Demand Media’s Questionable Accounting Over Freelance Writers

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Demand Media's CEO, Richard Rosenblatt, sweating. Photo: Kim White/Bloomberg via Getty Images

Content farm Demand Media, which pays freelancers $15 to write and $3.50 to copy edit "articles" like "At-Home Treatments for Anal Warts," has submitted yet another amended filing to the SEC to try to put itself up for an initial public offering. In the IPO, which will now happen next year, Demand wanted to raise $125 million at a company valuation of $1.5 billion. Kara Swisher at AllThingsD reports that the holdup at the SEC is over the company's accounting practices, in particular the way Demand spreads out the cost of creating content for sites like eHow and AnswerBag. Typically, publishing companies account for the cost of developing content (like writers' fees) as they're incurred or over a short time. Demand, however, makes the argument that its content is more evergreen than topical. Because they feel like they can still make money off older content, something that might be harder for the New York Times, say, Demand has been expensing content creation costs over five years. The SEC hasn't yet instructed Demand to alter the method it uses to prove “probable economic benefits” from content over five years, which is why AOL and Yahoo are watching closely to see if they can do the same. But if Demand has to spread the cost over one year instead of five, its balance sheet suddenly looks a lot worse.

Business Insider's Henry Blodget tries to convince Demand Media, which already faces controversy over paying its writers and flooding your search engines with useless content, to drop this accounting strategy. Blodget argues that "it makes the company 'profitable' when it's actually hemorrhaging cash," pointing out that the five-year time frame is difficult when Demand hasn't even been around for that long. We dunno, though. "How to Create a Start-Up Floppy Disk" sounds evergreen to us. And what about "How to Charge the A/C of a 2003 Ford Taurus"? Advertisers will be tripping over themselves to sell ads on that moneymaker for years to come.

Demand Media’s IPO-Which Won’t Happen Until After the New Year Now-Depends on How It Accounts for Content [AllThingsD]
Come On, Demand Media, Just Drop The Bogus Accounting [Business Insider/SF Gate]
Related: The Thankless Life of a Content Farmer, or How Getting Paid $3.50 Per Article Isn’t Even the Worst Part