These are heady days for the Guardian and its editor, Alan Rusbridger. The News of the World, once the highest-circulation Sunday newspaper in the English-speaking world, is dead. Its proprietor, Rupert Murdoch, whose support was so assiduously sought by every prime minister for more than 30 years, is all but defeated, with some of his leading former executives facing criminal charges and his attempt to tighten his grip on the British television market decisively repelled. The entire system of press regulation faces drastic reform. Cabinet ministers and even David Cameron could yet be forced from office.

All of this is the outcome of the Guardian’s dogged pursuit of phone-hacking, an offence that was at first dismissed by police, politicians, most rival newspapers, the industry’s watchdog and even some of the paper’s own journalists as small-scale and trivial. Not since Harold Evans’s 1970s heyday, when the Sunday Times pursued the thalidomide scandal, has a newspaper investigation enjoyed such success and received such plaudits. For Rusbridger, who backed Nick Davies, the reporter who exposed the hacking scandal, it is a triumphant vindication, the crowning achievement of his 17-year career as editor.

Yet there is another side to the Rusbridger story, and to the Guardian’s. The newspaper, its Sunday sister, the Observer, and their digital operations recorded operating losses (before tax and exceptional items) of nearly £37m in the year to April 2011, up from £32.5m the previous year. A still bigger loss is expected to be announced for 2011-2012. Andrew Miller, chief executive of the paper’s parent company, Guar­dian Media Group, warned staff in 2011 that the company “could run out of cash in three to five years” and repeated in February this year that the financial position was “not sustainable”.

Thanks to technological change and a prolonged recession, all newspapers face falling sales, declining revenues and an uncertain future. The Guardian’s position, however, is unusually critical. Its chief source of advertising income – public-sector job vacancies – has collapsed, wiping out an annual £40m in revenue.

The Guardian has no rich proprietor, willing to pour in money until corners are turned and times improve. Nor does it have conventional shareholders, ready to provide capital on promises of future growth. Alone among UK newspapers, it is owned by a trust, set up in 1936, partly to avoid death duties, by the sons of its recently deceased owner and longest-serving editor, C P Scott. The Scott Trust is the Guar­dian’s guardian, charged not only with ensuring that the paper is “conducted in the future on the same lines and in same spirit as heretofore” (in other words, continuing the radical, albeit moderate, editorial approach that dates back to the Guardian’s foundation in Manchester in 1821) but also with securing its financial position “in perpetuity”.

As the Guardian itself has rarely been profitable, it depends on the trust to ensure its survival. For 75 years, by transferring profits from other assets managed by GMG – particularly the Manchester Evening News and the Auto Trader motoring magazines – the trust has kept the Guardian alive, though sometimes only just. In the past seven years, however, the trust and GMG have made a series of decisions that, some critics say, threaten to deprive the Guardian of its lifeline. At a time when the paper most needs sustenance, the trust’s capacity to continue covering its losses is in doubt.

Most editors play little role in company business. Rusbridger, however, sits not only on the board of Guardian News & Media, which runs the Guardian, the Observer and their digital operations, but also on the GMG and Scott Trust boards. He is therefore in an unusually strong position to drive through his ideas and press his case for resources. The Guardian – once described as the only institution accountable to a ghost – allows the editor extraordinary power and freedom. Because the purpose is not to make profit but to protect the paper’s soul, the editor sets the agenda. The trust is criticised in some quarters as a weak vehicle of accoun­tability, because about half of its members are journalists and lawyers who are (or have been) actively associated with the paper. “What Alan wants, Alan gets,” I was told, separately, by one former and one present member of the Scott Trust.

