Demand Media

Prospectus Summary

Our Mission

Our mission is to fulfill the world's demand for commercially valuable content.

Our Company

We are a leader in a new Internet-based model for the professional creation of high-quality, commercially valuable content at scale. While traditional media companies create content based on anticipated consumer interest, we create content that responds to actual consumer demand. Our approach is driven by consumers' desire to search for and discover increasingly specific information across the Internet. By listening to consumers, we are able to create and deliver accurate and precise content that fulfills their needs. Through our innovative platform—which combines a studio of freelance content creators with proprietary algorithms and processes—we identify, create, distribute and monetize in-demand content. We believe continued advancements in search, social media, mobile computing and targeted monetization will continue to be growth catalysts for our business.

Our business is comprised of two distinct and complementary service offerings: Content & Media and Registrar. Our Content & Media service offering includes the following components:

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Content creation studio that identifies, creates and distributes online text articles and videos, utilizing our proprietary algorithms, editorial processes and community of freelance content creators;


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Enterprise-class social media applications that enable websites to offer features such as user profiles, comments, forums, reviews, blogs and photo and video sharing; and


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A system of monetization tools that are designed to match targeted advertisements with content in a manner that optimizes advertising revenue and end-user experience.

We deploy our proprietary Content & Media platform both to our owned and operated websites, such as eHow.com, and to websites operated by our customers, such as USATODAY.com. As a result, our platform serves a large and growing audience. According to comScore, for the month ended June 30, 2010, our owned and operated websites comprised the 17th largest web property in the United States and we attracted over 86 million unique visitors with over 550 million page views globally. Our reach is further extended through over 350 websites operated by our customers where we deploy one or more features of our platform. These customer websites generated over 800 million page views to our platform during the month ended June 30, 2010, according to our internal data. As of June 30, 2010, our content studio had over 10,000 freelance content creators, who generated a daily average of over 5,700 text articles and videos during the quarter ended June 30, 2010. We believe the output from our content studio makes us one of the world's most prolific producers of professional online content.

Our Registrar, with over 10 million Internet domain names under management, is the world's largest wholesale registrar and the world's second largest registrar overall. As a wholesaler, we provide domain name registration services and offer value-added services to over 7,000 active resellers, including small businesses, large e-commerce websites, Internet service providers and web-hosting companies. Our Registrar complements our Content & Media service offering by providing us with a recurring base of subscription revenue, a valuable source of data regarding Internet users' online interests, expanded third-party distribution opportunities and proprietary access to commercially valuable domain names that we selectively add to our owned and operated websites.

We generate substantially all of our revenue through the sale of advertising in our Content & Media service offering and through domain name registrations in our Registrar service offering. For the year ended December 31, 2009 and the six months ended June 30, 2010, we reported revenue of $198 million and $114 million, respectively. For these same periods, we reported net losses of $22 million and $6 million, respectively, operating loss of $18 million and $4 million, respectively, and adjusted operating income before depreciation and amortization, or Adjusted OIBDA, of $37 million and $26 million, respectively. See "Summary Consolidated Financial Information and Other Data—Non-GAAP Financial Measures" for a reconciliation of Adjusted OIBDA to the closest comparable measures calculated in accordance with GAAP.

Industry Background

Over the last decade, the Internet has challenged traditional media business models by reshaping how content is consumed, created, distributed and monetized. Consumers today spend more of their time online, venturing beyond major Internet portals and visiting an increasing number of websites to find specific content for their personal needs and interests. In addition, consumers are changing the way they discover content online, primarily through advancements in web search technology and the popularity of social media. However, consumers are often unable to find the precise content that they are seeking because the demand for highly specific, pertinent information outpaces the supply of thoughtfully researched, trusted content.

The increased specificity of consumer demand for online content strains many existing content creation business models. Traditional models focus on producing content with sufficiently broad audiences to justify elevated production costs. This traditional approach is less effective for fulfilling at scale the increasingly fragmenting consumer demand for content. Meanwhile, the widespread adoption of social media and other publishing tools has enabled a large number of individuals to more easily create and publish content on the Internet. However, the difficulty in constructing profitable business models has limited such individual endeavors largely to bloggers and passionate enthusiasts who, while often knowledgeable, may lack recognized credibility, production scale and broad distribution and monetization capabilities.

