Sunday, bloody Sunday

On 1 March 1942 the Observer introduced the profile to British journalism, one of the most distinctive of the paper's contributions to the craft, in the form of a long feature on Sir James Grigg, then War Minister. Grigg, so the profile went, "possesses an acute, distinguished, disciplined mind and, what is perhaps much more important now, a high and rare degree of passion and integrity".

At the time, many would have said the same about the Observer, the nation's Sunday paper of record (205 years old this year, it was founded in time to report the death of Mozart). But now? After years of uncertainty, a host of different owners, and new challenges to its position in the Sunday market, the Observer is again the subject of intense debate as to whether or not it is to be sold, or even worse, closed for good.

The Guardian Media Group, which now owns the newspaper, is reported to have lost pounds 8m on the Sunday title last year. The Observer's circulation is running at around 450,000, a fall of more than 30,000 since this time last year and a world (or at least several football stadiums) away from its all-time high of 900,000 in 1981, when the Sunday Times was kept off the shelves by industrial action.

At Farringdon Road, London, where the two newspapers share offices, tension is high. It is an open secret that editorial budgets are about to be cut at the Guardian as a result of the money the group has lost on the Observer. "Why should we be subsidising them?" is a common sentiment on the Guardian floors. The relationship between the respective editors of the two titles is also believed to be severely strained.

Morale at the Observer has scarcely been worse. "There is an air of desperation about the place," says one staff member. "They're tightening up on expenses, the management seem to have stopped talking to journalists and everyone seems completely despondent. We've all been through this many times before, but there's an air of extreme anxiety. The feeling is stagnant. Among the staff there has always been a hell of a lot of goodwill towards the paper - people are very loyal here - but there is the feeling that the Guardian just don't know what to do with us. Everyone on the shop floor wants the paper to work, but we're all beginning to wonder if it isn't just a little too late."

As well as rampant fear of job losses, the present editor of the Observer, Andrew Jaspan, has not endeared himself to staff. "The mood is quite appalling," says another journalist. "Jaspan seems to be completely out of his depth - which perhaps is not surprising given his lack of height. There seems to be a lack of direction."

The once free-spending paper has embraced a more parsimonious approach with real vigour. The football correspondent Patrick Barclay recently put in an invoice for pounds 7.50 for a breakfast meal at a Little Chef on the way back from a 14-hour journey to cover a football match only to have it returned to him with a note saying that the editor wasn't prepared to pay for subsistence. Barclay has since decided to take up the post on another Sunday paper, a serious loss for the paper. "People are beginning to wonder why the Guardian bought the paper in the first place," says Barclay, "as they seem unable to make the right decisions. It's a completely different newspaper from the one I joined five years ago."

"This penny-pinching just shows a lack of love and respect for the title and its traditions," says another long-serving Observer journalist. "People will continue to leave if this goes on, which is maybe what the Guardian wants. As for Jaspan, we would be prepared to work for him if the paper was improving, but as it isn't there is incredible reluctance to do anything at all. He has the will but not the touch."

Staff continue to leave. Mimi Spencer, who edited the Observer's monthly fashion supplement Madame Figaro, has become fashion editor of the Evening Standard, while last week the paper's chief designer, Graham Black, who masterminded last autumn's redesign, handed in his notice. Fashion editor Lucinda Alford is also leaving.

By common consensus, it is time for a change, but at the Observer it is always time for a change. Under the 18-year editorship of Donald Trelford the paper went through many incarnations, some inspired, some lamentable, but none that were enough to save it during the Eighties, when the paper's already decreasing market share was chipped away even more - due largely to the Sunday Times' profit-driven expansion into a multi-sectioned paper, coupled with the launch of first the Sunday Correspondent and then the Independent on Sunday. While the Sunday Times continued to appeal to a growing middle market, the liberal young intelligentsia were persuaded by the Independent on Sunday's grasp on modern culture. The Observer lacked clear definition.

As for the Observer Magazine, it has attempted more comebacks than Gary Glitter. During the Sixties and Seventies it rivalled the Sunday Times Magazine as a window to the world, offering reportage photography, discursive essays and 101 ways with a wok in equal measure, but during the Eighties and Nineties the magazine has had mixed fortunes. It had been tampered with before, but it wasn't until the magazine was relaunched as M in the mid-Eighties that the cracks began to show. This incarnation attempted to get to grips with the changing mood of the times (youth, consumerism etc) only to be replaced by a larger format magazine when it proved to be unpopular. The London-only Section 5 came and went, as did another consumer-style magazine launched in 1992. The magazine was killed off altogether in 1994, when the paper was bought by the Guardian. Which is when the paper's problems really began.

After years of gossip, rumour and speculation, Donald Trelford called a meeting of staff at the newspaper's headquarters at Chelsea Bridge on 29 April 1993. He informed them that the owners, Lonrho, had agreed to sell the title to the Guardian for a reported pounds 27m. The merger (for that is how it was sold to the press) was considered to be entirely logical: both papers were left of centre, liberal in outlook and not entirely driven by market forces. The Guardian needed a Sunday paper, while the Observer needed a lifeline.

