Lessons from the blood-letting at The Guardian and the failure of Al Jazeera America

The cutbacks at The Guardian and the demise Al Jazeera America announced this month provide painful lessons that the news business is not just about providing news, but creating workable business models and gaining audiences who think their content is valuable.

The Guardian announced 20% budget  cuts (£50 million; $72 million) and stretched the credibility of corporate public relations by presenting them growth strategy. The news organization has been losing money for years in a digital strategy that can only be described as hoping to buy market share through aggressive international expansion, free content provision, and the belief that digital advertising would replace declining print advertising. The Guardian’s strategy was closely aligned to the discredited digital startup approach of considering the “burn rate” of its capital as a surrogate for prudent investment.

In announcing the changes, David Pemsel, The Guardian’s new chief executive, used trite popular business  language: “We need to be an agile, lean and responsive organisation that can respond at pace”. While reducing its losses and having a flexible organization are necessary, the firm will not be able slash its way to growth and will need to be more realistic about its future prospects.

Admitted, reducing costs is critical because The Guardian's activities have been supported by commercially viable non-news properties. Unfortunately, it has seen income from those properties dwindle and has been selling assets in a way that it can no longer expect to be bailed out for large losses in the future. However, projecting the cuts as a path to growth is fanciful.

Al Jazeera America was the best-funded startup cable and satellite television news channel in the US recent years after beginning operations in 2013. It announced its April 2016 shutdown, admitting its business model was not sustainable—a model that relied on subsidies from the Qatar government, whose wealth has been falling along with oil and natural gas prices.

The channel presented news in a sober manner that reflected non-US perspectives and won both acclaim and ridicule for its content.  Despite its $500 million initial investment, a staff of 700, and spending about $1.4 billion on operations, it reached only about 30,000 viewers and managed to attract less than $25 million in advertising during its operations.

The media business is alluring, but it is a crowded environment in which fickle audiences, befuddled advertisers, and rapacious service providers abound. Media must be able to critically analyze the environment, develop effective strategy and feasible business models, and provide content that differs from and is better than that of competitors. The Guardian and Al Jazeera America may have succeeded at the latter, but both let unrestrained optimism in the goodness of what they were doing keep them from accomplishing the other central business tasks.