The king of the gossip blogs is holding out on me.

'Where did you get the video?'

'It had been hanging around for a while.'

'How do you mean "hanging around"? Someone must have given it to you.'

'It was sort of out there.'

Nick Denton is smiling, which is understandable. The video in question features Tom Cruise extolling the virtues of Scientology and is both compulsive viewing and buttock-clenchingly embarrassing. 'We are the authorities on getting people off drugs,' the Hollywood A-lister tells his Scientologist interviewer. 'We can rehabilitate criminals... we can bring peace and unite cultures.' Denton posted it on his media-gossip blog Gawker.com in the middle of January, and it swiftly became headline news around the world. The Scientologists did everything they could to repress it, of course, forcing YouTube to take it down and throwing out legal letters claiming copyright like they were confetti. Denton refused to be cowed. 'It's newsworthy,' Denton wrote. 'And we will not be removing it.'

Since then the nine-minute sequence - look at those teeth! Listen to that laugh! - has been viewed more than 2.5m times. It has driven huge volumes of traffic both to Gawker and the dozen or so other smart, sassy blogs that Denton owns, sites which cover everything from the LA film business through travel and sport to porn and politics. In January, New York-based Gawker Media racked up nearly a quarter of a billion page views, making it the fourth most-visited set of sites when compared against the big US newspapers. It was even ahead of the Los Angeles Times. That can only mean one thing: bigger advertising revenues for the company. In turn it has secured Denton's reputation as soothsayer and seer on all things net, the go-to guy for predictions on the future of the online world by everybody from Rupert Murdoch to the Telegraph Group. Advertising Age has called him an 'industry leader'; New York magazine has credited his sites with establishing the 'de facto voice of blogs today'.

Which is why I want to know where he got the video. And perhaps I would by now if this interview were not hampered by what can only be described as a container-ship load of personal baggage. Because while Denton may be new news to some, he's very old news to me. We have been friends for nearly 25 years, since we first met as 16-year-old public schoolboys on the northwest London party circuit. Almost all my trips to New York over the past few years have begun with a catch-up here in his impeccable Soho loft, all high white walls and stripped floorboards and sofas to die for.

He moved to Manhattan at the start of the decade after leaving another internet venture. Back then, I asked what he planned to do next. He gave me a long speech about something called 'web logs', or 'blogs' for short. Blogging, he said, was the future. It would free the net, turn it from something people merely looked at into something to which they contributed. Ordinary people would publish their thoughts and observations, not just journalists.

I had laughed at him. Who, I asked, wants to read what ordinary people have to say? How many of them can actually write? Sure, he'd been spot on before. Following a career in journalism, Denton had already made a small fortune from other internet businesses. This time though, I told him, he was wrong. If he pursued this one he could only lose money.

Weirdly, he chose not to listen to me. In August 2002 he launched a blog called Gizmodo.com, which gives the inside scoop on new gadgets before the print media has even managed to get the toys out of the box. As a publishing model it was simplicity itself. He found an amateur blogger with a sharp, snarky voice that he liked, paid them a modest salary to carry on doing in their bedrooms what they had previously been doing for free, and supplied the technical support to keep it running.

In December 2002 he followed that with Gawker, covering the New York media world. It was initially written by a young woman called Elizabeth Spiers who, in 12 posts a day covering everything from a Tina Brown memo to the latest hiring and firings at the New York Times, perfected a gloriously sharp, nose-against-the-glass outsider take on the big wheels of Manhattan's press and publishing worlds. It was a big hit, a refuge for the city's creative underclass - the assistants and secretaries and wannabes who needed a reason to get up in the morning. Other sites followed and so, eventually, did the all-important ad revenue.

Last year Denton made his first appearance in the Sunday Times Rich List, at number 502. He was valued at £140m. As one of our mutual friends put it: 'Even if they've overstated his wealth by a factor of 10, Nick is still a hell of a lot richer than you or me.' And now I have to work out what makes him tick, which is easier said than done. The king of the gossip blogs is addicted to full disclosure, unless it happens to be about himself.

A chilly Friday morning on Spring Street in New York's Soho, and Nick - I can't keep calling him Denton - is dragging me into Balthazar, the hip faux-French brasserie across from his apartment, for breakfast. There are queues by the door, but we don't have to wait. They know him here; he's now the outsider as insider, the anti-establishment figure who made it beyond the velvet rope by simply being unignorable.

Nick has suggested talking here rather than in his apartment because up there, waiting for him, is his Macbook and he won't be able to keep his eyes off it. At the beginning of the year, after a series of resignations from his staff and media stories about unrest over a new payment system, Nick took over editing Gawker.com himself for the first time. It is a major job. From the days when it was just one woman in her bedroom knocking out a dozen posts a day, Gawker has spawned a staff of six reporters, including one in San Francisco to cover nights, generating more than 60 posts among them every 24 hours.

