The Guardian's audacious Aussie gamble

The Guardian's decision to send one of its most senior editorial executives to Australia to launch a digital edition of the UK masthead is curious.

You'd think Guardian News & Media, the publisher of The Guardian and The Observer which lost the sterling equivalent of more than $80 million last year and which is in the midst of an attempt to cut about $40 million out of its cost base before it burns through the non-media assets within the Scott Trust that sustains the media businesses, might have more urgent priorities.

Sometime later this year, however, Katharine Viner, deputy editor of The Guardian and regarded as the heir apparent to GNM's editor-in-chief Alan Rusbridger, will launch an Australian edition that will marry content produced by a "small" Australian team with the group's global content.

A key to the decision might be the announcement that Wotif founder Graeme Wood is to be a founding investor in the new enterprise, although The Guardian's own report said he would not hold any shares or be a member of the board. It said it understood he had invested with an expectation of making a commercial return.

That would make his involvement different to his relationship with his other media interest, the non-profit, public interest Global Mail website which has had some difficulty in attracting an audience and has been going through a traumatic restructuring.

Wood has committed to writing cheques for up to $15 million over five years to support the Global Mail but it might make financial sense to merge that product, and his commitment, into the new venture with GNM.

The Guardian may not be very successful commercially but it has very successfully built a global audience of 39 million unique users a month and it is the third-largest newspaper website in the world. It says it has 1.3 million of them in Australia, which is its fourth largest market.

There could well be an editorial opportunity for The Guardian, which has a left-of-centre editorial positioning, in this market.

Both Fairfax and News are undergoing massive restructurings that have led to an exodus of experienced staff and are weakening their editorial resources. News – also in the process of separating its newspaper and film and television operations globally – has begun charging for online access to The Australian and Herald-Sun and Fairfax is scheduled to do the same with The Sydney Morning Herald and The Age in the first quarter of this year.

The Guardian, with its model of free "open" journalism could exploit that shift to online subscriptions to build its Australian audiences at the incumbents' expense.

The Fairfax broadsheets, while perhaps left of News Ltd in their positioning, don't have the kind of coherent and consistent position of The Guardian and elements of their more affluent audiences – particularly in Melbourne – might be attracted to a new left-of-centre alternative.

One assumes that is one reason why Wood, who famously made the largest donation in Australian political history – $1.6 million to the Greens – became involved in the venture.

GNM would be very aware of how difficult it is to monetise online audiences, even in its home market. It is even more difficult to do that on a global basis – most advertising budgets, even those of multinationals, are framed for local markets and most decisions on placement are made locally.

It may be that GNM believes that a local presence could help build its digital advertising revenues (it is vehemently against paywalls) but there is a substantial amount of excess inventory in this market and yields are paltry.

If it were successful in shifting eyeballs from existing local sites to its own it is improbable that it could generate any yield premium over what it would be able to sell its existing inventory today, although it did make reference to "Wood and any future commercial partners" in its announcement, which could imply that it has a different model in mind to the cost-per-thousand views approach that dominates online advertising.

The again, GNM isn't the most commercial of organisations and hasn't needed to be, until relatively recently.

The Scott Trust's sole purpose is to fund the papers and protect their independence. It has been able to use Guardian Media Group's 50.1 per cent interest in the Trader Media auto classifieds group and other investments to fund the newspaper losses.

Its cash and investment portfolio is now, however, down to less than $350 million and it has been in discussions with its private equity partner in Trader Media, and others, about a sale of its shareholding that could raise about $1 billion to give The Guardian more time to maintain its current online strategy.

GNM has a much bigger online presence in the US than Australia and is in the middle of its second attempt to do there what it will now attempt here.

In 2007 GNM launched Guardian America but quietly folded it in 2009. In 2011 it tried again and, unlike its first foray, based the second around British staff, which suggests it came to the conclusion that foreign audiences, apart from wanting to know what's happening elsewhere in the world, are interested in an external perspective on their affairs rather than another version of their local media.

The Australian digital launch of The Guardian has the potential to be disruptive at a time when the existing traditional Australian newspaper groups have been destabilised and there is a cyclical advertising downturn superimposed on the accelerating structural changes to the media sector.

Its own losses and the state of the local industry make the economics of its launch questionable, but GNM does appear to be driven far more by editorial ambitions than commercial ones and Wood appears happy to give his money away to support left-leaning causes so that may not be as inhibiting an influence as one might normally expect.

News Corp is the parent company of News Ltd, owner of Business Spectator and Eureka Report.