Digital Copyright 'Collection Agency' Rightscorp Lost $3.4 Million Last Year

Rightscorp, the anti-piracy collection agency known for its stern warnings and $20 fees for copyright infringers, has released its 2014 financial results, and despite attempts to sugarcoat the company's performance -- the outlook isn't sweet.

The California-based company is boasting that it made $939,729 in revenue last year -- up 187 percent from $324,000 in 2013 -- however it spent $4.3 million along the way, bringing its losses to a whopping $3.4 million in 2014. Rightscorp gives half of what it earns to its rights-holder clients and it claims to have closed 180,000 cases of infringement to date via its system of collecting fees from pirates through their ISPs.

Canadians Hit With Misleading Copyright Notices From Loophole-Exploiting U.S. Firm

According to a new SEC 10-K filing, the company has become increasingly dependent on only two of those clients: BMG Rights Management and Warner Bros Entertainment, which combined made up 89 percent of its sales. BMG accounted for approximately 76 percent of its revenue in 2014, while WB accounted for 13 percent. The company said it increased its number of copyrights from 30,000 to 230,000 over the course of the year.

Rightscorp's methods came under fire in January when it began sending infringement notices to Canadian internet subscribers following the country's adoption of its copyright notice-and-notification system. The problem was that Rightscorp was using a loophole in the law to cite consequences to piracy that are only applicable in the U.S., like settlement fees and possible termination of service.

There are over 233 ISPs through which Rightscorp issues fee collection notices, an increase of 466 percent since 2013. But as Ars Technica reports, most are likely small providers like universities who are forwarding infringement notices to student emails.

Rightscorp spent less money in 2014 on sales and marketing ($139,175 compared to $275,616 in 2013) but saw a huge jump in administrative costs, from $637,793 to $1,147,948 year over year. The company paid $504,375 of that to its two top executives, CEO Christopher Sabec ($261,875) and CFO Robert Steele ($242,500).

In a statement, Sabec said the company "delivered excellent results for 2014" and expressed optimism that technological upgrades and new processes that were installed last year will lead to sustainable growth ahead. "We have grown our reputation for having the most effective solution in combating illegal file sharing which addresses the multi-billion dollar piracy dilemma," he said.

That optimism is not exactly shared by HJ Associates, which conducted an independent audit as part of the SEC filing. "[Rightscorp] does not generate sufficient revenue to sustain operations and has negative cash flows from operations," the audit explains. "This raises substantial doubt about the Company's ability to continue as a going concern." 

Rightscorp's stock is currently selling at $0.11 per share.

Correction, Mar. 12, 2015: This report originally identified two ISPs as "taking part" in Rightcorp's collection activities; these service providers are required under the DMCA to forward on notices of copyright infringement brought by rights holders to specific subscribers accused of such activity.