Revolting Guardian journalists plot to wreck plan to offload The Observer

When The Guardian chose the tagline “not for sale” for its 2023 marketing campaign, bosses boasted that the motto highlighted the newspaper’s openness and independence.

But just a year later, the Left-leaning publication may be regretting the slogan as it prepares to sell The Observer, its Sunday title, to Tortoise, a venture capital-backed media startup.

For many industry watchers, the deal – which includes a pledge to invest £25m over the next five years – will bring a much-needed boost to Britain’s oldest Sunday newspaper, which has long been neglected by its parent company.

But internally, the news has been met with anger, as staff feel they have been left high and dry by bosses.

The prospect of a sale of The Observer to Tortoise – a media minnow that has racked up losses of £16.3m since its launch in 2018 to the end of 2022 – appears to many as something of a David-and-Goliath tale. Yet there is logic to the proposition.

A deal would bring together Tortoise’s slate of digital output, such as podcasts and newsletters, with the established brand and reach of an old-fashioned print newspaper.

For The Guardian, a sale would allow the newspaper’s hierarchy to focus solely on the daily core proposition while reaping the benefits of offloading roughly 70 employees and cutting Sunday printing costs.

However, employees are less happy.

Members of the National Union of Journalists (NUJ) say they have been blind-sided by the proposed deal, which was announced shortly after a round of voluntary redundancies came to an end.

At an emergency meeting on Wednesday, the union passed a vote of no confidence in the Scott Trust, the £1.2bn fund that owns the titles, accusing it of having “betrayed its principles and prior commitments”.

Central to the concerns is the prospect of moving from the stable ownership of an endowment set up almost a century ago, to the hands of a start-up founded by James Harding, a former BBC News director, in 2018.

Speaking on his Media Confidential podcast earlier this week, Alan Rusbridger, the former Guardian editor, said: “The Scott Trust offered to look after the Observer in perpetuity. So if you’re an Observer journalist and you think, ‘Here am I sitting with a cast-iron promise to look after the Observer and there’s £1.2bn behind me’ or ‘I’m going to go to James Harding’ ... They’re in a state of shock.”

Tortoise has launched a new funding round to raise investment for the deal, with bosses understood to have approached existing backers such as David Thomson, chairman of Thomson Reuters, as well as hedge fund Lansdowne Partners and venture capital investor LocalGlobe.

The media start-up also has links to other deep-pocketed investors. Earlier this year it secured funding for a new podcast – What’s Wrong with Democracy? – from the Open Society Foundations, a charity founded by George Soros.

For some Guardian staffers, the change of ownership could raise concerns about selling out to backers who prioritise profits over holding power to account.

“There’s a feeling that this isn’t what we do,” says one staff member. “We shouldn’t be selling ourselves down the river to money-grabbers.”

There are also concerns about a potential change of editorial direction.

Harding is understood to be particularly fond of The Observer’s arts and culture coverage, raising the prospect that the Sunday newspaper could be transformed into a weekly magazine.

“The Observer is already closer to a premium news and culture magazine than an all-encompassing newspaper,” says Douglas McCabe, the chief executive of Enders Analysis.

There is also confusion about how The Observer will be disentangled from The Guardian given the high levels of overlap between the publications in specialities such as sport, foreign and business coverage.

The NUJ raised concerns about how and if these departments will be recreated within the £25m investment plan. One senior industry source adds: “It feels to me like it hasn’t been very well thought through.”

Another potential sticking point in the deal could come from pension trustees, who are likely to baulk at the prospect of having their scheme backed by a loss-making startup rather than the deep-pocketed Scott Trust.

However, more broadly, the abrupt sale underscores wider financial challenges at The Guardian under Katharine Viner, the editor, and Anna Bateson, its chief executive.

The company burned through £37m last year as it invested heavily in the US and its new Europe edition. This came even as revenues fell 2.5pc to £257.8m.

The Guardian’s international expansion – particularly in the US and Australia – appears to be paying off, as does its strategy of asking for donations or encouraging readers to sign up for a £15 monthly subscription.

Overall digital reader revenue grew by 8pc to £88.2m last year, more than half of which came from outside the UK.

But these gains are being eclipsed by heavy spending as The Guardian continues to expand at home. The company employed 1,014 journalists in 2023, up from 860 in 2019, while staff costs increased by more than £30m over the same period.

In an attempt to trim costs, Ms Viner kicked off a voluntary redundancy round in May that saw a number of high-profile journalists part ways with the paper.

Bosses hope these measures will help to make cost savings of between 4pc and 5pc. Yet critics say this will do little to balance the books.

Instead, insiders accuse bosses of relying too much on the Scott Trust endowment to plug losses. In 2021, Annette Thomas stood down as chief executive of Guardian Media Group after little more than a year, following clashes with Ms Viner over how to manage the company’s finances.

Constant cycle of hiring and firing

Staff members talk of a constant cycle of hiring and firing rather than focusing on sustainable growth.

One insider describes it as “feast or famine every six months”, though they play down The Guardian’s financial troubles as a form of “genteel poverty”. The source adds: “It’s like having a big old mansion but you can’t pay to get the damp sorted out.”

Bosses at the newspaper insist there is no room for complacency. In a letter this week, Ole Jacob Sunde, the chairman of the Scott Trust, warned that the fund was “not there to fill gaps in annual operating budgets”, adding: “We still require The Guardian to be a sustainable business on its own terms – and we must be honest about areas of the business that are not part of our future growth and adapt.”

There are now indications that the top brass may be about to take a harder line. Further cost-cutting is expected, including the risk of more redundancies. If the sale of The Observer goes ahead, it will also intensify questions over how much longer The Guardian will maintain its print newspaper.

In the near term, though, such moves will only serve to exacerbate tensions with the union at a fraught time for staff. The NUJ has demanded an urgent meeting with bosses to discuss the proposed sale – a move that could fuel the risk of a strike.

Executives will be acutely aware of how damaging a staff revolt could be after concerns raised by Telegraph journalists played a significant role in derailing a planned takeover by UAE fund RedBird IMI.

As one Guardian employee puts it: “With the voluntary redundancies and The Observer sale, I think it’s a sign of just how bad things are.”