Financial gray areas plague Demand Media IPO bid

The "content farm" company has been criticized, reportedly by government regulators as well as pundits, for amortizing costs rather than reporting them up-front.

Demand Media, the syndicated online content company that filed for an IPO in August , has modified its filing to the U.S. Securities and Exchange Commission amid reports that the initial public offering has been delayed because of regulators' questions about Demand's accounting practices.

The issue, it appears, is that Demand Media amortizes the expenses of paying its freelance writers, distributing the cost over five years. It's something that the company has attempted to explain further in new additions to its SEC filing.

"Capitalized media content is amortized on a straight-line basis over five years, representing the Company's estimate of the pattern that the underlying economic benefits are expected to be realized and based on its estimates of the projected cash flows from advertising revenues expected to be generated by the deployment of its content," Demand wrote in an amended S-1 filing submitted Tuesday. What Demand means is that it distributes its expenses because it believes the written content's value persists and even grows over the years.

But critics say that it's dodgy, like Henry Blodget of Business Insider, who said that Demand should "drop the bogus accounting" because reporting costs over a distributed span of time can make individual years' profits look deceptively higher, and the company naturally wants to look appealing to investors as it prepares to go public.

Even without the accounting issues, Demand Media is still controversial. Relying on technology to seek out reader demand for content on certain topics, it then dispatches quick, inexpensive, and SEO-friendly assignments to freelance writers. Opponents of the "content farm" strategy say that it's degrading writers' work and polluting the Web with low-quality content, but the model has proliferated; Associated Content was acquired by Yahoo earlier this year , and AOL has launched a freelance clearinghouse of its own , Seed.com.

Demand calls its content "relevant (and) high-quality."

 

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