News Websites Proliferate, Stretching Thin Ad Dollars

Big profits in online news may be as scarce as buried gold but that isn't deterring journalists and investors from rushing into the sector.

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. "It's becoming a very crowded market," said Neil Doshi, an Internet analyst at CRT Capital. "There is a bubble mentality occurring right now." 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.