In my previous blog post on freesheets, I had laid out the latest revenue and profit (loss) figures for UK newspapers. Readers who reviewed the same in detail may have noted that the Guardian was one of the loss-making papers (Revenue of £196m and losses of £31m for FY13). Now the Guardian is likely the 2nd most read newspaper worldwide (behind the Daily Mail), having recently overtaken the NYT. How is it that the world’s second largest online paper makes losses that are well, not insignificant?
There are two key reasons for this
1) Perception : Despite having overtaken NYT in monthly uniques, the Guardian only makes $40m (Apr12-Mar13) in digital advertising from its website vs NYT which makes at least $175m (for Jan-Dec12, and this would have increased for the comparable period). The astounding difference can be traced to one key reason – the perception that the NYT is read by the people who matter, while the prototypical Guardian reader is the left-liberal middle class citizen (or as Vice puts it trenchantly the sandal-eating muesli-wearing demographic). This is in many ways a carryover of the perception of the print products sadly, and Guardian pays a price for this.
2) Inability to dominate a advertiser-preferred consumer or geographic segment : Unlike the Daily Mail which dominates the Middle England / Women’s demographic or NYT which delivers a large swathe of upper income New York City, the Guardian cant claim dominance over any one such demographic.
Given the above constraints, and these don’t look like short-term constraints that can be corrected easily, is there any hope for the Guardian at all? Well, for one the Guardian is protected for at least the next few decades thanks to its 50.1% share in AutoTrader, recently valued at £1.5bn. So it can continue making those losses for many more years to come. But how can it, in the short run, look to mitigate its losses?
One audacious idea that has emerged in recent months has been to shut down the print edition entirely and become an online-only brand. Given that one of the key reasons hobbling its revenue potential online is the misperception caused by the print legacy, this may not seem an entirely bad idea. However, in my view, this would be a mistake, given two key reasons.
Firstly, the print edition still brings in a majority of the revenue – about £140m of which 70% (~£100m) would be circulation revenue. Now this is one revenue item that has seen consistent growth for the Guardian (and other newspapers), who have all found that there are a core set of consumers – typically well-off, older readers – who continue to prefer a physical product and are happy to keep paying. Over time there would come a price point, say £3-4 at which the print edition pays for itself. The circulation might well be half of what it is now, but it will likely pay for itself.
I would direct unconvinced readers to Frederic Filloux’s recent article on the Washington Post, where he argues that it makes eminent sense for publishers to continue to meet the demand (profitably) for print editions. A interesting twist on the same idea was explored by John Cassidy, in his article in the New Yorker, where he elaborates that the high cost of printed newspapers make them akin to luxury goods. And don’t forget Jeff Bezos’s recent quote comparing newspapers to horses.
Secondly, the online edition’s revenue doesn’t entirely cover the cost of the newsroom, which is what you assume needs to be achieved before your lope off the unprofitable print edition. With an approximate 600-number newsroom, the Guardian’s newsroom costs should be approximately £80m today (estimated from $200m / £143m cost of NYT newsroom in 2009, adjusted for inflation). As against this, the online revenue only totals up to £56m (annual earnings report).
Given the above, it doesn’t make sense for the Guardian to stop publishing its print edition entirely. But there is a strategy that the Guardian could adopt, and that would be to shut their Sunday edition (curiously enough the converse of the Sunday-only NYT strategy proposed by Frederic Filloux in his mondaynote blog).
The Sunday edition of the Guardian is actually a different brand altogether, called The Observer. Acquired by the Guardian in 1993, the Sunday-only brand is under a different editor John Mulholland, who on paper reports into Guardian’s editor Alan Rusbridger, but actually has a fair degree of independence. Also interesting to note; there is no online entity called theobserver.com – it is subsumed under theguardian.com.
If we look at both the Guardian’s Saturday and Sunday (Observer) editions, there really is very little that is distinctive amongst the two editions. Perhaps at one time the Observer perhaps stood for a differentiated laid-back reading experience (often leading with a critical investigative piece), but increasingly the differentiation has disappeared. As Charlie Beckett of LSE puts it “The Sundays used to stand out as more thoughtful, more critical and punchier. But now everyone is doing it they have lost any added value. The Observer suffers from the same problem facing all Sundays. What does it do that the Saturdays don’t? Nothing. The Guardian Review is much better than Observer Arts, for example. How does it add value?”
The Observer now does 220K copies as per the August’13 ABC. This is down from a peak of 1.3m in 1979 and as much as 453K five years back. In contrast the Guardian does 344K copies on Saturday and about 160K on the weekdays.
