Guardian Loses Readers Even After Ousting Murdoch Tabloid

The U.K.’s Guardian took down Britain’s best-selling Sunday newspaper by exposing that the Rupert Murdoch-owned tabloid hacked a murder victim’s voicemail. It may still lose an intensifying battle for British readers.

The Guardian’s U.K. Web traffic fell 2.5 percent in July from the previous month, according to figures provided to Bloomberg by Comscore Inc., whose data is used by companies including Facebook Inc. and Microsoft Corp. That’s even as Guardian reporters’ coverage of phone hacking at the News of the World forced News Corp. to shutter the title. Visits to the Daily Mail, U.K.’s most popular newspaper site, rose 5.2 percent. The Sun, another News Corp. title, was up 15 percent.

For the 190-year-old Guardian, whose parent company posted a 58.6 million-pound ($97 million) operating loss last year, the figures are a fresh source of doubt over the financial viability of a respected combination of analysis, exclusive reporting and nimble digital operations. Chief Executive Officer Andrew Miller said in June that the newspaper, which also led coverage of the WikiLeaks disclosure of classified U.S. diplomatic cables, may run out of cash in three to five years without a reorganization.

“These investigative stories are very expensive and really don’t have much impact on the trajectory of the business,” said Douglas McCabe, a media analyst at Enders Analysis in London. “All this may do is slow the decline temporarily.”

Circulation Falls

July figures from media researcher ABC show a 10 percent year-on-year decline in print circulation for the Guardian, versus an average of 8.8 percent for U.K. broadsheets. The Guardian said the decline reflects a decision to stop counting international editions, which will be discontinued later this year. Excluding international sales and bulk distribution, circulation fell 2.2 percent, and rose 5.1 percent on a month- to-month basis, it said.

Hayley Dunlop, a Guardian spokeswoman in London, said that annual decline still made the newspaper the strongest year-on- year performer among U.K. broadsheets. She added that by early internal measures the newspaper’s average daily U.K. Web traffic rose 3.1 percent in July from the previous month.

Advertisers, meanwhile, are shifting more spending to the cheaper, thinner tabloids as circulation declines across the industry, said Alex DeGroote, a media analyst at Panmure Gordon in London. “The rate of decline is a lot lower in mass-market tabloids versus broadsheets.”

Sunday Mirror

Those tabloids’ appeal to advertisers will grow as they benefit from the demise of the News of the World, with almost 2.7 million readers a week before its final edition on July 10.

The Mail on Sunday, the Daily Mail’s sister paper, recorded a 17 percent surge in circulation in July, making it the most popular U.K. Sunday newspaper with 2.26 million readers according to ABC.

The Sunday Mirror climbed 64 percent to almost 1.79 million readers while the Observer, the Guardian’s Sunday title, saw overall circulation little changed along with other Sunday broadsheets, though Dunlop said the paper’s preferred measure of circulation showed a 6.6 percent increase. Improved advertising revenues are likely to follow for both the Mail and Mirror, credit agency Fitch Ratings said Aug. 16.

So far the Guardian has been insulated from the worst of newspapers’ woes by an old-fashioned source of support: classified advertising. Guardian Media Group co-owns Trader Media Group, which publishes ads under the AutoTrader brand, with private-equity firm Apax Partners LLP.

“The stake in AutoTrader is providing the cash to keep the paper afloat,” said Dominic Buch, a media analyst at Numis Securities Ltd. in London.

Liquidity

Earlier this year Guardian CEO Miller said an initial public offering of Trader Media, which brought in 120 million pounds in operating profit before one-time items in year ended April 3, was a possibility. Guardian Media Group had 14.8 million pounds in cash and short-term bank deposits at year-end. Including an investment fund that the company can draw on when needed, liquidity reached 197.4 million pounds, down from 260.8 million pounds a year earlier.

After more than two years following how News of the World journalists hacked into the voicemails of celebrities and politicians, the Guardian on July 4 broke the story that the paper had targeted the phone of murder victim Milly Dowler.

The revelation, and subsequent scoops on police corruption and other hacking victims, led to the resignation and arrest of News Corp. (NWSA) executives including Rebekah Brooks, CEO of the News International U.K. newspapers unit.

Digital Push

The long-term investigation that let the Guardian break the hacking story was typical for the paper, which was founded as the Manchester Guardian in 1821 in the aftermath of Peterloo Massacre of workers protesting the government amid famine and unemployment. After surviving a bruising 1980s and ‘90s circulation battle with the Independent, it’s now Britain’s fourth most popular daily broadsheet. Guardian Media Group is owned by the London-based Scott Trust, which reinvests its earnings in the Guardian and Observer’s journalism.

The Guardian has consistently supported left-of-center political parties in Britain, endorsing the Liberal Democrats in the 2010 general election after backing either Labour or a combination of Labour and the Liberal Democrats in 1997, 2001, and 2005. It last endorsed the Conservatives in 1955.

The Guardian has pursued an aggressive digital strategy, going further than any other British paper in establishing its website as a global hub for commentary and analysis. In addition to applications for Apple Inc. (AAPL)’s iPhone and iPad as well as for Amazon.com Inc.’s Kindle e-reader, the Guardian’s Comment is Free website has become a Huffington Post-style hub for commentary and analysis with hundreds of contributors and a U.S. sub-site.

Paywall Supporters

The newspaper has shied away from following rivals like the New York Times and News Corp.’s London-based Times in erecting a paywall to charge online readers for access. The New York Times Co. (NYT) last month posted earnings that beat analysts’ estimates, helped by its online barrier set up March 28, which asks readers to sign up for a subscription after 20 free articles in a month.

Those two newspapers’ continuing commitment to paywalls is inspiring other providers of free content to reconsider their own business models. In June, London’s Independent, owned by Russian billionaire Alexander Lebedev, said it may begin charging for online access, and Huffington Post owner AOL Inc. (AOL) may also do so for some services in the medium term, CEO Tim Armstrong said in the same month.

While the Guardian “has an open mind about the principle” of charging for content, it isn’t yet convinced doing so is the right strategy, Miller wrote this month.

The scale of the newspaper’s losses may nonetheless force its hand, Numis’s Buch said, making it essential to find “some way of more effectively monetizing its digital readership.”

To contact the reporters on this story: Matthew Campbell in Paris at mcampbell39@bloomberg.net; Amy Thomson in London at athomson6@bloomberg.net; Jonathan Browning in London jbrowning9@bloomberg.net.

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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