Gawker's real business problem: It's too small for the modern media economy

When Gawker pulled a controversial post last week, it focused attention on how the blog’s racy brand of journalism may be at odds with its growth ambitions.

But 12-year-old Gawker Media has a bigger problem: It’s not big enough, at least at a time when its VC-addled competitors like BuzzFeed, Vice, Business Insider and Mashable keep putting up eye-popping audience numbers. Gawker has bootstrapped from the start, but at a cost. It stood at 55.4 million uniques in June, up 7 percent over a year ago. That’s OK, but Mashable soared 53 percent in the same period and Business Insider grew 52 percent. It’s also short of Gawker’s goal to hit 80 million uniques last year, and traffic to the Gawker flagship site itself has declined.

CEO Nick Denton said Gawker Media is comfortably above the 50 million monthly uniques cutoff demanded by many advertisers, which is nothing to sneeze at. “I think we deserve some credit,” he said. “Without any infusion of cash, we have managed to build a sizable media company with about the same scale as Vox.”

That’s true, but there’s some cold math: Gawker Media ranked as the 60th U.S. network by Quantcast; Gawker.com is ranked No. 81 among U.S. sites.

Fair or not, that makes the site land with a thud in the “niche” bucket for many scale-obsessed ad buyers, with the added baggage of brand-safety issues.

“There are buyers that tell you as part of their methodologies, they have those thresholds,” said Eric Bader, CMO at RadiumOne, a digital media platform and former ad agency executive. “That is the dividing line between the niche sites and the generalist sites. It’s a little bit of a misleading number, because [Gawker’s] individual subsites are pretty polarized. If you unpack that, there are some that wouldn’t be eligible for certain brands.”

That leaves Gawker caught somewhat in the middle: Not specialized enough but not mass enough. If digital media has taught us anything, it’s that the middle is not a place to be.

“Scale’s a key thing we look for. And they’re big, but they’re not as big as others,” said Scott Marsden, svp, media, Digitas LBi. “They have a unique position that we like at some times and not at other times. They’re not as turnkey; a lot of times you’re looking to get live yesterday. They don’t do a lot in programmatic, and I think that’s going to hurt them in the long term. But I think they’re addressing that.”

To be sure, Gawker is a growing business: Its revenue has grown, to $35 million in ad and $10 million in e-commerce revenue in 2014, and it turned a small profit, according to numbers it revealed earlier this year.

But costs are rising, too. Gawker has poured money into developing its homegrown publishing platform Kinja, expanding its tech staff, moving into its new headquarters and fighting the Hulk Hogan lawsuit. With expenses mounting, Denton has decided to take outside funding in the form of debt financing.

Kinja was supposed to help drive the audience growth. But last year, then-editorial director Joel Johnson admitted in a memo that it’s not improved or evolved as fast as needed to keep up with the competition. There was talk of licensing Kinja to other publishers, but that hasn’t materialized in a big way.

“We fell on our faces last year,” Denton admitted about Kinja. But he said he didn’t see a big business in licensing the CMS to other publishers because of the hassle factor. “I don’t want to be spending all my time on partners.”

In video, where other publishers have invested heavily, Gawker has been behind. According to Tubular Labs, Gawker had 25.5 million total cross-platform video views in June, but they were hardly evenly distributed; more than half (15.3 million) of them were on the gaming vertical Kokatu. Again, Denton takes the unconventional view, saying he’ll do video if it’s the right format and can be done profitably. “I’m not a huge believer in the idea that video is the future of everything,” he said, adding, “I want to be at 100 million plays a month by the beginning of next year. BuzzFeed was at a billion.”

Where Denton sees bigger growth potential is in the areas of automated sales, native advertising and splashy display ad units. Lastly, he sees strong opportunity in driving e-commerce. Gawker gets a cut from sales it drives customers to through affiliate links, a business he projected to grow 70 percent in 2015.

Gawker has moved slowly into programmatic but focusing on private marketplace sales, with the result that its effective CPM is a relatively high $6.50. Denton claims that native ads, which publishers like because they can command higher rates than banner ads, drive a “very high percent” of Gawker’s online ad sales.

In light of the controversial post scandal, Denton returns to the subject of the flagship site, which he said will “reboot” on Monday. In Gawker’s case, that basically means ensuring stories are not just titillating but newsworthy. Denton also made room for the possibility of changing the company name.

“We have an awesome portfolio,” he said. “We produce a lot of drama. And sometimes, we become the story. We don’t want Gawker.com to be limited by the needs of the company. And there is a strong argument for a company name that is not the same as Gawker.com.”

Denton this week told employees that he estimated that stories like last week’s cost the company $20 million in annual revenue, a claim he reiterated in an interview. “The ‘Gawker tax’ is a real thing.”