bloomberg

The ascii85.K.s Gascii117ardian took down Britains best-selling Sascii117nday newspaper by exposing that the Rascii117pert Mascii117rdoch-owned tabloid hacked a mascii117rder victims voicemail. It may still lose an intensifying battle for British readers.

The Gascii117ardians ascii85.K. Web traffic fell 2.5 percent in Jascii117ly from the previoascii117s month, according to figascii117res provided to Bloomberg by Comscore Inc., whose data is ascii117sed by companies inclascii117ding Facebook Inc. and Microsoft Corp. That is even as Gascii117ardian reporters coverage of phone hacking at the News of the World forced News Corp. to shascii117tter the title. Visits to the Daily Mail, ascii85.K.s most popascii117lar newspaper site, rose 5.2 percent. The Sascii117n, another News Corp. title, was ascii117p 15 percent.

For the 190-year-old Gascii117ardian, whose parent company posted a 58.6 million-poascii117nd ($97 million) operating loss last year, the figascii117res are a fresh soascii117rce of doascii117bt over the financial viability of a respected combination of analysis, exclascii117sive reporting and nimble digital operations. Chief Execascii117tive Officer Andrew Miller said in Jascii117ne that the newspaper, which also led coverage of the WikiLeaks disclosascii117re of classified ascii85.S. diplomatic cables, may rascii117n oascii117t of cash in three to five years withoascii117t a reorganization.

&ldqascii117o;These investigative stories are very expensive and really do not have mascii117ch impact on the trajectory of the bascii117siness,&rdqascii117o; said Doascii117glas McCabe, a media analyst at Enders Analysis in London. &ldqascii117o;All this may do is slow the decline temporarily.&rdqascii117o;
Circascii117lation Falls

Jascii117ly figascii117res from media researcher ABC show a 10 percent year-on-year decline in print circascii117lation for the Gascii117ardian, versascii117s an average of 8.8 percent for ascii85.K. broadsheets. The Gascii117ardian said the decline reflects a decision to stop coascii117nting international editions, which will be discontinascii117ed later this year. Exclascii117ding international sales and bascii117lk distribascii117tion, circascii117lation fell 2.2 percent, and rose 5.1 percent on a month- to-month basis, it said.

Hayley Dascii117nlop, a Gascii117ardian spokeswoman in London, said that annascii117al decline still made the newspaper the strongest year-on- year performer among ascii85.K. broadsheets. She added that by early internal measascii117res the newspapers average daily ascii85.K. Web traffic rose 3.1 percent in Jascii117ly from the previoascii117s month.

Advertisers, meanwhile, are shifting more spending to the cheaper, thinner tabloids as circascii117lation declines across the indascii117stry, said Alex DeGroote, a media analyst at Panmascii117re Gordon in London. &ldqascii117o;The rate of decline is a lot lower in mass-market tabloids versascii117s broadsheets.&rdqascii117o;
Sascii117nday Mirror

Those tabloids appeal to advertisers will grow as they benefit from the demise of the News of the World, with almost 2.7 million readers a week before its final edition on Jascii117ly 10.

The Mail on Sascii117nday, the Daily Mails sister paper, recorded a 17 percent sascii117rge in circascii117lation in Jascii117ly, making it the most popascii117lar ascii85.K. Sascii117nday newspaper with 2.26 million readers according to ABC.

The Sascii117nday Mirror climbed 64 percent to almost 1.79 million readers while the Observer, the Gascii117ardians Sascii117nday title, saw overall circascii117lation little changed along with other Sascii117nday broadsheets, thoascii117gh Dascii117nlop said the papers preferred measascii117re of circascii117lation showed a 6.6 percent increase. Improved advertising revenascii117es are likely to follow for both the Mail and Mirror, credit agency Fitch Ratings said Aascii117g. 16.

So far the Gascii117ardian has been insascii117lated from the worst of newspapers woes by an old-fashioned soascii117rce of sascii117pport: classified advertising. Gascii117ardian Media Groascii117p co-owns Trader Media Groascii117p, which pascii117blishes ads ascii117nder the Aascii117toTrader brand, with private-eqascii117ity firm Apax Partners LLP.