If the hacking investigation is Rusbridger’s finest achievement as Guardian editor, his success in establishing the paper’s online brand must rank a very close second. A self-confessed geek from an early age – he was a teenage photography enthusiast and used a Tandy, an early personal computer, to write his copy in the early 1980s – he recognised sooner than other Fleet Street editors how the worldwide web would transform journalism. The Guardian established a user-friendly website, investing £3m to launch it within two years of Rusbridger’s accession to the editorship in 1995. It moved quickly to exploit the possibilities of Web 2.0 (or social media), encouraging readers to engage in dialogue both with journalists and with each other and, eventually, to enhance the core editorial product. In four years out of the five up to 2009, it was declared the world’s best newspaper website in the online equivalent of the Oscars.

Today, the Guardian – still a lowly ninth in the league table of daily UK print circulation, lagging behind the Times and Telegraph – is an international brand, the fifth most read newspaper website in the world. According to unaudited figures, it is now read, in print and online, by 5.3 million people a week, a reach of which C P Scott could only have dreamed.

But again there is another side to the story: the vast majority of those readers do not pay. Although Rusbridger insists that his mind is not closed to charging for online access, his missionary enthusiasm for journalism on the web – some staff compare him to a leader of a religious cult – would make any decision to put up a paywall almost as sensational as the Pope renouncing the Virgin Birth. He says the Guar­dian is now “a digital company” that also publishes a newspaper. He and senior management executives believe that, in the not very distant future, the Guardian and other newspapers may cease, at least on weekdays, to publish in print at all. Yet the printed Guardian and Observer still generate 75 per cent of the revenue and nobody is sure that website advertising and other digital income – which, under GMG’s business plan, must double to £91m by 2016 – can replace them, particularly as a left-liberal brand is an uneasy host to much consumer advertising. Meanwhile, the revenue-generating print circulation continues to shrink, to about 215,000 this year against nearly 400,000 in 2006. As his critics see it, the Guardian’s editor has painted himself and his paper into a corner from which neither may ever emerge.

Rusbridger has some claim (always excepting C P Scott) to be the Guardian’s greatest editor. But will he also be its last? Now acclaimed as a hero, will he turn out to be the Guardian’s nemesis, unable to ensure that it continues “as heretofore”?

The Guardian's Open Weekend in March 2012 was intended to bring its readers closer.

We meet in his spacious office at the paper’s smart new building just north of King’s Cross Station, London. Tall and owlish, he has a reputation for inscrutability. As we talk, for more than two hours, he often runs his hands through a full head of floppy hair, and when we discuss newspaper audiences or the future of journalism, he pauses to sketch diagrams by way of illustration. There is charm and, according to Guardian staff members, great kindness and generosity, but also distance and even coldness. He is, says Roger Alton, a former Observer editor and close colleague of Rusbridger’s now at the Times, “admired, but not hugely loved”. His manner is diffident, his sentences are frequently left unfinished. He seems almost eerily calm and rarely shows emotion. He doesn’t believe, he tells me, that he is “burningly ambitious”, but most people, including his children, think he is.

He is, Alton says, an “adroit player” in office politics. “People who don’t see his ruthless side aren’t getting him right,” another ex-colleague told me. “There’s a steely side to his nature.” The Observer – inevitably a rival of the Guar­dian’s for resources – lost (or divested itself of) four editors while Rusbridger remained in post, a sure sign of an editor who wins his internal battles. Christopher South, a former news editor of Rusbridger’s first paper, the Cambridge Evening News, recalled the young reporter’s first scoop: an exposé of the founder of an orchestra in which Rusbridger played. “He had an ethical dilemma. Did he write a bloody good story or upset his friends? He chose the first. He’s ferociously loyal to friends – he still turns out for reunions – but he will ditch them if he thinks it’s the right thing to do.”

He has a wider hinterland than most Fleet Street editors; he has written children’s books, co-written a TV play on the dangers of GM crops, and completed a not very successful Concise History of the Sex Manual. He once planned to write a book on the sociology of golf clubs, golf being a sport he plays, off a high handicap, very occasionally. His greatest passion is music; as a child, he was a chorister at Guildford Cathedral Choir School before winning a musical exhibition to the fee-charging Cranleigh School in Surrey. He still plays the piano, sometimes in public – he paid £28,000 for a grand piano – and is writing a book about performing Chopin.