The Guardian believed it had all the answers to the Observer's problems. It installed Jonathan Fenby (then deputy editor of the Guardian) as editor, many executives were asked to go, costs were cut and some of the paper's most distinguished talents, such as the celebrated sports writer Hugh McIlvanney and political columnist Alan Watkins, were allowed to leave. There was heady talk of the paper's circulation being back at 600,000 by Christmas (it was hovering around 500,000 at the time of the sale). But things didn't go to plan. The paper was relaunched in the autumn of 1993 with two magazines, one of which lasted only a few months. Those staff who weren't let go were hampered by restricting budgets, a war of attrition developed between journalists from the two papers and circulation continued to fall. Fenby didn't fare too well, either. Eighteen months into the job, and with the Observer still haemorrhaging cash, he, too, was let go, eventually ending up at the helm of Hong Kong's South China Morning Post.

Amid much fanfare - and a widely reported public endorsement by ex-Sunday Times editor Andrew Neil - Fenby's job was eventually offered to Andrew Jaspan, who had spent five successful years editing Scotland On Sunday and six months editing the Scotsman. Jaspan attempted to poach some top writers - sometimes in competition with Alan Rusbridger, editor of the Guardian - but he found Fleet Street salaries outside his range. He ended up bringing in a number of people with whom he had worked in Scotland, and added a smattering of well-known names such as the television critic Allison Pearson and Janet Street-Porter, who writes a fortnightly column. Jaspan's arrival also presaged another relaunch, backed by an expensive advertising campaign, last autumn. It had been said many times before, but there was a distinct last-chance-saloon feeling about this re-invention.

Bill Kinlay, media director of the media analysts The Network, blames a failed attempt to cultivate a new, more with-it image. "The basic problem is that the promises in the advertisements haven't been carried through when you actually buy the product. You are promised a youth-oriented feel that the paper doesn't deliver. It's a classic problem in advertising: the ad encourages people to buy, but then they are disappointed."

After an initial rise, circulation has continued to head in the wrong direction, and another crisis is about to be reached. A key figure in future plans is Peter Preston, for 19 years editor of the Guardian but now editor-in-chief of the group. Preston took over editorship of the Observer's Pendennis gossip column, but he now has weightier issues to address. One option would be to turn the paper into a seventh-day version of the Guardian, embracing a much greater level of integration between the two papers. This, not unnaturally, is an option viewed with horror at the Observer. There is also open discussion on whether the taciturn Rusbridger, clearly upset about the prospect of his budgets being cut but a relative newcomer to such heavy newspaper politics, has the experience to nurse his journalists through a period of serious upheaval.

The Observer is a venerable newspaper institution which has endured more than its share of troubles in recent years. The stewardship of Lonrho, and its alleged use of the title to promote its own commercial interests, brought the paper into disrepute. Sale to the Guardian appeared to be its best chance of regeneration. But now that dream has turned sour and again the paper does not know which way to turn. Informed speculation is mounting that Jaspan's days are numbered, that he will be the victim of a Guardian putsch. But what then? Front-runners for the editor's chair are Roger Alton, currently editor of the Guardian's Section 2, Peter Preston (moving across from editor-in-chief of the two titles) and Guardian big- wig Will Hutton, who was mischievously profiled in the Sunday Times last week. The Scott Trust met seven days ago to discuss strategy but according to insiders has decided to give the paper a month to try to save itself.

Whatever happens, it won't be pretty. "It's murder here at the moment, absolute murder," says another staff member. "There used to be a time when everyone was running around like headless chickens but now everybody's keeping a low profile. There are such strong rumours of redundancy now that the staff feel really apathetic. But every time we think something's going to happen, we get another reprieve. It's not so much a case of the axeman cometh as the axeman goeth. Whenever the management spend a day out of the office together, we all begin to think that it's all over. It's poisonous here. The Observer is not a great place to be at the moment."

All about...

Andrew Jaspan

1976 Founded New Manchester Review listings magazine. Moves to London.

1985 Appointed assistant news editor, Sunday Times.

1988 Launch editor ST's Scottish edition.

1989 Editor, Scotland on Sunday. Achieves sales of almost 100,000. Wins 1994 Sunday Newspaper of the Year .

1994 First Englishman to edit the Scotsman for more than half a century. Voted National Editor of the Year.

1995 Editor, the Observer.

YOU NEED TO KNOW...

Said to have read every word that went into Scotland On Sunday. Demanded re-writes right up to the last moment. Paper nicknamed "Sorry On Sunday", thanks to the number of corrections it had to print.

Initiated a clear-out of senior staff at the Scotsman, taking average age to between 25 and 35. Said to be frustrated that the Observer's NUJ house agreement stops him carrying out "substantial" changes.

Makes enemies: reportedly sought to limit the outside TV activities of the political columnist Andrew Rawnsley and told the feature writer John Sweeney to cancel his What The Papers Say appearance.

Puritanical approach to traditional off-duty recreations of journalists. Fanatical anti-smoker.

HE SAYS: "No one likes to be known as ruthless."

THEY SAY: "He can rant, rave one day, then it's all over and on with the business" (Former colleague, SoS).

"A control freak. Petty and small-minded. Gets the backs up of even the most mild-mannered people" (Former colleague, SoS).

"He is dynamic, not afraid to plunge himself into the commercial side of newspapers" (Christine Tulloch, media analyst).

"He's quite ageist. He has tended to go for youth, not just because they're cheaper but because they're impressionable" (Former colleague, SoS).