Story Changes For Publisher

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Demand Media Inc. took a beating last year when Google Inc. significantly slowed web traffic to Demand’s sites. But the online publisher looks like it is finally on the mend.

Demand last month reported that its quarterly revenue was way up, its page views had increased and – for the first time since it went public last year – it reported net income. It was a thin profit of only $94,000, but it was a victory for a company that thoroughly revamped its strategy.

Demand’s main business is creating content for its three websites. The Santa Monica company sold ads for the sites and commanded premium prices thanks to billions of readers directed to its sites from search engines. But when Google last year started favoring sites it deemed had higher-quality content, Demand’s traffic swooned.

Retooling content and strategy has been a big undertaking for the company once slammed as a “content farm.” Part of the process involved removing more than 600,000 low-quality or redundant articles. But it was necessary.

“Demand was forced to clean and scrub its content,” said Anil Gupta, an analyst with Imperial Capital in Century City. “They were successful in removing low-quality content that was user generated and raising the quality of what they were producing. That was the key.”

The company, which employs 600, has made other moves, too. Last fall, it formed a partnership with San Bruno-based YouTube Inc. as part of the video site’s $100 million effort to create original channels. Demand formed three channels for YouTube that are spinoffs of its sites eHow, for basic information and instruction for do-it yourselfers; LiveStrong Women, focused on health and fitness; and eHow Pets.

These channels show Demand’s focus on expert-driven content. For example, videos on the eHow Pets channel feature dog trainer Victoria Stilwell, who has hosted programs on CBS and Animal Planet. The Livestrong Women channel featured a series that followed four female athletes as they competed in the 2012 Olympics in London.

Michael Blend has led Demand’s content side during the turnaround. Blend, who was promoted last month from head of content to president and chief operating officer of the company, came to Demand in 2006 when it acquired his domain registration company.

He sees the company’s recent upswing as an adaptation to the ever-changing nature of the Internet.

“We’re always making improvements in the types of content we produce,” he said. “What you’re seeing is the results of that labor and the continued effort to produce better work.”

As a result of the improvements, Demand last month reported results that beat expectations. Its quarterly revenue, $93 million, was up 17 percent from that same quarter the previous year. While net income was scant, it was a big improvement from a $2.4 million net loss recorded a year ago. Page views across all its sites were at 3.3 billion, a 30 percent increase compared with last year, which executives attribute to a continued focus on higher-quality content, including longer articles, celebrity partnerships and more videos.

Demand went public in January 2011 at $17. It bounced from a high of $24.57, shortly after the IPO, down to $5.24 after Google slowed its traffic last year. Shares closed at $10.11 on Sept. 5.

Changing strategies

Demand was started in 2006 by current Chief Executive Richard Rosenblatt, a former chairman at Beverly Hills’ Myspace Inc. It began as an online advertising site, but soon turned into a publishing company with the creation of its three main websites: LiveStrong.com, a health site; male humor site Cracked.com; and instruction site eHow.com.

Demand’s model of maximizing page views to command higher ad rates was based on using commonly searched terms in article titles in order to draw traffic through Google. It posted hundreds of thousands of articles and videos with that goal. But in February 2011, Google changed its algorithm in order to remove sites – including Demand – that were branded “content farms” from its top search results. Demand’s traffic declined dramatically.

Since then, Demand has tightened the editorial guidelines for its freelance work and has expanded its higher-quality content to get business from major advertisers.

For example, Johnson & Johnson signed a deal with the Livestrong Women channel on YouTube to play advertisements before and after the videos; the eHow channel has a similar partnership with Toyota Motor Corp. Demand splits the profits from the videos with YouTube.

Demand has been featuring more videos on its sites as well. Analysts say the push for more video is a smart move that capitalizes on a lucrative ad market and is a good fit for the company’s content.

“When you think about where the web is going, there is more video consumption,” Imperial’s Gupta said. “And you’d rather watch someone tie their shoe than read about it.”

There might be more changes coming up. Late last month, Demand filed with the Securities and Exchange Commission to raise capital by offering more stock. Analysts see the filing as a possible step toward acquiring another company. Executives at Demand did not comment about the filing.

Executives also avoided commenting on whether the public relations difficulties surrounding Lance Armstrong, who has been the face of Livestrong.com, would affect the site. Armstrong recently announced that he would no longer fight charges that he used performance enhancing drugs, a move that might strip the cyclist of his Tour de France titles.

Another part of Demand’s business is its domain registry, which could play a larger role in the company. It has millions of Internet domain names for sale.

Blend formerly headed Demand’s Internet registration site eNom. In the most recent quarter, it posted revenue of $33.4 million, a 13 percent increase from the previous year. Demand has also been collecting newly released domain names that might one day provide a bump in revenue for eNom.

Challenges remain, of course, such as Google possibly tightening its search algorithm again.

Blend said he isn’t concerned.

“We always thought it was an unfair rap to call us a ‘content farm,’” he said. “If we just do our job producing good content, then the rest will fall into place.”

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