• by Diane Mermigas , January 28, 2011

The stock market is getting frothy again over hefty bets being placed on the exploding value of companies poised to capitalize on an improving economy and the rousing digital revolution. But it's time to slow down and take a hard look at what's really happening.

Everywhere you look, some values fade as rapidly as they materialize; many new business have life spans of prime-time TV series; and top management is only as good as its last great idea. The best and worst are fleeting, and even the status quo is barely hanging on. Try projecting solid ROI from any of that.

Still, Nielsen raised $1.5 billion from an Initial Public Offering this past week on the back of its broken business model: valuing media audiences and pricing advertising time based on surveys and estimates -- just like it's always been. Investors appeared content to embrace ratings smoke and mirrors in an era of interactive click to know all about the person on the other end.

It's not much different than Demand Media's robo media content mill going public with nearly a $2 billion market cap, edging past the venerable New York Times Co. Never mind that the quality and credibility gap between the Times and the unprofitable algorithmic wunderkind. But it does underscore just how dramatically the Fifth Estate can be redefined by a new revenue per online user metric.

Because there is as much unknown about forging ahead as there is standing still, the public handout line will only get longer. The carefully crafted business social network LinkedIn, which prizes human connections rather than mathematical configurations, is the latest to throw its hat into the IPO ring. But working out principles in private to go public is grueling even for Facebook, whose stunning $50 billion valuation has been secured by Goldman Sachs' recent $500 million fundraising and a Securities and Exchange Commission review of disclosure laws and other private company regulation.

The race to create public value from the promise of nascent business models always seems brilliant at the time and pale within months.

Can you imagine if Hulu had pursued the IPO it considered last year? Its owners -- NBC Universal, Walt Disney and News Corp. - are at odds over its streaming video models, as well as conversion to a proposed subscription-based virtual cable service. The business of balancing old and emerging revenues has suddenly become top of mind for dominant players, such as cable operators and software distributors, which once considered themselves impenetrable.

Even before they close their $30 billion merger, Comcast-NBCU is already bumping into themselves on the digital food chain. The Net neutrality conditions imposed on Comcast and the competitive pressures to climb aboard Netflix's good and plenty express have content producers and distributors alike scurrying in all directions.

When Netflix founding CEO Reed Hastings found himself in an untenable distribution quandary several years ago, he unilaterally switched from snail-mail delivery of rental movies to streaming real-time subscriptions, multiplying revenues, profits and subscriber numbers in lockstep. He made evolutionary change look simple.

Even with huge risks and rewards wildly shifting balance for major players such as Facebook and Google, eager investors are fearless. But just whose action are they buying into? New Google's founding CEO Larry Page, who is reassuming the operational reigns from Eric Schmidt, has plenty of vision but virtually no track record for converting it to pragmatic operating calls. There is a perilous gap at most companies between the "passion 3.0" Page seeks to reinstate and the satisfactory results that keep investors shareholders, subscribers, advertisers and other critical constituents. To his credit, Facebook founding CEO Mark Zukerberg has quickly learned to walk that fine line. At age 26, he's still got plenty of time for mistakes.

But as Apple CEO Steve Jobs has taught, innovation done well takes time and patience -- something generally in short supply when everyone's trying to recoup their losses and trying to make a fast buck. And even that will be tested at Apple during Jobs' health-driven absence and COO Tim Cook's reign.

With genuine leadership, vision and entrepreneurial gumption sparsely strewn over the evolving digital-media landscape, investors with trillions idling on the sidelines are too quickly backing ideas lacking quantifiable success or a visionary track record. The trading ventures represented by Second Market are looking more like the real thing: funny money thrown up against unproven business propositions. Everyone is more scared of not cashing in on the next big thing tha losing their financial shirts.

The pain for ignoring or underestimating financial risk is steep. It is no coincidence that 500-plus page investigation released this week determined the financial crisis was avoidable if more companies had heeded the warning signs and managed risk. But as investors and strategic partners place inflated bets in private or in the headline zoo of the public markets, values eventually have to be reconciled and executive leadership (or the lack thereof) must be held accountable.

And in so many cases, they just can't be.

. The same week that Netflix CEO Reed Hastings reported his company exceeded anticipated 4Q results, he confronted naysayers wondering just how long his business proposition will last with a simple, but provocative set of statistics. It was a ranking of the highest-performing Internet service providers of the streaming video that is Netflix's sweet spot. Dominant MSOs such as Comcast, Time Warner and Charter Communications topped the list.

They are, of course, the very content providers whose subscribers are defecting to Netflix and other over-the-top competitors that offer a more attractive value proposition for financially strained consumers. Was this a new competitive strategy or weapon?

Time to drag out and dust off your Sixties Ouija board. Looks like the fun is just beginning.