Katharine Viner and David Pemsel must be doing something right at The Guardian and its sister paper, The Observer, because Facebook’s Mark Zuckerberg has personally apologised about his company’s behaviour towards them.
Viner, editor-in-chief of The Guardian, and Pemsel, chief executive of parent company Guardian Media Group, met Zuckerberg in San Francisco last autumn.
The Facebook chief executive wanted to say sorry after issuing legal threats against The Observer six months earlier in a failed attempt to block the paper’s investigation into the social media giant’s role in the Cambridge Analytica data scandal.
"He apologised," Viner says, recalling the "great meeting" with a smile of satisfaction, as she sits alongside Pemsel in her canal-side office in London’s King’s Cross.
The Cambridge Analytica exposé and the Zuckerberg encounter illustrate The Guardian’s growing influence as a global, digital news publisher with a distinctive, liberal voice in an increasingly polarised age.
"It is the leading progressive paper in the world," Steve Bannon, Donald Trump’s former strategy guru and architect of the rabidly right-wing Breitbart News website, told The Guardian in a moment of flattery last year, only to berate its journalist for asking "prick questions" later in the same interview.
Facing up to financial reality
Building a global digital audience, with 163 million monthly unique browsers, has been the easy part.
The Guardian, which was founded in Manchester in 1821, has always had an online strategy of not charging readers, and funding its digital content through advertising.
Under the great expansion during the final years of former editor-in-chief Alan Rusbridger’s 20-year reign, Guardian News & Media, GMG’s news publishing arm, spent huge sums on setting up websites in the US and Australia – both of which Viner edited at various points.
However, the challenge that GNM flunked was making its journalism pay, because it had no online subscription revenue. Instead, the Scott Trust, which owns the paper, was left to pay the bills out of its fast-diminishing £1bn investment fund – a major worry for the charitable trust; its sole task is sustaining The Guardian "in perpetuity".
"What is this? I love it. Have some money"
When Viner and Pemsel were promoted to their current jobs in summer 2015, the new leaders were forced to confront the problem immediately, as digital ad revenues lurched from news publishers towards Google and Facebook in a seismic shift.
GNM was on course to lose £83m in that financial year, and Pemsel and Viner agreed to drastic changes in a bid to break even by 2019. "Everyone knew we were in trouble," Pemsel admits, recounting what is now a well-rehearsed story.
Hundreds of jobs were axed, the print edition was reduced to tabloid size, and, crucially, The Guardian adopted a pioneering model of voluntary reader contributions to reduce its dependence on ad sales.
The membership-style model has worked. GNM has picked up more than one million paying contributors – 655,000 recurring payers, including print and premium app subscribers, plus 300,000 one-off and occasional donors in the past year alone.
The spread of contributors across the globe has surprised even some at The Guardian.
Importantly, GNM announced last month that it has broken even on an operating basis for the first time in two decades. Profits before exceptional items, known as earnings before interest, tax, depreciation and amortisation (Ebitda) in financial jargon, were about £800,000 in the year to April.
Annual revenue rose 3% to year on year to £223m, its highest level for 10 years, costs of £222m were the lowest in eight years, and the US and Australia operations moved into profit.
Some say using Ebitda masks problems, and GNM has not yet published its full accounts, which will disclose the exceptional costs that led to a "cash outflow" of £29m. However, Viner is quick to insist Ebitda is "a reasonable measure". Pemsel adds that, "without sounding defensive" as he puts it, lots of companies on the stock market like to use Ebitda to avoid including debt and pension-deficit numbers in a headline profit figure, although he declines to name examples.
GNM can afford in the region of £25m to £30m in exceptional items a year in future, Pemsel suggests, as that "cash envelope" can come out of the annual profits of its investment fund.
"The true definition of protecting The Guardian ‘in perpetuity’ is we need to live within the means of our forecast yield" from the fund, he says.
If the duo displays a hint of prickliness about breaking even, it is because the doubters have mocked The Guardian for burning through the best part of £600m in cash over the past decade while not charging online.
The front page of Pemsel’s financial presentation announcing break-even features a Private Eye cartoon from 2016 that shows a man looking at The Guardian’s website while an audio message asks: "Spare some change, mate?"
Evidently, it was no laughing matter for Pemsel or Viner, who have found the turnaround over the past four years more gruelling than might be expected. Viner says: "It has been very, very, very tough – all of it." She identifies the period around 2016 as especially difficult, "when we lost hundreds of people and we couldn’t see a clear path to break-even at that point".
"The biggest increase in traffic and contributions? From the EU 27"
Pemsel suggests winning over staff internally about the need to break even and getting everyone in both editorial and commercial to be "aligned behind a number and be motivated by that" has been as much of a "challenge" as dealing with the external problems of print decline and a brutal advertising market.
