Telebrands

The Rabbit TV, considered

October 11, 2013: 5:30 AM ET

It's cheap, it comes with 5,000 channels, it claims that "TV Will NEVER Be the Same!" What the hell is it?

By Ryan Bradley, senior editor

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FORTUNE -- Consider the Rabbit TV. Not the long-eared mammal, this, but a USB stick, packaged in plastic and purchased for $10.73 at a CVS in Scarsdale, N.Y. It lands on your desk one morning with a simple directive, straight from the top: Find out what this thing is, will ya? OK, you say. Sure. Immediately you set to work.

The Rabbit is a gamechanger. Bold. Not lacking in exclamation points. Good lord this device could change everything. It is "One of the Biggest Breakthroughs Since TV was Invented!" And "Easy To Use!" You will "Never Pay A Monthly Cable Bill Again!" A bleached blonde on the package, hand out to the side, upturned, smiles madly. She is presenting a hulking mass of computer that looks like nothing more than an oversized Soviet-era iPad knockoff. On the screen: a white rabbit against a white background, its eyes appearing disembodied against the negative space. The blonde's smile will never cease. "TV Will Never Be The Same!" text near the blonde's head screams. Weeks pass before you build up the courage to break open the tough plastic packaging. And then you do.

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The Rabbit is a kind of a scam. You plug in the USB stick and install the software (which is baffling, based upon what comes next) and your browser opens to a list of websites that stream television. Yes, there are a lot of websites that stream television channels, and having them organized in one place is arguably useful, but if you are even slightly Internet-savvy or under the age of 40 you will very likely laugh out loud (lol) because what this thing, the Rabbit, does for approximately $10 a year. Nevertheless ...

The Rabbit is a hit. Not the biggest hit of the season for Telebrands. That would be the Pocket Hose ("Fits In a Pocket, But GROWS to a Full Sized Hose!"), which has sold 17 million units since it was released last winter. So far a little more than 2 million people have purchased a Rabbit for about $10 a pop, which is a nice little profit considering it's a USB stick that takes you to a website. Telebrands is famous for the bright red "As Seen on TV" stamp. The company's founder, Ajit "A.J." Khubani, founded Telebrands 30 years ago. He was a 23-year-old kid from New Jersey working out of his father's electronic import company in Manhattan, trying to find a job better than being a bartender and pizza guy. "I looked into franchising McDonalds, or buying a taxi medallion, but buying mail oder ads in the National Enquirer was cheaper," Khubani says. Four years later he came up with "As Seen on TV" and hasn't looked back.

The Rabbit is one small part of a vast empire of products, an annual churn at Telebrands that involves "identifying thousands of interesting products, scouring the globe," Kubani says. "Then test marketing over 100 products a year in TV commercials, almost all during the middle of the day -- that's the biggest misconception, that our commercials are late at night -- then, the 10% of those that are successful go into full roll-out." The Rabbit is in full roll-out. The Ped Egg is also in full roll-out, has been since 2007. Telebrands has sold 45 million Ped Eggs ("The World's  No. 1 Selling Callus Remover!"). Telebrands is a private company, but in terms of annual revenue, "we're over half a billion," Kubani says. The development of the egg-shaped skin smoother is, to Kubani, the most cost effective way Telebrands does business. The company had this relationship with a factory in China, so Kubani gave it the rough idea of what it was after, and the factory sent back a bunch of prototypes on spec. Kubani and his team picked one, and back at the factory they immediately got cranking.

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The Rabbit was a different story altogether. FreeCast, an Orlando, Fla.-based company, made the website. It was, as its name suggests, free. "Their idea was to get enough people to use it, then start selling advertising," Kubani says. "They tried, but it wasn't working, so we said, 'Why don't we turn this into a device?'" Devices are great for Telebrands because you can hold them and pitch them and stick them onto a store shelf. "We wanted to make it valuable," Kubani says. Things you can hold in the palm of your hand have value. Even a little USB stick, especially when you wrap it in a bunch of that hard plastic that requires scissors or a feat of strength to open.

The Rabbit is the shape of things to come, for a company built on television. The irony of all this is not lost on Kubani, who is only slightly worried by cord-cutters. After all, he's enabling them. He's trying to figure out how to advertise the Telebrands wares on Facebook (FB) and Twitter, and they're on Google's (GOOG) Adwords, but the biggest challenge may be to retain the strength of the infomercial, the pitch, when the attention span on the Internet is so much shorter than TV. "At some point," he says, "the answer will make itself apparent. And once advertisers figure it out, people will find us. People always have."

The Rabbit, you think, is probably all these things at once -- a hit and a scam and a game changer, certainly a different story altogether and the shape of things to come. But mostly it is small, and it is cheap. The Rabbit is As Seen on TV yet at odds with TV.

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