Demand Media Founders Exit Company

Three big names are leaving Demand Media, which has seen its stock price get hammered and its business model heavily scrutinized since its IPO one year ago.

The question is whether this is a sign of trouble for the content company often maligned as a “content farm,” or just the right time for three early investors to take their money and try something else.

As paidContent reported [1] Tuesday (Jan. 31), executive vice presidents Larry Fitzgibbon, Joe Perez and Steven Kydd are all leaving the company. All three walk away with shares in the firm, with Fitzgibbon taking home $125,000 as part of an “Executive Separation Agreement,” per an SEC filing.

Demand Media officials said that three executives departing at the same time is merely a coincidence, but an insider implied that Fitzgibbon, Perez and Kydd may have a new venture in the works: “They’ve been together for a while and travel as a pack.”

Things also changed for the departing executives late last year when longtime Demand Media investor/special projects exec Michael Blend was named evp of media and marketplace. “They no longer had operational roles,” said a source. Blend will now assume most of the three former executives responsibilities.

While insiders claimed that a handful of top executives leaving a company the size of Demand Media shouldn’t sound any alarms, it does beg the question of why someone would leave a firm that has recently gone public and is in the midst of hyper-growth mode. For starters, Demand’s stock price has skidded from $17 when the firm went public in January 2011. It’s now at around $6. Of course, Demand has had to go to great lengths to explain [2] its business model to investors, promising to pay its freelancers more money [3] while building more content around brand-friendly celebrities.

So how’s that strategy working out? Well, Demand’s signature property eHow.com, the traditional home of articles like “How to Unclog Your Sink,” has lost close to 10 million unique users over the past year, according to comScore, netting out at a still hefty 50 million unique users this past December. eHow bore the brunt of many of the changes instituted by Google’s infamous Project Panda algorithm change.

Meanwhile, eHow’s food channel, now headlined by celebrity chef Rachael Ray, reached about 5 million unique users in December—close to where it was a year ago but up nearly 2 million unique users since March, when its traffic had slipped considerably.

Perhaps Demand’s most high-profile launch in the past year is its fashion site typeF.com, which was created via a partnership with America’s Next Top Model hostess Tyra Banks. TypeF.com borrows from Demand’s service foundation but is far more magazine- and entertainment-oriented than previous Demand sites.

After a slow start, typeF.com approached 4 million unique users in December, per comScore. That’s not a bad number for a relatively young property, but typeF.com reaches less than half of Demand’s other celebrity-endorsed site, Livestrong, the result of a partnership with cyclist Lance Armstrong.