Why Demand Media Really Is a Media Company and Its IPO Will Succeed

Critics Conveniently Forget That Media Companies Have Always Scrambled to Give People Content They're Looking for

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Keith Richman
Keith Richman
Today, Demand Media will have its IPO, and while the company and its model have taken a lot of hits lately, I'm betting it's going to be a big success (and yes, I'm buying shares). This will no doubt dismay its many critics who have faulted it for everything from its business model to its contributor compensation structure to the content itself. While the business may have risks associated with it, like most do, some of the critics are conveniently ignoring the fact that Demand is simply doing what media companies do and have always done.

Business model
Demand often gets faulted for creating content specifically oriented towards what people are looking for via search engines, the dominant online discovery mechanism. This seems like an odd critique -- fundamentally, most media companies attempt to create content that people are looking for, but the discovery mechanisms of channel surfing and newsstand browsing are more socially accepted.

Look at TV as an example. Success in any one area leads to an immediate rush of copycat programming.

The success of "The OC" led to MTV's "Laguna Beach" and "The Real Housewives of Orange County," whose own success led to multiple spinoffs and a number of rip-offs -- including "Baby Belles," recently ordered by TLC (jokingly called "The Real Housewives of Alabama"). The success of "Lost" led to a resurgence in science-fiction shows, "Survivor" led to a massive influx of reality TV programming, and "Friends" led to a year of shows about adults living in cosmopolitan cities. The New York Times even wrote recently about the boom in baby-related programming. Movie studios are also notorious bandwagon-jumpers.

In these cases, the media entities were simply creating content they believed audiences were looking for based on the success of existing programming. They knew that people were interested in these topics, so they solicited ideas for shows and distributed them through their existing outlets. Magazines are far from immune to this -- the entire notion of an editorial calendar is built around what people might be looking for in any given week or month.

Media is all about creating content people are looking for; searches are just the new channel guide/newsstand.

Compensation model
Demand Media was founded in May 2006, not even five years ago. During this period of time they have created an immense amount of content and paid out millions of dollars to people who created that content. The criticism often mounted is it doesn't pay writers as much as other media outlets, or even pay a fair wage. However, consider this:

  • Demand at least is paying people for content. Think about how many websites simply scrape content from others or aggregate content without permission.
  • Demand pays what the market will bear. If there were not willing writers to create content at these prices, Demand would know it fast.
  • Demand has been steadily increasing payouts to writers whose content is more successful. If you are good at what you do, you will make more. Seems fair.

Ask any talent or literary agent in Hollywood today and they will have the same complaint: Studios are paying most writers less than they used to and operating with smaller staff. Successful show-runners, however, are making more than ever and parlaying their personal brands into big money deals. Demand Media is simply acting as a media company: paying people what they need to in order to run their business.

Over time, Demand Media will most likely dramatically raise the rates it pays to top contributors, as most web publications do over time. They are less than a year into a direct-sales strategy. As its ability to monetize content grows, it will be encouraged to hire full-time writers and editors that can drive value in ways other than search.

Content quality
The frequent criticism levied here is that Demand is creating content specifically for search-engine robots and not for human consumption. To some extent, this is the fairest criticism, as the articles are clearly not all at the same quality level.

Going back to the traditional-media argument, today we think of digital cable as the home of "Mad Men," "Breaking Bad," "The Closer," "Psych" and more. However, that programming strategy is really only 12-15 years old at best. Prior to that, a lot of content was chosen based on cost and a need to fill a 24-hour programming strategy. Sometimes it was high-quality content but sometimes it just filled airtime. You can make a strong argument that much of the content was not meant for human consumption -- because no one was watching. Audiences of certain cable networks then and now can be in the tens of thousands, or lower.

It is also worth noting that in the case of many smaller digital cable networks, we pay monthly affiliate fees for the right to access subpar content that we don't watch. At least Demand Media is not showing up as a bundled charge in your cable bill each month.

Moreover:

  • It is safe to assume that most sophisticated publishers at this point have guidelines related to search engine optimization -- everyone knows that search can be a meaningful traffic driver.
  • No publisher creates content solely for search engines. Publishers are highly motivated to keep users on their sites for as long as possible, as each page impression has a direct correlation to revenue. Increasingly, as its direct sales expand, Demand will focus on engagement as a key metric and the content will evolve appropriately.

Demand Media is criticized for a lot of things, but in reality, it is just a young, high-profile new-media entity. Like all young companies, it is of course not perfect and some of the criticisms are fair. Also, like all media entities, Demand will evolve over time and invest in content that will enable it to grow audiences and revenue. It is doing so under the new paradigm that all media companies are going to be forced to operate under -- programming as both an art and a science.

ABOUT THE AUTHOR
Keith Richman is CEO of Break Media. Follow him on Twitter at twitter.com/keithrichman.
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