If they're close to getting acquired, this could be a very good strategy, and could even be a catalyst for an acquisition altogether. This is a VERY nice end game move.
Those "big" lawsuits don't happen till normally later in the game. Those "big" lawsuits also take a very long time, and in the mean time traffic would continue to skyrocket (it already has past ustream.tv by far). I think this is definately a winning strategy, and predict the lawsuit will either A) never happen, or B) will happen far too late to put them out of business.
If jtv had started pimping out pirate traffic a year ago when they first started, things would be different. They're going to make bank off of this. Just watch.
Hosting content that users submit, that is actually the property of massive media conglomerates, is not my idea of breaking ethics.
Look at myspace -> started as a full blown illegal spam operation.
facebook -> supposedly started sending spam to get initial users and a stolen database. + privacy issues.
slide -> "spammy as hell" apps, plus was recently caught posting fake reviews.
youtube -> massive trademark infringement.
microsoft -> don't even get me started.
The list goes on and on. I don't even consider posting up "baseball" games to be unethical at all. Look at Sean Parker. Would he of gotten in with the facebook crew early on if he had not founded Napster, which was just basically a user friendly warez app? He's doing quite well these days I'd imagine.
The majority of startups out there do some shifty stuff, especially in the early game, before new funding cycles, and end game. From purchasing Chinese traffic before a funding round to prop up growth, to spamming for initial users, to pirate content, there is a lot going on out there that you might not know about.
I'm not promoting unethical practices in anyway, just pointing out that pirated content is not especially gruesome as you make it out to be, and also point out how wide-spread such activities are.
About 99% of the people here would do the same thing in the same situation.