Pirates Slowly Killing MediaDefender
It has been a rough year for MediaDefender and their parent company ArtistDirect. Last September a database of internal emails leaked, and last week they received more bad press for DDoSsing Revision3. Unsurprisingly, MediaDefender’s revenue has dropped significantly as a result.
This is not the first time we have reported on MediaDefender’s poor financial situation, now it’s looking like the company has lost the last bit of goodwill they had left.
Surprisingly, however, MediaDefender – best known for spreading fake files on BitTorrent – does not blame itself for their losses, but the music labels. In their latest quarterly report the company explains the huge drop in revenue as follows:
“Revenues related to MediaDefender’s anti-piracy activities declined in 2007 as compared to 2006 and management anticipates a further decline in 2008. The largest source of this decline is due to reduced spending on the part of the major music labels due to a significant reduction in their sales and profitability.”
So, MediaDefender argues that the music labels are spending less money because their revenue is going down. This is a strange argument, if you consider that the music labels blame piracy for the decrease in sales. MediaDefender’s purpose is to decrease piracy, so either they are not doing their job very well, or there might be another explanation that the labels stopped hiring MediaDefender.
Could it be that the bad press that resulted from the security breach at MediaDefender has something to do with it? Some of the emails that leaked at the time revealed some unique insight into the inner workings of these labels and i’m sure they weren’t too happy about that.
In the quarterly report last year’s email leaks aren’t mentioned at all, even though it could very well be one of the major causes of the decreased revenue. 
By November 2007 MediaDefender had already lost a massive $825,000 due to the leaks, and more financial damage was to be expected.
Before the email leak, stock was around the $2.25 mark, but this has dropped to less than $0.50. Last week we learned that MediaDefender is not only going after trackers from BitTorrent search engines, but that they’re also targeting businesses like Revision3. This wont do their image any good either, and might bring the company down even further.
So, what will happen now? Revision3′s CEO Jim Louderback said on Twit that they wont pursue the company in court after all. Nevertheless, I’m quite convinced that the company has the ability to walk the plank to bankruptcy, all by itself.