The other 14 sites are similar-sized operations backed up by technical people and ad sales teams. In all there are around 130 people earning their income from Gawker Media - they keep track of each other through a Facebook group, what else? - and they are in the process of opening a new office a short walk from Nick's apartment, with 60 workstations and various meeting rooms.

It's the end of a busy week for Gawker. But then it's always a busy week for Gawker. These past few days they've been taking the piss out of how the New York Times staff canteen is celebrating Black History Month - chocolate and watermelon on the menu, news of which was leaked to them by an anonymous staffer - tracking Naomi Campbell's antics in Rio, and splurging on the cult of Barack Obama and the way it is being reflected by his celebrity supporters. Chief among those ways is a video by Will.i.am of the Black Eyed Peas, set to one of Obama's inspirational speeches. 'Things like this are so cliche,' Gawker announces, 'that thinking they're a cliche is a cliche.' That one sentence captures the Gawker tone perfectly: sharp, world-weary, unimpressable.

Nick's own relationship with the site is complicated. He's proud of it, but worries about the attention it receives, if only for business reasons. 'It irritates me that everybody concentrates on Gawker, because it's just one of 15 sites and it doesn't even get the most traffic. It's a significant site, but it's not what we are.'

Perhaps not, but it has the most significant readership. If it turns up on Gawker the people who edit America's magazines, newspapers and books know about it, though they claim not to read it. As a result the bitchy commentary runs both ways. When there is a perceived change in Gawker they let Nick know about it. Over the past couple of months there have been a series of high-profile articles accusing the site of heading downmarket towards the scatological. New York magazine published a piece accusing it of having gone from knowing and smart to bitchy and vile. Then the New York Times weighed in with accusations that it had lost touch with its core audience and was no longer a must-read.

The main problem, they all said, was a new payment system. The days of the $12-per-post pay packet had gone. Gawker Media now pays proper salaries, often to established media people rather than bedroom bloggers. This year they have also started paying bloggers by page views. The monthly salary is an advance against a payment of $7.50 per 1,000 page views. Advertising Age promptly accused the Gawker group of 'pandering to the lowest common denominator'. It was an accusation that was hard to deny given a leaked internal memo from the company which admitted that paying per page views 'can overstate the value of cheap items with superficial appeal but which damage a site's reputation. Nevertheless it's the best measure we have so we're going to use it.'

It's easy to see how it could work for the bloggers themselves. The Cruise video's seven-figure viewing numbers would have netted the originator more than $20,000 for the month (though, as it was Nick himself, the company didn't pay out). For his part Nick describes it simply as the book publishing model and something that would have happened anyway. 'In print journalism you can't measure the success of each piece, but we can. If you can measure, why wouldn't you want to pay people accordingly?'

What about accusations that the site has become nastier? For example, he was accused recently of targeting people, such as the relatively unknown twentysomething daughter of New York publishing mogul Steve Brill, who are private individuals and don't deserve the attention. Gawker had posted an item mocking Emily Brill's Facebook profile, and the photographs of her newly svelte self that she had put up. From the outside it looked like victimisation for the sake of it: rich man's daughter loses weight and is pleased with herself. Denton snorts disdainfully. 'That's bullshit,' he says. 'The site's always been seen as bitchy and nasty. I don't try to dress up these stories as having a noble purpose. Occasionally, like the Scientology video, they may do, but that's not the point.'

Nick, now 41, was born and brought up in north London, the son of a Hungarian Jewish emigre mother and a Yorkshire-born economist father. He went to the fee-paying University College School in Hampstead, whose pupils represented every cliche of the bookish, liberal, self-consciously cosmopolitan corner of London in which it was situated. According to his schoolfriend and, later, internet co-conspirator Dave Galbraith, he had a Machiavellian streak even then. 'I was lousy at sport,' Galbraith says now. 'But I'd managed to avoid being bullied for it by being the joker. Nick said he'd be friends with me because I knew lots of people.'

I ask Dave if he always knew Nick would be a success. 'The last time I was asked this by a newspaper I said I knew Nick was going to be successful because he read The Economist when he was 13. When [that comment] was published Nick phoned me up and took the piss out of me for it, said it made me sound suburban. So this time I'm going to say it's a fucking miracle he ever amounted to anything.'

There was something distinctly calculating about Nick. He was famous for not committing to a Friday- or Saturday-night plan unless he could be certain that he had alighted upon the best option. As a result, if you ended up at the same bar or party as him, you were left with the sense you were in the right place, which was both reassuring and profoundly irritating.