Let us look at how the top-tier market is split on weekdays, Saturdays and Sundays.
|# 1 Paper||The Telegraph500,000||The Telegraph700,000||The Times845,000|
|# 2 Paper||The Times358,000||The Times468,000||The Telegraph435,000|
|# 3 Paper||The Guardian161,000||The Guardian344,000||The Guardian220,000|
Source of data : UK ABC (July’13)
One important factor to be kept in mind is that the UK market does not see a predominant skew in favour of Sunday, unlike the US, where Sunday accounts for 40-50% of overall revenues.
The UK sunday newspaper market is actually a monopoly market in each of its three tiers. The top tier is dominated by the Sunday Times, the mid-tier by Mail on Sunday and the third-tier, till now dominated by the recently-closed News of the World, is now witnessing an intense fight between the Sun on Sunday and Daily Mirror. Apart from these papers, and perhaps the Daily Telegraph no one makes money on Sundays.
Given the above factors – lack of distinctiveness, declining circulation and competitive dynamics – I would hazard that Guardian would be better-off shutting down the Observer and doubling down on its Saturday edition, with an attempt to take the #2 slot on Saturday. Let us call this the ‘Saturday strategy’.
The Saturday strategy would help it reduce losses to the tune of £20m, which is what the Observer lost last year, less perhaps the cost of additional copies and marketing costs resulting from the conscious effort to transfer copies from Sunday to Saturday. And I am not counting the enhanced advertising flow that could result if the Guardian were to overtake the Times on Saturdays. Additionally, it would also help it converge around a common brand, avoiding such situations as this.
An alternative to this would be to follow other newspapers such as Telegraph, Independent, Sun and Mirror who have integrated their Sunday and Daily operations fully, shedding several jobs in the process. The Guardian for all its talk still has a long way to go before it can claim genuine integration and a handle on costs. A clear example is separate book reviews in the Guardian and the Observer for Jhumpa Lahiri’s new book while the others (Telegraph, Times) all had a single one.
Such a move would reduce losses somewhat and buy some time for the beleaguered Observer, but would not overcome the fundamental problem, that as the 3rd in the pecking order (amongst quality papers) on Sunday, there isn’t much pickings to be had.
The notion of shutting down The Observer isn’t terribly unique or novel, I must say. After all it is something the Guardian board had discussed about four years back and had deferred, as you can see here. Since then, The Observer has only continued to decline, with circulation down a further 40% since. If anything today, the case for Observer’s closure is even stronger.
In the long-term, the Guardian Media Group will need to do much more if it needs to move to profitability. Shutting down the Observer will certainly help nudge it towards profitability, but a decisive push can only come when it
1) relentlessly ups prices for the print edition – £2 to 2.50 and even £3 if that is what is needed to cover the cost of printing
2) introduces a metered paywall enabling its core loyalists to contribute to the Guardian’s cause – Charman Anderson has a fascinating take (see point #4 in her essay) on the unwillingness of Guardian to monetize its loyal audience. In my view a paywall along the lines of the NYT could bring in at least £10-15m towards the Guardian without impacting the UVs significantly (a drop of 10-15% as for the NYT would certainly result).
My recommendation of a paywall for the Guardian is at odds with my earlier take on the subject, shared here. Here I had proposed a Paywall Principle (#1) –
“You can get by without a paywall, relying on monetizing your large online readership through advertising OR you should not institute a paywall IF you meet the following conditions
1. More than 2/3rds of your online readership is outside your circulation penumbra
2. You operate in a global political / financial centre like London, Washington, NY (any others, guys?) ensuring that your presence in this urban hub will give you access to news that the rest of the world is keen to know about or you publish from a country which typically sends out a number of migrants abroad – India, Philippines, China etc.”
Going by the above principle, I had suggested The Washington Post, Guardian and Daily Mail as examples illustrating the above principle. The Post recently went behind a paywall, and here I am recommending the same for the Guardian as well. What is happening? Should we ditch the Paywall Principle #1?
Well, the critical assumption of the Paywall Principle #1 was that sites could monetize their large online readerships through advertising. This is the key assumption that hasn’t held, largely due to falling CPMs given rising inventory globally and the emergence of programmatic buying.
Newspapers have to realize that they can no longer hope to rely on online ads on cover even part of the drop in print ad revenues. NYT was able to hit levels of $175m (at least for 2012) on the strengths of its pre-eminent brand name and the fact that it was reasonably early to the game, enabling it to lock relatively higher prices for its inventory. Brands that no longer have these advantages are unable to realize anywhere near these prices.
Look at Daily Mail, the world’s #1 online paper, which is at $72m (Apr12-Mar13) whereas the Guardian has been able to rake in only $40m in digital ads, nowhere near covering the cost of its newsroom. At these levels, the only way to survive on advertising is if your content creation costs are very low, such as that of an aggregator (HuffPo, Buzzfeed). That is exactly the model that Daily Mail and now the NY Daily News are gravitating towards.
The conclusion for the Guardian is that it desperately needs other revenue streams (primarily reader revenue) to fire.