The strategy to rescue the Guardian from financial oblivion has attained a landmark position by increasing its revenue from readers to a point where it now outweighs the paper’s income from advertising.

This significant shift in the Guardian’s business model, making it less dependent on a highly challenging advertising market for media companies, results largely from a quadrupling in the number of readers making monthly payments under the title’s membership scheme, which has grown from 75,000 to 300,000 members in the past year.

The paper has also slightly increased – to 200,000 – its subscriber base for its print and digital products. And in a development which has even surprised senior Guardian executives, a further 300,000 individuals have made single donations to the paper, which has been posting appeals at the end of articles, urging readers to financially support its commitment to open access journalism.

These one-off donations, totalling several million pounds, come from 140 countries but a substantial proportion has arrived from the US, suggesting that despite a recent diminution of the Guardian US operation, the paper has a committed audience in a country with established traditions of supporting public interest journalism through philanthropy.

Together, the 800,000 contributors (members, subscribers and donors), along with casual sales of the physical paper, give the Guardian a record number of paying readers; more than the half-a-million pinnacle in print circulation achieved in the late 1980s.

After a long cycle of eye-watering annual losses, amounting to more than half-a-billion pounds since 2009 and causing many to believe that the 196-year-old paper was on its way to bankruptcy, there is finally cause for optimism.

Reader revenue strategy reaps rewards

In a long interview with The Drum, timed to coincide with the revelation of the new figures, the chief executive of Guardian Media Group, David Pemsel, reveals some of the secrets behind the rise in reader payments. “Our readers contribute more to this organisation now than advertising,” he says.

He predicts that Guardian News & Media will drive down its annual losses to £25m for the year to 31 March 2018 (compared to the £45m shed last year).

That puts him and editor-in-chief Katharine Viner on course to meet the ambitious three-year target they have set of breaking even by April 2019. “If we get to the end of this year and the minus 25 (million pounds) number, we have in effect halved our losses and kept our revenues broadly flat,” he says. “No one is ever complacent… but pretty much every number we have set out we have achieved, as well as supporting arguably some of the best journalism we have ever done.”

Pemsel, who became GMG’s CEO in 2015, joined the company as chief marketing officer in 2011, having previously been at ITV. He was then GMG’s chief commercial officer and therefore must take some responsibility for the Guardian’s past financial pain.

Why is it that a paper that always positioned itself as a great soothsayer of the media’s digital future has taken so long to see the value of reader relationships?

It is a “million dollar question”, says Pemsel, as he makes a spirited defence of GMG’s historic digital strategies and avoids criticism of Alan Rusbridger, the journalistically brilliant former Guardian editor-in-chief and architect of an ambitious programme of international expansion which coincided with the paper’s financial difficulties.

“If you go back to 1995, from then to where we were in 2015, then you cannot fault the Guardian’s progress against its digital hunger to innovate [and] to fully embrace all of the digital opportunities,” he says. “You go from the ninth largest newspaper (in the UK) to the third largest English speaking news organisation in the world, with 160 million browsers and over 1bn page impressions almost every month for the last seven months. That is a proof point of the effectiveness of our digital strategy and of our journalism.”

He accepts that “some might say ‘Well, you did that at the cost of X-amount of money’” but argues that the strategy was right in recognising that “the future ultimately was going to be an open, widely distributed ecosystem”.

Re-evaluating reach online

The trouble was that a vast audience, though it was an endorsement of Guardian journalism, wasn't in itself the business model that GMG executives imagined it to be.

“The problem with reach is that it can breed complacency,” Pemsel says now. “You can look around the building and you've got screens with big [audience] numbers and monthly dashboards going out saying ‘Hey, we’ve got bigger’. But it masks the relationship you are cultivating with your readers.”

He points out that “some of the most atrocious content companies in the world can be big, it doesn't mean that you are being read or making an impact on the world…it just means you are big”.

Pemsel says that, as commercial boss, he was starting to monetise the Guardian’s online audience when “a huge swing to programmatic” advertising, led by Google and Facebook, meant that the “the connection between digital reach and revenue snapped”.

So GMG has had to learn to think beyond reach.

The advertising downturn coincided with Viner taking over from Rusbridger, and Pemsel being promoted to CEO in a relationship that, due to the dire financial position, has led to the Guardian's editorial and commercial teams working more closely than ever before.

Emphasising the “agility” that this arrangement brings, Pemsel says the approach is essential to maximising the value of reader relationships. “If you are going to put the reader at the heart of everything, you need to have a common data set and a common understanding of reader journey to know what parts of the site can be optimised to deliver reader relationships [and] reader revenue. You can't do that in silos.”

The break even strategy has been about saving money as well as making it. Viner and Pemsel have overseen a programme of deep cuts that has seen the loss of more than 300 posts. “It was incredibly tough but we have said that we will break even and we will,” he insists.

Converting readers into members

The strategic transition from reach to reader relationships is known within GMG’s building at King’s Cross in London as “anonymous to known”.

When the Guardian first announced its three-tier (rising to £60-a-month) membership scheme in late 2014, shortly before Rusbridger announced he would be standing down as editor, many of the paper’s rivals sniggered at its presumptions of reader loyalty. But while there have been errors – a plan to use a Grade II listed railway warehouse as an events hub was scrapped – the latest figures are a vindication of the idea, which gives members benefits such as exclusive emails and ad-free reading.