The demand for highly specific content also presents new opportunities for advertisers seeking to effectively reach targeted audiences. Finding better ways to reach this fragmented consumer base remains a priority for advertisers, a trend that is likely to accelerate as online advertising growth outpaces that of offline advertising growth, and as advertising dollars follow audiences from offline to online media. From 2009 to 2012, online advertising in the United States is projected to grow to $31 billion, reflecting a compound annual growth rate of 16%. However, over that same period, total media advertising is only expected to grow at a compound annual growth rate of less than 1%, according to ZenithOptimedia.

These trends present new and complex challenges for consuming, creating, distributing and monetizing online content that traditional and even new online business models have struggled to address. These challenges have had a profound impact on consumers, content creators, website publishers and advertisers who are in need of a solution that connects this disparate media ecosystem.

Our Solution

Our solution is based on the following key elements:

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Content. We create highly relevant and specific online text and video content that we believe will have commercial value over a long useful life. We employ a rigorous process to select the subject matter of our content, including the use of automated algorithms with third-party and proprietary data along with several levels of editorial input. The objective of this process is to determine what content consumers are seeking, if it is likely to be valuable to advertisers and whether it can be cost-effectively produced. To produce professional content at scale, we engage our robust community of over 10,000 highly-qualified freelance content creators. Our technology and innovative processes allow us to produce articles and videos in a cost-effective manner while ensuring high quality output.


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Social Media. Our enterprise-class social media tools allow websites to add feature-rich applications, such as user profiles, comments, forums, reviews, blogs and photo and video sharing. These social media applications facilitate social media interactions and allow websites to better engage their users, as well as ensure interoperability with popular social destinations such as Facebook and Twitter.


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Monetization. The system of monetization tools in our platform includes contextual matching algorithms that place advertisements based on website content, yield optimization systems that continuously evaluate the performance of online advertisements to maximize revenue, and ad management infrastructures to manage multiple ad formats and control ad inventory.


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Distribution. We deploy some or all of the components of our platform to our owned and operated websites, such as eHow and LIVESTRONG.com, as well as to over 350 websites operated by our customers, such as the online version of the San Francisco Chronicle and the National Football League website. We also deploy the monetization features of our platform by placing advertising on a portfolio of over 500,000 undeveloped websites that we own. We have also begun to expand the distribution of our content by offering our Registrar customers the ability to add contextually relevant content from our extensive wholly-owned content library to their sites.

Through our platform, we are able to deliver significant value to consumers, advertisers, customers and freelance content creators. We make the Internet a more useful resource to the millions of users searching for information online by analyzing consumer demand to create and deliver commercially valuable, high-quality content. Our advertisers benefit from gaining access to targeted audiences by matching their advertisements with our highly specific content delivered to both our owned and operated websites and our network of customer websites. Our customers benefit from the more engaging experience they are able to provide to their visitors by using our platform. Our freelance content creators benefit from the ready supply of work assignments available to them which allow them to earn income that is paid twice-weekly and to gain recognition by creating valuable content that reaches an audience of millions.

Our Competitive Advantages

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Proprietary Technologies and Processes. We have well-developed proprietary technologies and processes that underlie our Content & Media and Registrar service offerings. We continue to refine our algorithms and processes, incorporating the substantial data we are able to collect as a result of the significant scale of our operations.


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Extensive Freelance Content Creator Community. Our freelance content creator community consists of more than 10,000 individuals who have satisfied our rigorous qualification standards. A significant majority of our community has had prior journalism experience, and includes

Associated Press and Society of Professional Journalists award-winning authors and Emmy award-winning filmmakers.

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Valuable and Growing Content Library. Our wholly-owned content library, consisting of approximately 2 million articles and approximately 200,000 videos as of June 30, 2010, forms the foundation of our growing and recurring revenue base. We strive to create content with positive growth characteristics over a long useful life. Our content library also provides other benefits to us, including generating strategic data regarding user behavior and preferences, building brand recognition by attracting significant traffic to our owned and operated websites and facilitating strategic revenue-sharing relationships with customers.


