Demand Media Firing Freelancers? Company "Reevaluates" Writers as Stock Price Tanks

As Demand Media's stock price continues to fall (NYSE: DMD), its freelance writers are betting the content company will conduct mass lay-offs in part because of a new explanation of its quality expectations.

Demand Studios, the content production arm of the company, emailed writers Aug. 2 that those with grammar scores at or above four -- on a one to five scale -- rank in the top 15th percentile while those at or below 3.5 fall in the lower 15th percentile.

The company has begun notifying writers with low scores that they will enter the long-standing Writer Evaluation Program (WEP), according to information posted on Demand Studios Sucks. The company employs thousands of freelancers to write articles for eHow and other properties.

It's not clear if all writers with a 3.5 or lower will be put in the WEP. Demand Media has not responded to LAUNCH's requests for information.

Demand Media initially denied that Google's Panda update, intended to push low-quality sites down in search results, affected traffic to its properties, which include eHow. But the company has focused on improving quality since the update.

The email from Demand Studios Content Manager Johan Mengesha, posted to Demand Studios Sucks (see screenshot below), says, “In line with this, we will reevaluate some writers who we believe are able to meet the new quality standard, but have not been able to do so consistently. It’s a chance for them to put their past work to the side for a moment and prove that they are great writers, no matter what their scorecard says.”

However, a high score does not necessarily guarantee safety from the WEP.

“DS did not say that the scores were the only factor in the decision to put a writer into the program,” a Demand Studios writer told LAUNCH via email. “Simply an important one.”

According to this source, when writers enter the WEP, they are only able to work on three articles, as opposed to the standard 10 articles per day. If a senior copy editor rejects any of the three articles, Demand Studios fires the writer, but if all three are accepted, Demand will reinstate the writer.

The source added that there are few known writers who have successfully completed the program.

The company hit a 52-week low of $7.65 a share on Friday and closed down today at $8.36 a share with a market cap of about $696M. Prices have fallen steadily since early April, when shares were around $23-$24, and fell 29% between July 22 and Aug. 4.

In mid-June, Goldman Sachs upgraded its recommendation from neutral to buy (Goldman Managing Director Guarav Bhandari is on Demand Media's board), and analysts remain bullish.

Quarterly results will be out Aug. 9. Analysts expect the company will lose one cent per share, according to a Wall St. Cheat Sheet report. Demand Media beat analyst expectations in Q1, reporting revenue of $79.5M and six cents a share in adjusted net income.

Miranda Miller, a professional writer who has contributed to content farms, wrote on Search Engine Watch last week that the Panda update has been good for the market.

“Content farms took advantage, tried to game the system, and got burned, along with thousands of writers they had lured in, half-trained, and let loose to rain their opinions, recipes, and how-to’s on the world," Miranda writes. "Google’s Panda update seems to have taken away much of the incentive for this top-heavy business model to work and I, for one, hope it stays that way.”