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Jul 3 2008 9:25PM EDT

Blogonomics: Gawker's Latest Pay Cut

Choire Sicha has the latest update on Gawker's payroll, and it's pretty ugly. Gawker writers get paid per pageview, remember, and that pay, as of the beginning of Q3, has fallen by 23%, from $6.50 to $5.00 per thousand pageviews. That's on top of the 13% pay cut they took at the beginning of the second quarter, to $6.50 from $7.50 per thousand pageviews.

Nick Denton, Gawker's owner and editor, tries to explain what's going on:

Denton wrote: "[Gawker Media Managing Editor] Noah [Robischon]'s calculations would suggest a rate of $4.15. I've got it up to $5.00 per 1,000 views...
Denton notes that this item is missing the "To Be Sure" paragraph, in which we fairly note that his young writers are paid more than other young writers at other print and web outlets.

The first statement, first. Nick owns the sites: he's Noah's boss, and can pay whatever he likes. I asked him about this; he told me that he has to be fair to the business side of Gawker, and that there's a limit to the degree to which he can play favorites with Gawker just because he's editing it right now.

But why should the pageview rate of $6.50 per thousand pageviews be cut at all, let alone dropped all the way to $4.15, as the initial calculations might suggest? At the end of the first quarter, the pageview rate was dropped on the grounds that first-quarter pageviews had far exceeded expectations, and that the writers had taken home much more than had been budgeted. But that argument doesn't seem to fly for the latest pay cut. Gawker got 51,144,948 pageviews in the first quarter and 49,439,769 pageviews in the second quarter: total pageviews actually went down, not up. (Note that Denton doesn't pay for all or even most of those pageviews: visits to the home page, or search results, or blog entries by people who no longer work for Gawker are all unpaid.)

It seems that when pageviews go up, the per-pageview pay rate is slashed. And when pageviews go down, the per-pageview pay rate is slashed even more.

I asked Nick about this, too. He said that pageviews were much higher than expected not only in the first quarter but also in the second quarter: given the pageviews which attached in Q1 to big stories surrounding Tom Cruise, Heath Ledger, and Eliot Spitzer, he'd anticipated a significant drop in pageviews in Q2. Which never happened. Given the difference between $4.15 and $6.50, it seems he anticipated a big drop indeed, on the order of 36%.

The way Nick explains his system, there's an editorial budget for the entire group of Gawker sites every month. The budget is basically Gawker Media's advertising revenues, minus its non-editorial expenses: rent, servers, sales people, tech people, that sort of thing - and probably some kind of income for Denton personally, too. This alone is interesting to me: the editorial budget is what's left over once everything else has been paid for.

The editorial budget is then divided up between sites. "We allocate that budget to new site launches, young sites which are growing fast, established ones which still have momentum," said Denton. "The general rule is that we apportion editorial spending according to a site's long-term potential." And the budget for Gawker, right now, turns out to be $30,000 a month.

From then on its a simple matter of division: take the budget, and divide it by the number of paid author pageviews that you expect the site will get over the upcoming quarter. In Gawker's case, that's about 7 million: it's basically the number at the lower right hand corner of this page, minus a bunch of pageviews from people no longer working for Gawker, and minus Denton's own pageviews. $30,000 divided by 7 million pageviews works out at $4.30 per thousand pageviews: the new pageview rate. Gawker writers should feel fortunate to be getting $5!

Assuming that the $30,000-a-month editorial budget has been constant for the past two quarters, it's easy to see why Denton's trying to bring down the pageview rate. At $7.50, which is what the writers were paid in the first quarter, the total payout would have been over $50,000 a month. And at $6.50 - well, I can actually tell you exactly how much each of the Gawker writers were paid last quarter.

In the second quarter, Richard Lawson made $29,850, Hamilton Nolan made $24,883, Ryan Tate made $20,296, Alex Pareene made $17,426, Sheila McClear made $14,063, Ian Speigelman made $12,930, and Nick Douglas made $5,840. Add that up, and it comes to $125,288, or $41,763 per month. And that doesn't include payments to video editor Richard Blakeley, cartoonist Jim Behrle, and other guest contributors.

