Denton: Everyone into the bomb shelter

Listening to Gawker Media overlord Nick Denton’s predictions for the coming online-media apocalypse, I’m reminded of the story about the boy who cried wolf. That said, however, it’s worth remembering one thing about that story: In the end, there actually was a wolf. And as he describes in a post on his personal blog, complete with scary charts and graphs about projected advertising demand, Nick is convinced more than ever that there is a wolf at the door — and a pretty damn big one at that. How does a 40-per-cent drop in online-advertising revenue sound?

Denton has written several times over the past year or so about online advertising falling off a cliff as a result of the weakening economy. Before the recent global financial meltdown, his warnings seemed sort of quaint, like your crazy uncle ranting about the dangers of skateboards or the importance of eating all your vegetables. But now, his vision of a collapse in ad revenues seems a lot more realistic. Will it be 40 per cent? I’m not so sure.

Nick makes a lot of comparisons between the U.S. economy and what happened to Japan after it went into recession, as well as Indonesia and so on. I may be playing Pollyanna to Denton’s Dr. Doom, but I don’t think the U.S. will be quite as badly off as all that (although obviously I could be completely wrong). In any case, Nick’s point — I’m pretty sure — is that media outlets like Gawker, and even Time Warner and other giants, should be as pessimistic as possible. If they err on the side of cutting too deep, his argument goes, then it just makes for more upside later.

In an IM conversation with Nick, he said he would “rather be more pessimistic than too sanguine.” When I mentioned that lots of people were saying online advertising might hold up even during a downturn because it is cheaper, more measurable and so on, his response was:

“Yeah, that’s bullshit. Same thing everybody said in 2000. First of all, the only bit that’s really measurable is search, and it’s not nearly as measurable as people think. It’s retailers paying for clicks that they already paid for once with PR or brand advertising.”

Denton also said that between 2000 and 2002, online advertising dropped by about 28 per cent. While that was a time when the online ad market was relatively immature, he points out that it also wasn’t a full-fledged recession in 2000, and the underlying growth rate in the online ad market was also around 80 per cent at the time. Now it’s closer to 30 per cent. So what is Denton planning to do with Gawker? In his post, he comes right out and says that six of the network’s 12 titles provide the bulk of the revenue — which I would assume means that the others are at risk.

“We definitely have further to go… the company needs to be making money even in the harshest of environments. Some of these companies like Time Inc. that think 6 per cent [cuts] is enough, or the Internet companies that think they’ll be immune — people are still delusional.”

Even if the wolf turns out to be smaller than Denton foresees, being pessimistic at a time like this is probably wise. On the other end of this downturn, Gawker could be in a position to make some headway while others are still struggling. Doug McIntyre, a smart guy who runs 24/7 Wall Street, says in a comment at Silicon Alley Insider (where Nick’s post was also published) that he thinks Denton is probably right, and Peter Kafka of All Things D seems to think so too.

Update:

As more than one person — including Valleywag editor Owen Thomas — suspected, Denton has put Consumerist up for sale and Valleywag will cease to be a standalone site and will become a column at Gawker.

7 thoughts on “Denton: Everyone into the bomb shelter

  1. Haven't we gotten to the point where predicting drought and pestilence is rather conventional thinking? I would have been impressed if Nick and others had been making such bold predictions about the death of online advertising back in, say, March. Ironically, today's “skeptics” are those who believe the group-think is wrong — if you're optimistic, you're a skeptic. (For the record, I'm a pessimistic skeptic which means I don't think a 40% drop in online ad sales is likely — perhaps, in some categories, but across the board, no. However, I've never thought depending on advertising alone is a great business model.

    • A fair point, Rex. For what it's worth, I think Nick was making predictions
      pretty much like that back in March, or even earlier — and making cuts long
      before anyone else. Your point about not relying solely on advertising is
      also a good one.

  2. I think that the problem with online advertising is, and has always been, that advertisers are using the wrong model. Internet advertising is NOT the logical progression from television advertising.

  3. Something I'm sure will come out of all of this: Building online media businesses that are designed as “destinations” will make monetization extremely difficult. The key to surviving the downturn is to drive as much traffic as possible from search and monetize with AdSense and other transaction-based programs, rather than direct ad inventory or display ad networks.

    MFA (made-for-Adsense) gets a bad rap, because traditionally it's associated with spammy content and black-hat SEO practices, but designing content-based businesses around monetizing search traffic is much more downturn-immune than, for example, the Gawker model.

    Our site has just started to take off (now in the ~50,000 uniques / month range, up from about 30,000 last month and 15,000 the previous month) and the only monetization that works for us is AdSense and Amazon Affiliates. The display ad networks we've experimented with can't begin to come close to the eCPMs we achieve, and that's without a great deal of optimization.

    The thing is, most people are still thinking about questions such as how to sell advertising against their content, rather than how to shift their mindset to serve ads to a different kind of audience.

    I'm not suggesting that sites with a large regular community aren't important, but that they need to be combined with a monetization strategy that isn't about having a sales guy / sales force, a media kit and a bunch of traditional sponsorship and banner placement options.

    Will spending on Google dry up and result in dwindling AdSense eCPMs? Possibly, but more likely that will hit those using AdSense purely as a last resort supplement with very little thought given to placement and SEO.

  4. Pingback: Notes from a Teacher - Wednesday squibs

  5. Something I'm sure will come out of all of this: Building online media businesses that are designed as “destinations” will make monetization extremely difficult. The key to surviving the downturn is to drive as much traffic as possible from search and monetize with AdSense and other transaction-based programs, rather than direct ad inventory or display ad networks.

    MFA (made-for-Adsense) gets a bad rap, because traditionally it's associated with spammy content and black-hat SEO practices, but designing content-based businesses around monetizing search traffic is much more downturn-immune than, for example, the Gawker model.

    Our site has just started to take off (now in the ~50,000 uniques / month range, up from about 30,000 last month and 15,000 the previous month) and the only monetization that works for us is AdSense and Amazon Affiliates. The display ad networks we've experimented with can't begin to come close to the eCPMs we achieve, and that's without a great deal of optimization.

    The thing is, most people are still thinking about questions such as how to sell advertising against their content, rather than how to shift their mindset to serve ads to a different kind of audience.

    I'm not suggesting that sites with a large regular community aren't important, but that they need to be combined with a monetization strategy that isn't about having a sales guy / sales force, a media kit and a bunch of traditional sponsorship and banner placement options.

    Will spending on Google dry up and result in dwindling AdSense eCPMs? Possibly, but more likely that will hit those using AdSense purely as a last resort supplement with very little thought given to placement and SEO.

  6. Pingback: Nick Denton’s Evil Genius: No One Likes Humor in Tough Times | TekPopuli

Comments are closed.