Accounting for Content at Demand Media

An analyst is assessing Demand Media’s accounting policies in the face of media scrutiny around its capitalization of media costs as well as some of its non-GAAP disclosures. She has to decide whether it is appropriate to capitalize these costs. In order to do so, she must evaluate whether the costs meet the definition of an asset. After analyzing the company, its business model and its strategy, she can compare its content costs to various other companies that create content (intellectual property); competing accounting policies are also examined. The analyst can then determine the appropriate accounting treatment and whether any adjustments are warranted. With respect to non-GAAP earnings, she can decide whether the metrics proposed by the company are appropriate in order to measure performance.

The case may be used in an introductory accounting course to illustrate the impact of capitalizing costs and to discuss the definition of an asset. Alternatively, the case may also be used in an advanced financial reporting course (either MBA or undergraduate) in order to illustrate detailed accounting standards related to accounting for internally developed intangible assets. The case illustrates the use of non-GAAP financial metrics in financial reporting disclosures. Students are provided with a reconciliation from the company's reported non-GAAP results to GAAP results. This can lead to a discussion of why non-GAAP disclosures are used, and whether the company's proposed adjustments are appropriate. Finally, students are provided with sufficient information to make quantitative adjustments to the company's financial statements in order to make them comparable to other competitors who expense costs. This is meant to illustrate the importance of understanding accounting policy choice decisions, and the necessity to make changes where applicable for analytical purposes.

• Accounting Policy Choice
• Intangible Assets
• Capitalization
• Non-GAAP Disclosure
• United States