Demand Media

Demand Media
Demand Media, Inc.
Type Public (NYSE: DMD)
Industry Internet
Founded Santa Monica, California
(May 1, 2006)
Headquarters 1299 Ocean Avenue, Suite 500
Santa Monica, California, USA
Key people Richard Rosenblatt, Co-Founder, Chairman and Chief Executive Officer
Shawn Colo, Co-Founder and Head of M&A
Charles Hilliard, President and CFO
Revenue $200 million USD (2008) [1]
Employees 500 (2008).[2]
Website www.demandmedia.com

Demand Media, Inc. is an online media company and content farm[3] that operates online brands such as eHow, and Cracked, and is known for creating online content through its Demand Media Studios division based on a combination of measured consumer demand and predicted ROI. The company also provides social media platforms to existing large company websites and distributes content bundled with social media tools to outlets around the web.[4][5] The company also owns eNom, the world’s second-largest domain registrar.[6]

Demand Media was created in 2006 by a former private equity investor, Shawn Colo, and the former chairman of MySpace, Richard Rosenblatt.

The company employs an algorithm that identifies topics with high advertising potential, based on search engine query data and bids on advertising auctions. These topics are typically in the advice and how-to field. It then commissions freelancers to produce corresponding text or video content. The content is posted on a variety of sites, including YouTube and the company's own sites such as eHow, Livestrong.com, Trails.com, GolfLink.com, Mania.com, and Cracked.com.[7][8]

Contents

History

Demand Media was co-founded in May 2006 [9] by Richard Rosenblatt and Shawn Colo. Rosenblatt has a long history of building and selling Internet media companies. As CEO of Intermix Media and Chairman of MySpace.com, Rosenblatt was one of the innovators of Internet social networking.[10] Colo is a financial acquisition specialist. He worked for 10 years in the private equity industry as a Principal with Spectrum Equity Investors specializing in media and communications companies.[11]

Demand Media raised more than $355 million in financing over its first two years from investors such as Oak Investment Partners, Spectrum Equity Investors, Generation Partners and Goldman Sachs.[12][13]

In June 2007 Demand Media hired Charles Hilliard, a former Morgan Stanley investment banker and United Online senior executive, as its President and CFO[14] and acquired Byron Reese's how-to website, ExpertVillage.com of Austin, TX, for about $20 million. Reese became the company's Chief Innovation Officer and developed the algorithm that the company now uses to identify topics with high advertising potential.[7] By 2008, Demand Media had acquired more than 30 domain name portfolios and owned 65 destination websites. Demand Media said that its 2009 revenue was nearly $200 million and that it was making a profit,[1] but in fact the company had never been profitable.[15]

In July 2008 it was widely reported that Yahoo! was interested in buying Demand Media for between $1.5 and $2 billion.[16] Sources close to both companies said Yahoo! executives were attracted to Demand Media’s generation of advertising impressions and its ability to create niche social networks for media sites. Demand Media CEO Richard Rosenblatt later said that the company was not for sale.[17] The deal never got past the talking stage. It was reported that Rosenblatt wanted a price closer to $3 billion for Demand Media.[18]

Acquisitions

Since 2006, Demand Media has acquired a collection of relatively unknown sites and relaunched them with social networking features and video capabilities that serve specific niche interests[19] In the company’s first six months it made nine acquisitions, including the purchase of major registrars eNom and BulkRegister.[20] On November 6, 2008, Demand Media Head of M & A Shawn Colo said the company would continue to buy niche, well-trafficked sites because the company is profitable and still has a lot of cash in the bank.[21]

In 2008 Demand Media acquired Pluck, a company providing social networking and commenting solutions to other websites, for a reported $75 million in cash.[22]

In August 2011 Demand Media announced acquisitions of IndieClick and RSS Grafitti. The latter may allow access to providing content to Facebook publishers.

