According to a report from the Wall Street Journal: "in the past few months, about a dozen companies have announced new ventures related to online news, often in specialized areas such as media or technology. The latest is former Washington Post journalist Ezra Klein, who has been hired to launch a general-news site at Vox Media, owner of the tech and media website the Verge.
The new publishers are confident in their prospects, citing increased Internet usage and marketers' desire to reach highly targeted audiences through niche content sites and new forms of digital advertising".
But ad buyers and industry executives say the proliferation of new sites and automation in ad sales is driving down advertising pricing—by as much as 70% in some cases—making it tougher for sites to turn a profit from traditional online advertising. More news sites means more ad space is available.
Since the dawn of the Internet, news-related websites have come and gone. Web entrepreneur Jason Calacanis this week is launching Inside.com, a mobile news startup. Some 15 years ago there was another Inside.com, unrelated to the one debuting this week. Other warning signs abound. Earlier this month, AOL Inc. said it would sell a majority interest in its troubled network of local news sites, Patch, to a turnaround expert. AOL had for years struggled to sell enough ads to make the business profitable.
Gigaom, a digital content company focused on the media and tech sectors, is in the process of closing its Paidcontent.org site, which it acquired in 2012, opting to consolidate staff and coverage at its flagship site.
"People don't appreciate how difficult it is to do interesting journalism that is monetizable and sustainable over time," said Jim VandeHei, the president and CEO of Politico and Capital New York. "We would never build a media product based around [web] traffic and advertising. That is a fool's play in this day and age," Mr. VandeHei said.
He hopes subscriptions will eventually account for about half of revenue, with the rest coming from ads and conferences—another lucrative side business for news .
Gigaom has shifted away from traditional advertising to focus on selling customized research, and makes money from hosting conferences.
"There is no way you can have enough page views and scale to make enough money to support a great editorial brand," said Gigaom's Mr. Walborsky.
Among the flood of new entrants: Yahoo Inc. is launching a site focused on technology news, a niche where dozens of established media sites and blogs already vie for page views. Comcast Corp.'s NBCUniversal is financing technology journalists Kara Swisher and Walt Mossberg, formerly of The Wall Street Journal, in the launch of Re/Code.
Helping drive the latest boom is a belief that established news media outlets, including websites of newspaper and magazines, don't much appeal to younger people who rely on social media or other newer outlets for their news.
The high prices that some sites have fetched serve to fan the flames. The most obvious was AOL's $315 million purchase of Huffington Post in 2011.
Ad sales trends aren't in their favor, though. And increased use of automated ad exchanges—known as programmatic ad buying—is contributing to the downward spiral. Programmatic allows for marketers to bid on placement for their ads in real time, which makes it easier for advertisers to find lower-cost space on media outlets.
Most of the sites are closely held and don't disclose their financial performance. Some, including BuzzFeed and Vice, say they are already profitable. Vice Media is expected to generate around $500 million in revenue for 2014, at a profit margin between 25% to 30%, according to a person close to the company.
Neither company relies on traditional digital advertising, however.
Vice Media earns most of its money by licensing the online video content it produces to television distributors, and by getting marketers to underwrite its content in exchange for promoting their brands. BuzzFeed eschews traditional display ads altogether, relying instead on "sponsored content," in which marketers agree to underwrite a story or video in return for having their brand logo displayed adjacent to stories or online videos. The new Inside.com said it wants to add sponsored content once it has reached greater scale.