"Being consistent with who we are and our purpose and also doing extraordinary journalism while cutting costs, that’s tough," Pemsel declares.
Pemsel and Viner both insist they haven’t held back spending until the new financial year simply to enable them to hit break even. GNM is a more robust business than in 2015. Print represents only 45% of turnover and print ad sales just 8%. Still, advertising, which rose 3% last year, remains "critical", Pemsel points out. Moreover, The Guardian, under chief revenue officer Hamish Nicklin, won sales team of the year at the Media Week Awards last autumn and commercial team of the year at the Campaign Media Awards this spring.
A global readership model
As Pemsel and Viner look ahead, they expect to break even again in the coming year – barring a Brexit-induced economic slump.
The big target is to reach two million annual contributors by 2022. That’s "quite challenging", Viner says, given The Guardian has passed the one million mark only by aggregating numbers across several years.
There is a sense that GNM stumbled upon its membership model more by luck than judgment, when rivals such as The Times, Financial Times and The New York Times charge. "It is a paywall but one where you don’t have to pay," Viner concedes with a chuckle, acknowledging the paradox. "It still asks people to pay to read us, but only if you want to."
Still, The Guardian’s success in soliciting donations has given the news industry hope that consumers will pay for high-quality, trusted content. A map, created by The Guardian, shows the value of donations across countries. In addition to the UK, the US and Australia, there have been decent-sized contributions from non-English-speaking countries, such as Switzerland and Sweden.
A relatively small number of people "give quite a lot" in some countries and "lots of people give smaller amounts" in other places, Viner explains. The average one-off donation is about £20 ($25).
Big stories such as Cambridge Analytica and the Windrush investigation, which exposed the UK’s unfair treatment of Caribbean immigrants and led to the resignation of then home secretary Amber Rudd, have driven contributions.
Most recently, Brexit has been a catalyst. "In the last six months, the biggest increase in traffic and in contributions have come from the EU 27 [countries], which is an amazing fact when you think of our huge American audience and our very generous and large Australian audience," Viner says.
She believes readers like its Brexit coverage, which she describes as "really straight", "good", "varied" and "pro-Europe".
International expansion is the best way to get to two million contributors, the pair says, as GNM turns into a loyalty business. "Although I don’t think we’d ever say we’ve maxed out in the UK ever, we believe there’s a global opportunity," Pemsel adds.
While the assumption might be that it would take time to persuade new readers to become regulars on the site and convert them into payers at a later date, Viner says it is not always the case.
"What has surprised us about the contributions model is that sometimes people will want to give us money on their fi rst visit. They perhaps come in for an article and they are so into it, particularly Americans. They’ll go: ‘What is this? I love it. Have some money,’" she says.
Slipping into the language of customer relationship management, Viner continues: "The correlation with regularity isn’t as close as we expected when we started contributions. We thought if you increase regulars, you’ll increase contributions, but actually there’s a whole load of people who give us money who aren’t particularly loyal."
There is "not one single customer journey" from reader to contributor, Pemsel adds, explaining how he is investing in "some much-needed data science" to improve CRM.
"A whole load of people give us money but aren't loyal"
One challenge is managing contributors who have agreed a fixed, recurring payment, because it will decline in value in real terms over time, due to inflation. Asking for more money means there’s a risk a reader might halt the standing order, a rival publisher says. GNM is yet to cross that bridge.
The New York Times and other US titles have claimed a "Trump bump" has boosted subscriptions but Viner says The Guardian has benefited from a wider mix of stories, investigations and campaigns.
Some in the ad industry recoiled from the plaintive messages that ran at the end of Guardian news stories a year or so ago. They appealed for donations, because "the revenue we get from advertising is falling" – something of an irony at a time when the ad sales team was claiming it was turning things around.
The Guardian has changed to more upbeat messaging, and the announcement that it had reached the milestone of one million contributors has been the "biggest driver" of sign-ups.
"Now we’re saying: ‘This is a model that’s working, come and join us.’ That’s actually much more effective than the scary message, which I think is really interesting," Viner says.
She dismisses suggestions that the push for contributors might lead to journalism that panders to a partisan audience – a left-leaning attempt to "Foxify" the output in the mould of Fox News in the US.
Viner says: "If it encourages any behaviour, it encourages us to do more journalism in the public interest, and I can’t really see that’s a problem. Guardian readers seem to give us money for stuff we value most ourselves."
So, the likes of Cambridge Analytica and Windrush, then.
