5 Reasons Demand Studios Only Pays Writers Peanuts — and Won’t Change

People are cogs in a machine

Have you wondered why content mills can’t pay writers better?

If you write for content mills — or have in the past — you know their pay rates are rock-bottom low. I gather $20 an article is the big time, in the mill world.

I hear about low pay from content mill writers all the time. The stories are remarkably similar, and usually go like this:

“I work really hard, putting extra time into research to make sure my posts are high quality. Still, I just get the same $15 as everyone else.

“And now, the mill is cutting back on how many good assignments they have, too. I know a lot of what they get is garbage…why don’t they just raise their rates and work with better writers?”

It’s long been a question writers shout to the sky, or ask other writers on chat forums. Why can’t mills pay more?

But that’s not where I ask. I’m a business reporter — so I go to the source.

Let’s peek behind the content-mill curtain

As it happens, one of the biggest content mills, Demand Studios, is owned by a public company, Demand Media. That means their finances are a public record.

That’s right, it’s a free look at the inner workings of how content mills make money! But I believe few mill writers ever read these reports.

This week, Demand Media released its annual report, disclosing its revenue and income for the year. I believe taking a look at this will help writers understand why mills pay squat — and why they always will.

In short, it’s their business model. It doesn’t work very well.

Demand’s rise and fall

Before we dive into the numbers, a little context: Demand is one of the biggest — and widely considered one of the most successful — mills ever created.

By 2009, there was buzz that they were wildly profitable and would soon put the New York Times out of business and destroy the entire model of hiring professionals to write reported articles. Then Demand filed to go public in late 2010, and the hype met reality. By all standard accounting measures, Demand was in fact losing money.

The company managed to go public anyway, and enjoyed an initial run-up in the stock market.

Then Google changed its algorithm to penalize sites like Demand’s, that rely on low-grade, repetitive, keyword-stuffed content. Overnight, Demand’s sites lost about one-quarter of their traffic. The stock crashed from a high around $24, and stayed down, hitting a low of $6 a share in fall 2011.

You can assume all the other, privately held content mills experienced something similar.

So there’s reason one why Demand doesn’t have more money for you: low company value.

High stock prices give the company a high value to bankers, and allow it to easily borrow capital for growth. Low stock prices mean a cash crunch.

Here’s what Demand made off you

So, let’s put on our green accountant’s eyeshades and take a look at how Demand’s doing.

In 2011, Demand brought in $325 million. Of that less than $200 million came from its content-development business — the cheap articles writers create for Demand’s stable of sites, which include eHow and Livestrong.

See, Demand has another business that’s a real cash cow and low-cost, too…domain name registration. That’s where they make the rest of their dough.

What did they net on that nice fat income? Nothing. Demand lost over $18 million in 2011.

Now, on to 2012. Demand made $381 million last year, $227 million of it in content development.

This time, they managed to squeak out a profit: just over $6 million.

Can you believe it? They had an audience of 125 million last year. That story you’ve been told about an ad-click affiliate goldmine — it’s really hard to make it pay, when you have to pay writers to create the content that draws people to those ad pages.

So, reason two mills stay cheap: Demand has pulled out of the red, but they’re still not making much money. That’s a profit margin of under 16 percent. The markup on running a coffee stand, by contrast, can be 200 percent or more.

Reason three: Growth prospects aren’t great. It’s unlikely Demand will grow hugely in size from here. Even if they did, there’s only a tiny profit in this way of generating income. So the outlook isn’t that there will be more assignments and money, unless they acquire new sites — but a low stock price makes it harder for them to buy up companies.

Reason four: Costs are going up. To get that huge traffic, Demand has to advertise on other sites. As the Internet gets busier, it’s harder to stand out in the mob, so Demand has to advertise more. They spent $12 million on “traffic acquisition” in 2011, and had to up it to $19 million last year.

And, of course, they had to pay you, the writers of the content. They do a good job of hiding how much that was in the report — closest line item I’m finding in expenses is “product development” — for which they spent over $40 million.

Compare that with the profit line and another truth emerges: Demand can’t afford you, even at the low wages they pay you now.

If what they had on their sites was more valuable to people, they could drive traffic with natural search and readers’ social shares for free, and spend little on ads. But most of their articles are low quality, so they have to flog the Internet to drive traffic in the door. If they didn’t have that cost, they’d have made four times as much profit.

Why don’t they blow up their model, pay more for great content, drop the marketing strategy, and earn more? Because that’s not how they roll.

It would take a huge, risky up-front investment to switch to a quality model…and clearly, they don’t feel confident paying more would earn them enough additional ad revenue to make it pencil out better than what they’re doing now.

Also, with the current low-quality model, standards are low and so the pool of potential writers who can do the work is plentiful. That allows them to continue pitting thousands of newbie writers against each other to keep costs low. Switching to quality would mean fewer qualified writers, and possibly — eek! — rising rates.

Demand’s new plan to make real money

There’s writing on the wall on where Demand is going with their business — and it doesn’t bode well for freelance writers.

In December, they bought another big domain-name site, Name.com. And this week, Demand announced the company is exploring a plan to separate their two businesses into two different companies. One business would have the domain name sites, the other the content mills.

Demand’s stock went up right away when they said that, for the first time in a long time.

Why?

Stock investors like easy-to-understand business models. They also like high-margin businesses.

This move will allow Demand to get more for its higher-margin domain business. The cost-heavy, marginally profitable content biz is dragging down the stock’s value. The company grew its revenue from domain registration last year, too — it’s a bigger percent of the pie now.

Demand also quietly killed off some of its content sites last year, the report states, and took a write-off on them.

If I were writing for Demand, that might make me bite some fingernails. What would you do if the site you’re writing for went ‘poof’ one day? I recommend having a plan.

There’s talk that they will fight their Google penalty by commissioning more better-quality, longer-form articles. That’s basically the one glimmer of hope here for writers.

I’m still waiting to see if they plan to pay more for that better content, or if there’ll be much of it. I’ve been hearing this one for years, but not seeing a lot of changes.

On the other hand, splitting the company could also allow Demand to more easily sell off, fold, or downplay its less-profitable content business. My money’s on it going more that way than the better pay/better articles direction.

Even if they might pay a few writers more in the future, 20 years covering mergers and acquisitions have taught me one thing: Companies don’t spend money while they’re cleaning up the balance sheet for a spinoff or sale.

So, reason five: Demand’s reorganization means spending cutbacks for now.

To sum it all up, the trends here for content mill writers aren’t good. It could be time for Plan B — getting out and proactively marketing your writing to find your own, better-paying clients.

What do you think of content mill pay, and where it’s headed? Leave a comment and give us your take.

 

 

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