He is not the kind of editor who would be invited to appear on the BBC’s Question Time panel, nor would he want to be. Though he is assumed to share the values (or prejudices) of metropolitan left-liberals, he doesn’t often venture a political opinion. While reading English at Magdalene College, Cambridge, in the early 1970s, he worked on the Surrey Advertiser during vacations and contributed (for £5 fees) to the Cambridge Evening News, but did not join the university paper because, he says, it was too political.

When I asked him to define his political position, he described himself as “progressive”, a label also claimed, as I pointed out, by the Daily Mail columnist Melanie Phillips. “At leader conferences,” as the former Guardian leader writer David Walker recalls, “he sits there like a Buddha and you aren’t sure whether he is interested or even paying attention.”

Rusbridger was born in what was then Northern Rhodesia (now Zambia), where his father was a colonial civil servant. The family later moved to Tanganyika (now Tanzania) before moving home to England when Rusbridger was six. He went to a state primary school, but failed the eleven-plus. “I was not very bright,” he says. Though he took an Upper Second at Cambridge and, contemporaries observed, looked like an academic, he did not take to academic life. “Writing about Ezra Pound was not my bag.” When he joined the Cambridge Evening News, “I felt, for the first time in my life, like a duck in water.” He made it to the Guardian within three years. South was un­surprised. “The appearance and manner were deceptive. He was nitty-gritty, good on detail, astute, perceptive and energetic. But to be honest, I didn’t think he’d have the grit to become a national editor.”

The Guardian of today is almost entirely Rusbridger’s creation. Not in the sense that he strides around the office in the style of the Daily Mail editor, Paul Dacre, issuing orders, remaking front pages and dictating captions – on the contrary, his style is unusually light-touch and relaxed. Rather, he has recruited and promoted, with a few exceptions, people much like himself (or who have become so): urbane, metrocentric, cosmopolitan, cool, gently ironic, contemporary (some would say modish), culturally eclectic, and middle-class. “On the Guardian,” said a veteran staff member, “even the black girls are called Emma.” Another long-serving reporter said: “Alan is good on race, but not so good on class. He sometimes seems nervous about exposing rough edges to the great and good.”

There is a distinctly knowing and superior Guardian tone, which always infuriates the right and sometimes the more traditional left, too. Alone among British newspapers, it has contributed a noun to the English language – Guardianista – and although a precise definition is elusive everybody knows what is meant.

The paper once had a more ascetic image: the typical reader, it was said, was a provincial schoolteacher who wore sandals, ate muesli and went on camping holidays in the Lake District. In the late 1980s, Rusbridger made his first attempts to broaden its appeal. His previous career comprised reporting, feature-writing and diary-writing on the Guardian and brief spells as the Observer’s TV critic – “an incredibly third-hand experience, sitting at home watching TV the whole time” – as well as Washington correspondent for the short-lived London Daily News. Though he was regarded as a rising Fleet Street star, he had never edited even a parish magazine. But the newly launched Independent was eating into the Guardian’s circu­lation and making a particular impact with its magazine, published on Saturdays, historically a day of thin newspapers and low circulation. The then editor, Peter Preston, chose Rusbridger to launch and edit a rival because, says Ian Mayes, who was appointed Rusbridger’s deputy and is now writing the latest volume of the Guardian’s history, “he wanted someone fresh who would think about everything in a completely different way”.

The answer was a black-and-white tabloid, launched at the Institute of Contemporary Arts off Trafalgar Square in London. Rusbridger made a dramatic statement of intent: the lead feature for the first issue concerned a nudist colony in the south of France, illustrated by a cover photo of the author (the late Richard Boston) lounging in a deckchair, naked. It was immediately denounced by many readers and staff as vulgar and downmarket. The section also contained what is now called consumer journalism. “Before then, the Guardian had never really done what you might eat or dress in or where you might go on holiday,” Rusbridger says. The new section’s enemies called it “the comic” and its office “the sandpit”. Even Mayes concedes that “there was sometimes an unbearable lightness of being”.

