Mega rids itself of TRS bad boy but Visa/MasterCard/Paypal boycott remains barrier to listing

Mega submitted a new constitution to the NZX today that clears the way for a regular IPO.

Mega submitted a new constitution to the Companies Office today that clears the way for a regular IPO.

Previously, the company sought a backdoor listing through TRS, whose majority shareholder Paul Choiselat faced market manipulation charges brought by the Australian Securities and Investments Commission (ASIC).

On paper, Mr Choiselat’s charges had no bearing on the IPO. In practice, they muddied the waters.

But Mega, which claims 18 million users for its file-sharing service, has another obstacle to overcome before it can list.

In April, PayPal pulled the plug on online payments processing. PayPal won’t comment to NBR but Mega has alleged PayPal cancelled its service following pressure from MasterCard and Visa, who were in turn leaned on by US Senator Patrick Leahy  – and letters provided by Senator Leahy’s office show he was openly lobbying the two big credit card companies to cut services to companies to companies like Mega, which he alleges are vehicles for copyright infringement.

Since then, Mega has told NBR on a couple of occasions that a new payment processing solution is just a couple of weeks away (the last time was about a month ago).

Today, CEO Graham Gaylard conceded there is no new payment solution yet, and he can’t state a timeframe for finding a replacement for PayPal.

There are alternatives to PayPal that don’t involve Visa or MasterCard. The cyber currency BitCoin is one.

But Mega wants to be a mainstream brand with hundreds of millions of users, and you can’t do that without a mainstream payment solution.

Is it feasible to list on the NZX without one?

“I think any global internet company needs to process payments by credit cards, independent of whether they are listed or not,” Mr Gaylard says.

That’s true, and it’s hard to see a listing going ahead without one and MasterCard and Visa seem implacable in their position (both declined various NBR requests for comment).

Mega disputes the NetNames report that Senator Leahy has used as the basis of his war on the Kim Dotcom-founded Mega. It’s even gone as far as spending six figures on a report from Olswang LLP, a London-based international law firm, which debunks NetNames’ research.

And I can extend a degree of sympathy to Mega in that the credit card companies have been, apparently, inconsistent in their approach.

Visa, for example, has stuck with FIFA, where multiple officials face bribery, money laundering and racketeering charges, whereas Mega faces no charges from the US, New Zealand or any other countries (notwithstanding the fact its founder has form).

But … for better or worse that’s the way things are, and I can’t see Mega listing until the situation is somehow resolved.

Mr Gaylard says Mega is going for growth over revenue at this stage and only budgeted on a tiny number of its 18 million subscribers paying for premium services at this point.

That’s a familiar tune for startups and investors have a high tolerance for little money coming in the door in the early days. But no money whatsoever, and no means to collect it, is a different situation altogether.