Demand Media hurt by search changes at Google


By Jennifer Saba

Nov 7 (Reuters) - Demand Media said on Thursday thata drop in search engine referrals and weak advertising salessent its revenue down for the first time since the company madeits public debut nearly three years ago.

Demand Media, which owns the websites eHow, LiveStrong andCracked, mainly makes its money from articles and videos thatsurface high in search results. Its other line of business maintains top-level generic web domain names like ".actor" and".social."

"There are challenges we are facing," said Chief FinancialOfficer Mel Tang. "Our content media business is still a verygood platform. We are going to invest in areas of growth."

Founded in 2006, Demand Media was a closely watchedexperiment in how to create inexpensive content by tapping anetwork of thousands of freelancers for "how to" videos andarticles. The content is designed to show up high in searchresults capitalizing on advertisers looking to place theirdollars on popular articles and videos.

The problem with Demand's business model is that it is toodependent on Google. Over the past couple of years,Google has made several changes to its search algorithmspecifically to weed out what it considers low-quality content.

This hurt Demand because some of its articles and videoswere pushed down in search results, which in turn lowered itsadvertising revenue.

For the third quarter, Demand reported a 2 percent drop intotal revenue to $96.3 million because of weakness at its mediaproperties.

Its registrar business, which Demand plans to spin off,reported an 11 percent rise in revenue to $37.7 million. Revenueat the content and media division fell 7 percent to $57.7million excluding traffic acquisition costs.

The company's co-founder, chief executive, chairman andambassador to Wall Street, Richard Rosenblatt, left abruptly inOctober and Demand is currently searching for a permanent CEO.

Interim CEO Shawn Colo said the company is still searchingfor Rosenblatt's successor and has retained Spencer Stuart. Thesearch for the top job has become Demand's priority even as itprepares to separate its registrar business.

Demand Media earlier this week said that Taryn Naidu,currently the company's executive vice president of domainservices, was appointed chief executive and director of thenewly named Rightside Group.

The company reported a net loss of $10.4 million or 12 centsa share compared with a gain of $3.2 million or 4 cents a sharein the same period a year ago.

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