Demand Media Has to Answer to Regulators for Accounting Practices

Most freelance writers are familiar with Demand Media, and some like myself have been exposed in the past to the way they treat writers with their stringent demands for such low pay. Demand Media/Demand Studios and all their other entities give a new meaning to the word content mill, and the information they recently disclosed to the SEC following their IPO filing in August 2010 should make all of us in the industry stand up and take notice.

Profit or Loss?

According to Demand Media’s IPO filing in August 2010 they had a loss of $22 million in 2009, $14 million loss in 2008 and a loss in 2007 of almost $6 million.  While this might not come as a shock to some people, the problem is that Demand Media’s CEO, Richard Rosenblatt, has been telling people in the media that the company is profitable.  Where is the problem? How can there be two separate answers to the same question? A company is either profitable or it isn’t, and quite honestly, I find it difficult to believe any kind of a loss because of the low payments they make to writers and editors who work for this content mill.

Demand Media’s Answer

The article that appeared in CNNMoney.com indicates that Demand Media treats payments it makes to writers and editors as a capital expenditure and expenses it over a five year period. Their reasoning is that they continue to make money from the articles writers publish for a period of 5.4 years, so they do not feel they should have to expense those payments at the same time they pay the writers. What this means for the writers that choose the flat $15 payment instead of revenue share is the company is still making money off those articles beyond the time covered by their payment to the writers.

Devaluation of Writers’ Needs

As a writer who once did work for Demand Studios, I have often said the way they treat writers is inhumane at best. While to novice writers, payment of $15 for a 400 word article may seem like a nice sum of cash, the reality is you have to work very hard to earn it, and in some cases it may take you more than an hour to research and write the article. Even if you choose an article on a topic you know well, you must still find at least one online source to use, and you must have at least five subheadings in each article.

Their required editorial reviews can also cause problems for writers who already have experience because they may assign you to an editor who treats you as though you are new to writing which was my experience. The combination of this dual accounting practice and their treatment of the very people who make them profitable is enough to make one question the integrity of the company and its entities in its entirety.

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10 Comments (+add yours?)

  1. CW64
    Jan 15, 2011 @ 17:46:30

    Definitely NOT a good reputation this company is building for itself. I am not surprised that DS is constantly seeking new writers–either the negative reputation is keeping writers at bay or writers who are already involved are constantly quitting due to the maltreatment, or both.

    Reply

  2. Brenda Coxe
    Jan 15, 2011 @ 17:53:02

    My guess is a combination of both. Also, since this report first came out several months ago writers have probably started to wonder how the company could possibly be in the red with the low rates they pay writers. The only ones likely to benefit are those who choose revenue share, but even there you are at the mercy of Demand Studios in hoping they are providing honest statistics.

    Reply

  3. Brenda Coxe
    Jan 20, 2011 @ 18:40:07

    New article states that Demand Media will have figures next week and may be worth $1.3 billion. Read the article here: http://www.adweek.com/aw/content_display/news/digital/e3i25130cd57f1590bd8b2fda6c270657c4

    Reply

    • CW64
      Jan 20, 2011 @ 22:36:41

      Didn’t I read this before, or was it your well-delineated article on the subject? Supposedly, they are worth so much but shouldn’t be due to a number of questionable factors. I can help wondering if their figures are accurate or not. After all, would they publish unflattering figures? The timing, too, seems suspect, since these allegations by those with first-hand experience have recently emerged and dispersed throughout various online communities. I keep an open mind, BUT I also remain skeptical . . . .

      Reply

  4. Brenda Coxe
    Jan 20, 2011 @ 23:19:18

    This is a different article than the one I originally posted when I wrote this blog. This one is more in line with the date when they will be publishing the information and what it is likely to reveal, namely how much Demand Media is actually worth compared to the small fees they pay their writers.

    Reply

  5. CW64
    Jan 21, 2011 @ 00:19:46

    This ought to be good, eh? I’ll take a look . . .

    Reply

  6. CW64
    Jan 21, 2011 @ 00:26:37

    Okay. I read the article. What is your feel and impression over this, especially the last part regarding the discrepancy between journalism industry’s stance and that of D’s advertisers? hmmm. What do you expect to find in the release when it comes out?

    Reply

  7. Brenda Coxe
    Jan 21, 2011 @ 00:36:22

    I am not taking a stand on this until I see the final report. I am anxious to see how they respond and their justification for such low pay rates when compared to their income.

    Reply

  8. Joe Taylor Jr.
    Jan 24, 2011 @ 07:30:52

    I think the issue exposes the wider threat to freelance writers: the business community doesn’t often understand how to value effective writing. I’ve sat across from prospective clients who think that $3 is already too high a price for a 700 word article, because that’s what they can get from a content mill in Manila. Likewise, I’ve encountered clients that think writing = typing. One client wanted me to e-mail him a screen capture of my desktop because he wanted to pay me by the hour for just the parts of the day he could see I was typing.

    So, it’s not surprising that Demand’s content valuation stretches out over five years, even though they pay up front. I’ve done work for some of Demand’s premium projects, that pay $20 or $25 per piece. Those are a solid opportunity to fill in gaps in my usual project roster, since I usually end up working with more experienced editors that understand the subject matter. If I stack a few similar articles together, I can often meet or beat my usual hourly target. And you can’t beat how well their automated payment system works.

    On the flip side, I’ve done a number of projects for clients with upfront retainers and backend royalties. I’m nearly always delighted with those residuals, that seem to be picking up steam every month.

    Reply

    • Brenda Coxe
      Jan 24, 2011 @ 15:11:02

      Residuals are fine as long as you can get enough going up front first. When you need to pay the bills, it is important to have enough cash flow to handle it. I’m just now beginning to build more cash flow, and once I can get more coming in I can begin to gradually increase my own rates without having to worry about losing clients.

      Reply

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