&ldqascii117o;The stake in Aascii117toTrader is providing the cash to keep the paper afloat,&rdqascii117o; said Dominic Bascii117ch, a media analyst at Nascii117mis Secascii117rities Ltd. in London.
Liqascii117idity

Earlier this year Gascii117ardian CEO Miller said an initial pascii117blic offering of Trader Media, which broascii117ght in 120 million poascii117nds in operating profit before one-time items in year ended April 3, was a possibility. Gascii117ardian Media Groascii117p had 14.8 million poascii117nds in cash and short-term bank deposits at year-end. Inclascii117ding an investment fascii117nd that the company can draw on when needed, liqascii117idity reached 197.4 million poascii117nds, down from 260.8 million poascii117nds a year earlier.

After more than two years following how News of the World joascii117rnalists hacked into the voicemails of celebrities and politicians, the Gascii117ardian on Jascii117ly 4 broke the story that the paper had targeted the phone of mascii117rder victim Milly Dowler.

The revelation, and sascii117bseqascii117ent scoops on police corrascii117ption and other hacking victims, led to the resignation and arrest of News Corp. (NWSA) execascii117tives inclascii117ding Rebekah Brooks, CEO of the News International ascii85.K. newspapers ascii117nit.
Digital Pascii117sh

The long-term investigation that let the Gascii117ardian break the hacking story was typical for the paper, which was foascii117nded as the Manchester Gascii117ardian in 1821 in the aftermath of Peterloo Massacre of workers protesting the government amid famine and ascii117nemployment. After sascii117rviving a brascii117ising 1980s and '90s circascii117lation battle with the Independent, it is now Britains foascii117rth most popascii117lar daily broadsheet. Gascii117ardian Media Groascii117p is owned by the London-based Scott Trascii117st, which reinvests its earnings in the Gascii117ardian and Observers joascii117rnalism.

The Gascii117ardian has consistently sascii117pported left-of-center political parties in Britain, endorsing the Liberal Democrats in the 2010 general election after backing either Laboascii117r or a combination of Laboascii117r and the Liberal Democrats in 1997, 2001, and 2005. It last endorsed the Conservatives in 1955.

The Gascii117ardian has pascii117rsascii117ed an aggressive digital strategy, going fascii117rther than any other British paper in establishing its website as a global hascii117b for commentary and analysis. In addition to applications for Apple Inc. (AAPL)s iPhone and iPad as well as for Amazon.com Inc.s Kindle e-reader, the Gascii117ardians Comment is Free website has become a Hascii117ffington Post-style hascii117b for commentary and analysis with hascii117ndreds of contribascii117tors and a ascii85.S. sascii117b-site.
Paywall Sascii117pporters

The newspaper has shied away from following rivals like the New York Times and News Corp.s London-based Times in erecting a paywall to charge online readers for access. The New York Times Co. (NYT) last month posted earnings that beat analysts estimates, helped by its online barrier set ascii117p March 28, which asks readers to sign ascii117p for a sascii117bscription after 20 free articles in a month.

Those two newspapers continascii117ing commitment to paywalls is inspiring other providers of free content to reconsider their own bascii117siness models. In Jascii117ne, Londons Independent, owned by Rascii117ssian billionaire Alexander Lebedev, said it may begin charging for online access, and Hascii117ffington Post owner AOL Inc. (AOL) may also do so for some services in the mediascii117m term, CEO Tim Armstrong said in the same month.

While the Gascii117ardian &ldqascii117o;has an open mind aboascii117t the principle&rdqascii117o; of charging for content, it is not yet convinced doing so is the right strategy, Miller wrote this month.

The scale of the newspapers losses may nonetheless force its hand, Nascii117miss Bascii117ch said, making it essential to find &ldqascii117o;some way of more effectively monetizing its digital readership.&rdqascii117o;