MediaBay's effort to restructure its business to focus on the digital delivery of audio content continues to hurt the company's financial performance. For the third quarter ended September 30, the company reported that revenue fell to $3.9 million, from $9.6 million, and the company had a net loss of $3.8 million, compared to earnings of $285,000 in last year's third quarter. Included in the loss for the quarter was $2.1 million in one-time charges associated with the writedown of inventory and royalty advances. MediaBay said the sales decline was the result of its plan to reduce spending on recruiting new club members through mail order as the company ramps up its digital operation.

CEO Jeffrey Dittus said MediaBay still believes the company's financial performance "may be improved by our transition from a predominantly mail-order business to an Internet-based business." He said the reorganization should reduce return rates, lower bad debt and reduce printing and fulfillment costs. "We believe this distribution strategy could lead to increased revenue and potentially put the company on a track to profitability," Dittus said.