Pemsel has no compunction in using inclusive language such as “contributor” or “supporter” to encourage payments from readers who were once encouraged to expect free access to a publisher that would be funded by advertising. He notes that the “most transactional” publishers (think of News UK) are now using the term “member” in their marketing.

The largest group of Guardian members is, unsurprisingly, from the UK, although there is a sizeable cohort from the US. Pemsel is bullish about the prospect of making even more money from this scheme and from one-off donors. “We are at the foothills of genuinely exploring how far that strategy can take us,” he says. “We have got 160 million browsers at the top of our funnel and we are doing a lot of strategic analysis of our data to work out how many regulars we have, and on the conversion of the number of people we have got a paying relationship with. We have got a long way to go.”

He credits chief customer office Anna Bateson, and her predecessor David Magliano, with playing key roles in driving reader contributions. “In partnership with people in editorial, our data teams are now working out the most scientific way to optimise by article and by country and by genre, the most efficient way to be able to drive reader support,” he says.

The previous presence of Wikipedia founder Jimmy Wales on the Guardian’s board has helped to generate insights into how the online encyclopedia harnesses financial support from its user community. “It's interesting to listen to Jimmy’s vision of Wikipedia, and how they have worked out some incredibly technical and scientific ways to optimise for support. I'm not saying that we are replicating what Wikipedia are doing but that level of digital and analytical sophistication is now being worked through [here].”

Refining the appeal message

The Guardian is continuing to experiment with its financial appeal message – known internally as "the epic". “We are optimising that by article and within video and podcasts and are trialling how we optimise that off-platform,” Pemsel says. “That's just us getting really smart about understanding the triggers for getting people to contribute.”

These “triggers”, says the CEO, are often related to breaking news. “We are obviously very sensitive about not asking for contributions around content that is reporting on some of the horrors. But when there are news surges, whether that be announcements on Brexit or in the States around what’s happening to Trump, we can see spikes in our traffic and news articles that create levels of contribution.” He adds that the Guardian is looking to do more to “create our own moments” which might move readers to take action.

“I think we will explore the opportunity around articles. I can imagine some kind of product set that brings to life how one optimises certain parts of the site. I’m not going to lay out our product roadmap for the next six months but I do believe through our data understanding we will be able to create a set of products which will allow people to want to keep contributing.”

An early sign of the willingness of readers to donate money to support Guardian journalism came through a series in the US called “This Land is Your Land”, which highlighted the threat to America’s public land in journalism that was backed by over $114,000 in public donations. “The Defenders”, a newer international series on environmental activism produced with the NGO Global Witness, has also generated support from donors.

Although competitors have tried to suggest that Guardian US is a busted flush that underperformed at the last US election, Pemsel is clear that it remains central to GMG’s strategy. “We ended up having to halve the number of people in the US office but since then, as opposed to it being a financial drain on the business, this year it will make a positive contribution.”

Similarly, the paper’s Australian operation is seen as being suited to reader contributions. “We are very clear on our strategic agenda editorially over there because we are not just doing wide waterfront news, we are very [strong] on environment, indigenous people… there’s a whole theme out there which is quite specific and is driving reader contribution.”

As it pores over an audience of 160 million monthly browsers and around 9 million daily uniques, the Guardian will methodically look at ways to turn regular readers into financial supporters. “We are prepared to explore country by country because we know that audiences are slightly different from Australia to the US to here,” says Pemsel.

He is “agnostic” about whether readers give support as subscribers, members or donors. Either way, their data is valuable. “For every person that contributes we know more about them and that can be translated into a richness of understanding that advertisers can understand,” he says.

The Guardian's financial future

Pemsel is not shy about talking about making money. It is, after all, what he’s paid to do. At a business known for its liberal left values and its social conscience he takes home a salary and benefits package of £706,000.

Some Guardian readers might be uncomfortable at the thought of being “monetised” but equally they might count themselves fortunate to access the paper’s consistently outstanding journalism free of charge, which is no doubt why so many are bringing out their credit cards.

The CEO argues that its the Guardian’s unique ownership model, run by the Scott Trust, that is the key motivation for those who wish to support its journalism, particularly those making one-off donations. “We are a truly independent company, protected by a trust, and people feel compelled to make a re-occurring contribution with no reciprocal value exchange other than supporting the Guardian.”

When Viner and Pemsel drew up their three-year target to break even by April 2019, they didn’t realise that they were putting themselves on a similar timetable to Theresa May and David Davis in delivering a deal to leave the European Union. But much has happened in the world in the past 18 months, and the recent political turmoil speaks to the Guardian’s mission.

“When we launched this relationship strategy, Brexit wasn't known, the Trump situation was not known… and the fear generally about how the world is behaving right now, we didn't know that,” Pemsel says. “If anything, the break even aspiration and our purpose has become critical because the role of the Guardian, as with other quality news organisations, has become more important than ever.”

Ian Burrell's column, The News Business, is published on The Drum each Thursday. Follow Ian on Twitter @iburrell