Now there's two ways of looking at that extra $12,000 a month which Denton ended up paying over and above the budgeted payroll. The obvious way of looking at it is that it's cheap price to pay for the millions of unexpected pageviews he got, and indeed it's the expected and intended consequence of a pay-per-pageview system which encourages editors to maximize their monthly pageviews. If the editors can pull off the same feat next quarter, then they should get the same pay.

Denton, however, looks at it a bit differently. The $12,000 a month, to him, is bonus money - and bonuses are by their nature one-off things. The pageview rate is essentially a target: the number of pageviews you need to get to earn out your base salary. If you exceed that number, congratulations, you get a bonus. If you fall short for more than a month or two, then you're fired.

That's a tough business to be in, as a writer, because writers never feel as though they have much control over their pageviews. They're at the mercy of their readers, and if the readers turn fickle, they could be out of a job before the quarter's over.

Here too is the explanation for why Denton ends up paying healthy amounts of money to his writers - the other point he says should be considered here. Let's say that Gawker's pageviews, and Ryan Tate's, stay constant over the year - and that he earns $5 per thousand pageviews for the rest of the year. That would put his total 2008 income at $75,000, which is pretty respectable compared to many of his media-industry peers. But psychologically, it doesn't feel that great. For one thing, it would be steadily decreasing: $23,400 in the first quarter, $20,300 in the second quarter, and $15,600 in each of the last two quarters. In the second half of the year, he wouldn't be earning at a $75,000 rate, but rather at a $62,000 rate. Seeing your income decline is just demoralizing - and then add to that the fact that even if Gawker's pageviews, and Tate's, were entirely steady, by the second half of the year he would be very close, every month, to his earn-out target. Which means that he would be very close, every month, to "you're fired" territory. Not a pleasant position to be in, at all.

Most jobs pay a steady amount of money every month. Some jobs are different: sales jobs, in particular, are often based on commission. Most people prefer the steady salary to something volatile: they want to know they can pay the rent each month. But some people thrive on commission: they feel that they're really in control of their own income.

Paying bloggers by the pageview seems to me a bad idea for two reasons: firstly, most bloggers are the kind of people who prefer a steady income to a volatile one. And secondly, bloggers aren't in control of their pageviews. The number of posts they write? That, they can control. But the number of people worldwide who are going to download their blog entries each month? If they're lucky enough to have a blog entry "go viral", then yes, they can make a lot of money. But it's the nature of internet memes that they're unpredictable. And that unpredictability of income does not make for happy workers. So yes, Denton might pay more than his peers at places like the Observer or Radar. But the extra money just compensates his bloggers for their income volatility and job insecurity.

What's more, Denton himself is warning that "now comes that slow-news time of year that--in ancestral Hungary--they call the cucumber season". What happens if, during "that slow-news time of year," Gawker, which is reinventing itself as a news site, gets substantially fewer pageviews than it's been getting until now? Essentially all the contributors would come down to their base salary, since at $5 per thousand pageviews they wouldn't be getting enough traffic to earn out their advances.

If that happened to all the Gawker bloggers, Denton wouldn't fire them all; he might even raise the pageview rate a bit the following quarter. But at that point the employee dynamics would change markedly. The whole point of pay-per-pageview is that writers don't need to play politics any more, or agitate for a raise, or anything like that: everything is on a level playing field, and a 17-year-old kid who can bring in a million pageviews a month is just as valuable as a veteran with the same traffic figures.

If the bloggers start getting paid just their monthly base salaries, however, then suddenly large differences are liable to emerge. A rising tide lifts all boats, but when the tide goes out, some end up much higher up, on the rocky seabed, than others.