Others took a harsher view. They included the very left-wing Richard Gott, a historian of Latin America who was then features editor. He recalls: “I thought him very, very middlebrow. He had no political interests of any kind. When he was a writer, I asked him to investigate Amnesty
International and where it got its funding. He came back with a wishy-washy piece that had nothing about its funding. He went to New Zealand when it was in the throes of Rogernomics [Thatcherite policies introduced by Roger Douglas, a Labour finance minister]. He rang up and said there was a Gay Pride march on. That was his level of interest in things.”

Today Rusbridger says there was “a battle for the soul of the Guardian” (“but perhaps there is always a battle for the soul of the Guardian”, he adds), in which staff would earnestly question whether the news pages should report the deaths of pop music stars. But he had the wind behind him, particularly when the Saturday circulation rose by 40,000. He succeeded Gott as features editor and his next big project was to launch G2.

On weekdays, the Guardian then ran weekly supplements on media, education and society. They were packed with job ads and attracted large and loyal followings. Research suggested they were also a turnoff, however, driving readers away on days when their own area of interest wasn’t featured. Preston wanted a third section of more general interest, which would attract readers every day. The tabloid G2 was the answer.

From the start, the section established a distinctive tone and style, typified on the opening spread by the tongue-in-cheek Pass Notes, an idea borrowed from the short-lived and by then defunct Sunday Correspondent. It announced itself as a briefing “for those whose commitments do not permit them to involve themselves in current affairs as fully as they might wish”. But this time, Rusbridger made a dramatic statement of a different sort, aimed at his critics. He sent a reporter to war-ravaged Sarajevo for the first issue and put a picture of a graveyard on the cover. “I wanted to show that this section could be a vehicle for extended reportage. But there were still people who looked at it and said: ‘That’s it, the Guardian has lost its soul’ and I was a terrible lightweight.”

Two years later, Rusbridger was appointed Preston’s deputy and, a year after that, he succeeded, as everyone by then expected, to the editorship. He was Preston’s choice and the Scott Trust’s choice but, perhaps more significantly, he was also the staff’s choice, comfortably topping a poll (not binding on the trust, but highly influential) against three other candidates. “There was general rejoicing at his appointment,” Mayes says.

Yet the battles over Guardian Weekend and G2 had left their mark. “He had felt quite beleaguered,” recalled Jonathan Fenby, a senior colleague at the time, later Observer editor. “He knew that some people were waiting for him to fall flat on his face.” Rusbridger, though never vindictive or vengeful, can be sensitive to criticism. Mayes recalls a rare moment of visible anger when, at an editorial conference, the literary editor held up two books, one distinctly downmarket, the other upmarket, and, indicating the former, said: “I suppose we’d better lead on that.” Another former colleague said: “He prefers courtiers to critics.”

The “too downmarket” charge lingered on into his editorship. Will Self described the Guardian in 2001 as “a tabloid-broadsheet, a Daily Mail for the dumbed-down and deracinated”. Today the charge is rarely heard. Rather, the Guardian is sometimes criticised for being too high-minded, too much like an English version of the New York Times or Washington Post. Its editor is more comfortable with those criticisms. During his brief sojourn in Washington in the mid-1980s, he was impressed by how seriously American papers approached journalism, and his introduction of a readers’ editor (or ombudsman) and a corrections and clarifications column, both novelties in Britain, was the direct result of his experience in the US.

What silenced Rusbridger’s critics more than anything else, however, was his record on backing investigative journalism, and his coolness under legal fire. Early in his editorship, the Tory cabinet minister Jonathan Aitken sued the paper, along with Granada Television, over an allegation originating from an investigation launched by Preston. The Guardian was on the brink of losing the case, with potentially disastrous consequences for its reputation and finances, when it produced incontrovertible evidence that the allegation was true. Aitken ended up in jail.

