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F-8
Demand Media, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Company Background and Overview
Demand Media, Inc. (“Demand Media” and, together with its consolidated subsidiaries, the “Company,” “our,” “we,” or “us”) is
a Delaware corporation headquartered in Santa Monica, California. We are a diversified Internet company with leading online media
properties and marketplace platforms that enable communities of creators to reach passionate audiences in large and growing lifestyle
categories. Our business is comprised of two service offerings, Content & Media and Marketplaces.
On August 1, 2014, we completed the separation of Rightside Group, Ltd. (“Rightside”) from Demand Media, Inc., resulting in
two independent, publicly traded companies (hereinafter referred to as the “Separation”). Following the Separation, Rightside operates
the domain name services business, while we continue to own and operate our Content & Media and Marketplaces businesses. The
Separation was structured as a pro rata tax-free dividend involving the distribution of all outstanding shares of Rightside common
stock to holders of Demand Media common stock as of the August 1, 2014 record date (the “Distribution”). Immediately following the
Distribution, we completed a 1-for-5 reverse stock split with respect to all of our outstanding and treasury shares of common stock,
which is reflected retrospectively throughout the consolidated financial statements.
Content & Media
Our Content & Media service offering includes a leading online content creation platform that publishes content to our owned
and operated online properties as well as to online properties operated by our customers. Through our innovative content creation
platform, DemandStudios.com, a large community of qualified freelance professionals utilizes propriety technology and automated
workflow processes to identify valuable topics and then create high-quality content in text, video, photography and designed visual
formats. This content is published to our leading owned and operated online properties across several key categories, including
eHow.com, a how-to reference destination, and Livestrong.com, a health and healthy living destination. We also own and operate
Cracked.com, a humor site offering original and engaging comedy-driven text articles, video series and blogs created by our in-house
editorial staff, comedians and website enthusiasts. Our content creation studio also provides and publishes content for third-party
brands, publishers and advertisers as part of our Content Solutions service.
Marketplaces
Through our Marketplaces service offering, we operate two leading artist marketplaces where large communities of artists can
market and sell original artwork or original designs printed on a wide variety of products. Society6.com, which we acquired in June
2013, provides artists with an online commerce platform to feature and sell their original designs on art prints, phone and tablet cases,
t-shirts and other consumer products. SaatchiArt.com, which we acquired in August 2014, is an online art gallery featuring a wide
selection of original paintings, drawings, sculpture and photography that provides a global community of artists a curated environment
in which to exhibit and sell their work directly to consumers around the world.
2. Basis of Presentations and Summary of Significant Accounting Policies
A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated
financial statements follows.
Basis of Presentation
In 2014, we began separately reporting product revenue and product costs. As a result of our acquisition of Society6 in June
2013, these amounts are now more significant to us and, accordingly, are shown as separate captions under revenue and operating
expenses, respectively, on the consolidated statement of operations. Immaterial amounts in 2013 have been reclassified to conform to
the 2014 presentation.
Our common stock share information and related per share amounts included in the consolidated financial statements have been
adjusted retroactively for all periods presented to reflect the 1-for-5 reverse stock split of our common stock that was effected on
August 1, 2014.
The financial results of Rightside are presented as discontinued operations in our statements of operations for all periods
presented. Our statements of cash flows are presented on a combined basis, including continuing and discontinued operations. Unless
it is otherwise disclosed, all other disclosures in our consolidated financial statements are related to our continuing operations.