What Do Demand Media’s Accounting Practices Say About its Business Model?

Demand Media is getting slapped around because of questionable accounting practices by which they propose to amortize the cost they pay people to write stories over five years. Henry Blodget appears to have kicked-off the story at Business Insider, and it’s getting coverage in Media Post and Adotas.

The argument from Demand Media is that the content they create today will have value that lasts five years. Therefore, as companies do with the costs of infrastructure – buildings and the like – they will distribute the cost for creating that content this year, over five years. The net effect is an improved bottom line in each of the five years. Blodget offers a simple explanation in his post.

While interesting, the accounting particulars don’t seem like the material issue here. More interesting are the implications for Demand’s business model. The unique idea behind the content mills has been search-driven, timely features and reporting. Instead, the accounting implies that what is searchable today will be searchable tomorrow, timely and relevant. Demand, the numbers say, is forever.  

Blodget describes this as “theoretically reasonable”, though he derides the proposed accounting practice. It is reasonable. Plenty of content lives online forever as anyone who blogs regularly and sees the search results linking to articles two and three years-old can attest. There is no shortage of relevant and enduring content online.

In which case, what problem are the content mills fixing? From its manifesto Demand says it is building a different kind of Media Company, one that listens fervently to the things consumers really care about (which recalls a similar manifesto from a long time ago), such as fixing a “cranky garage door”.

A quick check on Google using “cranky garage door” and there are 16,600  returns, most of them irrelevant (it is an imperfect search world after all) but many spot on, notably this one which at a glance offers the most comprehensive guide to fixing a garage door that any ambitious do-it-yourselfer could hope for. The post was made in 2002 and updated last month. Demand should cite it as a reference in its response back to the SEC; unless the technology of garage doors changes dramatically the value of content to help individuals repair them will last forever.

So, does more need to be said at this point about cranky doors? Sure, why not? But it explains that content mills aren’t really in the business of creating new, they are in the business of creating more – which can only be because they choose not to regard the legions of people who have been informing legions of other people, online, for nearly two decades. Or, they have determined that the only way to profit from the internet is to make a new one, perhaps drawing some of those legions to themselves at the rate of $10 per article, so they can brand and remarket it as their own. Either way, we recognize the model: it’s called traditional media.

Thanks to the inspired accounting of Demand Media, however, traditional media may have been given a new lease on life.

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