So a Couple of Things Are Happening to Gawker Media

By
The new Gawker.

Yesterday, Nick Denton published 3,000 words about how all of the Gawker Media websites were going to change from their standard, reverse chronology blog format to a setup that is much more simple: a splash page with one main story that can remain up as long as the editors want it to and other stories cushioned around it that will scroll down as they are published. You know, like a magazine website, only much simpler. Additionally, there will be more video and an editorial calendar (also like a magazine) to help better schedule ad sales. Denton is hoping to break free of the restrictive traditional ad rubric of cheap page-view counts, meaningless clickthrough tallies, and low-value CPMs — and at the same time make his ad space (which currently doesn't cost much relative to the site's traffic) magically seem more valuable.

So, if you're not already asleep, Reuters blogger Felix Salmon chimed in today with a 6,000-word piece full of thoughts about Denton's manifesto. He notes that this will kill Gawker's "sponsored posts," which are ads that sort of look like blog posts inserted into the daily feed. This makes sense, as the champion of this type of advertising, Gawker sales head Chris Batty, is leaving the company in tandem with this redesign. Instead, you'll see something more like ongoing television commercials and ad buys timed with big scoops.

Salmon also observes that this means that Denton is ruling out revenues from tablet or phone apps, seeing as this new format itself is very app-like and will look good on handheld devices. Instead, he appears to be prepping his website for when we all watch the Internet on our tablets — or our TVs. He concludes that with the inevitable drop in page views (the new format eliminates many redundant clicks), revenues are bound to go down at first. Not that it matters: Denton apparently has a cash cushion of $8 million. And there's been a lot of action involving his various holdings overseas:


The ultimate parent company has never been in the U.S.: it used to be Blogwire in Hungary, but now Blogwire Hungary has become a subsidiary of a Cayman Islands entity called Gawker Media Group Inc, which also owns various U.S. operations like Gawker Media LLC, Gawker Entertainment LLC, Gawker Technology LLC, and Gawker Sales LLC. (And what, exactly, is, or was, “Nick Denton Engineering“?)... What is clear is that most of the value of Gawker Media Group is to be found in the Hungarian subsidiaries—since it’s the Hungarian companies which own Gawker’s technology and its intellectual property. The main company there is Blogwire Hungary Szellemi Alkotást Hasznosító Korlátolt Felelősségű Társaság, which translates as Blogwire Hungary Intellectual Property Exploitation LLC; it came into being on October 1, 2002, and was officially registered on December 10 of that year. Denton has Hungarian citizenship (his mother, Marika, was Hungarian), which helped in terms of setting up the Hungarian company and getting associated tax breaks.

The Hungarian companies get all of Gawker’s international income, which flows in from 13 different salespeople in ten different countries and which, since it’s international income flowing to a Hungarian company owned by a Cayman Islands parent, is basically pure profit which never comes close to being taxed in the U.S. The result is a company where 130 U.S. employees eat up the lion’s share of the U.S. revenues, resulting in little if any taxable income, while the international income, the franchise value of the brands, and the value of the technology all stays permanently overseas, untouched by the IRS.

(For what it's worth, Salmon thinks that Gawker's proprietary web publishing technology could prove pretty valuable, even though it's never been regarded as much of a tech company.) As for all the corporate rejiggering, Salmon says, "I'm sure there are good tax reasons, but it also looks as though Gawker is moving from something held together with the legal equivalent of duct tape and twine to something more robust and permanent." The groundwork, he adds, has "now been laid for the long company-wide walk away from the world of blogs and towards Denton’s new promised land of cable TV. There will be more video — much more, both in posts and in ads; expect the new director of sales to have TV experience."

The new Gawker Media [Reuters]