Guardian's David Pemsel: 'We're sure of our strategy and won't let tech giants disrupt us'

The Guardian's boss has slashed losses and is eyeing break-even, but bigger challenges lie ahead.

David Pemsel could soon feel he has done his job. His three-year plan to bring Guardian Media Group’s steep losses under control is on track for completion by next spring, when the left-leaning publisher should break even. "You’re not the only person to ask," he says with a smile, shrugging off a question about whether he might be contemplating moving on.

Pemsel, a former ITV marketer who joined GMG in 2011 and became chief executive in 2015, insists: "There’s still a huge amount to get done." He is working on a new, three-year plan as The Guardian prepares for its 200th birthday in 2021. "One year of sustainability isn’t an enduring sustainable outcome," he says.

When he and editor Kath Viner took charge together, newspaper arm Guardian News & Media was on course to lose £87m that year. They began slashing costs, which reduced the loss before exceptional items to £57m in 2015-16, £38m in 2016-17 and £19m in the year to April 2018. Break-even "on an operating basis" is, as mentioned, now on the cards.

It is largely thanks to a pioneering strategy of asking readers to make voluntary contributions and become members, rather than setting up a paywall, while saving money by switching The Guardian and The Observer from Berliner size to tabloid in January.

Turnover increased 1% to £217m in the past year, with more than half coming from digital for the first time – a decent performance compared to rivals. In another milestone, revenues from readers through contributions, subscriptions and print cover price sales outweighed advertising. Ad sales were roughly flat, Pemsel adds – despite The Guardian running an effective but arguably misleading message at the end of news articles that urges readers to donate because "advertising revenues across the media are falling fast".

Pemsel says: "To get to break even at an operating level, just under £1.1bn in the bank [in an investment fund], no pension deficit and no debt, that is an organisation that is winning despite all the complexities that we’re dealing with. I think that’s a positive story."

Recent scoops such as the Windrush scandal and Facebook-Cambridge Analytica investigation have boosted contributions. Today, 570,000 members subscribe or make recurring payments, plus there have been 375,000 one-off contributors, and the US and Australia are "now generating a financial return" after heavy investment. 

"I don’t think there’s a limit on how far The Guardian’s journalism can travel," Pemsel adds, pointing out that its trusted content reaches an audience of 155 million monthly unique browsers in the era of fake news. It wouldn’t have had that global reach if he had listened to critics who told him to set up a paywall and "tax for consumption", he says.

Showing leadership

Douglas McCabe, chief executive of Enders Analysis, says: "It’s hard not to admire David’s relentless focus on reaching break-even or profitability. He echoes Jeff Bezos’ message at The Washington Post – ‘Good news businesses have to be independent and they have to be sustainable’."  

David Abraham, the former chief executive of Channel 4, who used to work with Pemsel at St Luke’s in its glory days, adds: "Against the odds, DP has managed to get control of costs while establishing the basis for a new way to monetise the undoubted cultural and digital reach of the Guardian brand – all while still supporting strong journalism."

Pemsel, 50, is married to Kate Stanners, global chief creative officer of Saatchi & Saatchi. Those who know him describe the £706,000-a-year chief executive as "smooth", "articulate", "charismatic" and "ambitious", with an eye perhaps on a FTSE leadership role, and "expensive tastes" in shoes and cars, as befits a non-executive director of the British Fashion Council.

One industry leader says: "He doesn’t spring to mind as someone who is remotely socialist." But an ex-Guardianista points out: "Looking back over the history of Guardian CEOs and MDs, some of the most successful were capitalists, red in tooth and claw."

Pemsel finds turning around GMG "fascinating, intellectually" but is sensitive to criticism. "I sat with a senior comms person the other day," he confesses, "and they said, ‘Why you get frustrated is because you’re part of a legacy industry that’s struggling its way through all this change’."

He has challenged the status quo, pushing Silicon Valley-style quarterly "sprints" to tackle business problems at GMG and driving an industry-wide effort to pool ad sales with The Ozone Project – a once unthinkable partnership with News UK and Telegraph Media Group to sell digital display inventory. 

But he is winning recognition. The Guardian has been shortlisted for sales team of the year and Pemsel has been shortlisted for media leader, a new prize in partnership with The Lighthouse Company, at next month’s Media Week Awards.

‘Reach breeds complacency’

Pemsel was part of GMG’s ancien régime, serving as chief commercial officer and deputy CEO, when it bet on digital advertising and online reach before 2015. He oversaw the Cannes Lions award-winning "Three little pigs" campaign and won sales team of the year at the 2014 Media Week Awards. Yet the company was facing a potential £87m loss a year later, so what went wrong? "Reach does breed complacency," Pemsel admits. "You think it’s important just because you’ve got a big number, but you realise you’ve got no [direct] relationships [with readers who are largely anonymous]."