Business model

Demand Media executives say their websites are content-driven to attract visitors by showing up in multiword search-engine queries. The more words that are typed into a search engine, the more specific the search will be. This is called “the long tail”[23] search. Demand Media attempts to get visitors to its websites with these long-tail searches. It then tries to retain visitors with related content and social media tools. Their social media platforms get 3 billion interactions per month for clients with already well established brands.[24] Demand Media commissions specific website content that it then distributes to its own websites and others where they have advertising revenue sharing agreements.[25] As of 2008 Demand Media owned 135,000 videos and 340,000 articles. It is the largest contributor to YouTube, uploading between 10,000 and 20,000 new videos per month, and gets about 1.5 million page views per day on YouTube.[26]

Content is generated via a process in which Demand Media uses algorithms to generate titles, then posts the titles to a screened pool of free-lance writers or video creators. The list of available titles used to be >100,000 but was severely curtailed in the second half of 2011. Typically, writers can claim up to ten titles and then have a week to submit the articles. Format and length are dictated by guidelines. Submitted articles go to an editor (also a freelancer) who can either clean it up or request a rewrite. After writers submit a revised article it is either accepted or rejected. Payment via PayPal is twice a week.

Demand Media’s acquisition of Pluck.com in 2008 gave it the means to provide specialized content and social media platforms to any website.[16] The content comes with advertising attached. The website owners get free content for their sites and split the advertising revenue with Demand Media. This hybrid Internet publishing model has been referred to as Curated Social Content.[27] It is a combination of Enterprise Generated Media, such as newspapers, and consumer-generated media, such as blogs.

IPO

As of second quarter 2010, Financial Times reported that Demand Media is planning on an Initial Public Offering which would mean any acquisitions would be out of the question. IPO filing was completed in August 2010. Shares were initially expected to be offered in December 2010, in an offer that would give Demand Media a value of approximately $1.5 billion.[28] However, due to a Securities and Exchange Commission investigation regarding the company's novel accounting for "long-lived content," the IPO pricing was delayed until January, 2011. On January 12, 2011, the company announced it would price its IPO between $14 and $16 per share giving it a valuation of approximately $1.3 billion.[29] Some blogs have questioned Demand Media's claim to be profitable, given that its IPO filings show that has reported losses for the past several years. Additionally, several news sources claim that the company's accounting practices have recently been the subject of government examination.[30][31][32][33][34]

Post-IPO the stock rose to the mid-20s, but by fall 2011 had plateaued under $7.00.

Criticism

Demand Media has attracted criticism from Internet watchdogs for being one of the largest buyers of articles and videos,[23] purchasing thousands of search engine-driven content from low-paid freelancers to use on its websites to attract advertisers, such as Google's AdSense.[35][36] During autumn 2010 opportunities to write articles for $25 or $30 dwindled, leaving mostly $15 or $20 titles. New content volume also shrank, as Demand Media attempted a transition from "quantity to quality" postings.

From Business Insider Oct 20, 2011: "Demand is still sticking with its aggressive accounting, in which it capitalizes content costs and amortizes them over five years. This practice makes the company look profitable when it isn't. It also gives the company much higher "EBITDA" than it really has, because in Demand's case, "EBITDA" is really earnings before content costs."

