As a result, every annual report filed by the company is expected to reveal yet more miserable numbers. This year’s, filed two weeks late a few days ago, doesn’t break the trend. It is, however, a particularly interesting read.
For those out of the loop, Rightscorp generates revenue from monitoring BitTorrent networks, logging infringements, and sending warning notices to ISPs. It hopes those ISPs will forward notices to customers who are asked to pay $20 or $30 per offense. Once paid, Rightscorp splits this revenue with its copyright holder customers.
The company’s headline sales figures for 2016 are somewhat similar to those of the previous year. In 2015 the company generated $832,215 in revenue but in 2016 that had dropped to $778,215. While yet another reduction in revenue won’t be welcome, the company excelled in trimming its costs.
In 2015, Rightscorp’s total operating costs were almost $5.47m, something which led the company to a file an eye-watering $4.63 million operational loss.
In 2016, the company somehow managed to reduce its costs to ‘just’ $2.73m, a vast improvement over the previous year. But, despite the effort, Rightscorp still couldn’t make money in 2016. In its latest accounts, the company reveals an operational loss of $1.95m and little salvation on the bottom line.
“During the year ended December 31, 2016, the Company incurred a net loss of $1,355,747 and used cash in operations of $807,530, and at December 31, 2016, the Company had a stockholders’ deficit of $2,092,060,” the company reveals.
While a nose-diving Rightscorp has been a familiar story in recent years, there are some nuggets of information in 2016’s report that makes it stand out.
According to Rightscorp, in 2014 BMG Rights Management accounted for 76% of the company’s sales, with Warner Bros. Entertainment made up a token 13%. In 2015 it was a similar story, but during 2016, big developments took place with a brand new and extremely important customer.
“For the year ended December 31, 2016, our contract with Recording Industry Association of America accounted for approximately 44% of our sales, and our contract with BMG Rights Management accounted for 23% of our sales,” the company’s report reveals.
The fact that the RIAA is now Rightscorp’s biggest customer to the tune of $342,000 in business during 2016 is a pretty big reveal, not only for the future of the anti-piracy company but also the interests of millions of BitTorrent users around the United States.
While it’s certainly possible that the RIAA plans to start sending settlement demands to torrent users (Warner has already done so), there are very clear signs that the RIAA sees value in Rightscorp elsewhere. As shown in the table below, between 2015 and 2016 there has been a notable shift in how Rightscorp reports its revenue.
In 2015, all of Rightscorp’s revenue came from copyright settlements. In 2016, roughly 50% of its revenue (a little over the amount accounted for by the RIAA’s business) is listed as ‘consulting revenue’. It seems more than likely that the lion’s share of this revenue came from the RIAA, but why?
On Friday the RIAA filed a big lawsuit against Texas-based ISP Grande Communications. Detailed here, the multi-million suit accuses the ISP of failing to disconnect subscribers accused of infringement multiple times.
The data being used to prosecute that case was obtained by the RIAA from Rightscorp, who in turn collected that data from BitTorrent networks. The company obtained a patent under its previous Digital Rights Corp. guise which specifically covers repeat infringer identification. It has been used successfully in the ongoing case against another ISP, Cox Communications.
In short, the RIAA seems to be planning to do to Grande Communications what BMG and Rightscorp have already done to Cox. They will be seeking to show that Grande knew that its subscribers were multiple infringers yet failed to disconnect them from the Internet. This inaction, they will argue, means that Grande loses its protection from liability under the safe harbor provisions of the DMCA.
Winning the case against Grande Communications is extremely important for the RIAA and for reasons best understood by the parties involved, it clearly places value on the data held by Rightscorp. Whether the RIAA will pay another few hundred thousand dollars to the anti-piracy outfit in 2017 remans to be seen, but Rightscorp will be hoping so as it’s desperate for the cash.
The company’s year-end filing raises “substantial doubt about the Company’s ability to continue as a going concern” while noting that its management believes that the company will need at least another $500,000 to $1,000,000 to fund operations in 2017.
This new relationship between the RIAA and Rightscorp is an interesting one and one that’s likely to prove controversial. Grande Communications is being sued today, but the big question is which other ISPs will follow in the months and years to come.