The New York Times already has about 4.5 million subscribers and is aiming for 10 million by 2025, which could make The Guardian’s two million target in 2022 look modest but Pemsel believes it is "perilous" to make the comparison – presumably because The New York Times has home advantage in the US. "If you took The New York Times out of it and looking at everyone else’s goals, ours looks really ambitious," Viner maintains.
Advertising still matters
Reducing dependence on digital ad revenue has been a relief for Viner, who has seen other news publishers, including some former hotshot adfunded sites such as BuzzFeed and Vice, struggle, as The Guardian did. "There’s no doubt that more than advertising is needed now to sustain a newsroom," Viner says.
Still, Pemsel, who spent his early career working at agencies, says the "hard-fought" success of GNM’s ad sales team shows it still believes in advertising. "Some say that it’s going to be impossible for quality content creators or quality news organisations to be able to make an argument for ad revenue but we’ve shown that’s not the case," he says.
"There's been a bit of creep in some places at the BBC"
Viner is a fan of The Guardian’s premium, £5.99-a-month app, which carries no ads or branded content. What about the free site that sometimes feels as if it has a high ad load? For example, one recent Marina Hyde column had seven ads, interrupting the text every few paragraphs.
Viner says she is "surprised" to hear that, because "we’ve very careful", insisting: "Our ad load is much lower than any of our rivals." She wonders aloud: "Maybe you need to pay for the premium app where it would be a lovely ad-free experience." But then quickly thinking better of it: "Perhaps if you work for Campaign, that would be a bad idea."
Viner is "really comfortable" with publishing branded content, sometimes for big companies such as Google and Vodafone. "We have a working group, that the managing editor sits on, to decide difficult cases," Viner says. "We really don’t get complaints."
Talk of "regularity" and "working groups" doesn’t quite fit with the traditional "Guardianista" image, and some insiders say the operation has become more "corporate". "Do they?" Viner asks, musing that trying to break even has probably changed the culture. "We take financial management seriously," she says.
Competition and motivation
The Guardian’s competitive set grew beyond just rival newspaper publishers long ago and, as it expands globally, the relationship with the tech giants is the biggest issue. Dealing with Google is a lot easier than Facebook, Pemsel says.
"However much we might have attempted to have conversations at a strategic level [with Facebook], it’s tended to get quite complicated," he says. Pemsel remains "open-minded" but sees no upside in having content in Facebook’s Instant Articles or Apple News. Getting readers on to The Guardian’s own platforms makes more sense, he adds. "We’ve got much better at, ‘This is our business and this is what we want to do.’"
The BBC is an intriguing competitor, especially as it must rethink its compulsory licence fee in a world of subscriptions and donations, and it sells advertising outside the UK.
Viner remains a supporter of the broadcaster, "even if there may have been a bit of creep in some places", but Pemsel, whose father worked at the Corporation, wonders whether its £4bn-a-year licence-fee income has led to "money not going to the right places" and suggests it’s "too bureaucratic".
"This is a model that's working. Come and join us"
The Guardian’s recent experience shows "good ideas can come from constraint" with "small, agile teams", he says.
Print may have dropped to 45% of revenues but has a more viable future after costs were slashed. Circulation is at 135,000, down about 5% since the tabloid’s launch a year ago. Print subscriptions are at a record level for both the daily paper and the weekly, international edition, Viner notes.
Intriguingly, a pinboard on the wall next to Viner’s desk is something of a shrine to print. A huge cluster of newspaper articles and front pages, mainly recent cuttings from The Guardian, has been pinned up enthusiastically. However, it is the Daily Mail’s polemical, pro-Brexit splash, "Crush the saboteurs", with Theresa May on the cover, from 2017, that stands out. The Mail has always stood near the opposite end of the political spectrum from The Guardian and Viner stuck up the saboteurs headline "to inspire me", she says with relish.
In a global battle for survival and truth, The Guardian needs to be on a war footing.
An analyst's view: 'A pillar of democracy'
Claire Enders, founder of Enders Analysis, says Pemsel and Viner deserve credit for "correcting many aspects of the previous management’s flawed thinking", particularly around digital advertising and the costly Berliner printing presses, which have been axed.
"It’s been a tremendous success story of finding a new business model. Some people refer to it as panhandling but it has great durability and it gives them a great feedback loop [from readers]," she says.
"The Guardian used to be a paper without global impact" but it has developed a bigger voice by adopting what she calls a "constantly activist stance that is not party political" and is backed by "a very committed stream of supporters", according to Enders.
It has also allowed The Guardian to look beyond the insularity of UK politics, which plays out well for the newspaper, because, while it has historic ties to Labour, the party’s current leader, Jeremy Corbyn, is a divisive figure.
Enders ranks The Guardian as one of only a handful of news organisations, including The New York Times and the BBC, which are now "pillars of democracy" thanks to their global reach.
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