Death knell for The Observer would be world's loss

The Observer, the world's oldest Sunday newspaper, was first published the day before the death of Wolfgang Amadeus Mozart, on December 4, 1791. But is it about to become Britain's first high-profile casualty of the digital revolution that has seen the global print media reeling under the onslaught of online publishing? The paper's owners, the Guardian Media Group, have let it be known that closure is being considered as an option following a year of horrendous financial losses. If so, it would be a sad day for all media professionals, not just the old inkies among us. Even the younger generation, who rarely read anything on paper, would ultimately be impoverished.

I should, up front, declare an interest: I was a senior Observer journalist through five challenging but enjoyable years, and retain a keen respect for, and many friends among, the newspaper's editorial team. Print media, at least in North America and Europe, is under pressure and a few titles - mainly local newspapers or specialist publications - have closed. The inexorable migration of readers from paper to screen, and the financial crisis, is putting severe pressure on the press. With few exceptions, the world's media groups have not yet figured a way to make money out of online publishing.

Note, however, that this is not a global trend. New print publications, including The National, continue to launch and flourish in the Middle East, India and China. What we are witnessing here is a very western phenomenon. The same dynamics - against the background of lower internet penetration and an increasingly literate population keen to read anything in print - do not necessarily apply in the rest of the world.

But even if the whole world was going headlong down the online path, I think there would still be a place for a publication such as The Observer. Much of its predicament can be explained by the curiosities and quirks of Guardian ownership, rather than the inevitable doom of print. I was city editor of The Guardian when it bought The Observer in 1993, and it was apparent from the beginning that the newspaper's establishment did not quite know what they were buying, or why. The deal was eventually done to prevent the title being sold to a UK rival, the Independent news group, which in those days had bigger ambitions beyond mere survival. It was, essentially, a spoiler: beyond some natural synergies as two left-leaning titles, The Observer was bought simply to stop the opposition getting it.

The paper's previous owner was the tycoon "Tiny" Rowland, who had run it almost as a vanity publishing project, especially to give him clout in Africa, where his Lonrho business empire was focused. But he also invested heavily in editorial quality, and had an especially impressive network of foreign correspondents. Guardian management did not want to duplicate those serious costs and, besides, had their own editorial team. Cutbacks and cost saving were the imperative from day one.

That set the whole tone of Guardian ownership, and continues today. If there was a financial problem at group level, Guardian executives would blame The Observer and swing the axe again. But no matter how hard it was swung, it seemed to have no effect. It was muttered that The Observer was losing "millions" every year, although in five years as business editor there I could never work out why it was apparently losing so much. The operation was lean in terms of staffing numbers and expenses, and circulation, although falling along with the long-term market trend, remained a significant chunk of the Sunday market.

When the Guardian ownership announced huge losses last week, I was still baffled as to why The Observer was carrying the can. A group loss of £90 million (Dh560.6m) was the headline, but that included a whole stack of eye-boggling exceptionals - losses on forward exchange contracts, interest rate swaps and debt, impairment of goodwill and intangibles - amounting to £78m. That makes the Guardian group sound more like the corporate treasury department at Lehman Brothers than it does a left-wing media group.

Circulation revenues came to £106m, actually up in a torrid year. Of that, The Observer - selling 400,000 a week at a £2 cover price - must have produced about 40 per cent. Advertising revenue was down 13 per cent, but The Observer must have made a significant contribution. If the cover price and ad revenue ratio was just a modest 50 per cent, The Observer's turnover would have been more than £80m a year. That is serious revenue, and with the right management should produce a lucrative profit.

But I fear under Guardian ownership The Observer will always be the poor relation. The options are: closure; turn it into a magazine; or, I guess as must have occurred to the Guardian management, sell it. The magazine option was in the background all the time I was there, but is still fraught with its own difficulties. Look at BusinessWeek, up for sale at US$1 (Dh3.67). Apart from the notable exception of The Economist, there are few stand-alone glossies that make a profit.

But is there a buyer out there for The Observer? One of the world's most venerable media brands, with an international reputation, current revenues of possibly £80m and potential for redesign to suit the internet age. I would hope somebody is prepared to crunch the numbers at least. After all, we're still listening to Mozart, aren't we? [e-mail]