Michael Wolff

USA TODAY

As much as any newspaper in the world, Britain’s Guardian has been single-minded and aggressive in its belief that conversion to digital distribution and a digital identity was its future and, for that matter, the only future for any newspaper.

The costs of that conviction are now clear: The paper lost almost $120 million last year.

The Guardian has been something of an ultimate experiment in the migration from paper to digital publishing. The enterprise is supported by a trust set up in the 1930s by the Guardian’s founders, the Scott family from Manchester, wholly dedicated to the survival of the paper. While the trust envisioned providing the paper freedom from commercial pressure to let it practice unfettered journalism, the transition to digital is, in the estimation of the Guardian’s managers, the only path to journalism’s future — and a necessary cost, whatever it amounts to. (Disclosure: I’m a former contributor to the Guardian.)

In order to underwrite the costs of this transformation, most of the trust’s income-producing investments have been liquidated in recent years in order to keep cash on hand — more than a billion dollars.

In effect, the Guardian saw itself as departing the newspaper business and competing with new digital news providers like BuzzFeed and Vox and Vice Media, each raising ever-more capital from investors with which to finance their growth. The Guardian — unlike most other newspapers that are struggling to make it in the digital world without benefit of access to outside capital — could use the interest generated by its massive trust to indefinitely deficit-finance its growth. At a mere 4% return, that would mean it could lose more than $40 million a year and be no worse for wear.

On this budget it expanded to the U.S. and to Australia, built a vast traffic flow as the leading English-speaking, left-leaning news outlet, and won itself a Pulitzer Prize for obtaining and publishing documents stolen by former NSA contractor Edward Snowden.

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But the Guardian’s left-wing politics may have predicted its business acumen: The cost of digital growth mounted as digital advertising revenue declined. And with zero interest rates, there has been, practically speaking, no return on cash. Hence, the Guardian’s never-run-out endowment has plunged by more than 12% since the summer and, suddenly looking at a finite life cycle, the Guardian will now have to implement another transition: shrinking rather than expanding.

But beyond the Guardian’s own business clumsiness or bad luck, its losses point out a broader digital news reality: There is yet no foreseeable way to cover the costs of digital growth, and digital “success” is wholly measured by growth. Therefore, success is in some way a suicide pill. BuzzFeed and the other natives may be able to seek ever-more new investment — but, even for them, as in the Guardian’s actual accounting, losses at some point overwhelm available capital.

It is true that the Guardian might have lessened its losses, if, like The New York Times, it had implemented a paywall. But that not only ran counter to its own free-information ethos, the Guardian also believed paywalls would limit its ability to become a true native digital news competitor — and to reach the promised land of digital brand dominance and profitability.

In this, perhaps more than any other news organization, the Guardian was a true believer.

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All other newspapers faced with the inability of replacing lost paper-edition ad revenue with ever-lesser digital ad revenue have cut staff and costs. Big brand papers, such as the Financial Times, The Wall Street Journal and The Times of London, along with The New York Times, have put up paywalls. The native news organizations all hope, as has happened at The Huffington Post and Business Insider, to sell themselves to companies with deep pockets — that is, to pass the ultimate problem to someone else.

Only the Guardian stayed free, continuing to expand — adding almost 500 new employees — while remaining wholly dependent on its own resources in some kind of epochal and quixotic test of digital faith. (The Guardian rejected suggestions, for instance, that it seek investment partners for its U.S. expansion.)

At its current trajectory of growth and losses, the Guardian will, in an era of expected low interest rates, exhaust its billion-dollar patrimony in five years.

The Guardian’s public statements about its unexpected and outsize losses — rather sounding as if they had been written as a parody in the British satirical magazine Private Eye — reflect a shell-shocked sense of absolute certainty suddenly confronted by overwhelming evidence to the contrary. It will somehow cut 20% of its costs, but it will continue its commitment to and its investment in digital growth; it will not implement a paywall, but it will somehow encourage people to pay it fees; it might put its luxe North London headquarters up for sale, but it might not; and it will break even, really, somehow, in three years. Promise.

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The reality is that the Guardian’s future is almost entirely dependent on advertising revenue in a medium where the price of a view heads inexorably to an increment hardly above zero. But the hope remains that, in ways yet to be imagined, some innovation will make large profits suddenly possible. Within three years.

In a way, the Guardian is the purest play in digital news and advertising, rather to digital what Cuba has been to socialism. Its likely path to cutting costs will be to double down on digital and abandon its print business, which, while it does not lose as much money as its digital side, yet has more costs. In some continuing negotiation with obsolescence, while the paper will not make more, it will try to lose less.

Anyway, in the Guardian, the dream that so many of us have had of free information, unlimited audiences and a sustaining new business model, whatever that might be, probably comes to an end.