MediaBay Restates Results; Gives Up Freeny Patent

It's been a busy few months for MediaBay. The company delayed the release of its final figures for 2002 until its accountants could restate results for the company dating back to 1998. The restatement involved certain financing transactions that the company determined should have included some noncash charges and resulted in a slight increase in the company's loss in each of the affected years. In addition, the company concluded negotiations with E-Data to return certain rights it had acquired regarding the Freeny patent.

Under the Freeny patent, E-Data claimed that it had patented a system for distributing content over electronic networks. When it acquired rights to the patent, MediaBay said it intended to "vigorously defend the use of the patent and pursue the collection of royalty payments from infringers" (News, Sept. 9, 2002). In MediaBay's year-end filing with the Securities and Exchange Commission, MediaBay reported that late in 2002, it decided that it would "no longer pursue other companies which may be infringing on the Freeny patent." As a result, the company returned the rights to E-Data on April 3, in exchange for the return of 25,000 shares of MediaBay stock that the company had used to pay for the acquisition.

Steve Potash, president of OverDrive, the e-publishing vendor and president of the Open E-book forum, welcomed the news. Potash had filed a suit against MediaBay in federal court in Cleveland, to challenge its enforcement of the patent. The suit was settled and its terms confidential, but Potash said the settlement played a role in MediaBay's dropping the patent. "This is welcome news," said Potash. "Their claims had little value. It was a misguided effort by a company doing good things in the digital space. This is good news for everyone involved in digital books."

Meanwhile, the company posted another net loss, although the $2.3-million loss was smaller than the $5.4-million loss in 2001. Total revenue at the company rose 9.4%, to $45.7 million. Sales at MediaBay's largest division, Audio Book Club, rose 7.8%, to $34.3 million. The company said the sales gain was due to the addition of 294,000 new club members during the year, which brought ABC's total membership to 2.5 million. Sales in the Radio Spirits division increased 13%, to $11.3 million, mainly because of a sales increase in the division's World's Greatest Old-Time Radio Continuity program. Sales over MediaBay's Internet site, Mbay.com, remained negligible at $215,000.

In a personnel move, the company announced that Carl Wolf has been named chairman. Wolf had been appointed co-chairman last fall, serving with longtime chairman and major shareholder Norton Herrick, who has stepped down from the chairman position.