While others sit around and bicker over the code Google (GOOG) geeks pound into their supercomputers, Demand Media (DMD) executives attend key conferences and hammer out deals to further grow the newly public company's brand. The latest -- a multi-year pact between DMD and celebrity chef and television personality Rachael Ray. Under the agreement, a DMD press release notes that Ray will serve as the "creative voice and talent mentor" for the eHow Food channel. This comes on the heels of Demand Media striking a similar union with supermodel and fashionista Tyra Banks.
In some ways, I liken DMD's approach to what Mel Karmazin is doing at Sirius/XM Radio (SIRI). After failing to come to terms on a new contract, Bubba the Love Sponge ranted about Sirius's approach, noting that the company wanted to cut his pay from $1 million a year to a relatively paltry $200,000. As a former radio guy, I totally see where Bubba was coming from when he said:
They (Sirius) paid an exorbitant amount for Hollywood people... with no (expletive) radio talent, so radio people like me have suffered. A lot of good radio people aren't getting an opportunity because of these Hollywood people... I don't have any business on a movie set, and actors don't have any business behind a radio mike.
What Sponge says makes sense if you are a pre-consolidation, pre-satellite radio guy like me. But Bubba knows the deal as well as I do. At his core, Howard Stern is an old school radio guy as well (see his movie Private Parts), but his career exploded, turning him into more than a radio personality. He's a celebrity. Howard is the type of talent Sirius will pay millions to help them drive people to their service and build a multi-faceted entertainment brand. The same goes for Dr. Laura Schlessinger, who left terrestrial radio, giving Sirius/XM exclusive rights to her show.
Just about any amount of money makes this is win-win for SIRI. Not only can Dr. Laura bring over subscribers who might not have considered Sirius/XM otherwise, she also generates instant cross-promotion opportunities thanks to her celebrity. If she writes a book, it sells. If she says something crazy, it enters the 24-hour news cyle in full force. Karmazin knows this only helps Sirius/XM by raising awareness and further building the brand. While radio talent like Bubba the Love Sponge have limited cache in certain local markets, they just don't have the national following and platform to justify a mega-investment. I argue a similar schema exists at Demand Media.
While the company has done a remarkable job building the eHow brand and expanding its reach across dozens of properties, it's time, as a public company, to take the next step. It's a great story -- freelancers spanning the globe, earning anywhere from $15 to $80 per article, have helped make eHow, other DMD-owned and-operated sites, and DMD's network of affiliated consumer sites some of the most viewed web properties in the world. Freelancers will likely always be the foot soldiers of the DMD model, but celebrity can elevate things to the next level.
As Demand notes in the Ray press release, her "millions of fans... enjoy her television programs, magazine, books, merchandise, and websites." Enter self-deprecating humor. That beats some hack, sitting at his Ikea desk in his tiny Santa Monica apartment, wearing long johns, and writing 500-word articles about Section 8 Housing. Useful. Somebody might need that information, but it's boring. You can love her, or think Giada is better looking, but Rachael Ray is not boring. And, like Dr. Laura (who is also no Giada), Rachael Ray will bring a whole pack of people to eHow (and potentially other DMD sites) who might not have paid a visit without her urging.
Thanks to my coverage of the company, I run the risk of being labeled nothing more than a Demand Media cheerleader. I'll field the shots. Pundits have taken such shallow, surface-scratch looks at the company, focusing almost solely on eHow how-to articles, while ignoring the dozens of other things Demand is doing, has been doing, and has in the works. You cannot make investment decisions on the basis of that kind of half-baked, uninformed tripe passed off as gospel. Somebody, other than the company, needs to present the bigger picture so investors can evaluate Demand Media on its true merits and growth potential as opposed to emotional and hysterical rhetoric.
Disclosure: I am long SIRI.
Additional disclosure: I am long SIRI via Jan 2013 $3 call options. I conduct freelance and contract work for Demand Media. I did not provide them with advance warning about my Seeking Alpha articles, nor do I anticipate negative consequences as a result.