Why The Guardian Australia chose quality journalism over ‘scary’ advertising dependency

It's been five years since The Guardian Australia first opened its doors. Mumbrella's Zoe Samios talks to The Guardian Media Group's CEO David Pemsel and outgoing Australia CEO Ian McClelland about the publication's success, why it avoided growing an audience through Facebook, and looking to the future.

Five years ago, in a serviced office space with “wonky” internet on Pitt St in Sydney, an almost 200-year-old brand began its Australian journey.

The aim? Build a sustainable business, one that would uphold The Guardian UK’s reputation for quality journalism, whilst attract new audiences from the local market.

Although it started off with just a few external representatives selling display advertising, the business model has majorly diversified since then. Now with 80 staff – 45 in editorial and 35 split between commercial and operations – the business is on track to break even.

To date, the publisher has 40,000 ‘supporters’, 21,500 one off contributions and 4,100 subscribers; bringing its total paid relationships to 65,600.

A focus on a reader revenue business model was essential, as The Guardian had never planned for its Australian operation to be advertising dependent.

The Guardian Media Group’s CEO David Pemsel, who believes being dependent on advertising is a “scary place to be”, says his business model works because of its independence, the trust it has earned from readers and its quality journalism.

Pemsel says dependence on advertising is a “scary place to be”

“Before, you used to be able to produce fantastic journalism and somehow advertising paid for it. That is over,” he tells Mumbrella. “[Advertising] still makes a healthy contribution, but it’s not enough.”

When Pemsel first joined the publisher in 2011, he and The Guardian Australia’s founding editor Katharine Viner were told to simply put up a paywall and cut costs. They didn’t follow directions.

“It’s probably only the Guardian over any other news organisation that can be that pure in terms of its ownership structure. When people make a contribution, it’s because they genuinely believe in the quality of the journalism that we create,” he says.

The Guardian’s model isn’t for every publisher, as Australian CEO Ian McClelland – who was recently appointed Guardian Media Group’s director of corporate development – explains.

“There are different ways to monetise your journalism, and as long as you have the right model for your type of journalism, then it is a legitimate business model. The mistake is when you apply the wrong business model to type of journalism,” he says.

Ian McClelland, outgoing CEO of the Australian arm

Pemsel says The Daily Mail, for example, is a publisher that has been optimised for advertising, as opposed to a reader revenue model.

“They pride themselves as open as accessible to all. They have a journalistic approach which is very different to ours and actually are quite successful and optimised for advertising. There’s high ads loads, there’s huge amounts of programmatic plugins and they convert their reach into a relative year on year level of advertising growth,” he says.

But he adds: “It’s just not the game we play. You can make subjective views on the quality of their journalism, but that works for them. There are others like The Financial Times or The Economist, which narrowing their scope and being much more specific to their purpose, which means the paywall makes more sense.”

For Pemsel, lacking strong editorial voice and scourging to replicate the likes of other publishers can also cause publishers to fail.

“One of the things I used to envy about HuffPo was they did have a scalable model where they didn’t have to put infrastructure on the ground, because they were basically scaling on platform but more importantly off platform,” he reflects.

“You’ve just got to have a core, clear editorial vision and you’ve got to be distinct, you’ve got to have a voice, you’ve got to have a very clear target audience and if you don’t have those things, regardless of how efficient your business model is, you are just going to fail.”

He also believes if The Guardian had attempted to replicate the likes of Fairfax and News Corp, with an “obsessive goal of reach and scale” the publisher would have failed.

“We certainly would not have had any credibility driving reader revenue,” he says.

‘Facebook is not baked into any of our financial assumptions’

For a lot of publishers, the announcement Facebook would no longer prioritise publishers in news feeds was bad news. For The Guardian, it wasn’t of much a concern. Pemsel had previously told Digiday he had a “complicated” relationship with Facebook, and the news from January simply reinforced why.

