Why Freelance Writers Shouldn’t Bet on Demand Studios

For anyone who hasn’t been following along, Demand Media — owner of popular content mill Demand Studios — finally went public last week and netted about $77 million, after many months of seeking buy-in from investors. The company’s business model raised quite a few eyebrows, especially its lack of profit despite many public claims to the contrary, heavy reliance on Google to drive traffic to its sites, and dubious accounting method in which they amortize your measly $15 writer fee across five years.

But the deed is done now, and Demand is a publicly traded company, at a valuation that for a brief moment there was, surreally, greater than that of the New York Times.

What does Demand’s IPO mean for freelance writers? Let’s put it this way: I’m not buying their stock. And if I were writing for Demand, I’d be planning my exit strategy.

Harsh scrutiny hits Demand

I wanted to wait a week and see what happened with their stock price before I wrote about Demand again, to watch investors’ reactions. So here’s what it did: After a brief bump up — it priced at $17 a share, above its planned range — Demand stock has gone nowhere but down, as you can see in the chart at right.

Why is that happening? Skepticism has already set in within the investment community. For instance, at the influential investor blog Seeking Alpha, Kevin Berk suggested the company’s true value is more like $10 a share and strongly recommended investors sell it. Popular personal-investing site The Motley Fool named Demand “the market’s best short opportunity” — meaning investors could profit by purchasing options that essentially bet the stock’s value will decline.

It probably didn’t help that nearly the moment Demand went public, Google announced changes to its algorithm to crack down on spammy, plagiarizing sites. Demand said that wouldn’t affect it…until oops! It acknowledged maybe its sites do have a plagiarizing problem. And now they’re going to work on fixing that. Really. More Google changes are expected, and they could drastically affect Demand’s ability to draw viewers to their sites.

I think going public isn’t going to work out well for Demand, or for its writers.

As some observers have pointed out, Demand flourished in part because a lot of people were out of work and desperate, willing to work for a few quick bucks. Now, the economy is recovering, and soon the unemployment rate will likely begin to decline. It’s unclear how Demand will continue growing and get big enough to become profitable under this scenario. It’s a bit of a mystery why it’s not profitable already, given what they pay writers and editors versus what Demand makes, as I outlined in my earlier post on Demand’s IPO.

What it means for Demand writers

I think writers who depend on Demand for income should pay close attention to what’s happening here. Professional investors — people who analyze companies’ prospects for a living — are betting against Demand. They’re not seeing a profitable business model in here.

It’s worth noting that Demand’s IPO hasn’t paid off its debts. Far from it — it’s raised more than $300 million in venture capital. The IPO has bought it only modest breathing room. Translation: Don’t expect a rate raise. As Demand’s stock declines, the company’s value shrinks and its ability to borrow will shrink, too, limiting the company’s ability to spend for growth.

Now that it’s public, Demand will be under more pressure than ever to squeeze out costs. If anything, pay rates will likely only go down — that is, if Google doesn’t pull a shift that vaporizes Demand’s whole business model. Google is under its own pressure, from competitors such as Blekko, which is already filtering out junk-content sites such as Demand’s.

Demand Studios may soon find its new-media empire is built on sand that could shift or blow away. Here’s hoping Demand’s 17,000 freelancers are ready for the changes.

Chart via Yahoo! Finance

What can you do besides write for Demand? Find out in my new learning community for freelance writers.


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29 comments on “Why Freelance Writers Shouldn’t Bet on Demand Studios
  1. DOnald Frazier says:

    Were any freelance writers “bet[ting] on Demand Studios”?

    • Carol Tice says:

      I’ve run across many writers who just write for Demand, and many more where it’s a major part of their income. So I think it’s important to understand their story…and the need to diversify.

      And when I say ‘diversify,’ I don’t mean to other content mills. If Google changes its metrics, they’ll take the same hit.

  2. Samar says:

    Oh wow. Living outside of US, I wasn’t eligible to write for Demand Studios so never looked into it. I didn’t realize Demand was employing 17k freelancers! It’s time for them to branch out before they find themselves working for even lower rates or not at all.

    • Carol Tice says:

      Hi Samar –

      I think we don’t imagine all 17,000 of those writers are actively writing for Demand at any given time. Many are probably dormant accounts…but still, there are thousands of writers working there.

