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For many legacy news organizations in Europe, digital disruption comes with new ideas but few answers
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Jan. 25, 2016, 12:16 p.m.
Business Models

How do you cut costs by 20 percent? The Guardian is about to find out: The U.K. paper announced Monday that, with operating costs growing more than twice as fast as revenues, it plans to cut those costs by 20 percent, or about £50 million, over the next three years.

Costs are outpacing revenues thanks to a predictable list of challenges: Declines in print advertising, monetization challenges on mobile, and structural changes in the online ad market. More big costs come from The Guardian’s expansion into the U.S. and Australia.

“I think the big strategic pillars around the role of membership, the role of the international offices and more and more digital capabilities, if you ask whether they were right, the answer is absolutely yes,” CEO David Pemsel told his own paper.

The Guardian didn’t make the memo public, but in a press release it outlined the changes it’s making:

— Target a 20% overall reduction in the Guardian’s current £268m annualized cost base.
— Reduce losses and aim to break even at an operating level by 2018/19.
— Relaunch an enhanced membership offer with the aim of doubling reader revenues.
— Align editorial and commercial operations to harness higher-growth membership and digital opportunities.
— Implement an advertising model that tracks evolving market trends, notably around branded content, video and data.
— Focus international growth on US and Australia, increasing their contribution to the overall business.
— Create a new data and insight team to support editorial and commercial innovation.

Key to this is wringing more revenue out of readers. The project to revamp future strategy is being called Project 2021, and one of its goals is to “double reader revenues from £30 million to £60 million.”

The Guardian’s never paywalled its content, and though that option’s not off the table now, “We have put membership at the heart of what we’re doing, the heart of editorial,” Pemsel said.

The Guardian has been experimenting with different forms of membership for awhile. In 2014, it began renovating a 30,000-square-foot space in London, the Midland Goods Shed, into

an open amphitheater for festivals, acoustic gigs and debate, as well as including an intimate restaurant with a changing program of chefs in residence, an armchair cinema, a 3D printing and fabrication lab, a rooftop garden, galleries and a dozen atmospheric spaces hosting events in everything from photojournalism to ceramics, from breaking news to works of fiction. And of course, coffee.

The space is set to open in 2016, but The Guardian hasn’t posted an update about it for almost a year. Earlier this month, The Telegraph reported that The Guardian was considering abandoning the project, ahead of the cost cuts that were announced Monday, and “handing back the keys could save £6m per year,” according to a source.

Editor-in-chief Katharine Viner said Monday that leadership was “exploring options for Midland Goods Shed” and would decide in the next few weeks.

Also in 2014, The Guardian launched a membership program, separate from (though related to) the large events space. Ken Doctor explained in Nieman Lab at the time:

What makes The Guardian initiative stand out at this point is its sheer scope. Currently, seven to 10 people staff the events/membership business; Pemsel says he anticipates a ramp up to 30 to 50. Further, the initiative will be expanded to the U.S. and Australia in 2015. That makes it a global strategy, with lots of cross-marketing opportunities to be surfaced.

The membership program now has close to 150,000 members in various tiers, ranging from free (the largest tier) to £60 per month. The paper has not yet expanded the program to the U.S. or Australia, though it held a popup event in New York. But the goal is to get more people to pay — which might indeed mean creating content that only members can access.

“I don’t want to just pile on the ‘let’s be innovative and bravely go into this new world’ when the foundation is that fragile,” Pemsel said.

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