Demand Media Inc. Part A

DemandMedia Inc.


DemandMedia Inc. became established in March 2006. The organization wasco-founded by Shawn Colo and Richard Rosenblatt. Demand Media an American company dealing with social media and content. Theorganization operates online brands like Cracked and eHow. Theorganization is also recognized for developing online content throughits studios based on consumer demand and projected return oninvestment (Schwabach57). Besides, the organization offers social media platforms to vastentity websites and allocates content bundled having social mediatools to outlets about the web. In addition, the organization ownseNom, which the globe’s second biggest domain registrar. Theorganization utilizes internet-based business model. Although it hasclaimed to be profitable, the organization’s profitability has beenquestioned since its filings indicate that the organization has madelosses for the last several years. Furthermore, the accountingpractices of the organization have recently been under governmentscrutiny.


Thereare different threats and opportunities that are associated withinternet publishing and broadcasting industry. One of theopportunities associated with the industry is the opportunity to avast market. Internet publishing and broadcasting industry has thecapacity of capturing a vast market (DemandMedia Inc).This emanates from the industry’s opportunity of reaching manyindividuals or consumers. Another opportunity associated with theindustry is the ability to meet consumers’ demand this emanatesfrom the industry’s capacity to connect with its consumers on anemotional and personal level. It is possible to get a fast responsedue to the use of the internet technology, which can help theindustry in identifying with the demand of consumers. On the otherhand, piracy entails one of the threats associated with thisindustry. It is easy to pirate materials offered in the industry.Besides, the industry faces the threat of encountering cyber crimes.With the growth of technology, holding of information through theinternet has become an issue due to cyber crimes.


Theaccounting policy for content creation cost of Demand Media Inc.entails recording media content at its acquisition cost like a finitelived intangible asset, which is amortized on a straight-line basisfor a period of five years (DemandMedia Inc).Content cost comprises chiefly of payments to third-party contentcreators. Besides, internal labor costs incurred in enhancing thematerial prior to publication are also included provided they areattributed to the content unit directly. On the other hand,accounting policies for content is different for competitors ofDemand Media Inc. The accounting policy for Microsoft is such thatcosts incurred internally in researching and creating a softwareproduct become charged to expense until technological feasibility isestablished for the product. For New York Times Company, productcosts include raw materials, benefits and wages, and other expensesonly bought content becomes recorded as an intangible asset andamortized. For Pfizer, research and development costs become expensedas incurred. Time Warner amortizes capitalized film production costsover the projected revenue streams as it recognizes revenue fromassociated films. Alternatively, WebMD content costs comprise ofeditorial and production costs.


Assetentails any personal or real property, either tangible or intangible,owned by an individual or company that can be assigned or given amonetary value. Therefore, an asset can be in a position to bringrevenue to an entity. Revenue from an asset can be earned andrecognized upon delivery of product or after service completion thisis according to the revenue recognition principle. Demand Media’scontent can be seen as an asset because it has a monetary valueattached to it that is, the organization can use the content ingenerating revenue, which is recognized after the content has beencompleted.


Usinga more conservative policy would change the manner in which theorganization sees its profitability. The statements of profitabilityare a reflection of operating income prior to depreciation andamortization. However, the organization can adopt the GAAP netearnings in order to change the way in which it sees itsprofitability. This would change the profits reflected on the incomestatement. Besides, adopting the GAAP net earnings may change thevalues reflected on the statement of cash flows and balance sheet ofthe organization. The specific items that would change in thestatements of cash flow is the net cash from operating activities,while accumulated income would change in a balance sheet. Furthermore, total operating expenses would change in the incomestatement. On the other hand, may stop using the policy ofcapitalizing the cost of online content and adopt a policy ofdirectly recording the costs as expenses when incurred.


Demand’snon-GAAP metrics include adjusted operating income beforedepreciation and amortization (OIBDA) and revenues net of trafficacquisition costs (Revenue ex-TAC). These metrics relate to theperformance of the organization since the organization uses themetrics when evaluating performance of its employees (DemandMedia Inc).For example, the organization uses OIBDA in establishing the targetfor paying annual employee bonuses. These metrics determine thefinancial performance and operating trends of the organization. Inconclusion, these metrics may seem beneficial to the organization,but they need not be used because they tend to ignore accountingprinciples, which may affect comparability with other businesses.


Accountingfor Content at Demand Media Inc. Retrieved fromfile:///C:/Users/OO/Downloads/Accounting_for_content_on_demand.pdf

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