Those 6000 Mediadefender emails that leaked onto the web in September cost the anti-piracy outlet dearly: A recent SEC filing of Mediadefender parent ArtistDirect reveals that the company lost at least 825,000 dollars due to the hack – enough money to eat up all of ArtistDirect’s profits for the third quarter. The biggest chunk of the money was apparently spent to keep Mediadefender’s clients on board.
A hacker group that called itself Mediadefender-Defenders managed to get hold of a vast email archive in September that contained nine months of internal correspondence. It looks like the hackers were able to hack into one of the employee’s GMail account. The SEC filing shows how serious the breach was:
"These e-mails contained confidential information and communications covering a wide variety of internal issues, including personal data, customer data and pricing information, and other sensitive information."
Part of the "other sensitive information" were also passwords that seem to have given them access data for various servers. The source code of some of Mediadefender’s anti-piracy software and a transcript of a phone call appeared online soon after.
The SEC filing also details why this breach was so expensive:
"As a result of this development, MediaDefender recorded approximately $600,000 for service credits to customers, which were recorded as a reduction to revenues during the three months ended September 30, 2007. This amount was determined based on various factors, including discussions with customers, and is subject to adjustment in future periods based on additional information. MediaDefender also recorded approximately $225,000 of legal, consulting and other direct costs related to the breach during the three months ended September 30, 2007."
600,000 dollars in service credits sounds a lot for a breach that essentially was based on hacking a GMail account – unless a company just has a handful of clients that need to be kept happy at any cost. The SEC filing shows that Mediadefender is generating 66 percent of its revenue with just four clients, and it was apparently willing to sacrifice this quarter’s earnings to save these relationships. Artistdirect registered a net loss of 183,000 dollars for the quarter ending September 30th, compared to a net income of 839,000 dollars for the same quarter last year.
But at least everything is under control now – at least if we can believe the company’s SEC filing:
"An internal investigation of this matter is continuing, as a result of which the Company has revised various procedures and policies and enhanced its online and Internet security protocols."