Report: Small online news sites more proven than large ones

It’s good to be a small online media outlet as long as you cover something you can make money on — that’s the unsurprising conclusion of a report published today by PaidContent’s parent company, ContentNext. In the 50-page report, titled “Size Doesn’t Matter: An Analysis of Online News and Political Sites,” Lauren Rich Fine, a former Managing Director at Merrill Lynch and current Director of Research at ContentNext Media, Inc., discusses the dominance of traditional news outlets and the rising significance of independent political news operations like the HuffingtonPost and the DrudgeReport. The report focuses mostly on original content providers (eg. PaidContent , Slate, Politico, and FiveThirtyEight ) and those sites that combine aggregation with original content (eg. Huffington Post), but it ignores the role of interesting new online news models such Digg, Reddit or even Twitter.

In a climate where traditional news giants are struggling and even going bankrupt, Fine makes a case of the New York Times’ efforts to build an online presence by offering “rich media” features like video. She discusses how online revenues can achieve parity with the print counterpart by swapping from ad networks to direct sales revenue, syndicating articles from smaller sites, and offering original content like blogs to draw advertising dollars. Ultimately, the report concludes that large web-based news sites are unproven in scalability, sustainability, and in generating an attractive return for institutional investors.

The report uses long tail economics to show how small sites can do well by achieving greater distribution among a niche readership. Because operating costs are so low, these sites can still manage to be successful despite lower rates of advertising revenue. The report describes the revenue model for independent blogs and news sites and it offers, as an example, a news site with 1 million unique visitors a month which generates $1.5 million in annual revenues assuming a $2 CPM (cost per thousand user impressions) rate.

Entrepreneurs looking to start a business in the online news industry might want to tread carefully as any economic model for independent news site — especially those based on ad revenue — is likely to be challenging. After analyzing investment and returns from both traditional, digital-only, and mixed online-and-print news organizations of various sizes, the report concludes that there has been a low level of interest from institutional investors in this market. Invesment in news, online and off, has been modest over the last 18 months with less than $800 million in acquisitions and investments. Of that total, there were only 14 investments in the space, for a valued at a total of $89M.

So, budding online sites, don’t count on institutional funding, expect hurdles in scaling or generating profit through ad revenue, and stay small and nimble if you want to build a cashflow positive business. If you’re interested in reading the full research report, you can order a copy from ContentNext here.

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