“If you find yourself dependent on Facebook’s algorithm or audience, you are in a very paralysed state, because with one change of an algorithm, you could find yourself just having the tap turned off,” he explains.

Zuckerberg’s latest announcement made The Guardian’s relationship “even more complicated”

“That’s certainly not case for us. We have been very vocal about our challenges around Facebook, why we have not been able to reciprocal value from our content versus the money they give us back, which is next to zero. Facebook is not baked into any of our financial assumptions.

“And from an editorial point of view the referral traffic is okay, but we’re not dependent on it. There are however some businesses that are solely dependent on referral traffic. Their models have been disrupted, if not broken by this.

Pemsel says as a result of the latest news from Zuckerberg, The Guardian’s relationship with the tech giant has become “even more complicated”.

“And the only good thing about all this is that there’s not a day I wake up and think ‘wow I’m glad Facebook are contributing to our business model’, because they’re not,” he says.

But the CEO does admit the company has a “strategic relationship” with Google, noting the company is a global client, which spends considerable sums of money on advertising, collaborations with virtual reality, funding films, data science and product development.

“However none of that collaboration stops the scrutiny from our editorial teams on the impact of Google on society,” Pemsel admits.

“[Google] does have an understanding and appreciation of quality news ecosystem, but at the same time they can also be incredibly disruptive in our ability to be able to make money. But it is a strategic conversation.”

One of the biggest issues both McClelland and Pemsel have with off-platform dependency is its focus on scale, rather than loyalty or engagement.

“Anyone can optimise off platforms like Google and Facebook. But that doesn’t mean you’ve got loyalty, it doesn’t mean you’ve got engagement, you’ve just got a very big number and if you’re playing the game of reach, you’ll end up getting found out because yield is so low. You certainly can’t pivot into any kind of reader relationship if you’ve got no sense of audience and who there are,” Pemsel says.

McClelland adds: “There is the potential to reach a massive amounts of audience on Facebook. But to David’s point, but if that relationship is not deeply engaged, and there’s fleeting audience and its not monetisable, then what is the point in the reach really. For traditional media companies, it was all about reach, and they competed on reach and I’m just not sure that’s the case now.”

The global rebrand and cost-cutting

One of the areas which The Guardian prides itself on globally is its editorial principles, which it has maintained for 196 years. That means when cost cuts are necessary, the company avoids making editorial cuts.

Pemsel says it’s expensive, but it’s why the business is still successful.

At the end of last year, Guardian UK editor Viner informed her audience the print edition would move from a Berliner format to a tabloid product in January. That kickstarted a rebrand for the organisation globally.

The Guardian Australia’s new website, which came alongside a global rebrand

Pemsel tells Mumbrella the rebrand was birthed out of plans to reduce losses.

“When we started all of this, the Guardian was on track to lose about £85m and we have, through both strategy on reader revenue and scrutinising costs reduced that loss from £85m to £56m to £38m.

“We had our own printing presses in the UK, we had our own unique format, which is the Berliner format. It starts off as a decision we need to make on how to protect our journalistic output, but also save cost.

“Outsourcing a printed contract sounds very simple, but in effect saves a huge amount of money – into millions of pounds,” he says.

“We’ve saved the money, kept the editorial headcount and I would argue the quality of the digital product is better.”

On the global response from the rebrand, Pemsel adds: “There was a halo effect in the week that we launched, and we still see this there was an increase from reader contributions. There was an increase in digital subscriptions, print subscriptions also went up, as did our readership with the newspaper and engagement within app and mobile web.”

McClelland confirms the progress in Australia had remained steady since the rebrand. Looking to the future, McClelland – who is set to depart the Australian arm in March – says adapting and evolving the business will be crucial going forward.

“We have to evolve, there’s a huge opportunity involving our reader revenue business.

“Our mission now is: how do we fuel growth? We’re simply not satisfied with the editorial capacity. There’s a lot more room for growth, and we’ve got some ways of funding that, but part of my new job is to look for other ways of funding.”


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