  3. Claudine says:

    Gee Carol,

    What a DAMN well written post ! As in VERY good.
    Cant wait for the webinar. Nicely priced too…thank you.

  4. John Soares says:

    Carol, I really appreciate your detailed and thoughtful analysis here. I agree that the outlook for Demand Media is not good for the long term. I also think the the stock price will likely decline dramatically and that DMD is probably a good short opportunity.

    However, I think the company could stay in business for a long time (several years) and continue to employ freelance writers, even at the same low rates they pay now.

    It is definitely possible that the pool of people willing to write for those low rates will shrink as the economy improves and creates more jobs, but job creation has been painfully slow and we will likely see many years of elevated unemployment rates in the United States, so Demand Media may be able to find enough writers for some time to come.
    John Soares recently posted..Why I Won’t Buy Demand Media Stock

  5. Freelance Laura says:

    I think this is ultimately a promising sign for the freelance business. Once potential clients realize that when they pay such dismally low rates, they can expect poorly researched work at best, and flat out plagiarism at worst. Maybe “consumers” will begin to realize that in writing like in all other things, you really do get what you pay for, and stop trying to get us to work for such ridiculously low pay.

    • Carol Tice says:

      Hi Laura –

      I’m actually seeing a good deal of that in the client nibbles I get. Got one from a company with 50 sites recently — they tried the cheap junk content route, and were now looking to hire a professional editorial team to write their posts. I also have clients that used to pay $100 for quickie stories and now pay $800 for fully reported stories.

      People are realizing that content isn’t king anymore — QUALITY content is.

  6. Dmae says:

    Start with the stock symbol. DMD. Doomed and damned come to mind. The short sellers were lined up before the offering. The syndicate sellers stabilize the issue, so don’t expect it to crack like an egg just yet. Stabilization means the syndicate agrees to buy back shares over a certain period. The trading volume on day one indicates the smart money, in at $17 and out for a quick uptick, had no intention of holding the stock long-term.

  7. Alice says:

    Thanks for speaking out against DMD. I worked for them a total of six months and wrote loads of carefully researched articles. I got good scores but now I am done. Some very strange things are going on there right now. It’s absolutely certain that writers will earn less, not more, now that the IPO is done. This is classic Emperor’s New Clothes: they’ve taken away a ton of higher-paying articles and given the masses a small bump of $2.50 per article (if they qualify for the ‘premium’ pay). There was a CE rant to increase rejected articles last month. I know, writers over there don’t ever admit to those. Anyway, this crap is supposed to convince investors that the company cares about quality. A senior person told a syndicate person at GS they’ll pay writers less in 2011.

    Writers that produce quality work shouldn’t give their efforts away. DMD is a doomed path to nowhere.

  8. This post reminds us all the key to freelance success; diversify, diversify, diversify.

    I earned tens of thousands of dollars with Demand Studios and appreciate that, but for months now I have been all but ignoring the site and focusing on job bidding sites, print freelance clients, networking, coaching, etc.

    I always tell people to have a backup plan…even if you have a 9-to-5 job. Especially in this economic climate, there really is no such thing as “job security.”

    Blessings,
    Stephanie
    Stephanie Mojica recently posted..3 Hot Article Writing Tips You Can Use NOW

  9. Jeremy T. says:

    They have already started to pay the writers less. Garden writers are being offered fewer and fewer $15 titles and double the number of $7.50 titles. If you want to write for the gardening channel you are pretty much forced to do so for $7.50. This will work its way into the rest of the title pool as well. Just a matter of time.

    I like John Soares’ reply. I agree that the pool of people willing to write for the low rates is about to shrink. But what is really scary is what the exodus will leave behind. The stay-at-home-moms, the shut-ins who are too sick (mentally or physically) to work outside the home: those who have just discovered content creation and now consider themselves “writers,” yet can’t seem to lure a real client.

    Rather than admit to themselves that they can’t write, they’ll keep plugging away at Demand Studios. Demand, who swears they are bringing up the quality of their offerings will then find itself with the utter dregs of their producer pool.

    Sad all the way around. Thanks for an interesting post, Carol.

