I was thumbing through the November issue of Wired recently when I stumbled across an article on Demand Media, penned by senior writer Daniel Roth (one of my favorite Wired writers). It’s a detailed look at how the online network has successfully leveraged a user-generated content model and become the largest supplier of videos to YouTube. According to the report, Demand rakes in roughly $200 million a year and was valued in a recent round of financing at $1 billion.
Demand is reportedly the 15th-most-visited online media property, attracting 52 million visitors in September—bigger than cnn.com, twitter.com and weather.com. It seems like Demand is kicking butt.
But what jumped out at me while reading the Wired piece wasn’t Demand’s soaring profits. It was how co-founder Richard Rosenblatt (former CEO of Intermix Media, the company behind MySpace) thinks other media companies, which have been trying to increase the value of their content to at least match the cost of producing it, have the equation backwards. As he’s done with Demand, Rosenblatt said the trick is in cutting costs until they match market value for your content.
Demand utilizes an algorithm system it developed that mines search data, internet traffic patterns and keyword rates to commission stories/videos based on what online users want to know and how much advertisers will pay for it. The company has all but eliminated actual people from the process, other than to make sense of terms the algorithm spits out. (“Demand uses editors in its process, too” the Wired story says, but “they just aren’t worth very much.”)
Another way to cut costs: Pay your content producers squat. Rosenblatt’s massive stable of freelancers earn just $15 per article and $20 per video produced, on average. Some writers opt to earn nothing upfront instead to participate in a profit sharing program, although the story said it can take months to earn even $15 that way. Copyeditors take home $2.50 per article, fact-checkers get $1 an article and headline proofers bank a whopping 8 cents a headline.
Fifteen dollars a story? Granted, the stories are far from 4,000-word investigative pieces, but as a writer you’d need to crank out an insane amount of copy in order to earn anything close to what some think is a reasonable commission. Only a few years ago I was freelancing for a Boston-area newspaper, writing 300-word lifestyle/entertainment stories at about $100 a pop. That’s more than six times what Demand pays today.
To be fair, the pittance Demand pays its freelancers multiplied by the volume of content it produces has added up to $17 million in expenses so far. But even so, the idea that online content and its creators have been devalued is astonishing. As a content producer myself, it’s scary.
But as much as I don’t want to admit it, Demand’s model is something some publishers might want to take a hard look at. Making money online isn’t a no-brainer.