Content Matters

With the possible exception of porn, no industry has been more impacted by the Internet than news. But while most of the focus has been on how web-based news has killed the traditional newspaper business model, less attention has been paid to how the new sites have changed the ways in which consumers consume the news.

New consumption models, combined with a seemingly endless array of sources, have resulted in a vast, highly fragmented industry, chasing limited advertising dollars.

That’s according to a new report by Lauren Rich Fine, research director for ContentNext Media. Fine recently joined ContentNext (publisher of PaidContent) after a nearly 20-year career following media and newspapers for Merrill Lynch.

In this challenging market, which sites are seeing strong traffic growth and who’s making money?

Not surprisingly, the dominant online news brands are many of the same that you’d see in the offline world. Brands like CNN, MSNBC, the New York Times and Gannett are all among the ten most visited news websites. Three online-only sites are in the top ten – Yahoo!, AOL and Google. But while the big media brands may dominate overall traffic, independent niche news and blog sites are growing rapidly and rising in importance. Fueled by the 2008 U.S. elections, sites like HuffingtonPost, Politico and RealClearPolitics.com saw their traffic at least triple this fall, surpassing that of many more well-known brands. These sites tend to differ from the more traditional media, in that they provide more opinion and commentary and typically have a defined bias, which helps users self-select the news sites they wish to read.    

The scale offered by larger organizations clearly helps in monetization. Smaller sites are dependent upon ad networks, while large sites or groups of smaller sites under a single owner can maximize CPM rates through use of a direct sales force. Yet, the study points out that smaller, focused sites can be profitable through aggressive cost management.

The report also looks at recent M&A transactions, noting that only 7 news-related acquisitions have occurred in the past 18 months, with another 14 investments. Of those seven deals, the largest was a traditional media deal, Cablevision’s acquisition of Newsday. Only two were for political commentary sites: Forbes’ acquisition of RealClearPolitics.com and Roll Call’s purchase of Capitol Advantage, suggesting some sites may have missed their peak opportunity to sell during the 2008 campaign.

On the venture investment side, two sites, Digg and the HuffingtonPost received large amounts, both 3^rd round investments. The remaining investments tended to be smaller, early round investments. According to the report, the challenge for these sites in attracting venture investments is that their upside remains modest, while capital requirements are also fairly low (obviating the need for large VC investment). That suggests that entrepreneurs seeking to build niche sites should stick with angel investors and build the business organically.

The report, Size Doesn't Matter: An Analysis of Online News and Political Sites, includes case studies and profiles of many top online news sites, and is available for purchase at the Alacra Store.