At The Guardian, Signs That Free Online News Can Pay

Suzanne Plunkett/Corbis

Copies of the Guardian newspaper are displayed at a news agent in London on August 21, 2013.

The Guardian Media Group, publisher of The Guardian newspaper, bounced back into the black this year. And it did so without charging any of the publication's 78 million monthly Web readers a penny.

While much of the group's 22.7 million pounds ($36.6 million) in pre-tax profit was generated by other publishing operations, The Guardian saw its digital revenue jump 29 percent last year, outpacing the decline in its print sales and giving the 192-year-old newspaper cause for cheer after years of losses.

As rival U.K. newspapers start charging for content -- in effect giving up on a big chunk of readers in exchange for money from a smaller number of devoted fans -- The Guardian's latest financials provide some hope that a free online news model can be good for business as well as consumers.

It's far from clear whether charging for content offers more sustainable profits than giving it away and earning more from ad sales. If The Guardian, whose first front page featured an ad for a lost dog, can sustain its digital growth, it will offer a strong argument in favor of free news.

One advantage the paper has is its strong ties to the public sector. For years, the print version earned much of its profit from classified job listings by government agencies, according to investment bank Panmure Gordon. Following years of government spending cuts since the Conservative/Liberal Democrat coalition came to power in 2010, there are signs of a revival.

The British government reportedly allocated a six-figure sum to promote The Royal Mail's IPO, and in 2012, the NHS was allocated a marketing budget of 285 million pounds. If government spending continues to pick up, The Guardian's longstanding relationships with the sector may help it benefit more than many of its rivals.

Online, The Guardian has dramatically changed the way it presents its ads. Instead of offering column inches filled with classifieds to readers almost exclusively in Britain, the paper's website serves up custom ads aimed at millions of visitors from around the world. To sell those ads, the paper uses a real-time bidding system in which space is auctioned based on the digital profile of each user.

Serving up relevant ads should be central to The Guardian's strategy, says IHS Screen Digest analyst Daniel Knapp.

"The key challenge is not to show more ads, but to show better targeted ads," Knapp says. "They must pursue a price-driven ad strategy -- not a volume-based one."

The Guardian has expanded its readership and achieved international reach in recent years, and now offers multiple ways of delivering ads for companies and governments that are beginning to spend again.

Many Guardian readers, though, are drawn to the paper because of its challenging, left-of-center editorial stance, most recently seen in its coverage of Edward Snowden's intelligence leaks. These loyal readers may not appreciate multinationals trying to sell to them while they read the news in the morning.

"The Guardian has a reader base that is likely to be alienated by aggressive, targeted advertising from the private sector," says Panmure Gordon media analyst Alex DeGroote. "It's a difficult balance to strike."