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.

Maybe it just makes for a great headline. Or maybe Nick Denton’s powers of deception are so advanced, like Steve Jobs’ legendary “reality-distortion field,” that he can get people to focus on what he’s holding in one hand, and ignore what’s in the other. How else to explain why so many people focused on Gawker Media’s 19 layoffs, while downplaying the fact that Gawker is hiring 10 new staffers at the same time? (Joe Weisenthal at PaidContent was the only one to get hiring into the headline).

For the math-challenged, that’s actually 9 layoffs, not 19 — and at the end of the day, it’s not 14-per-cent reduction in staff either (yes, Peter Kafka at Silicon Alley Insider reported on the new hires, but he still had a headline about 19 layoffs). This is classic Denton. As he himself admitted in his lengthy memo — which in typical fashion he encouraged his own employees to leak — he has done this several times before: battening down the hatches for a downturn, cutting staff and/or pay levels and selling underperforming titles, moaning about a decline while making money hand over fist.

As I said the last time he did something like that, I think he is doing exactly what a smart publisher (on or offline) should do, which is to focus your energies and spending where it can do the most good, and cut back or sell the rest. A blog network is inevitably going to have some higher performers and some lower, and spending on them equally doesn’t make sense. But that’s not as catchy as big news of layoffs, and it doesn’t serve Denton’s purposes as well — since I think he also likes to talk about how gloomy things are so that his competition will cut back and/or lose their nerve.

Ashkan Karbashfrooshan of HipMojo thinks Denton just overhired and needed an excuse to cut some fat. In any case, at least Denton’s memo was a lot easier to understand than the one Jeremy Wright of b5media sent around describing the new pay structure. And meanwhile, Chez over at Deux Ex Malcontent mentions that one of those Denton let go was Jezebel writer Moe Tkacik — whom he had only recently convinced to stay rather than joining Radar magazine (which appears to be a home for former Gawker writers, including former editor Choire Sicha).

If you’re any kind of online publisher — a traditional outlet looking to learn about online media, or a blog network looking to grow — you could do a lot worse than to follow the career of Nick Denton, a former traditional journalist (or at least the British version of same) who has become a new-media mogul thanks to the Gawker Media network of blogs. Nick has been conducting a kind of ongoing media workshop for the past couple of years, right out in the open (more or less). In the latest installment, the Dark Lord of the blogosphere has chopped the pay rate for bloggers at Gawker, for the second time in the last six months.

It’s not quite as bad as it sounds, however. Since the beginning of 2008, bloggers at the various Gawker properties — the flagship celebrity-obsessed blog, geek oracle Gizmodo, gossip rag Valleywag and so on — have been paid in part based on the traffic their posts attract. But that’s not their only pay; they still get a salary. The traffic-based payment is effectively a bonus — an incentive program (although whether it encourages bloggers to go for the cheap and titillating is the subject of debate). In other words, bloggers have to “earn back” their base salary first, and then whatever traffic they get after that is a bonus. And even with the cuts, Gawker bloggers still do pretty well.

What Denton has done, according to the Radar story — which happens to have been written by Choire Sicha, the former editor of Gawker — is to cut the bonus rate to $5 per thousand pageviews, from $6.50. And that previous rate was itself a reduction from the original rate of $7.50 per thousand (all of the Gawker blogs have their own rate structure, but all have seen reductions). Felix Salmon at Portfolio has an excellent overview of the situation and the ramifications of the latest pay cut.

Among other things, he also notes that some Gawker bloggers appear to be doing extremely well, and could easily be making six figures. Others are doing, er… less well. If you want more background, Felix has written a number of other posts about it, and I wrote one as well at the time of the last pay cut. There was also a fascinating discussion of the psychological and practical effects of Denton’s compensation model over at the Crooked Timber blog.

In many ways, what Gawker is doing isn’t really all that different from what brokerage firms do, or any type of sales-oriented organization, which pays people commission based on what they bring in or the revenue they generate. We don’t like to think of the media as being based on such crass considerations, but in a way it always has been — it’s just usually hidden from view. That said, however, as a friend of mine once told me, you have to be careful when implementing that kind of “direct drive” compensation. In other words, you have to think about what kind of behaviour you are rewarding. And Felix makes the point that the way Nick has gone about can in many ways actually be de-motivating instead of the opposite.

Update: My friend Jay Rosen, NYU journalism prof and founder of NewAssignment.net, said in a Twitter message that he would feel better about Denton’s approach “if he figured out how to pay writers more when posts perform well in search over time.” That’s an excellent point. I think it would also be good if Nick’s model compensated writers based on some metric of reader loyalty — return visits, etc.