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Substantial and Growing Audience. We believe that the significant audience reach across our owned and operated websites and our network of customer websites increases our advertising opportunities, provides valuable feedback data that we utilize to refine our platform, enhances monetization and end-user experience and delivers economic benefits to our customers through our revenue-sharing program. For the month ended June 30, 2010, our owned and operated websites attracted over 86 million unique visitors who generated over 550 million page views globally according to comScore, and our network of customer websites generated over 800 million page views to our platform during the same period according to our internal data.


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Large, Complementary Registrar Service Offering. We own and operate the world's second largest domain name registrar, with over 10 million domain names under management, which provides us with proprietary and valuable data, access to new sources of traffic and valuable websites as well as expanded third-party distribution opportunities for our platform.


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Highly Scalable Operating Platform. We have built an extensive operating infrastructure that is designed to scale with our growing services. Additionally, our systems have been customized to meet our unique service needs and provide us both the scale and flexibility that we need to manage our highly dynamic and growing service.

Our Strategy

Key elements of our strategy are to:

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Grow Our Audiences. We aim to grow our online audience reach and build passionate, online user communities. We intend to specifically target high-value vertical market segments, expand partnerships with brands and leading publishers and increase the scope of our relationships with our current Registrar customers.


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Improve Monetization. We intend to increase monetization opportunities by improving ad-serving algorithms, growing our advertising base and expanding our direct sales force.


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Enhance Our Value Proposition to our Content Creators, Website Publishers and Advertisers. We intend to continuously deliver outstanding service, scale of audience and feedback to our freelance content creators, customers and advertisers in a manner that enhances our leadership position in the professional creation of original content at scale.


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Increase Our Production Scale of High-Quality, Commercially Valuable Content. We intend to build on our success as one of the world's largest creators of professional online content by utilizing our proprietary technologies, algorithms and processes to increase the scale at which we identify, produce and deliver high-quality, commercially valuable content.


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Expand Internationally. We believe our model is scalable and readily transferrable to international markets. We intend to capitalize on the growing breadth of skills of our freelance creator community and the versatility of our evergreen content that can often transcend geographies and cultures to target certain foreign, including non-English speaking, countries.

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Embrace New Content Distribution Channels. We intend to leverage and expand our existing distribution network to emerging and alternative channels, including complementary social media platforms, custom applications for mobile platforms and new types of devices used to access the Internet.


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Grow Our Registrar. We intend to continue to increase the number of domain names under management on our Registrar by offering registration services at attractive price points, increasing customer loyalty through the sale of reliable and affordable value-added services and offering turnkey solutions to help new and existing resellers manage and grow their customer bases.

Risk Factors

There are numerous risks and uncertainties that may affect our financial and operating performance and our growth. You should carefully consider all of the risks discussed in "Risk Factors," which begins on page 14, before investing in our common stock. These risks include the following:

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our history of operating losses and the limited operating history in our market, which makes evaluating our business and future prospects difficult;


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the possibility that we may not be able to maintain or improve our competitive position or market share with respect to our Content & Media and Registrar service offerings;


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the possibility that our relationship with Google from which a significant portion of our revenue is generated may be terminated or renewed on less favorable terms;


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the possibility that our future internal rates of return on content may be less than our historic internal rates of return on content;


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the current dependence of our Content & Media service offering on the success of eHow.com; and


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the possibility that our customers may not renew their domain name registrations or may transfer their existing registrations to our competitors and we fail to replace their business.

Corporate Information

We are incorporated in Delaware and headquartered in Santa Monica, California. We commenced operations in April 2006 with the acquisitions of eHow.com, a leading "how-to" content-oriented website, and eNom, a provider of Internet domain name registration services. Our principal executive offices are located at 1299 Ocean Ave, Suite 500, Santa Monica, California 90401, and our telephone number is (310) 394-6400. Our corporate website is www.demandmedia.com. Information contained on our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only. Unless the context requires otherwise, the words "Demand Media," "we," "company," "us" and "our" refer to Demand Media, Inc. and our wholly owned subsidiaries.

Demand Media®, the Demand Media logo and other trademarks or service marks of Demand Media appearing in this prospectus are the property of Demand Media. Trade names, trademarks, and service marks of other companies appearing in this prospectus are the property of the respective holders.