Executive Summary:
Plex is a media company that offers users free access to live content as well as tools to manage their media consumption.
Plex makes money from its premium subscription PlexPass as well as by displaying ads on its free streaming service.
Founded in 2009, Plex is now one of the world’s most popular media centers. The company has raised $81 million in funding thus far.
What Is Plex?
Plex is a media company that offers users free access to live content as well as tools to manage their media consumption.
The firm initially started out as a so-called media center, which would pull and organize all of a user’s content in one single software solution.
Users can connect their streaming accounts, whether it’s Netflix, Hulu, or HBO, to watch content within Plex.
This does not only include video but also audio-based content from services such as TIDAL. Your media can be organized via a PC or on Nvidia’s SHIELD device.
The organization of media, now called Plex Media Server, remains core to its offering. However, Plex has since expanded into displaying content as well.
Dubbed Plex TV, the service enables users to stream all kinds of different content, from live TV to movies and shows.
Plex, in order to organize all of your media, also offers a subscription called Plex Pass. It grants users access to premium features such as multi-color themes, the ability to download files or record live TV, access to trailers and cast interviews, and so much more.
Plex itself can be accessed on any device that allows you to play media, whether that’s your phone, laptop, tablet, or smart TV device.
Detailing the Founding Story of Plex
Plex, which is headquartered in Los Gatos, California, was founded in 2009 by Elan Feingold, Cayce Ullman, and Scott Olechowski.
Plex actually started out as a hobby project for Feingold who, at the time, was doing contract work in software.
Years prior, in 2002, Microsoft’s developers released the Xbox Media Center (or XBMC) for its own console.
The source code of said software was then made available to the public, which ultimately led to the creation of various forks. One of the most prominent ones became Kodi, which is now one of Plex’s biggest rivals in the media center space.
Meanwhile, Feingold started to create a separate version for his own usage. In the beginning, he simply used a version of XBMC on his own Xbox console.
However, a non-eventful weekend that saw his wife leaving town prompted Feingold to code up a fork for the Mac, which he released in 2007.
Interestingly, the XBMC team, after liking what they saw, actually convinced Feingold to join their team. But disagreements about the tool’s vision ultimately led him to depart XBMC and release Plex for Mac only in July 2008.
The software caught on like wildfire and was covered by all kinds of media outlets, which brought in masses of new users.
Additionally, still-nascent streaming platforms like Netflix and Spotify were also heavily promoting Plex in order to grow their respective subscriber bases.
At the time, though, it was still a hobby project for Feingold, which he largely monetized via donations. To legitimize the business, he brought on Ullman (Plex’s CEO until 2011) and Olechowski (Chief Product Officer of Plex until this day).
In the meantime, other competitors, such as Boxee, started to emerge. They also managed to raise substantial amounts in venture funding, which then legitimized Plex’s endeavor as well. As a result, the team raised a first funding round (Series A) of $1 million in January 2010.
Over the coming few years, Plex expanded its availability into other hardware and software ecosystems such as Android, Chromecast, LG, and Roku.
The money-making dial was also turned on with the introduction of PlexPass in August 2012. This, and the fact that its team remained small and nimble, already enabled Plex to reach profitability by 2014.
Nevertheless, having some cushion is never a bad idea. So, in March 2014, Plex announced a Series B round led by Kleiner Perkins during which it raised $10 million.
And since you never change a winning team, Plex simply continued to double down on what worked, which was to add even more integrations with the likes of Apple TV, PlayStation, Xbox, Vevo, and more.
By the end of 2015, Plex essentially covered the whole array of media streaming, allowing viewers to connect literally every device and streaming service imaginable. So, it was time to set their sights on a bigger goal.
“Over time, we expect to do deals with various content providers in order to enable them to use Plex as a distribution platform,” said CPO Olechowski in a February 2016 interview with Vice.
The first sign of that ambition became evident in January 2017 when Plex acquired news video startup Watchup, which syndicated content from over 150 channels, including CNN, Vox, and others.
Its content ambitions became a reality just six months later. PlexPass subscribers would now be able to stream live TV from over-the-air (OTA) providers like ABC or CBS directly through the Plex app.
Not everything went according to plan, though. Users protested the firm’s altered privacy policy, which would have removed their ability to opt out of data collection. The company cleared up some of those misunderstandings but remains collecting data, simply because it’s crucial for its service to operate.
Over the coming years, Plex simply expanded its media capabilities, for example by adding music and podcasts or the ability to consume content via virtual reality devices.
Interestingly, the firm remained adamant about spending too much money as well. As such, it killed off various services, such as Plex Cloud or its bookmarking features, which weren’t bringing in any new users or generating meaningful revenue, to begin with.
Then, in December 2019, its media ambitions finally came full circle. That month, Plex introduced its own free video streaming service, thus rivaling the likes of Pluto TV. The who is who of media, namely Lionsgate and Warner Bros., were already offering their content at launch.