What’s more, that reach started to look "niche" in the face of the Facebook-Google duopoly. "The relationship between reach and ad revenue snapped as aggressively as I’ve ever seen," Pemsel recalls. "It was almost a quarterly shift." At the same time, agencies were automating spend, which required the sales team to pivot to programmatic trading.

Looking back, he insists it wasn’t "a mistake" to depend on digital ad growth but he realised "you can never be complacent". He and Viner were forced to face "some unvarnished truths" about "what would happen if we didn’t change pretty quickly".

Pemsel was "obsessed" with reducing their new strategy to a single page and boiled it down to four priorities:

• Build deeper relationships with readers.

• Encourage readers to make a greater financial contribution to The Guardian’s journalism.

• Face up to the realities of the ad market and sell programmatically.

• Become more agile and cut costs.

At that stage, readers donating money was only an idea. A small team worked on the concept in a "sprint" over several months and tested it on a small percentage of readers. Once it got a good response, they scaled it up.

Pemsel remains a champion of advertising, including branded content, as a second revenue stream after reader revenues. But he sees the logic of pooling ad sales as undeniable because of the tech giants’ dominance. He backed Project Juno, the failed talks with other publishers, in 2016, but stayed at the table to set up The Ozone Project. "The reason why I remain an advocate of presenting ourselves in one place is that it’s what our clients and agencies are asking for," he says.

The future of print

Pemsel axed the Berliner to save "millions" a year and is "comfortable" with the "trade-off" as circulation and ad sizes took a hit. Its daily print sale has been falling by about 10,000 annually for many years and plumbed a new low of 138,000 in July. If trends persist, the weekday tabloid, which sells 115,000, could be gone by 2030.

The Scott Trust, the paper’s charitable owner, has a mandate to safeguard The Guardian "in perpetuity" but when might the trustees decide it no longer needs to print seven days a week? "The Trust clearly has a vested interest in understanding the numbers that sit behind any decision," Pemsel says. "In the end, it falls to the editor, primarily. As long as our readers value the print product, we will continue to print."

He suggests GMG might engage in a similar brainstorming initiative to that around reader contributions: "You can imagine at some point there will be a brief, saying, ‘What are the various ways that print can add value to people’s lives?’ But then there’s this binary thing of, ‘When are you going to turn it off?’ – it’s much more nuanced than that. People in this digital age love the tangibility of print and we’ve got to respect that."

Standing up to the tech giants

Google and Facebook cast an immense shadow, so does Pemsel think regulators should break them up? "The maths say yes. I don’t think that’s a [subjective] judgment. The maths have to get you to the place where some kind of intervention from government is inevitable."

Pemsel has also asked whether The Guardian should keep its journalism on the tech platforms. He concluded that "any platform that provides anonymous reach" with no ability to have a direct relationship with the reader plays "no role in our business strategy – that’s why we’ve come out of Apple News and [Facebook’s] Instant Articles".

For Pemsel, it is an important lesson: "Be really sure of your own strategy and do not allow the the platforms to disrupt you. Apple and Facebook will say they’ll give you reach. But we don’t have a traffic problem. We’ve got a really clear strategy about how to have a deeper relationship with our readers and encourage greater contributions."

Insiders say Pemsel keeps taking out costs, and another wave of senior journalists took voluntary redundancy in the summer in the crusade to break even. "The challenge will come on the day after the current plan is delivered," McCabe warns. "What will the next three- or five-year plan look like? Without in any way diminishing what’s been achieved in this phase, the next phase could be more demanding still for the executive team and the Trust."

As Pemsel would acknowledge, securing the future of The Guardian is a marathon, not a sprint.


PEMSEL ON AGENCIES

Big ad agency groups must change because they are as "equally challenged" as publishers, according to Pemsel. "Google and Facebook are creating as many complications for them as they are for us," he says.

Pemsel spent his early career at WPP's Ogilvy & Mather and says: "The holding companies feel like they’re set up to deliver shareholder value and they’ve slightly lost sight of the fact that there is a client who needs strong, independent advice.

"If you started with the client and held up a mirror to the [agency] organisations if they don’t change, the companies might move a bit more quickly."

GMG has disclosed for the last three years in its accounts that it pays rebates to media agencies in return for certain volumes of spend  – a practice that Pemsel accepts as "a fact of life about how media gets traded", even though "we can debate the pros and cons" of rebates.

Still, Pemsel hints that wider structural changes are going to force agencies to change the way they do business.

"One needs to go to the other end of the telescope [from rebates] and let's just work out the true definition of the role the media agency plays now with the increased consolidation of investment happening in very few places," he says.

The Guardian has shaken up its own agency relationships, using Oliver as an on-site agency in the publisher’s office for fast-turnaround, digital creative.

But Pemsel warns the ad industry must not lose sight of the big picture and long-term strategic thinking at this time of digital disruption and automation.

"If we don’t think about the role of brand and quality of creative ideas, then I’m not entirely sure where you’ll end up," he warns.

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