The internet has created vast economic opportunities, allowing just about anyone with a computer to deliver new products and services to customers world wide. But with those new businesses comes the question of value. How do you measure how much a service is worth? It’s an age old question, but in the information age, the answer increasingly seems to have become “throw huge amounts of money at it and see how long before it goes out of business.” This approach has led some in the financial industry to predict a dot-com bubble 2.0, as companies with close to zero revenue have received billions of dollars, just for being “what’s hot” at the moment.
The most recent company to grab headlines after receiving funding is Pluto TV, a free service delivering linear channels to viewers on the web. Lots of attention is on the web-delivered TV space, and for good reason. The consensus seems to be that cable television as we know it is on its last legs, while web-based alternatives are exploding in popularity. But the conclusion that therefore any web TV startup deserves a boatload of money just for being in the right industry at the right time is a risky one.
We all know that eyeballs are valuable to advertisers, a business needs to be sustainable long term, not dependent on or vulnerable to passing fads. FreeCast Inc founders learned this lesson well when the first dot-com bubble burst caused ad revenues to take a dive. That experience is why their new product, Rabbit TV Plus, is different. Any financial adviser will tell you that diversification is key to protecting against economic downturns and other unpredictable threats, and Rabbit TV’s revenues come from a variety of different sources. In addition to a yearly subscription fee of $10 and traditional web advertising, Rabbit TV Plus features a wide range of pay-per-view content and premium subscription-based content sources. Not only does this provide additional revenue, but having an audience of paying customers who are willing to make additional purchases continually creates opportunities for adding revenue in the future, while making our ads more valuable to marketers as well.
While Pluto TV gives users just one of the many features within Rabbit TV, they don’t even have a single mechanism for accepting money from users, much less converting viewers into customers. By Contrast, Rabbit TV Plus makes more than twice as much from subscriptions alone every year than Pluto TV just received. While web-based TV is here to stay, there are some products out there that will need to evolve significantly to be financially viable in the long run. FreeCast Inc on the other hand has already achieved that, and is now ready to take their platform to the next level. Pluto TV’s funding puts a price, not on Pluto TV’s business, but on the business that they’re in. Because of that, the value of a more mature company in the same business becomes astronomically higher, and reaffirms just how big the market for web delivered TV really is.