Jun 4, 2015 · 9 minutes

Editorial staff at Gawker Media have voted overwhelmingly to unionize through the Writers Guild of America. That's very interesting.

More interesting is this comment, apparently posted by fired editorial director Joel Johnson. In it, under cover of concern trolling the newly unionized Gawker writers, Johnson lays out Gawker's entire financial position.

From Johnson (who points out his information is six months out of date), we learn that Gawker's revenues are between $35-45m per year from advertising and $5-10m a year from other sources including Amazon affiliate fees. Ad revenue, says Johnson, is growing at $5-10m a year.

Much of the revenue is spent on technology and lawsuits (and roof-top parties!), leaving $1-2m per quarter. Johnson estimates as much as $20m has been spent on developing its Kinja commenting system, claiming as much as 75% of that was "wasteful."

Johnson concludes: "Why didn’t Kinja work? For the same reason that most attempts to grow and mature Gawker Media have never worked: For someone who trades in bravado, Nick Denton is, perversely, a coward."

(Remember, this is the same Joel Johnson who once said: "Comments are a dinner party. If I’ve invited you to have a seat at my table, at least have the courtesy to not call me an idiot for serving you food slightly different than you preferred...")

Well, at least Kinja provided some value today: Allowing a disgruntled former employee to air Gawker's financial laundry.

Here's the comment:

Congratulations, Edit!

I think unionizing was a smart, brave decision, and one that gives you a chance at security in a turbulent environment.

As it’s important to plan, negotiate, and plan to negotiate with as much clarity as possible, here is what I know about Gawker Media, the company. Bear in mind that my knowledge is at least six months out of date, except where it isn’t.

Gawker Media is an advertising-based business, with revenues of around 35- to 45-million dollars a year. There are a few other sources of income: a couple of million for international licensing fees (from the companies that publish international versions, such as Kotaku Australia); and affiliate fees, largely from Amazon, that add another 5-10 million a year. Ad revenue has been growing around 30% a year, which is good, despite relatively flat traffic and somewhat primitive (by Ad World standards) offerings. (No video at scale, negligible mobile innovation.)

Most of that revenue gets spent in the following ways: paying for staff; paying for infrastructure, such as web servers or bandwidth; litigating the ever-present lawsuits, often with third-party counsel; and paying for offices, travel, third-party services (like branding agencies and other consultants) and roof-top parties. That typically leaves a relatively tidy profit of 1-2 million dollars per quarter, which is either kept in a bank account or, recently, spent.

A large amount of Gawker Media’s capital over the last few years has been spent on the expansion of its technology divisions, with a roughly 50/50 split in headcount between the U.S. and Hungary. (The Hungarians and their office are, of course, less expensive than equivalent U.S. counterparts.) That is part of the reason why, when asked what Gawker Media has “spent on Kinja,” Denton is keen to equivocate. Little of the capital spent on Kinja has gone to materiel, since, after all, it’s just code running on servers that were already needed to operate the sites. As an relatively uninformed estimate, it is reasonable to presume that something like $10-$20 million has been spent on the development of Kinja (and its precursors) in payroll alone over the last five years. It’s difficult to make a clear estimate, primarily because it’s difficult to quantify the opportunity losses: how much traffic and potential advertising revenue was lost when the sites were down? How many employee hours were wasted pursuing partnership deals that were abandoned? How much of the development cost of Kinja was wasted in pursuit of dead-end experiments or capricious strategy charges versus the work essential to maintain an online media company’s content management system? (I can take a good guess at that last one, actually: I’d say about 75% of the work on Kinja has wasteful.)

As stewards of your own future at Gawker Media, it’s important to have a full understanding of the business strategy (or lack thereof) of Kinja. The theory, as it has mutated, goes something like this: Facebook and other social platforms (but mostly Facebook) have taken away the power of the “destination” publication. Buzzfeed, having noted this a few years back, has built a stateless organization that attempts to optimize the delivery of its traffic wherever the audience may be: on Facebook, on YouTube, on YouTube on Facebook. Gawker, feeling threatened by Facebook, attempted to build another Facebook. (Oops!) A noble goal, vis a vis the loss of independence or influence a media organization has over its own audience, but one that—even with a brilliant design and flawless technical execution—had a slim chance of success to begin with.

The other strategic pillar of Kinja was to be user contribution. (Something Buzzfeed tried and abandoned as well.) Those of you in Edit who have been around for more than a few months will remember the embarrassing, enfeebling maxims around this over the last few years: commenters are just as important as writers! You’re not journalists, you’re cocktail party hosts! We will probably fire all of Edit soon! This ignored currently true maxims of the internet: it costs more to moderate comments than the value, in aggregate, they provide; most people with valuable gossip don’t want to leave it in an internet comment; writers want to investigate and write, not deal with the entitled or sociopathic. There was a lot of faff spewed about democratizing journalism, overthrowing governments via Kinja—I don’t know if it’s better or worse than Denton seemed to actually believe this—but as has been obvious to all involved throughout the experiment, it was mostly a bulwark against needing to pay writers to create content.

