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There can be little doubt that there's a market for content produced by so-called content farms. And that this is having an impact on the market for online content in general.

But are content farms sprouting profits that match the popularity of their business model? Perhaps not.

Demand Media, which is arguably the Farmville of content farms, has received a lot of attention because of the apparent success of its business model, which relies heavily on freelancers knocking out content designed for search engines like Google to gobble up.

Much of that apparent success was based on statements made by the company's CEO, Richard Rosenblatt. As the Wall Street Journal has noted, Rosenblatt has been indicating that Demand Media is a profitable company for a couple of years now. In a 2008 interview, he even went so far as to state that Demand Media is "highly profitable."

Since Demand Media is a private company, the words of the company's CEO have had to suffice when it comes to guesstimating just how viable the content farming business is. But now that Demand Media has filed to go public, necessitating the release of company financial information, a different picture has emerged. And that picture is of a company that has not only never been profitable, at least by the standard accounting measures commonly associated with the word, but that in 2009, even saw its losses grow.

Not surprisingly, this makes for an interesting discussion for financial types, but for those interested in the business of online publishing, the discussions is far bigger than just one company.

Is the notion that an army of freelancers can produce content (more) profitably than skilled journalists just a pipe dream? If companies knocking out SERP-bait content on a massive scale aren't "highly profitable", what does that tell us about ad-supported content online? If the model doesn't work in a pure play fashion, should traditional publishers think twice about employing the model?

Obviously, Demand Media is still a young company. It's also fair to point out that it has multiple 'businesses' and has been active on the acquisition front. But given that Demand Media has been a poster child for content farming, the fact that it isn't quite as successful as many of us had been led to believe serves as a reminder: ad-supported content online is tough, no matter how that content is produced.

Patricio Robles

Published 17 August, 2010 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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Ryan Skinner

That you can spin gold of straw in Economy 2.0 should be a surprise to no one. But one would have to question the long-term viability of content farms. They answer the first need: availability of information. They don't answer the second: reliability of information. Wikipedia is a far better model of the same basic premise. (but, then, no one's making big profits by it, are they, Richard Rosenblatt?)

almost 6 years ago

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david h

I'm no accountant, but I think this is a little harsh, both by Wall Street Journal and by Econsultancy. Demand Media have made no secret that they have grown in no small measure by strategic acquisition - as such, will they have to write down the goodwill of those acquisitions over a number of years. If they want to write down over a short period (3-5 years) then they are going to have to ladle in considerable cost at the 'A' level of the post-OIBTDA number (that is what Amortization is). Give that, then operating income before these (accounting) numbers have been loaded in is the BEST way to assess how the company is doing (you know, silly things like revenue less COS less other costs).

Now it MAY be the case that there are extraordinary items that sit below the OIBITDA number - but nowhere has that been reported, so surely it shouldn't be assumed. But, you know, the media would rather spin a disaster story than give a balanced representation of the truth; the net result of which people who don't take the time to understand this stuff get spoon-fed another agenda-laden load of guff.

PS I am certainly not supporting Demand Media's business model (transparent natural-search arbitrage that adds less to no value to anybody) but that is not the point I'm making.

almost 6 years ago

Brian Anderson

Brian Anderson, Marketer at Sporting Index

Gil Reich does a good job of breaking down the numbers behind this story on his blog. Allegedly, content creation costs are amortized over 5 years so the losses could have been even higher last year.

almost 6 years ago

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david h

Nice post, Brian - very helpful. Gil does suggest that he is not sure whether the amortized content creation stuff is included in the 'adjusted' OIBTDA, but, I have a strong suspicion that they probably are. So, yeah, although I do take back what I said, I still think its a common journo error (or dissimulation) to simply use the absolute bottom line as a headline without any real thought about what went before.

almost 6 years ago

Patricio Robles

Patricio Robles, Tech Reporter at Econsultancy

David,

I don't think anyone is being harsh when the CEO of the company has been telling the world that the company has been "profitable" for years and by any common accounting measurement or layman's definition of the word, it hasn't been.

I'm not going to judge Demand Media's business prospects, which may or may not be compelling to investors, but pushing adjusted OIBDA brings to mind the phrase "liptstick on a pig", even if Demand Media isn't a pig.

almost 6 years ago

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Garious

I think content farms are great for those who want to save on hiring professional writers to write unique contents for the Web. Demand Media may be a great site, but one must also consider that search engines like Google are quite strict with duplicate contents on the Web and that's why there's tons of article spinner tools out there. Still, I'd say I hope Demand Media won't fall into the trap of many content farm sites on the Web that had their quality and standards fall over time just because anyone with a keyboard who can type and spell can now call him/herself a writer these days.

almost 6 years ago

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