Gawker Shocker: How the Web's Hottest Gossip Empire Lost Its Mojo

Within 24 hours of the death of John Travolta's 16-year-old son Jett last week, a new explanation for the tragedy was being put forward by one of America's most influential media organisations. The teenager's death, it suggested, had not been due simply to a seizure suffered by Jett in the Travoltas' holiday home in the Bahamas, but was the result of neglectful parenting stemming from the Hollywood star's sexuality and religion.

Alongside a photograph of Travolta kissing Jeff Kathrein, the carer who had discovered Jett's body, the Gawker story made provocative suggestions as to the nature of their relationship. The item also referred snidely to Kathrein, who is married to a woman, as a "faux nanny". In a boast that seemed to recognise the depths to which it had stooped, the blog observed that the theory it had just outlined was one "you won't read about in the trashiest of internet tabloids".

If this is just another snippet of wildly outrageous internet gossip, the Gawker blog itself – and its ancillary sites – form a media powerhouse that demands to be taken seriously. Last March, the New York-based company Gawker Media was valued at $150m. It has been named the world's most valuable blog operation in a survey by the website 24/7 Wall St and Gawker's British founder Nick Denton has beaten off bids from the biggest media conglomerates.

More than any company, Gawker Media has defined the tone of the blogosphere. Yesterday, its sites were speculating on the health of Michael Jackson and wondering whether he might "moonshuffle off this mortal coil"; musing on the appointment as surgeon general of CNN's Sanjay Gupta – "What the hell is this, really?"; rooting through the Facebook entries of Illinois senator Rod Blagojevich. Together, the blogs under the Gawker Media banner collectively generate around a quarter of a billion page views per month, outstripping more established news organisation rivals including the Los Angeles Times. In short, it is required reading for senior figures across the traditional media world, even though they might pretend otherwise.

And it has earned Denton a fortune estimated at £140m and a place in the Sunday Times Rich List. Five years ago, it was said that London-born Denton, 42, a former public schoolboy and Financial Times journalist who now lives in Manhattan, might have the nous to "transform blogging from a pastime into an industry" – and he has surely gone on to do just that.

But now there are signs that the Gawker empire, seen by countless businesses around the world as a model for online success, is in trouble. One title, Consumerist, a popular site set up to give a voice to dissatisfied shoppers, was sold off last month. Defamer, its Hollywood gossip site, has been put up for sale. Wonkette, which was set up in 2004 to satirise the political establishment in Washington DC, was sold off last April to the site's editor, reportedly for a nominal fee. Two other sites, the travel blog Gridskipper and the Idolator, which carries music news and gossip, were also spun off. In October, Denton wrote to staff with "some bad news", laying off 19 of his team, including three of the five writers on the site Valleywag, which reports gossip from Silicon Valley.

Then, in November, Denton himself posted on his own blog a gloomy vision of the future, under the title "Doom-mongering". He claimed that predictions of a 16 per cent decline in online display advertising revenues in America this year were overly optimistic. "From conglomerates to internet ventures," he wrote, "executives should be planning now on a decline of up to 40 per cent in advertising spending during this cycle... instead, they're sleep-walking into economic extinction."