Not that he was vastly gregarious. Tall, with a large domed head, he was more a genial presence than at the heart of things. We knew then that Nick was gay, though he didn't come out until university, and waited until his thirties to tell his parents. Today he is happily cohabiting with Doug, an artist, and is matter of fact about his preferences. When I suggest his sexuality simply adds to the notion of him as outsider, he shrugs - he does a lot of shrugging - and says: 'It's the easy cliche, but it may be true.'

At Oxford he prospered in student journalism before returning to London, where he thought he'd 'walk into a high-profile media job'. When he found himself working for the Economist Group, editing dull texts, he decided his life had taken a wrong turn, packed up his car and headed in the summer of 1989 to his mother's native Hungary, where he had spent his gap year. He was there for the fall of the Berlin wall and soon picked up small reporting jobs. At Christmas 1989 the local man for the Telegraph asked Nick if he would cover for him while he returned home. Which meant that when the Romanian revolution happened and refugees started pouring over the border, Nick was there. His first major article was a front-page splash in the Telegraph.

Soon afterwards he was put on contract by the Financial Times to report from Budapest, and stayed for a few years reporting on the new Europe. Even then, in the early Nineties, he was intrigued by the net. 'Once a month as a treat I would take the train to Vienna to eat sushi, buy porn and pick up the latest copy of Wired.'

Shall I mention the porn?

'I don't care. I would always try to avoid ripping off the wrappers before I got back to Budapest, but I could never resist.'

What? Of the porn?

'No, Wired. It seemed like a magazine beamed in from the future.' And then, self-mockingly he says: 'I had a vision of a future where journalistic information would be online and available all the time.'

It's a knowing gag. He detests being labelled as a visionary, though mostly, he once wrote, because visionaries tend to be poor at executing ideas. For his part he puts his uncanny sense for where the net is going down to 'having spent eight to 10 hours a day online for most of my adult life'.

Eventually he returned to London to cover investment banking, and was the lead reporter on the collapse of Barings Bank, breaking the story about the secret 8888 account where rogue trader Nick Leeson had hidden his losses. I ask him if that experience as a journalist informed what he does now. 'I don't know,' he says, helpfully. 'I'm not very reflective.' In 1996 he started writing about the internet, which in turn led to a move to San Francisco to report on the machinations of Silicon Valley. It was a frustrating posting. 'The deadlines were horrible and the FT had no prestige there.' Inevitably, he concluded that he would have more fun on the business side rather than reporting on it. In 1998 he quit the FT, determined to start his own internet venture. His interests took him in two directions. He was intrigued by sites that linked to information on others, and wanted to create a way of aggregating news headlines from across the old media sites that were going on to the web. He turned to his old schoolfriend Dave Galbraith who, though now trained as an architect, had been writing software for years. Together with another mutual schoolfriend, Angus Bankes, they would come up with the software to support Moreover.com. The idea was fiendishly simple. Moreover offered an application that harvested headlines from news sites according to specific criteria. So if you had a website dedicated to, say, deep-sea fishing or ballroom dancing, Moreover would provide your home page with a regularly and automatically updated set of headlines from the worlds of deep-sea fishing or ballroom dancing. It made static, unchanging websites look dynamic and up to the minute. In the days before blogging went global it was revolutionary.

Before that, Nick started pursuing another idea straight out of Silicon Valley: parties where budding internet entrepreneurs could be introduced to backers. Back in London he helped found First Tuesday, named after the day of the month upon which their parties would be held. In its short life, it would become a phenomenon, a poster child for the internet boom. 'First Tuesday wasn't intended to be a business,' he says now. 'We wanted to raise our profiles and find a way of getting to know investors without knocking on doors.' Soon though, as the internet bubble of the Nineties expanded, investors were banging on the door just to sponsor the parties. It would eventually spread to 60 countries and, in July 2000, was sold to an Israeli investment firm for $50m.

At the same time, backed with $20m from Steve Newhouse, scion of the family that owns Conde Nast, Moreover had also become established. But while the company did well, Nick was unhappy. Ahead of the curve, he had set up a deal to buy Blogger, the self-publishing platform that would help launch the blogging revolution, for $3m. The Moreover board didn't see what all the fuss was about and blocked the deal. (Today, Blogger is estimated to be worth north of $100m.)

Nick stepped back from the company. 'Moreover had been a grand plan,' he says now. 'And I told myself that I would never do another one of those. I would only do things that came naturally.' His notion of publishing blogs was not, he says now, a big idea for a big company. It was just something he had the money to back and which amused him. So when did it become serious? He thinks. 'When the editorial budget per month topped $100,000.'

