If you build it, they will come

In the last couple of weeks, larger media companies have been buying small online sites. Logo (owned by MTV Networks) bought three websites (365gay.com, AfterEllen.com & AfterElton.com), while Gemstar-TVGuide bought Jumptheshark.com. Prices for both sets of acquisitions were not disclosed, most likely because they are too small to attract attention of financial reports reader (and the acquirees are not public). What’s remarkable here is that the buyers are getting an established brand as well as the niched community it services. It certainly doesn’t make sense to build your own community from scratch, while all these niche websites out there already built their own loyal community. When they get acquired, they get access to the media companies’ library of content & their connections, while the media companies get access to a loyal community built over time (and their eyeballs for advertising & promotions). More content and low user–acquisition costs – a win-win for everyone.

I deeply suspect that the days of buying large sites are winding down, the most recent being NBC Universal’s acquisition of iVillage ($600M), mostly because the ROI from the purchase is still not significant. Profitability may come eventually but it sure is difficult to convince the street that your acquisitions were spot-on, especially if their contribution to your balance-sheet is currently irrelevant in the short-term, according to Henry Blodget’s blog.

More proof about the value of independent content creators – even the journalistic ones – ContentNext (parent of my favorite new media news site – PaidContent.org) received funding today. Of course, funding amount is not disclosed. Note - I rarely start my day without look at PaidContent first and I have it on my RSS feed so I can follow new media news throughout the day.

Disclosure: I am currently advising a new site (launched July 4, 2006 - www.dreadcentral.com) that will be a genre-specific content & community site. My immediate goal is to help the content creators to be self-sustaining (the site will be ad-supported to pay for server and development costs) – they are passionate genre-experts who are doing this for their love of the genre. Of course, getting the site acquired by a larger media company and helping them get full-time gigs out of it, would be a great consequence and good karma.

Update: WSJ reported that ContentNext received less than $1M in funding. Alan Patricof also told WSJ that starting a magazine cost $15M-$25M and it'll take 3-5 years to get profitable. In this new world (using Open Source apps and supported by ads), that barrier to entry almost doesn't exist anyway (as I am finding out from my current involvement). Om Malik of GigaOm also got less than $1M.