How much pain can the Guardian take?

Staff have been warned that the status quo is not sustainable. No wonder when the parent company Guardian Media Group, which has bankrolled the loss-making papers during the good times, lost £89.8 million in the year to March.

So deep savings must be made at the national newspaper division Guardian News and Media — about £30 million this year across commercial and editorial. GMG chief executive Carolyn McCall is completing a strategic review which is due to report next month. But already there have been hints of change — and questions about just how radical GNM is prepared to be.

Last week there was a clear-out of the GNM board which will see four directors step down. Two of them, respected marketing boss Marc Sands and circulation chief Joe Clark, are quitting. Their departments will be merged with advertising and operations respectively. 82 commercial jobs went earlier in the year and now more are expected to go.

But it is on editorial that the big battle is being fought — because the core purpose of the Scott Trust, the not-for-profit owner of GMG, is to protect The Guardian's editorial independence in perpetuity. It is for this reason that historically GNM fended off cuts and had a policy of seeking to avoid compulsory editorial redundancies.

However, the protection of the Scott Trust does not extend to The Observer, bought in 1993. Hence GNM has considered a radical proposal to replace Britain's oldest Sunday paper with The Guardian brand. Leaving aside The Obs' impressive pedigree, there was a cold-blooded logic to the idea. But the plan has been vetoed not only because of an outcry when news leaked over the summer but also, it is said, because research showed it was unpopular with readers. And, it's worth noting, The Obs sells over 400,000 copies and does not lose that much — under £10 million.

Yet the future of the Sunday title remains on the agenda. It is thought that some sections such as travel and business could be folded into the main paper. The highly regarded but expensive monthly supplements on music, food and sport are vulnerable to similar changes. But it is understood that the Saturday Guardian, which sells 100,000 copies more than The Obs, will not lose any standalone sections.

Some critics argue that GNM should cut in other ways. They say The Guardian is over-staffed, spends too much on its websites for too little return, and is too busy empire-building in America.

On staffing, GNM has signalled it must act, chiefly by simplifying "processes" such as production and sub-editing. Its editorial staff of 850 has looked large compared to other papers, although insiders claim that's because GNM has fewer casual workers.

Headcount is now falling because of voluntary redundancies. 68 staff left editorial in the last six months, with more leaving, which may avoid compulsory departures. But freelancers are suffering. A clampdown on contributors and cutting the number of pages in the paper saved £8 million since March.

A thorny question is whether GNM has the right strategy on digital by seeking a huge online audience but not charging. The Guardian's investment has been rewarded with scoops and 33 million monthly users, making it the most visited UK newspaper site. The paid-for paper only sells 315,000 copies daily.

Yet digital generates little advertising — only around 11% of GNM revenues, about £25 million — with no sign of it replacing print, which is responsible for 85%. Guardian Professional, which runs trade conferences based on its specialist websites such as media, is only a small money-spinner.

In other ways, it is surprising GNM does not exploit potential synergies better. Why, among all its audio podcasts, does it not supply news to GMG Radio, which instead uses Sky?

Solving the digital conundrum is a problem for every media group yet the stakes are high at The Guardian, which has faced internal opposition for spending so much online. This links in with questions about GNM's expansion into America — an ambition to be the world's leading liberal voice. Readership has soared but standalone website GuardianAmerica, launched two years ago, was quietly dropped last week because not enough people were using the homepage. Last year's purchase of US web publisher ContentNext before the banking crisis also looks pricey at a rumoured cost of up to $30 million.

The signs from the top of the GNM are that there won't be a change of tack on digital or its American project as a result of the strategic review. The risk, say some observers, is that GNM shirks hard decisions. Losses for this financial year are still likely to be over £30 million.

So for The Guardian to continue its robust investigative journalism — such as its recent expose of oil firm Trafigura — it must depend on the rest of GMG for support. Looking at the most recent financial results (see above), the only two parts of the business that were in profit were its joint ventures: online car classifieds business Auto Trader and business publisher Emap. But under the terms of its deal with private equity partner Apax, those profits are ring-fenced to pay off hefty debts.

The only cushion is cash reserves of around £80 million and an investment fund of £200 million. The alternative is selling assets sooner than GMG wants. Meanwhile, its regional titles could face more cuts.

As the Scott Trust considers how to ensure The Guardian's long-term future, there is another possibility: to look beyond media at other more profitable businesses. Another option is to be a slimmer operation, acting more like an investment fund such as The Wellcome Trust, managing a portfolio of financial interests with a solid income.

Now that would be radical — but most unlikely, given the media ambitions of the current Guardian leadership.

Roy Greenslade is away