Rightscorp Bleeds Another Million, Borrows $200K From Customer BMG

According to a new filing, anti-piracy outfit Rightscorp incurred a net loss of more than $1m during the first six months of 2017, raising new doubts about its ability to continue as a going concern. The situation was so serious earlier this year that the company had to borrow $200,000 from customer BMG to settle a lawsuit. At the end of June, Rightscorp had just $1,725 in cash.

Anti-piracy outfit Rightscorp is one of the many companies trying to turn Internet piracy into profit. The company has a somewhat novel approach but has difficulty balancing the books.

Essentially, Rightscorp operates like other so-called copyright-trolling operations, in that it monitors alleged offenders on BitTorrent networks, tracks them to their ISPs, then attempts to extract a cash settlement. Rightscorp does this by sending DMCA notices with settlement agreements attached, in the hope that at-this-point-anonymous Internet users break cover in panic. This can lead to a $20 or $30 ‘fine’ or in some cases dozens of multiples of that.

But despite settling hundreds of thousands of these cases, profit has thus far proven elusive, with the company hemorrhaging millions in losses. The company has just filed its results for the first half of 2017 and they contain more bad news.

In the six months ended June 2017, revenues obtained from copyright settlements reached just $138,514, that’s 35% down on the $214,326 generated in the same period last year. However, the company did manage to book $148,332 in “consulting revenue” in the first half of this year, a business area that generated no revenue in 2016.

Overall then, total revenue for the six month period was $286,846 – up from $214,326 last year. While that’s a better picture in its own right, Rightscorp has a lot of costs attached to its business.

After paying out $69,257 to copyright holders and absorbing $1,190,696 in general and administrative costs, among other things, the company’s total operating expenses topped out at $1,296,127 for the first six months of the year.

To make a long story short, the company made a net loss of $1,068,422, which was more than the $995,265 loss it made last year and despite improved revenues. The company ended June with just $1,725 in cash.

“These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued,” the company’s latest statement reads.

This hanging-by-a-thread narrative has followed Rightscorp for the past few years but there’s information in the latest accounts which indicates how bad things were at the start of the year.

In January 2016, Rightscorp and several copyright holders, including Hollywood studio Warner Bros, agreed to settle a class-action lawsuit over intimidating robo-calls that were made to alleged infringers. The defendants agreed to set aside $450,000 to cover the costs, and it appears that Rightscorp was liable for at least $200,000 of that.

Rightscorp hasn’t exactly been flush with cash, so it was interesting to read that its main consumer piracy settlement client, music publisher BMG, actually stepped in to pay off the class-action settlement.

“At December 31, 2016, the Company had accrued $200,000 related to the settlement of a class action complaint. On January 7, 2017, BMG Rights Management (US) LLC (“BMG”) advanced the Company $200,000, which was used to pay off the settlement. The advance from BMG is to be applied to future billings from the Company to BMG for consulting services,” Rightscorp’s filing reads.

With Rightscorp’s future BMG revenue now being gobbled up by what appears to be loan repayments, it becomes difficult to see how the anti-piracy outfit can make enough money to pay off the $200,000 debt. However, its filing notes that on July 21, 2017, the company issued “an aggregate of 10,000,000 shares of common stock to an investor for a purchase price of $200,000.” While that amount matches the BMG debt, the filing doesn’t reveal who the investor is.

The filing also reveals that on July 31, Rightscorp entered into two agreements to provide services “to a holder of multiple copyrights.” The copyright holder isn’t named, but the deal reveals that it’s in Rightscorp’s best interests to get immediate payment from people to whom it sends cash settlement demands.

“[Rightscorp] will receive 50% of all gross proceeds of any settlement revenue received by the Client from pre-lawsuit ‘advisory notices,’ and 37.5% of all gross proceeds received by the Client from ‘final warning’ notices sent immediately prior to a lawsuit,” the filing notes.

Also of interest is that Rightscorp has offered not to work with any of the copyright holders’ direct competitors, providing certain thresholds are met – $10,000 revenue in the first month to $100,000 after 12 months. But there’s more to the deal.

Rightscorp will also provide a number of services to this client including detecting and verifying copyright works on P2P networks, providing information about infringers, plus reporting, litigation support, and copyright protection advisory services.

For this, Rightscorp will earn $10,000 for the first three months, rising to $85,000 per month after 16 months, valuable revenue for a company fighting for its life.

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