After Pulling Plug, Veoh Networks’ Dmitry Shapiro Says Litigation “Choked Off Our Oxygen”

2/12/10Follow @bvbigelow

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Los Angeles-based Shelter Capital Partners, Los Angeles media investor Gordon Crawford, former Viacom executive Jonathan Dolgen, Tom Freston’s Firefly3, Intel Capital, Goldman Sachs, Time Warner, and Adobe Systems, according to Veoh’s website.

As I previously reported, Spark Capital founder Todd Dagres said in a tweet yesterday that a relentless copyright infringement lawsuit that the Universal Music Group filed against Veoh Networks two years ago was the main killer. Universal, which Shapiro calls the largest music company in the world, argued that Veoh allowed users to illegally upload Universal’s copyrighted material to Veoh’s website. In a ruling that tossed the suit out last September, a federal judge declared that Veoh was protected from Universal’s infringement claims. By then, however, the damage was done.

There were undoubtedly other factors, most notably the dramatic downturn in the overall economy. But Shapiro says the lawsuit became Veoh Networks’ burden. The company dramatically slimmed down in the restructuring disclosed last April, chiefly to conserve its cash for legal fees.

“At the end of the day, if I had to put my finger on one thing, it would be the UMG lawsuit,” Shapiro says. “These people choked off all or oxygen in terms of our ability to go out and raise additional capital. They not only sued [the company], but they also sued all of our investors. They had a giant legal team.”

Shapiro did not think that competition was a significant factor. Even though Veoh Networks was in market segment that included rivals like Vimeo, Dailymotion, and Joost, Shapiro says he ultimately did not view them, or even YouTube and Hulu as significant threats.

“YouTube was already a runaway hit by the time we started, which was about three months after they started,” Shapiro says. “We were complementary. We were focused … Next Page »

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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