Online revenue declined
The detailed report in July showed that GMG had budgeted for an increase in online advertising revenue of more than £20million; in fact, it declined by £2million. Total staff numbers increased from 1,650 to 1,813 over the year; of these 1,050 were in editorial and production (up from 925). By September 2016, the voluntary redundancy scheme had resulted in staff reductions in the UK of more than 260 (about 80 in editorial), saving about £17million a year, and a further 40 (out of 140) were being sought in the US.
Other elements of the recovery strategy included enhancing The Guardian's membership offering, growth in the US and Australian websites, and developing other revenue streams. GMG also looked to other sources of funding, stating: “News organisations around the world can no longer rely solely on advertising and sales revenues. As Guardian Media Group looks beyond traditional sources of funding, the backing of third parties who are willing to support journalism while respecting its editorial independence and freedom, enable the coverage of important subjects that may too easily be neglected elsewhere.” Such funders have included the Bill and Melinda Gates Foundation, Joseph Rowntree, Humanity United and the European Climate Foundation.
In the early part of 2016, backchat from The Guardian suggested that the “Rusbridger legacy” was under attack. A Financial Times report in April, clearly “informed” if not sourced, claimed that “… his record is now in doubt. His journalism is still admired but his evangelism for a business approach of being ‘open and free’ – spurning any online paywall and instead relying on growth in the digital readership to gain advertising – is in question. The Guardian's expensive expansion, with 480 of its 1,950 employees added in his last three years, has left it bleeding cash. The Guardian has long suffered from over-optimism about revenues and an ingrained inability to control costs. Many people put the primary blame for the profligacy on Mr Rusbridger.”
The article quoted Claire Enders, of Enders Analysis, saying: “Alan took the lead all the way along on its digital transition, and made predictions with blithe insouciance and naivety. His revenue forecasting record is abysmal.”
Suddenly the revered former editor was in the frame for the problems the company was facing. There seemed to be no responsibility attaching to commercial management. Non-editorial staffing had increased just as rapidly as editorial. It emerged that another major issue was in play. Was it still appropriate for Rusbridger to take over as chair of the Scott Trust, public enthusiasm for which had come from the person he would succeed, Liz Forgan? It became clear that Viner and Pemsel felt it was not. When I asked Rusbridger shortly before he stood down as editor in chief, and before the concerted efforts to reverse his appointment as chair of the trust, whether he foresaw any problems for his successor in having him in this powerful role, he said: “I am constitutionally not allowed to discuss the direction of the paper with Kath, or anything like that. Wise heads, defenders of the journalistic order, and protectors of the independence of the editor: I think Kath would welcome having me in that role. I'm not going to be breathing down her neck.” That was Forgan's view too. It turned out not to be Viner's.
There were protracted meetings of the Scott Trust in May 2016, for some of which Rusbridger, still a member of the trust, was asked to sit outside the room while the matter was discussed. He decided to resign from the job he had yet to take up, and on May 13 emailed the editorial staff to tell them. He quoted the words of the chair of GMG, Neil Berkett, at the time he stood down from the editorship: “Alan has set the standard for journalistic leadership in the digital age. His appointment to lead the Scott Trust coincides with rapidly rising readership, continued innovation and secure finances at The Guardian. His successor will inherit a global media organisation in very strong health and with clear prospects for future growth.”
Rusbridger's email added tersely: “Kath (Viner) and David (Pemsel) clearly believe they would like to plan a route into the future with a new chair and I understand their reasoning.” It was later announced that Alex Graham, the former chief executive of Wall to Wall Media and member of the Scott Trust since 2012, would become the new chair.
Much is pinned on membership, currently standing at more than 50,000 paying members. Rusbridger was driving it when he was editor in chief. He said in interview with this writer that it was a “serious, commercial and heavily researched” brand extension. He was convinced it was part of the future. He even inspired the acquisition of an old goods shed near King's Cross and Guardian HQ to be developed as a location for members to meet and events to take place. The project, managed by Pemsel, was cancelled in January 2016 by Viner and Pemsel as part of the assault on losses. But membership remained firmly in the strategy. Pemsel told the Digital Media Strategies 2016 seminar that GMG aimed to make its membership scheme account for a third of overall revenues within three years.
Ask readers to contribute more
He said: “In this new strategy we've said membership will involve content we expect members to pay for. One size does not fit all. When you have something that has been dedicated to the sort of journalism we have been … the trust we have with our readers suggests there's an opportunity to create communities around the philosophy of membership and ask our readers to contribute more.”
While rivals such as The Times associate membership with bolt-ons to subscriptions – events, film screenings, competitions and gifts – The Guardian separates the two. Psychologically, the distinction is important. Subscribers pay, whereas members belong, are “part of” – actually in most cases they pay too (they are part of the revenue-raising strategy). The emphasis is on the website – where “open” journalism means the freedom to consume journalistic content online without paying for it – with regular appeals appearing all over the site. However, paying print readers (through subscription or on an issue-by-issue basis at cover price) are not excluded from the appeals to “support our journalism for less than the price of a cup of coffee a week”.
Viner, together with star writers such as Polly Toynbee and Owen Jones, makes impassioned appeals to readers: “I want to ask you, our readers, to help fund [our] journalism through a monthly payment, so that we can continue interrogating what has happened, and why, and what needs to happen next.”
Membership comes in different forms. First there is the “supporter”, the “cup of coffee a week” member. You pay £49 a year to “support the independence of The Guardian” and get access to tickets for Guardian events. For £149 a year you can become a “partner”, with six tickets a year to Guardian events (or four Guardian books) and 20 per cent discounts on events and masterclasses. The highest status is “patron”, which, for £599 a year demonstrates “deep support for keeping The Guardian open and independent” and provides invitations to “exclusive behind-the-scenes functions”.
And finally, in the hierarchy of members, you are invited to “Alternatively, join for free” or “become a friend”. What The Guardian might, but doesn't in this case, call “open membership”. Friends receive “regular updates from the membership community” and may book tickets to some Guardian events. Of course, if you are already buying the print versions of The Guardian or The Observer, both the most expensive in the non-specialist national newspaper market, you must add to your membership fee £2 a day (cover price, Monday to Friday; Times £1.40), and £2.90 (Saturday; Times £1.50) for The Guardian, and on Sunday £3 for The Observer (Sunday Times £2.50). Which might prompt the question: what's the difference between “open” online journalism paid for in part by a necessarily large number of paying members, and paywall protected online content free to subscribers?
It looks like the tough times ahead for news journalism will be testing for purists.
