About two months ago on the FH Public Affairs blog, with respect to revenue challenges facing traditional media outlets looking to transition to digital publishing, I argued:
A closely related problem belies advertising revenues. Because of the relatively low production costs of Web publishing, even if ad models were perfectly portable between print and online mediums, expected revenues would still be lower. Meanwhile, the inapplicability of economies of scale to Web publishing means that the costs of adding more original coverage (hiring reporters, editors, etc.) will rapidly outpace the revenues that advertising across that content can generate. This isn’t to suggest that Web journalism can’t function as an ad supported industry. Indeed, smaller and more focused outlets like TalkingPointsMemo and Politico are already succeeding in this model.
And via Felix Salmon, we learn this about internet media-giant Gawker:
Nick Denton says that Gawker Media’s revenues were 45% higher in the first two quarters of 2009 than they were in the same period last year; he also tells me that pageviews are up 40% June-on-June. Judging by his chart, profits (revenues less expenses) hit an all-time high this quarter, which explains why he’s started hiring again. (He passed, however, on hiring Bonnie Fuller.)
The cuts at the end of last year — you can see them in the declining expenses — not only made the remaining Gawker employees more productive, but also took out of the network the blogs which were the most difficult to sell to advertisers: Consumerist, Wonkette, and Valleywag. The only hard-to-sell site now is Fleshbot, which accounts for less than 7% of Gawker Media’s pageviews. (Gizmodo, the easiest sell, is also the most popular site, with about a quarter of Denton’s pageviews.)
Gawker’s now a lean money-making machine, which is well positioned to survive any further plunges in the online advertising market. The “I’m not in this to get rich” Denton of 2003 is a fully-fledged mogul now. And now he’s beginning to show impressive earnings growth, can the sale of a significant stake be far away? Or even the first blog IPO?
I argued that because on the web, it’s not much cheaper per unit to make more of something than less, profits wouldn’t scale well with increased size, and unchecked growth would trim margins much faster than it might for a traditional media outlet. The implication was that there is a critical mass for successful web publishing, and it’s a much smaller size than that of the media giants we know today.
A secondary implication which I didn’t specifically address at the time is revealed by the Gawker example outlined above. That is, because there’s little benefit captured by increasing scale, it’s difficult or impossible to reduce the “cost” of less profitable parts of the business, and accordingly, successful media outlets will be hard pressed to offer a diverse range of coverage under the same imprimatur. This isn’t necessarily a problem. It just means you ought to get used to going to different sources for different subjects.