Several other high-profile investigations followed, all involving the rich, well-connected and powerful (the Tory MP Neil Hamilton, Tesco, the police drugs squad in Stoke Newington, Barclays Bank, the multinational metals and energy company Trafigura and, most recently, News International), all entailing legal risks and nearly all ending in triumph and vindication. Though Rusbridger generally confines his expression of his personal opinions to media and sometimes civil liberties matters (“He doesn’t like politicians at all, but he likes lawyers; the law gives him an intellectual hard-on,” a senior Guardian journalist told me), nobody can now doubt his engagement with serious political (small “p”) issues.

Gott, who left the Guardian in 1994, remained among Rusbridger’s fiercest critics at least until the early 2000s, remarking in the New Statesman that “he leaves a lurking suspicion” that he might have preferred to edit the Spectator. (When I quoted this to Rusbridger, he bristled visibly for the only time in our talk.) Yet evenn he has changed his mind. “In retrospect,” Gott says now, “what happened in the late 1980s was a changing of the guard from people interested in politics to people interested in culture. Rusbridger’s not politically engaged, but nobody else is, since it doesn’t make any difference who’s running the country. He has been very successful at retaining a Guardian persona that keeps in touch with the zeitgeist.”

Alan Rusbridger in his office at Kings' Place, North London.

The Guardian’s current crisis has partially revived criticisms of the editor. “He’s driving the thing at high speed towards a brick wall,” was the verdict of one recently departed staff member. Low-level grumbling pervades the Guardian offices about a range of issues, which are widely attributed to Rusbridger’s hubristic visions for the Guardian and himself. Was it really necessary to leave the offices in Farringdon Road, owned by GMG, for rented accommodation in a spanking new building just north of King’s Cross? Why were seven radio studios built for audio podcasts?

Is the commercialisation of the paper, with the advertising department sometimes commissioning what appears to be editorial content, going too far? Should the company have 35 staff across the Atlantic working on a Guardian America website? Is the Observer – threatened with closure in 2009 in favour of a Guardian on Sunday, but then reprieved – being unjustly treated as a poor relation?

The biggest staff gripes, however, concern four other subjects. The first is Rusbridger’s remuneration, given in the latest annual report as £439,000 for 2010-2011 (restoring his 2008-2009 pay, before a voluntary 10 per cent cut) plus £16,000 benefits in kind, and £150,000 paid into his pension. In April, however, he took another, and he says permanent, cut of 10 per cent in salary and the pension payment has been halved. His salary is modest compared to the £1.725m (down from £2.8m in 2010) paid to Paul Dacre, the Mail editor, whose longevity slightly exceeds Rusbridger’s. The Sunday Times’s John Witherow, appointed editor in the same year as Rusbridger, almost certainly takes home about twice as much, though no official figure is published, because he is not a company director. But staff members look askance at the editor’s emoluments, and those of other senior managers, when their salaries are barely keeping up with inflation and, after staff reductions, mainly through voluntary redundancies, their workloads increasing. "They are by far the most controversial things in the organisation,” said one journalist. Some staff argue that high executive rewards sit uneasily with the paper’s frequent broadsides against “fat cats” (which can also be found, it is fair to add, in Dacre’s Daily Mail).

They take a similar view on a second subject of contention, of no importance to the paper’s future but also hard to reconcile with its editorial positioning: the Guardian’s employment, initially on work experience, of Rusbridger’s daughter Isabella. Rusbridger says: “I didn’t give her a job. She came and did work experience. Georgina [Henry, his former deputy, now head of the website] liked her and suggested she apply for a job. She’s since been promoted and I’ve nothing whatever to do with it.” To further questions, he will only say: “I don’t want ever to talk about my family.”

A third subject is more significant. In 2004, the Guardian’s contract with Richard Des­mond, the Express proprietor, to print the paper on his West Ferry presses in south London was nearing its end. The contract could have been renewed, but the presses were largely outdated, lacking colour and stapling equipment, for example, and Desmond was hardly an ideal partner. At the same time, broadsheet newspapers were going out of fashion: both the Independent and the Times had gone tabloid (or “compact”, as they preferred to call it) and, initially at least, they had been rewarded with circulation increases.

