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.
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.