    • Carol Tice says:

      You’re not the first person to respond and say rates are already going down — sorry to hear it. My vision of how this will go is pretty much as you describe.

      I’m fascinated by Demand’s story and will definitely be tuning in to see what happens next.

  10. k.t. says:

    Yeah, Carol! When I first heard of Demand, I wrote and asked if they retained copyright. They did. Didn’t waste another second. Same w/another content mill-type site, w/a 4-page agreement I would never have signed. Guess that’s why I’m running my own site! Thanks!
    K.
    http://www.glutenfreesafari.com/

  11. Thanks for letting us all know!
    Ollin Morales recently posted..2 Ways You Can Help Me Make Courage 2 Create BIGGER and BETTER

  12. Ellie says:

    Hey Carol, very thoughtful post.

    If there’s one thing I’ve noticed about the “lifers” who write and edit for Demand Media, it’s their signature mix of snobbery and utter naivete. There’s no discernible difference in quality between a DS article on eHow/Livstrong and an article on a similar topic published to HubPages or Bukisa (assuming it’s not written by an illiterate spammer). Yet articles published on revenue sharing content mills can easily earn the author more than $30, $50 over the course of a year. (That’s a better return on your investment than DMD stock!)

    I mean, for that level of quality in their output (and all DS writers confess they just half-ass their DS articles), they might as well publish with the lowest common denominator of content mills, where at least they will make more money and still retain the rights to the piece. Yet DM insists that what their writers and editors produce is Very Important Writing of the Utmost Importance. And many of their writers actually believe that what they output is superior.

    It’s just so silly how they turn their noses up at content mills that actually pay better, just because their DS articles are “edited,” whereas something posted on HubPages or Bukisa isn’t.

    I write for print publications, no one where I work can perceive a difference in quality between eHow and other content mills. We would never say that someone who writes for eHow is in a more elite class than someone who posts on semi-moderated revenue sharing mills. DSers need to find real writing clients, or if they like the “content” beat, at least go where the money is!

  13. Joe says:

    Freelancers shouldn’t count on any one client. You have to diversify. That’s rule one of freelancing. Demand Studios can be a great client to have, but if you are counting on them for too much of your income you’re making a big mistake.
    Joe recently posted..Demand Studios Scam?

  14. Jesse says:

    My Goodness everyone. Was anyone actually still writing for them? l tried Demand for one month a few years back and found that their pay is terrible, their editors can reject an article just because they didn’t like it or didn’t understand the topic, and the help desk was a facade. Why would anyone even bother with them after finding out how difficult they are, which would take the average person about three or four weeks?

    • Carol Tice says:

      Hi Jesse –

      I hear now and then from writers who say they’ve found Demand a good steady source of assignments, but in recent months that seems to be changing. Demand has cut back on assignments for some of its channels, leaving many writers scrambling.

      For most it was never a fortune, but it allowed writers to earn a small, steady income without having to do marketing. I think we’re going to see that change in 2012.

  15. Halina says:

    Just out of curiosity, doesn’t Demand Media also own good sites like Cracked.com? Does this mean that Cracked.com writer are also paid diddly? I like Cracked and have considered writing for the site. But I’m not going to do it at $5/article! Thanks much.
    Halina recently posted..Curious about crowdfunding and how it can help your business?

    • Carol Tice says:

      I have no idea! Why don’t you just ask the edit at Cracked? I would imagine Demand Media, as a public company, lists all its properties in its SEC filings, so you could just look it up in their releases.

      I find writers spend a lot of time musing about what markets pay instead of just finding out. Saves a lot of wasted energy.

  16. Anja Emerson says:

    I’ve always found their titles to be a bit ”out there” and I can’t really say I’ve really enjoyed writing for them. I’m surprised that their financial situation was so dire though, they looked very profitable on the surface.
    Anja Emerson recently posted..Resume

    • Carol Tice says:

      Their CEO gave a ton of interviews at one phase about how they were super-profitable and were going to kill all other forms of media…and then they filed for their IPO and the real numbers had to be disclosed. Was quite an eye-opener. And they’ve continued to struggle mightily to achieve profitability.

      Recently, they’ve been acquiring businesses such as video-training site CreativeBug (purchased last month), that don’t rely on written content…which I think signals their future direction away from that whole side of their business.

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