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Hypothetically, what if you sue them in small claims court? Make the maximum claim allowed under small claims for fraud, negligent misrepresentation, intentional infliction of emotional suffering, intimidation, unlawful interference, breaching the Fair Trading Act, punitive damages and costs including all arbitration fees and related charges.
You have plenty of evidence from statements made by their CEO, for example how it is cheaper to settle rather than contest their claim etc. You have a fantastic case if your site don't even host streaming videos!
If I understand Australian law correctly you can represent yourself in small claims court? If your case makes them spend even 10 billable hours X US$400, it will cost them US$4000 while costing you almost nothing (hypothetically speaking of course)!
You can also make a scam complaint to the Office of Fair Trading.
Cheers
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