Gawker employees who joined after pay-per-pageview started know nothing of living on their base salary: many of them have been earning much more than that since day one. There's a disconnect, here: the way Denton views things, the base salary is what they should expect, and any bonus is just gravy. On his view, most Gawker bloggers have been unusually well paid so far this year; that's great for them and not so great for him, and going forwards they're going to come down to a more reasonable income, much closer to their base salary.

From their point of view, however, their income was always determined not by their base salary but rather by their pageview rate. If a blogger joined at $7.50 per thousand pageviews and is now getting paid $5 per thousand pageviews, that's a 33% pay cut, even assuming pageviews stay flat. If pageviews decline at all in the cucumber season, it's even worse, and the bloggers who weren't smart or fortunate enough to negotiate a reasonably high base salary are going to be the ones hit the hardest.

I think that Denton's found himself in a bit of a pickle, here. On the one hand, Gawker's done extremely well this year. It served its 100 millionth page of the year by the end of June, which is a positive thing which no one expected, not even Nick. On the other hand, the unexpected surge in pageviews happened to coincide with the introduction of the pay-per-pageview system, which means that his bloggers have now had six months to become accustomed to a level of income he never intended them to have. His business model requires that he bring their payroll down, and that's never going to be pleasant for anyone concerned.

And I do think the business model leaves a lot to be desired. Budgets aren't set according to sites' revenues, but rather according to their potential: Nick's favorite example is his gaming site, Kotaku, which is only now getting significant advertising revenue, after three years of building up a large and dedicated audience. "Jezebel or io9," he says, "new sites which don't yet get the advertising they one day will, we'll support for years to get them to the point of critical mass".

This is basically a cross-subsidy model: the cashflow from established properties is used to build new ones. And the model makes sense from the point of view of Gawker's shareholder, Nick Denton. From the point of view of his bloggers, however, it makes much less sense.

If you're a blogger at an established site like Gawker, it's quite obvious that for every dollar you make in bonus pay, Denton has made much more in terms of extra advertising revenue. You really earned that dollar. But then, at the end of the quarter, Denton pushes your income back down to its base rate, and spends the excess advertising revenue not on you, any more, but rather on his newest properties - properties which, if and when they start making money, will benefit him but not you. If I were in such a position, I'd think that Denton should fund new blogs out of his profits and not out of my bonus: after all, they're his new blogs, not mine.

How can Denton respond to this? One way would be by making it clear that he doesn't much care what his bloggers think. Once upon a time, Denton suffered a genuinely damaging departure, when Pete Rojas left Gizmodo to found Engadget. Ever since then, however, every time one of his writers makes a name for themselves and moves on elsewhere, his sites continue on without them, stronger than ever.

In January, after all of Gawker's long-standing editors left it in short succession, I said that the site would not quickly recover. I couldn't have been more wrong. Denton has never really erred by underestimating the importance of editors; if anything, his real respect and regard for the likes of Choire Sicha and Alex Balk maybe led him to let them keep their jobs too long. Yes, Gawker got more respect back then - but it also got fewer pageviews, and Denton's always been very clear about which of those two he cares about, and which he doesn't.

So let the editors kvetch, he could say: let them leave, if they don't like sudden 23% pay cuts arriving at the beginning of the quarter. The editors don't matter, the brand is bigger and stronger than any of them. And he might well be right.

To be fair to Denton, the reasonably long history of Gawker Media is one in which salaries have been steadily rising, to the point at which the likes of Hamilton Nolan make significantly more money blogging than they did working for a magazine. Denton could probably cut salaries significantly, and still find takers for his high-profile jobs; he might yet do so, if online advertising craters.

For the time being, however, the pain caused by the latest pay cut is mainly a result of Denton not really thinking through the consequences of setting the initial pay-per-pageview rates at more than he was willing to pay over the long term. That made a lot of people happy in Q1, but it's turning out to be causing some very real unhappiness in Q3. And really there's no point in anyone - not even Nick Denton - needlessly antagonizing a group of Gawker bloggers.

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