That way, bloggers would be encouraged to build a following rather than just chasing pageviews. Felix notes in a comment here that in a sense Denton’s model already does this, since pageviews are rewarded regardless of when they occur — but I think it might be even better if Nick were to explicitly change the rate so that pageviews for older posts, or traffic from repeat visitors, were to figure more prominently in the compensation scheme, although I’m not sure exactly how to do that. That’s why Nick gets the big bucks :-)

Not long after writing my previous post on Nick Denton and the sale of several Gawker properties (which I have reposted below), I got an email from the Dark Lord himself, in which he elaborated on the rationale behind the sale — essentially, that advertising is in for a downturn and the Web won’t be spared, which is pretty much what he said in the memo that Silicon Alley Insider and others have posted. Among other things, he said:

“Gawker traffic up, advertising market slowing: these may not be contradictory interpretations, merely trends that are in tension with each other. i.e. everybody will suffer, but Gawker less than others.”

But that’s not the best part. The best part is that Nick said the forthcoming sale of some Gawker properties was telegraphed earlier this month. Where? Why, in a post he wrote for Gawker itself, in which he talked about why he was selling Jezebel to Conde Nast. But Gawker didn’t sell Jezebel, you’re thinking — it was an April Fool’s joke. Indeed it was. But Denton, the cheeky blighter, put the real reason why he was looking at selling certain titles in that April Fool post. Here’s the important part, he says:

The short of it is that we’re entering an advertising recession, and the internet will, whatever the wishful thinkers believe, not be immune. Rupert Murdoch’s closure of Page Six website is harbinger of the tough times to come. All web publishers will have to make hard choices about the properties they’ve launched during the good years.

At Gawker Media, we’re determined to make those choices sooner rather than later, putting sentiment to one side. Already in 2006, we sold or shuttered three sites—Oddjack, Screenhead and Sploid—that either weren’t performing or didn’t fit the rest of our portfolio. The internet boom, even then, seemed unsustainable. We told the New York Times then we were “hunkering down.”

That wasn’t the last of it… the bulk of Gawker Media’s traffic and advertising, despite the attention paid to our more gossipy blogs, goes to the group’s geekier titles such as Gizmodo, Kotaku and Lifehacker. We have to decide where we’re going to hold the line. Gawker is a technology media company, in a fierce battle with companies such as CNET and AOL’s Weblogs Inc unit.”

Unless, of course, Nick is just playing with me and none of this is even remotely true. You be the judge — I’ve pretty much given up at this point. Oh, and the comments back and forth with Arrington? Nick says he doesn’t know if it was really Mike or not, but he responded “just in case.”

Original post:

I can’t help it — I like Gawker founder Nick Denton. I realize that for some he is the blogosphere equivalent of Dr. Evil, but I just can’t help liking him anyway. It’s true that he seems to come up with sweatshop-style compensation methods just for the fun of it, and he also seems to take an inordinate amount of glee in shuttering blog titles at his Gawker empire, or selling them off when it’s least expected. Maybe that’s what I enjoy: the fact that he just seems to be having such a good time, even when he’s firing people and leaking his own memos.

The one that Silicon Alley Insider has — which plenty of other people seem to have as well — is about Gawker selling off (or giving away, as the case may be) several blogs, including Gridskipper (travel), Idolator (music) and Wonkette. One is going to join Gawker investor Lockhart Steele’s stable, another to Buzznet, and the third to Ken Layne. Wonkette, as Nick himself notes, is a former flagship title, which launched Ana Marie Cox to superstardom (she’s at Time magazine now), and so seems like an odd candidate for sale — but there you have it.

That’s the genius of Denton: give people contradictory quotes about the current health of the business (there’s a storm coming, but Gawker’s pageviews have climbed by almost 90 per cent to 221 million or so), shut down blogs here and there whenever it suits you, change the compensation method for your bloggers suddenly and without warning, and just generally create mayhem and confusion. Brilliant. For bonus points, read the back-and-forth in Valleywag’s comments between Nick and someone who is either Mike Arrington or pretending to be.

I can’t help it — I like Gawker founder Nick Denton. I realize that for some he is the blogosphere equivalent of Dr. Evil, but I just can’t help liking him anyway. It’s true that he seems to come up with sweatshop-style compensation methods just for the fun of it, and he also seems to take an inordinate amount of glee in shuttering blog titles at his Gawker empire, or selling them off when it’s least expected. Maybe that’s what I enjoy: the fact that he just seems to be having such a good time, even when he’s firing people and leaking his own memos.

The one that Silicon Alley Insider has — which plenty of other people seem to have as well — is about Gawker selling off (or giving away, as the case may be) several blogs, including Gridskipper (travel), Idolator (music) and Wonkette. One is going to join Gawker investor Lockhart Steele’s stable, another to Buzznet, and the third to Ken Layne. Wonkette, as Nick himself notes, is a former flagship title, which launched Ana Marie Cox to superstardom (she’s at Time magazine now), and so seems like an odd candidate for sale — but there you have it.

That’s the genius of Denton: give people contradictory quotes about the current health of the business (there’s a storm coming, but Gawker’s pageviews have climbed by almost 90 per cent to 221 million or so), shut down blogs here and there whenever it suits you, change the compensation method for your bloggers suddenly and without warning, and just generally create mayhem and confusion. Brilliant. For bonus points, read the back-and-forth in Valleywag’s comments between Nick and someone who is either Mike Arrington or pretending to be.