Rightscorp Blames VPNs and ISPs For Drop in Revenue

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Anti-piracy cash settlement outfit Rightscorp has just announced a net loss of $3.5m for its operations during 2015. Interestingly the company cites a number of reasons, some of them cryptic, for decreasing revenues. Alongside the mysterious "shutting down" of unnamed file-sharing infrastructure, VPN use and ISP reluctance to assist trolling are major factors.

rightscorpMore than ten years ago when it became clear that piracy might never be stopped, anti-piracy outfits began to pursue alleged infringers for cash settlements in a bid to turn file-sharing into profit.

One of the most prominent companies employing this model today is US-based Rightscorp. By leveraging ISPs’ tendency to forward infringement warnings to users, Rightscorp attaches settlement demands to DMCA-style notices. When these reach the user they are currently invited to pay around $30 or face a potential lawsuit.

How many notices the company sends out is unclear but it’s likely to be millions overall, since according to the company’s most recent filing around 230,000 people have settled. It sounds like it should be a lucrative business but ever since the company was incorporated in 2010 the numbers haven’t added up. Indeed, Rightscorp’s latest filing, its 2015 Annual Report, indicates a crisis at the company.

The report begins with a positive, noting that in September 2015 Rightscorp entered into a representation agreement with Sony/ATV Music Publishing LLC. But that’s where the good news ends.

During the year ended December 31, 2015, Rightscorp generated revenues of $832.2K. That’s down 10% ($98.5K) when compared to the $930.7K generated in 2014. Not a great start and gets worse.

To begin, all of those revenues aren’t for Rightscorp to keep. The total is split with rightsholders, roughly 50/50, meaning that in 2015 Rightscorp paid almost $439K to its copyright holder partners, down from the $465.3K paid out in 2014. Sadly for Rightscorp the $392K in revenue left over isn’t enough to make ends meet, not by a long way.

In 2015 the anti-piracy outfit burned through more than $1.67m in wage and related expenses plus $216.3K on sales and marketing. Also causing problems are the costs mounting up due to various legal battles (1,2,3). In all, Rightscorp spent more than $951K on legal proceedings in 2015, up from $465K the year before.

When combined Rightscorp’s general and administrative expenses were close to $4.5m in 2015, up almost $737K on the previous year. As a result the company recorded a net loss of $3.43m, up from the $2.85m net loss recorded in 2014.

Furthermore, the company’s precarious position is only underlined with the revelation that 72% of its revenues are attributable to just two rightsholder customers, with one alone accounting for 58% of revenues.

While it’s fairly obvious that this model isn’t currently working, there seems to be no light at the end of the tunnel. Not only are Rightscorp’s costs going through the roof but its revenues are falling too, despite the company’s insistence that piracy is as prevalent as ever.

So how does Rightscorp explain the drop in settlements achieved? Well, this is where it gets interesting.

According to the company’s annual filing there are three key reasons, including an unwillingness by Internet service providers to forward Rightscorp settlement demands to their customers. If that is the case then the anti-piracy outfit has a huge problem, since without that mechanism it cannot cheaply contact alleged pirates with an offer to settle.

But while the ISP dilemma is clear, the other reasons provided by Rightscorp for falling revenues are less so.

The anti-piracy outfit additionally blames “changes in the filesharing software intended to defeat detection of copyrights being illegally distributed.” For a company specializing in anti-piracy technology this statement is terribly uninformative and gives the impression of a riddle designed to confuse.

So, since there have been no real changes in the way BitTorrent software operates since its inception, the truth must lie elsewhere. Reading between the lines this seems likely to be a reference to people using anonymizing techniques (VPNs, proxies etc) which make it impossible for Rightscorp to track them down. Not a good situation for shareholders.

Oddly, the language used by Rightscorp to explain the third reason behind its drop in revenues in no more clear. Blaming “the shutting down of some filesharing network infrastructure” for achieving fewer settlements, the company gives no hint as to what that might mean, especially since according to them file-sharing traffic is only on the increase.

With file-sharers seemingly hiding, ISPs passing on fewer notices, coupled with Rightscorp’s inability to control its costs, it seems unlikely that the company has much of a future.

“Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing,” the company concludes.


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