The 'revolutionary' business model employed by the Internet pirate-chasers of Rightscorp Inc. is driving the company deeper into trouble with each passing year. Despite claims of protecting record copyrights and receiving settlements from record numbers of infringers, the company has just recorded a loss of $3.4 million for 2014.

In copyright enforcement circles the terms ‘piracy’ and ‘profit’ are often cited in close proximity. Entertainment companies bemoan the alleged profits made by ‘pirate’ sites at the expense of creators, while the same entities claim that piracy is killing their business, even while making billions.

Somewhere in the middle ground lie the groups that seek to turn piracy into profit by punishing the infringements of others. Traditional ‘trolls’ seek thousands from alleged Internet pirates via the courts, but companies such as Rightscorp Inc chase individuals for relatively tiny sums – $20 per shot – for unauthorized content downloads.

It’s a strategy the company insists will eventually pay off but if the latest set of results filed by the Los Angeles-based outfit are anything to go by, investors should be wary of holding their collective breaths.

In a call with investors yesterday things appeared to start reasonably well. Rightscorp President, COO, CTO, and CFO Robert Steele began by reporting how well the company had performed in the final quarter of 2014. Total revenues were almost $242,000, up 56% from the $155,300 achieved in the same period of 2013.

For the full year, things looked even better. From January 1 to December 31, 2014, Rightscorp pulled in close to $931,000 in revenues, that’s 187% up on 2013 when the company generated just $324,000. Steele said the growth in the company’s revenues can be attributed to two key areas.

Firstly, the growing number of copyrights for which the company has contracts to extract settlements from customers. On December 31, 2013, Rightscorp were detecting infringement on approximately 30,000 titles but by the same date in 2014 that had skyrocketed to around 230,000.

Secondly the company says it is getting more and more ISPs on board. It now claims to deal with 233 and has received settlements from customers of five of the top 10 US ISPs including Comcast, Charter, CenturyLink, Mediacom and Suddenlink. The idea is that more ISPs participating should mean more notices being forwarded and a more healthy bottom line for the company. But that’s only the theory.

The problem for Rightscorp is that when compared to the revenue being generated from infringements, its costs are astronomical. It pays out around half of its revenues to its rightsholder clients, which in 2014 amounted to $465,364. But when one looks at the bigger picture that’s much, much less than half of the company’s problems.

In 2014 the company spent around $139,000 on sales and marketing. Its wages bill increased from $637,000 in 2013 to almost $1.15 million in 2014. And last year its lawyers earned more too.

In 2014 the company’s legal bills neared $481,000, that’s up from $355,500 in 2013. The increase is attributed to legal action being taken against the company, including harassment cases currently in the pipeline.

All told, Rightscorp incurred operating expenses of $4,329,602 during the twelve months ended December 31, 2014, versus $2,134,843 for the twelve months ended December 31, 2013.

So, with revenues of approximately $931,000, that’s a loss of around $3.4 million for 2014. The company lost ‘just’ $1.81 million in 2013. Nevertheless, Rightscorp still see their situation as positive.

“We recorded our strongest year yet with an astounding 187% year-over-year growth,” Steele said. “We are confident that by focusing on these growth metrics, we will be able to capture significant growth ahead.”

The company’s latest 10-K filing paints a more gloomy picture, however.

“The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern,” the filing reads.

“The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable. If the Company is unable to obtain adequate capital it could be forced to cease operations. Accordingly, these factors raise substantial doubt as to the Company’s ability to continue as a going concern.”

While the company’s accounts give cause for concern, the precarious situation is only amplified when one examines Rightscorp’s over-exposure to a limited number of copyright-holder clients. In 2014 a total of 76% of Rightscorp sales came from one client, BMG Rights Management. The company’s contract with Warner Bros. accounted for a further 13% of sales.

If the former pulled the plug (and after a one year contract BMG only needs to give 30 days notice to do so) it could be game over for Rightscorp.