Riches to rags as Guardian bleeds £33m in a year

When The Guardian celebrated its centenary in 1921, its most revered editor, Charles Prestwich Scott, summed up his newspaper's values in an essay that is still quoted on its website every day.

"Comment is free," he wrote, "but facts are sacred." Scott, who devoted his entire working life to The Guardian, including 57 years as editor, was a Liberal MP who believed newspapers fulfilled a "higher function" than simply striving for "profit or power".

But Scott, who also owned The Guardian for 22 years, was a pragmatist, too, and stressed in the same essay that a newspaper "is a business, like any other, and has to pay in the material sense in order to live".

What he would have made of the financial mess his successors have allowed his beloved publication to get into is anyone's guess.

On Thursday, Guardian News and Media (GNM) announced that The Guardian and its sister paper, The Observer, had lost £33m in cash terms last year after failing to staunch losses that ran to £34.4m the year before. Unaudited results for the year ending 31 March showed that GNM's revenues, fell to £198m last year compared with £221m the year before.

Andrew Miller, the chief executive of GNM's parent company, Guardian Media Group (GMG), warned staff in a series of meetings this week that the group could run out of cash in three to five years if he does not make radical changes, which could include up to 175 redundancies.

Meanwhile Alan Rusbridger, the editor of The Guardian, has repeatedly had to dispel rumours that the title might stop producing printed papers altogether and become an internet-only business. Mr Rusbridger, only the 10th editor in the newspaper's 190-year history, does not want to be remembered as the man who took the left-wing elite's favourite publication off the news stands. In order to avoid that dire possibility, however, Mr Miller knows he has a gargantuan task on his hands.

In May The Guardian's average circulation was 262,937, down 12.5pc on year, while The Observer's circulation of 293,053 was down 13.9pc. GNM responded by axing 203 jobs in the last financial year, on top of nearly 100 the year before, but its revenues fell so sharply that the job cuts were not enough to reverse its huge losses.

In particular, recruitment advertising, long the cash cow for The Guardian because of its preferred status for public sector job adverts, has fallen by £41m in the last four years as Government departments have slashed spending on advertising.

Yet The Guardian has remained guilty of a certain degree of extravagance in the eyes of some commentators. Even after shedding more than 300 employees, GNM still employs 1,500 staff, including 630 journalists. By way of comparison The Independent, which has a circulation of 179,371, a third less than The Guardian, employs just 170 journalists to produce its daily and Sunday papers and its website, not much more than a quarter of GNM's staffing levels.

Mr Rusbridger and the previous chief executive Carolyn McCall were also criticised for spending £100m on new presses which made no difference to circulation, and for moving to a swish new office in King's Cross, while Ms McCall raised eyebrows by taking a £143,000 bonus shortly before leaving last year, despite having seen profits tumble.

In truth, the only reason The Guardian has been able to carry on as long as it has done without making savage cuts is because it has been subsidised by large profits from Auto Trader, which is owned by GMG.

Lorna Tilbian, a media analyst at Numis, said: "The Guardian is being artificially propped up by Auto Trader and they will have to change things because a good, vibrant business shouldn't need to reinvest every penny it generates.

"The problem they've got is that they're never going to get back the revenue they've lost from public sector advertising, circulation is on a long downward slope and they are giving away their digital content.

"I think they will have to start charging for their online content if they are to improve their finances."

Mr Miller, 44, was appointed last year to replace Ms McCall, who severed the Guardian's historic link to Manchester, where it was based until 1964, by selling off the Manchester Evening News. The sale was described by analysts as the "deal of the decade" for Trinity Mirror, which paid only £7.4m cash for the Manchester Evening News and 31 other local newspapers.

Ms McCall also sold a 49.9pc stake in Trader Media Group to the private equity firm Apax Partners, which generated more cash to help the newspapers keep going.

During this week's meetings, Mr Miller told staff he wanted GNM to double its annual income from its online operations from £47m to £91m by 2016 because "doing nothing is not an option".

Mr Miller's commitment to a "digital first" strategy relies partly on launching an online-only New York office later this year, which he hopes will help take The Guardian's website into the top 10 most read in the US, where advertisers would automatically include it in major national campaigns.

Despite Mr Miller's stark warnings, staff at the newspapers are putting their faith in the fact that as chief financial officer of Trader Media Group he spearheaded Auto Trader's transformation from a successful magazine to an equally successful – and profitable – website.

"He has recognised that there needs to be clearer leadership and a clear sense of direction for the company, and he has got a plan," said one insider.

"There is a lot more confidence than there was this time last year, before he took over."

Even if Mr Miller manages to double digital revenue, however – and it is a big if – he still wants the print editions to save £25m over the next five years to generate money for investment in online content.

Unless they can do so, the future of The Guardian and The Observer, in hard copy at least, will remain uncertain.