The Guardian looks to its future as it makes first operating profit in 20 years

The Guardian has slam-dunked its way to financial sustainability.

The publisher has emerged battle-worn but victorious from a grueling three-year plan in which it cut costs by 20% and resisted erecting a hard paywall in favor of a donation-based membership scheme.

That plan has now born fruit. On May 1, the publisher reported April 2018 to April 2019 revenue of £223 million ($292 million) and an £800,000 ($1.47 million) operating profit — its first in two decades. In 2016, the publisher had 12,000 paying members, today it has 655,000 and counting. Of those, 360,000 are recurring paying members and 290,000 pay-for-print papers and digital memberships, according to the publisher.

In total, it has received 1 million payments, a mix of one-off donations or recurring membership payments and print sales, in the last three years. Digital revenue, comprising advertising and reader payments, now accounts for 55% of all revenue.

The Guardian has now shaken off the tunnel vision needed to reverse its former operating deficit of £80 million ($105 million), and revealed a new target. Its business strategy for the next three years is two-pronged: reach 2 million paying members and contributors by 2022, and remain vigilant on ensuring cash requirements remain in line with the expected long-term annual returns of its owner the Scott Trust Endowment fund of £25-$30 million ($33-$39 million).

Speaking to Digiday, Guardian News and Media CEO David Pemsel and editor-in-chief Katherine Viner were pleased by the success but aware of the current threats to media models. “If anything, the threats are the same, if not worse,” said Pemsel. “There is a lot of analysis around Amazon, and the fact they haven’t even started yet in terms of their ad strategy. Within that context, it is as challenging as it’s ever been.”

However, he referenced the emergence of more positive trends also: The success of their membership model is evidence of reader appetite for quality and trust in media brands that stick to the principles of what they stand for. Plus, advertiser attitude toward the big digital platforms is also gradually changing in a way that should benefit publishers.

“About three and a half years ago, everyone was all in on the digital platforms; they felt they had to spend as much as possible on those players. But from an advertising perspective, clients are now much more about spreading their marketing strategies outside of those same players,” he said.

Viner agreed that the threats to quality journalism have worsened in the last three years: “The social news feed still encourages bad information to spread, and there are many bad actors out there that exploit that.”

Reader-revenue targets
In a way, the timing of the Guardian’s membership plan was fortuitous. The shock that unpredictable political outcomes such as the European Union Referendum in the U.K. and the 2016 U.S. presidential elections, along with the proliferation of fake news across social platforms like Facebook, prompted a U-turn in many people’s willingness to pay for quality journalism. What later became known as the Brexit and Trump bumps, became a tonic for the subscriptions rates of all quality publishers including the Financial Times and the New York Times.

While the Guardian has always cited a more broad range of investigative topics that have helped drive memberships, that change in attitude among a large proportion of people can’t have hurt. Viner cited the exposure of the Windrush scandal in the U.K., the Cambridge Analytica scandal in Silicon Valley, and its coverage of the long-term environmental damage taking place globally, as core investigative highlights.

For publishers with hard paywalls, the kind of article that drives a person to subscribe is completely different from the kind that is aimed at attracting mass, typically fly-by audiences who come across the article from a range of different platforms but won’t likely return. Paywalled articles are typically investigative, analytical, and most importantly — not found anywhere else on the web. For the Guardian, with its open access, it’s less cut and dried.

However, Viner said that there is a higher propensity of readers willing to donate off the back of deep investigations. “We will be investing in a lot more investigations going forward,” she said.

Naturally, once a publisher reaches a certain scale in subscribers, retention of existing subscribers becomes as important as acquiring new ones. Although Pemsel wouldn’t discuss specifics on how it plans to hit its membership goal, he said that the publisher is primed to make investments and allocate resources to the right places, for instance, to retention.

“We will need to make sure we allocate resources and get the right people and systems to ensure we have a robust reader journey and that we understand more fully what it takes to retain a [membership] base of that size.”

The publisher has begun exploring new ways to reduce churn and increase regulatory of payments.

Vital U.S. course correction
One of the Guardian’s self-professed darkest moments over the last three years was the realization that its U.S. operation wasn’t financially viable in its former state. While the U.S. editorial team won accolades, including the Pulitzer Prize, for their articles on NSA surveillance in 2014, the advertising-reliant commercial model lagged. The publisher realized to remain afloat it would need to make some drastic changes.

The move into the black was helped by cutting its U.S. staff from 140 to around 80 people last year, and the introduction of its donations campaign. The result: International revenues have doubled since 2015/16 and continue to grow at double-digit levels per year, according to the publisher.

“We had to make some drastic steps in the U.S.,” said Pemsel. “The U.S. is an incredibly tough market. At the time, we didn’t have the diverse business model needed. If we hadn’t course-corrected there fast, I don’t think we’d be talking about achieving this financial sustainability now.”

Advertising revenue critical 
Despite the renewed focus on reader revenue, the Guardian remains committed to its ad business, which grew 3% in 2018. Print ad revenue now represents less than 8% of all revenue. Revenue from its branded content division Labs grew 66% in the first half of 2018, after a major overhaul to its strategy and processes. Meanwhile, certain hard lines taken in the digital advertising space, such as winning its longstanding court case against Rubicon Project, were likely a welcome addition to the bottom line. The publisher will continue to push its private marketplace offer, over its open-marketplace one, and remains hopeful the Ozone alliance in which it has invested along with News UK, Reach and The Telegraph, will win a larger slice of advertiser budgets fearful of brand-safety scandals that are riskier on the open marketplace.

Chart: made using Guardian data on Infogram

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