Clearly, both of these strategic goals for Kinja have not been met, despite millions of dollars and years of development time shoveled into the furnace, primarily because 1) they were too ambitious 2) outside of the scope of expertise of what Gawker Media is truly good at 3) managed by Denton, who is a comically inept product visionary, manager, and technical mind. (But he sure does love sci-fi!)

(There was a strategy, now abandoned from my understanding, to make New Kinja similar to Original Kinja: a Google Reader-type aggregator. There was something to that, perhaps, but social aggregators like Reddit are exponentially larger, while simpler social sharing tools like Nuzzel are leaner and better funded.)

Why didn’t Kinja work? For the same reason that most attempts to grow and mature Gawker Media have never worked: For someone who trades in bravado, Nick Denton is, perversely, a coward.

Those of us in management spent a large portion of last year in brainstorming sessions where Denton explained his desire to leave a legacy. That legacy, implicitly, was Kinja. (Not Gawker Media, strangely.) This is the Denton you’re toiling for today: a man who wants to be better than he was before, both as a businessman, leader, and (presumably) a human being, but who is fundamentally pessimistic about trusting other people. Hence, a ceaseless paranoia that encourages and rewards employees who gossip to him about their peers, or perpetuates cynical (and cyclical!) editorial strategies that manifest in sites like Valleywag, which existed entirely as a lever to be used in transactions with Valley companies. (“I am no longer feared when I walk into Silicon Valley boardrooms” was the response I was given when attempting to shut down Valleywag last year.) It’s this paranoia that prompts the emotionally fueled dismissals of employees when they “seem stressed.” (Hi!) It’s what has caused Kinja to fail over and over again; who can develop a product whose strategy can be changed because of an off-hand comment from a stranger at a cocktail party? It is what has killed countless forward-looking projects over the history of the company, especially when those projects would rely on Denton to trust in the expertise and execution of someone who has skills he does not. Paranoia breeds reactionary thinking, and Gawker Media has by-and-large been (as a company) reactionary, not visionary.

(Paranoia also cascades from the top down, making for a miserable work environment. As you know.)

It’s important to understand this as you move forward in your negotiations with management, who—princes and principalities excepted—do have your interest at heart. The modern era of media is wooly. Gawker Media is competing in a marketplace against media organizations with tens of millions of dollars in the bank, allowing them to scoop up their daily sustenance from the pool of rapidly congealing money with whichever cup isn’t leaking at the moment. (Wednesday is Video Cup Day! Tomorrow is Branded Content Cup Day, brought to you by Pepsi.) Gawker Media’s capital is entirely at the whim of Denton, who with his family owns the lion’s share of the equity. (There is a board, but it has no power, and is ignored or shown sleight of hand.) Spending has not slowed down: the new office, leased for a decade (or is it 15 years?) at record-high square footage rates, is already millions of dollars over the original estimate. (That’s why the “debt financing”—a.k.a. “a loan”—was necessary, despite being sold to the bank as necessary for Kinja development.) It’s also why sites are casually shopped around for sale: last year, Jezebel, io9, and Jalopnik were all on the block at times. There is precious little money in the coffers for unforeseen expenses, like a huge judgement in a lawsuit or a downturn in the market. (The latter is basically inevitable, although it remains to be seen how that will affect advertising; ad spends have traditionally gone up, not down, after a market crash, to stimulate sales, but the question is whether the increase in sales will go to traditional media companies like Gawker or directly into Facebook, Google, and television.)

Gawker Media has succeeded thus far for only two reasons: Nick’s laudable and mostly universal willingness to let writers publish what they choose (until they are fired, anyway) and, of course, the writers intelligence and commitment to the truth, even at great personal cost. Could Gawker Media have been a larger, more financially successful company? Absolutely. There were a lot of business opportunities missed because Denton was too afraid to take a risk. Does it still have a chance of surviving as a small, independent publisher with modest profits? It will be hard, but it is possible. But it will not happen without a unity of vision that its leadership has historically not provided, or without the environment to experiment, to grow, and to speak openly and honestly about the financials and strategy of the company. (Or, at least, it won’t happen with you all still employed.) That has been impossible until today, but you have just given yourselves a chance to push back against the infighting and paranoia that has hobbled the organization for its entire existence.

You’re some of the greatest writers and thinkers I know, I miss you terribly, and I sincerely hope it works out. You’ve got a fighting chance now. Update: Here's Denton's response.