The Guardian and its Sunday title, The Observer have just announced a “digital-first” strategy. However, this is not a triumphant announcement. This is a burning platform admission.

Guardian News & Media, the parent company for both newspapers, lost £33m on a cash basis for the year ending 31 March, only slightly less than it’s £34.4m loss for the previous year. Guardian Media Group chief executive Andrew Miller warned that the group could run out of money in 3-5 years if things don’t change. I heard sobering burn rate figures when I was at The Guardian. I covered the dot.com boom and heard start-ups talk cash on hand, but I never expected to hear this from a major media company.

Some things leapt out at me: They reported £47m in digital revenues out of a total of £198m revenues. Digital made just shy of 24% of total revenue. That’s good going, and most newspapers would kill for that percentage of digital revenues. (Apart from the FT, which is making a killing from digital: 30% or revenue from digital now and projected to reach 50% of revenue by 2013.)

This came out from the presentation to Guardian staff:

Unaudited results for the year ending 31 March showed that revenues at Guardian News & Media, the immediate parent of the newspapers and guardian.co.uk, fell to £198m last year compared with £221m the year before, a fall in revenues that reflected a sharp fall in classified advertising. Recruitment advertising has fallen by £41m in the past four years.

The Guardian is seen as one of the most innovative newspapers in the world. It was why I enthusiastically joined them in 2006. They announced they were going web-first in June 2006, but that didn’t and doesn’t change the fact that the newspaper is burning through cash. To future of journalism folks, The Guardian is indicative of challenges facing the industry, but so far it’s not showing the way forward in solving those challenges.

Feel free to give The Guardian credit for being innovative, but everyone in the journalism community has to be more honest and realistic about its business challenges. It’s in the same sinking boat as a lot of other newspapers.

Guardian Editor Alan Rusbridger is saying that not only will they publish first to the web but that they will do less in print. The Guardian’s article says there will be no job cuts, though they have to find £25m in savings. Yet Mathew Ingram at GigaOm quotes Alan as saying there will be editorial job cuts.

Mathew also quotes Alan as saying that they have identified at least ten different revenue streams. That’s comforting. But it speaks volumes that The Guardian’s own article doesn’t mention new revenue, and Alan only mentioned existing digital revenue streams to Mathew.

The Guardian needs an intervention. Digital first will not be enough to save it. It needs to remember that although they are supported by a trust, that is not a licence to completely ignore business realities. Here is my bit of tough love:

1. Building a sustainable business is not evil

The Guardian needs to realise that making money to support journalism is no sin. There is a lot of moral space between being a sustainable journalism enterprise and being a voracious media mogul like Rupert Murdoch. I’d love to see The Guardian demonstrate how to create a financially sustainable journalism business, but it will have to challenge its own anti-commercial culture.

2. Editorial innovation alone is not enough

The Guardian is innovative, but it also shows that technical and editorial innovation are not enough on their own to guarantee a sustainable journalism business. Digital first without a business focus will still leave it in dire straits. If The Guardian is going to devote 80% of its resources to digital, as is implied by Dan Sabagh’s article, it has got to develop new revenue streams to support its digital first strategy.

3. ‘Open’ without a business model is an empty ideology

I love the open web. I think The Times hard paywall is foolish. However, the ideology of open from The Guardian lacks pragmatism. The Rupert v Rusbridger battle makes a good media ding-bong, but neither positions are proving able to solve the problems that face newspapers. (Yes, I’ve seen Guardian digital strategist Matt McAlister’s presentation on generative media networks. Hopefully, some of that strategy will be part of these 10 revenue streams. At the moment, I remain unconvinced.)

4. You’ve got a golden brand. Capitalise on it.

At the risk of sounding critical, I joke with people that The Guardian has the brand of Apple but the business focus of Twitter. Guardian readers are some of the most loyal in the world. When The Guardian recently cut short its well regarded local project, readers offered money to help it continue. Most newspapers would love to have that affection and loyalty. If The Guardian can’t capitalise on its loyal audience, incompetence will be the only explanation.

A friend of mine, who had taken a buyout from a US newspaper, said to me after visiting The Guardian a few years ago:

The Guardian seems like a great place to work when the times are good, but it doesn’t seem capable of making the tough decisions when the times are tough.

The Guardian has time to make some relatively easy decisions to ensure its future, but it needs to get serious, not just about digital but about its business. The Guardian’s often lauded as the future of journalism, but without a sound business model, it doesn’t have a future.