Rusbridger thought the Guardian should also change its format, but not to tabloid. First, the paper was then so full of recruitment ads that, some days, it would have had to print an unwieldy tabloid of more than 200 pages, defeating what was supposed to be the format’s main advantage, its convenience on public transport. Second, both of the Guardian’s rivals had adopted not only a tabloid format but, in some respects, a tabloid presentation. The Independent in particular had announced itself as a “viewspaper”, running what Rusbridger describes as “loud, impactful, grabby, single-issue front pages”. The Guardian should not, he thought, be lured into fighting on the same ground. It should move in the opposite direction, toning down its typography and putting at least two or three and sometimes four stories on the front. He favoured the Berliner format (bigger than a tabloid, smaller than a broadsheet), which was entirely new to the UK but widely used on the Continent, mainly by upmarket papers such as Le Monde in France and La Repubblica in Italy.

The editor once accused of being downmarket and vulgar was now, therefore, going sharply upmarket. Since the Independent had moved to the left and the Times, under Rupert Murdoch, to the right, he also saw an opportunity to occupy a vacant centre ground. The Guardian, though still of the left, would be a broader church and would give you the news straight. To show that the paper was moving out of its left-wing niche, Rusbridger recruited the former Times editor Simon Jenkins and the former Telegraph editor Max Hastings as columnists.

After the Berliner launch in September 2005, circulation rose for a while, just as it had done for the Guardian’s rivals when they went tab­loid. The new paper was a critical success: Sir Peregrine Worsthorne, the High Tory former Sunday Telegraph editor, announced himself a Guardian convert. Then circulation fell back to previous levels, just as it did on the rivals.

As no other means of printing the Berliner format in the UK existed, the company spent at least £80m (some analysts reckon the cost was more than £100m) on two new presses, one of which is now standing idle. The Guardian doesn’t need it and is never likely to, and it has found no takers for contract printing. Though the Guardian and Observer enjoyed a two-year advertising benefit from being the only papers then in full colour, the Berliner now seems, to many critics, a disastrous and wasteful mistake, particularly in the light of Rusbridger’s subsequent announcements of a “digital first” policy for the Guardian. True, other newspaper companies, notably News International, spent far more on new presses which are also now idle, but as one critic put it, “they have not announced that print is dead”.

The fourth area of contention – “giving away our content free”, as one staff member put it – is by far the greatest. Rusbridger is an evangelist for what he calls “open journalism”. Putting content behind a paywall, he argues, not only reduces the visibility, reach and influence of your paper, it also leads to inferior journalism. Readers themselves can provide stories, ideas and information, and they are clamouring to do so. They will go elsewhere if they cannot easily connect with you. Besides, journalists are no longer accepted, if they ever were, as special figures of authority.

“It’s better journalism,” Rusbridger says, “if, as well as Michael Billington [the Guardian’s theatre critic], you can harness the views and judgements of 800 other people in the audience at the same time. Is the same true of science, foreign, investigative reporting? The answer, I think, is always yes.
“In environment, we’ve created a network of experts who are very happy to sit on the Guardian website because they get international exposure. We get a more comprehensive account of environmental matters, they get a bigger audience, and we share the revenue. It’s a kind of mutualised relationship.” Mutuality, he suggests, could be the model for journalism’s future. “If you build a complete paywall around your content, you’re saying you’re not interested in that sort of journalism . . . When you’ve been to a digital conference in New York, you come away thinking that newspapers are lucky to be in this game at all.”

As he put it in a lecture in 2010, many readers, particularly young ones, want “to make their own judgments, express their own priorities, create their own content, articulate their own views, learn from their peers as much as from traditional sources of authority”. In another lecture, he said: “I am sometimes giddy with the possibilities new technologies offer us . . . for being embedded in the most astonishing network of information the world has ever seen or could ever have imagined”. To illustrate his argument, he noted how witnesses’ digital records helped the Guardian expose the police’s role in the death of Ian Tomlinson during the 2009 G20 protests in London: “old-fashioned reporting was allied with the mass observation of people we wouldn’t call reporters but who were, on the day, able to do acts of journalism”.

