Demand Media IPO on hold

Way back in August of 2010, Demand Media, an online content creator filed for an IPO in the hope of raising $125 million. But as of end of December, it was still answering questions from government agencies about their accounting practice, specifically around how they expense their costs of content.

Most media companies, online and off, immediately report the total costs of content creation. But Demand spreads the costs over five years, which leads to a higher net income or lower net loss for the company. Demand’s rationale is that the writers’ content will generate revenue for the company over multiple years, so it shouldn’t have to recognize the costs upfront. And so they spread the costs over a period of years.

DemandMedia is not the only party waiting to get a resolution; other online content creators are waiting too. If this accounting principle is accepted by the government agencies, then it might become a norm in the industry as this definitely boosts the bottom line for the companies.