Friday lunchtime and time for the weekly management meeting. Soon these will take place in the new Gawker headquarters, but for now it's Nick and a few of the guys around the cooking island in the kitchen of his loft. Ted Plunkett, the tech guy who keeps the sites up and running, rips away at a sandwich. 'We actually own our servers, which means we decide what stays up,' he tells me. 'That's why we didn't have to remove the Tom Cruise video. There's no service provider telling us what to do.'

For a while they talk budgets. Noah Robischon, the managing editor, describes the editorial spend for January, and while it's keeping to six figures it's a long way beyond $100,000. But then they had a good month: not just the Tom Cruise story, but the death of Heath Ledger, and over at Gizmodo a big story from the Macworld exhibition. Nick suggests they start thinking about selling a couple of their sites and perhaps launching a new one. He says he's keen on doing a gay site, but it's clear this is all about business rather than something he would like to see as a consumer. 'It's a nice sector because it's fragmented. There's not much out there.' His colleagues agree. As they talk it becomes clear that it's easy to misunderstand Gawker Media. It looks like a new tech company, all slacker jeans and trainers and meetings on the fly. But in truth it's as hard nosed as it comes. It's built on old media principles and becoming more so. It's about editorial niches. It's about dollars and cents.

Afterwards, Nick agrees. 'When it comes to what succeeds on the web it's exactly what British newspapers have been doing well for years.' It is, he says, why Gawker and its brethren would never have succeeded here. Our print media is already bitchy, sharp and stroppy. US print media is very much more restrained, mortgaged to its sense of itself as a noble calling, creating a perfect opportunity for Nick and his bloggers to sneak in and blow electronic raspberries. He accepts, however, that what they do has changed. Once upon a time his blogs merely pointed at things and made smart-arse comments about them. 'Now there's loads of that on the web,' he says, 'and what's missing is substance. Everybody is looking for something to link to.'

The reality is that traffic is built by being the news rather than merely commenting on it. Which is why the Cruise video was so important. He eventually tells me that it came to him from a Hollywood journalist who had been working 'in league' with the British writer Andrew Morton, who has recently published a big unauthorised biography of Tom Cruise. Others had the tape, but didn't post it, perhaps wary of the litigiousness of the Scientologists. 'The rule is whoever has it first wins, so I rushed to put it up.' Didn't he worry about the response from the Scientologists? A cue for one of his shrugs. 'I've never been burnt by a story. Maybe one day I will be and I'll learn fear of hot objects.'

The first time the importance of news became obvious was in November 2003 when he started Fleshbot, a porn blog written in a knowing and jolly rather than pervy voice (Nick, ever eager to distance himself from the slightest whiff of respectability, says he came up with it because he wanted to be able to find his porn of choice). They launched with the Paris Hilton sex tape, which put them on the map from day one. In March 2005, they got another hit when they updated a long-standing feature on Gawker called Gawker Stalker, in which readers emailed in sightings of celebrities. Now they've hooked the sightings up to Google Maps, theoretically providing a graphic of where celebrities are in real time.

Hollywood PRs were furious, calling it a 'stalker's charter'. George Clooney even called on fans to send in fake sightings. 'A couple of hundred conflicting sightings and this website is worthless,' he said. The then editor of Gawker, Jessica Coen, merely laughed. Even in this wired age it took a while to get these things up online, she said, 'and celebrities aren't trees. They do move.'

The future, Nick says, lies with what he calls iterative reporting, in which posts are used to request information and to help stand up stories. 'As a print journalist, if you hear a rumour you try to stand it up and if you can't the story dies,' he says. 'With a blog you can throw the rumour out there and ask for help. You can say: "We don't know if this is true or not."' What about libel? 'We just have to make sure we're not doing it maliciously and that we also admit when we're wrong. Personally, as a print journalist, I always found the most interesting stories to be the ones hacks talked about in the bar after work. Those are the ones we deal in.' He goes further, talking about how he wants his readers to be the source of stories, how they'll split page-view bonuses with them if the story runs. 'I want to institutionalise and automate chequebook journalism.'

Nick is in his element talking about this stuff. He could talk about it until his and your eyes glaze over. He's done it to me often enough. The more personal information is trickier. He refuses to be drawn on how much he is really worth save that the Sunday Times Rich List figure is 'way out'. (He does direct me to a tech-industry site which calculates the Gawker Media yearly revenue at just over $12m. That calculation, Nick says, 'is not absurd'.)

As we say our goodbyes, he returns to studying the enormous news feed on the computer screen before him: the pixelated stream of who's been doing what to whom and who might or might not be making money out of it; the stories about double-dealing celebrities and the people who manage them; the endless, comforting cyber gush of information.