Though Rusbridger’s critics acknowledge there is truth in what he says, they contend that his stance sounds too dogmatic, too un-nuanced. “If they put Media Guardian behind a paywall, and charged, say, £4 a week,” said Ben Fenton, a media expert at the Financial Times, “probably 20,000 people around the world would need to pay for access, giving them £4m a year. It’s the kind of small increment needed to bring losses down to a sustainable level. They could do the same for their coverage of the law, and a significant part of the legal profession would probably pay.”

Guardian sources dispute such figures but concede that charging for access to some of the specialist sections on its website is highly likely, sooner or later. Rusbridger is always careful to say that he opposes only “universal charging”, and the company already charges, for example, £9.99 a month for its iPad version. But so far the sums, discussed at board level earlier this year, don’t stack up. At best, I was told, the company would net £5m annually from online charging, not enough to keep the Guardian and Observer in business indefinitely but jeopardising their chances of a significant breakthrough in other sources of revenue from the web. If, for example, the website’s American traffic reached 40 million, it would make it on to the schedules of major advertising agencies.

The evidence is mixed, moreover, that limiting website access would do anything to boost print circulation. Despite its paywall and a cover price 20p lower than its rival’s, the Times’s circulation has, if anything, dropped slightly more than the Guardian’s since 2006 and has not dropped significantly less since the paywall went up in 2010. Though the Observer, which has lost more than half its circulation, has dropped much further than the Sunday Times since 2006, the gap between the two papers has narrowed since the latter went behind the online paywall.

So, the Guardian is caught in a position where revenue from old technology is falling fast but revenue from new technology is not rising quickly enough to replace it – and nobody can be sure that it will ever do so. In Rusbridger’s mind, there is only one certainty: if a newspaper doesn’t commit fully to the digital future, it will miss the rescue boat, if the boat ever arrives.

You can say the Guardian is in a “transitional period”. More pessimistically, you can say it is in a potential death trap. Either way, it needs cash to tide it over. But can the Scott Trust provide this?

In 2006, the trust decided to diversify its assets. It had earlier sold its regional newspapers, once cash cows but latterly in steep decline, as well as its interests in television. Despite radio investments, Trader Media Group, Auto Trader’s parent company, was by far its most valuable asset, worth an estimated £1bn. It provided annual cash operating profits of around £120m. But the trust thought it unwise to keep so many of its eggs in one basket. Although Trader Media had already made a successful transition to a digital format, it was susceptible to a downturn in the economic cycle and perhaps to an upstart online rival.

The trust therefore decided to sell a minority stake in Trader Media, allowing it to buy a wider range of assets and to provide cash for editorial developments at the Guardian. The initial idea was to sell on the stock market but GMG was advised it would get a better deal from a private equity company. The deal, with Apax Partners, was a complex one – private equity finances most purchases from debt, which is then loaded on to the newly acquired company – but, at the time, it seemed neither short-sighted nor reckless. Selling assets when the business cycle is near its peak and company valuations high is routine practice. And GMG had, over the previous 15 years, completed several successful deals with private equity and venture capital partners, buying and selling stakes to enhance its asset base. Some Scott Trust members questioned the deal, particularly the involvement of private equity, then the subject of growing ethical doubts. One trust member suspected that Carolyn McCall, then GMG’s chief executive, and Paul (now Lord) Myners, the chairman, “found running a paper quite dull and were excited about doing deals”. But, he added, “it was presented as a prudent step” and that was enough to win most trust members round.

The £700m raised was split three ways: between a stake in Emap, mainly a trade magazine company, bought jointly with Apax; further radio investments and a new “property services” division which would sell software to estate agents; and a “rainy day” investment fund that could provide cash when required for the ever-hungry Guardian.