See also

References

  1. ^ a b Joseph Menn, Los Angeles Times, Champion of the Obscure, Under Richard Rosenblatt, the company has amassed thousands of specialty sites and expects a healthy profit this year, July 16, 2008
  2. ^ Yahoo! Finance, Demand Media, Inc. Company Profile
  3. ^ Rosen, Jay. "Jay Rosen Interviews Demand Media: Are Content Farms 'Demonic'?" Retrieved 13 June 2011.
  4. ^ Michael LoPresti, EContent Digital Content Strategies and Resources, December 1, 2008
  5. ^ Business Week, Software and Technology Services snapshot
  6. ^ eNom.com
  7. ^ a b Daniel Roth (October 19, 2009), "The Answer Factory: Demand Media and the Fast, Disposable, and Profitable as Hell Media Model", Wired, http://www.wired.com/magazine/2009/10/ff_demandmedia/all/1 
  8. ^ David Carr (February 7, 2010), "Plentiful Content, So Cheap", The New York Timesw, http://www.nytimes.com/2010/02/08/business/media/08carr.html?8dpc 
  9. ^ Matt Marshall, Silicon Beat, The Mercury News, Demand Media raises $120 million for a bunch of shell websites, May 2, 2006
  10. ^ John Heilemann, CNNMoney.com, Giving the Audience Its Own Domain, profile of Richard Rosenblatt
  11. ^ Shawn Colo, Co-Founder and Head of M&A, Demand Media profile
  12. ^ Adam Ostrow, Mashable, All That’s New on the Web, Demand Media Raises $100 Million, September 25, 2007
  13. ^ http://paidcontent.org/article/419-demand-media-raises-another-35-million-total-comes-to-355-million/ PaidContent.org
  14. ^ [1]
  15. ^ David Goldman (2010-08-12). "The nonexistent profits Demand Media lied about". CNN. http://money.cnn.com/2010/08/12/technology/demand_media_profitability/index.htm?source=cnn_bin&hpt=Sbin. 
  16. ^ a b Michael Arrington, Tech Crunch, Yahoo Takes A Gander At Demand Media To Plug Some Holes, July 9, 2008
  17. ^ Kara Swisher, Boomtown, All Things Digital, Demand Media’s Richard Rosenblatt Speaks, July 9, 2008
  18. ^ CNET News, July 9, 2008
  19. ^ Kenneth Li, Reuters, Demand Media buys Pluck Corp, March 4, 2008
  20. ^ Ron Jackson, DN Journal, His Companies Have Sold for Over $1.3 Billion: Can Demand Media’s Richard Rosenblatt Do It Again with Domains?, April 2007
  21. ^ Bambi Francisco, Vator News, Demand Media, profitable and still buying, November 6, 2008
  22. ^ Erick Schonfeld, Tech Crunch, Demand Media Buys Pluck for $75 Million, March 4, 2008
  23. ^ a b Los Angeles Times, July 16, 2008
  24. ^ Bambi Francisco, Vator News, Demand Media profitable and still buying, November 6, 2008
  25. ^ Pete Cashmore, Mashable, All That’s New On the Web, Demand Media Launches Deals.com,December 1, 2006
  26. ^ Bambi Francisco, Vator News, Demand Media is largest provider to YouTube, Interview with Steven Kydd, EVP of Demand Studios, October 30, 2008
  27. ^ Jeremiah Owyang, WebStrategist.com, Demand Media’s Unique Publishing Model: Curated Social Content (CSC), November 10, 2008
  28. ^ http://www.ft.com/cms/s/2/104ddb4e-48ea-11df-8af4-00144feab49a.html
  29. ^ http://kara.allthingsd.com/20110112/demand-media-clears-sec-and-prices-ipo/
  30. ^ Austin, Scott (August 12, 2010). "Where Did Demand Media's Profits Go?". The Wall Street Journal. http://blogs.wsj.com/digits/2010/08/12/where-did-demand-medias-profits-go/. 
  31. ^ Goldman, David (August 12, 2010). "The nonexistent profits Demand Media lied about". CNN. http://money.cnn.com/2010/08/12/technology/demand_media_profitability/index.htm. 
  32. ^ Byrne Hobart (August 12, 2010). Demand Media’s IPO: Everything You Need to Know Byrne's Blog.
  33. ^ Blodget, Henry (December 23, 2010). "Come On, Demand Media, Just Drop The Bogus Accounting". businessinsider. http://www.businessinsider.com/demand-media-accounting-2010-12. 
  34. ^ Yarow, Jay (December 23, 2010). "Demand Media IPO Delayed, Tripped Up By Questionable Accounting Practices". businessinsider. http://www.businessinsider.com/demand-media-ipo-delayed-2010-12. 
  35. ^ http://www.ft.com/cms/s/2/bba9fefc-795d-11df-b063-00144feabdc0.html
  36. ^ Nicholas Spangler (November/December 2010). In Demand: A week inside the future of journalism Columbia Journalism Review.

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