Throughout 2020, which had boosted viewership due to the Covid pandemic, Plex signed on other partners for its streaming service, including the Endemol Shine Group or Crackle. It expanded its slate of live TV channels as well.
Meanwhile, Plex was also using its development prowess to launch a separate incubator called Plex Labs, which created ancillary products such as Plex Arcade or music player Plexamp.
Plex, in order to capitalize on all of the opportunities it was targeting, raised a $50 million growth equity round back in April 2021. Another $20 million was added in February 2022.
Going forward, Plex will likely continue to add to its slate of media consumption features while expanding the content that is users can consume.
How Does Plex Make Money?
Plex makes money from its premium subscription PlexPass as well as by displaying ads on its free streaming service.
Essentially, Plex pursues a platform business model strategy. The most prominent example of the power of that strategy is Apple. In the case of Apple, it monetizes both its hardware and the ecosystem that’s built on top of it (App Store, iCloud, Music, streaming, etc.).
It uses the media center as its growth driver to get people invested in the ecosystem. Partnerships with other platforms (e.g., Roku, Apple, Samsung, Sonos, etc.), technology companies (IMDb, Rotten Tomatoes, Tivo, etc.), and content providers (Warner Bros., Bloomberg, Reuters, Sky, etc.) then extend the value of that ecosystem.
This, in turn, incentivizes people to pay for a subscription, which became the revenue driver that enabled Plex to expand into streaming, music, gaming, and live TV, among other initiatives.
The company is then able to extract even more money from its ecosystem of users, for example by serving them ads (again, similar to what Apple has done with its ancillary services).
In all likelihood, Plex will follow in the footsteps of Roku, which pursues a similar platform business model strategy, and start to acquire content. Again, the goal is to keep increasing the value of its offering, which then attracts more power users paying for subscriptions. Additionally, if Plex owns the content, it would not have to share the ad revenue with its partners.
Plex could also put the products it created via its Labs unit behind its subscription paywall. It currently uses them as a growth lever to attract a different type of user and again drag them into its ecosystem.
With that being said, let’s take a closer look at each of those revenue streams in the section below.
Subscriptions
One of the biggest reasons why Plex has been profitable just five years into starting the business is because of subscriptions.
Back in 2012, it launched the PlexPass. Back then, the offering would cost $4 per month or $30 per year, which has only slightly increased ever since.
Today, Plex charges the following for PlexPass:
- $4.99 for the monthly plan
- $39.99 for the yearly plan
- $119.99 for the lifetime plan
The PlexPass grants subscribers access to a plethora of premium features, which include the option to download content, user access controls, being able to skip intros, discounts on other products, and so much more.
Interestingly, Plex has substantially extended the value of its subscription package by adding dozens of new features while only slightly raising the price.
Yet, it still makes sense from a business perspective, otherwise, the company wouldn’t be profitable. The biggest advantages of selling subscriptions, especially on a recurring basis, are the predictability of revenue and near-zero marginal cost of distribution.
Customers, especially those that are power users, will stick around for years. However, most of them will eventually just purchase the lifetime package and thus not contribute to Plex’s bottom line anymore.
And since subscriptions are bytes and not atoms, it does cost almost nothing (minus payment processing fees) to distribute an additional unit (unlike physical goods, which incur warehousing, shipping, import tax, etc. cost).
As a result, it is much easier to become cash flow positive, especially as the fixed employee cost of developing those features gets amortized over time.
Subscriptions have also enabled Plex to pursue other money-making opportunities, which I’ll detail in the next chapter.
Advertising
Plex offers free television as well as movie and TV show streaming via Plex TV. In essence, the product competes against the likes of Pluto TV and Tubi TV.
With Plex TV, users get access to over 250 channels of live TV and 50,000+ on-demand streaming titles. In exchange, they have to sit through ads that appear before, in between, and after the content.
Plex works together with the world’s biggest advertising vendors to serve those ads, including Google, Amazon, Yahoo, and many more.
Much like YouTube, this enables Plex to serve more contextually relevant ads, which in turn drive conversions for its advertising partners.
The brands advertising on Plex TV are charged on a CPM basis, which is the cost of 1,000 advertisement impressions on one video.
CPM rates are dependent on a variety of factors. For example, the geography or type of content being watched can heavily affect how much Plex would earn from a given viewer.
In the case of Plex, it then shares a portion of that revenue with its advertising vendors as well as the company that owns the IP.
As previously mentioned, Plex works together with some of the world’s biggest media brands such as Paramount and Lionsgate, among many others.
And the media companies certainly benefit as well. They can continue deriving revenue from content that has long been abandoned.
However, Plex does have at least a little bit of an issue when selling dedicated ad space. Some advertisers may be turned away due to Plex’s association with piracy.
Plex Funding, Revenue & Valuation
Plex, according to Crunchbase, has raised a total of $81 million across six rounds of equity-based funding.
Notable investors that the company has attracted include Kleiner Perkins, Intercap, and Klass Capital, among many others.
Unfortunately, since Plex remains in private ownership, neither its revenue nor valuation figures have been disclosed to the public thus far.