When Andrew Miller talked about “cash running out in three to five years”, he was referring to the “rainy day” fund and doing a rather crude division sum that would apply only in “the fictional scenario” that the company failed to cut costs (it has cut £16m from the editorial budget in the past two years and plans to cut more) and continued to consume cash at the rate it has done over the past five years. The trust still has other assets – probably worth around £1bn – that could be realised in an emergency. Selling them, however, could jeopardise the Guardian’s hopes of surviving “in perpetuity”.

For the moment, therefore, it holds on to its majority stake in Trader Media, which continues to prosper and to grow in value as an asset, and its smaller stake in Emap, which, like the Guardian, is struggling with the transition to digital publication. Because of the amount of debt involved, it isn’t possible, in the short term, to exit either deal. Critics argue that the Emap investment, made at the top of the market, was particularly questionable. Why, they ask, did GMG, having sold half of Trader Media in order to diversify, then invest in another media company? “If they thought they had
all their eggs in one basket,” said Fenton of the Financial Times, “they then put them in a very adjacent basket.”

Both Apax and GMG have written down their stakes in Emap – to zero, in Apax’s case. Worse, the cash flow from Trader Media, which sustained the Guardian for so long, is no longer available, because it is needed to make repayments on what amounted to a remortgaging of the company. Yet as we have seen, while the paper tries to adapt not only to seemingly endless stagnation in the wider economy but also to the long-term decline in print revenues from both sales and advertising, it has never had greater need of cash.

Should the trust have acted differently? Critics suggest it should either have held on to the whole of Trader Media or sold the whole company and created an equivalent to the Wellcome Trust, with an endowment of up to £1bn. In hindsight, either might have been a better option, though there were legal and tax complications around the latter which, given low returns and a stagnant stock market, might not have generated enough cash for long enough to secure the paper’s long-term future. The smart money, however, is on a sale of GMG’s non-core media assets as soon as market conditions allow and a move after all to the Wellcome Trust model.

As a journalist for 45 years – and a Guardian contributor – I had hoped that my inquiries might lead to the conclusion that the Guardian has a fireproof business plan or that, if Rusbridger can be persuaded to change his digital ways, all will be well and a great newspaper saved. Alas, neither is true.
So far as we may discern the future, the Guardian is probably better equipped to meet its demands than any other newspaper, except the Daily Mail and the Financial Times. Digital revenues already account for a quarter of the total. The unanswerable question is whether digital revenues will rise faster than print revenues decline.

The truth is that the Guardian may not get to the future. Nor may any other newspaper. The entire industry may easily fall off a cliff, as the music recording industry did. “It’s going to be like shipbuilding, coal mining, agriculture,” says Emily Bell, the Guardian’s former head of digital content who is now a professor at Columbia Journalism School in New York. “It has happened to every industry and it will happen to journalism. The days when journalists lived in ways commensurate with the top layer of urban society are gone. We’ve felt the push, but haven’t yet really felt the pain.”

Many pundits, far from urging restraint on Rusbridger, argue that he isn’t rushing into the digital future quickly enough. They think GMG should sell off the presses and cut the expense of producing and distributing printed newspapers now.

If GMG were to go down that road, it would be comparable to Rupert Murdoch’s move to Wapping in 1986, when the paper moved to new printing technology and thousands of printers were sacked. Except, this time, journalists would be the victims. There is not sufficient consensus about the future for GMG to take so drastic a step and, despite redundancies, the Guardian is still better staffed than its rivals. Other pundits, such as Peter Preston, who now writes a media column for the Observer frequently read as a coded critique of his successor, point out that, for all the talk of young people not picking up newspapers, under-35s account for a quarter of the British print newspaper readership.

Rusbridger, I suspect, leans towards the first school of thought. But on this, as on so much else, his views remain opaque. He is now 58. When will he retire? “Don’t know.” Does he think about retirement? “No. The job is so different from when I started. Things move and change so fast that you can never settle.”