by Ellen Seidler | Ad Sponsored Piracy, Copyright, Piracy, Politics
Once a thief, always a thief
Last night 60 Minutes ran a segment featuring a Bob Simon interview with the now-defunct Megaupload’s Kim Dotcom. Much has already been written, and debated, about the German pirate entrepreneur who currently resides in New Zealand as he fights extradition to the United States on charges of copyright infringement. So did we learn anything new from last night’s broadcast that billed Kim Dotcom (predictably) as “Hollywood’s Villain?”….the short answer–nope.
Per usual, explanations were limited as to how Megaupload operated (and launched a business model that many others would follow), Mr. Simon explained it this way:
Here’s how it worked. If you wanted to send a friend a file that was too large to email– a wedding video, for example– you could just upload it onto Mega Upload’s servers and your friends could click a link to download it. It was a virtual warehouse where people stored and shared digital files. By selling advertisements and premium subscriptions, Mega Upload brought in an estimated $175 million. It became one of the most frequented sites on the internet. How did it get so popular and profitable? According to federal authorities, by also allowing users to illegally share the hottest new movies, or hit songs, or TV programs, including some CBS shows.
Unfortunately Simon failed to explain probably the most important factor to Megaupload’s financial success, its affiliate program. What good is hosting tons of pirated content if no one know where to find it? If there’s a genius to Dotcom’s acumen as a black market businessman, this is it. Basically the cyberlocker (cloud-based storage) site’s business model was that of multi-level marketing style pyramid scheme. Instead of selling cosmetics or cleaning products, his company “sold” access to stolen movies, songs and e-books.
As with all pyramid-style companies, Megaupload depended on attracting armies of underlings to “sell” its offerings. It did so by offering incentives to users who signed up to become “affiliates.” Upload stolen content, spread the download links far and wide like a virus, and the more downloads you attracted, the more cash you would earn. Affiliates could also earn cash for recruiting more affiliates. This army of mini-pirates was the key to Dotcom’s success and fueled piracy’s rampant growth beyond the traditional, more cumbersome torrent sites like Pirate Bay. The internet was suddenly filled with forums where users “shared” their download links over and over and over again.
Those who clicked on a Megaupload download link would find that they could generally stream or download a favorite film, or song, with a mere click of the mouse. For those who wanted faster download speeds they could subscribe to “premium” services and by doing so dump more cash into Dotcom’s coffers.
By having others do their dirty work uploading stolen content, Megaupload attempted to skirt copyright law by claiming refuge under the “safe harbor” provisions of the DMCA (Digital Millennium Copyright Act). Dotcom reiterated this excuse in his interview with 60 Minutes:
Am I the one who is at fault if users upload that kind of stuff and up… re-upload it again? Do I have to go to jail for that? Because I didn’t do it. I didn’t upload these things to Mega Upload.
Dotcom also blamed his flamboyant lifestyle and his nationality as reasons for his targeting by U.S. officials not the 2 and a half billion his company was worth at its peak when he left Hong Kong for New Zealand—a valuation built by pirating the hard work of others—musicians, filmmakers, authors and more. Too bad the folks at 60 Minutes didn’t think it worth interviewing any of those (beyond Hollywood) whose livelihoods suffered thanks to Megaupload and sites like it.
At this point, whatever happens with Dotcom is pretty much irrelevant. The key truth is that with the demise of Megaupload the entire piracy for profit industry was finally put in the spotlight. Why did so many other cyberlocker sites immediately shut down after the Megaupload indictment? If Filesonic, Wupload, Fileserve and other sites’ business models were legit, why did their operators scurry like cockroaches exposed to bright lights. The answer is simple. They, like Megaupload before them, were engaged in (illegal) theft for profit.
The shuttering of Megaupload marked an important shift for the landscape of online piracy. Just as cyberlockers’ illegal business models were being called into question, legitimate online options were gaining steam. The sudden vacuum allowed legal alternatives like Netflix, Hulu and their ilk to gain traction. Consumers who’d sought out pirated content out of convenience suddenly found that using their Roku or Apple TV box was a better option than scouring the internet for torrents or Russian streaming sites.
I for one don’t care much about what the future holds for Mr. Dotcom. I’m sure he’ll figure out another way to game the system and make money at the expense of others, but in the meantime I’ll be happy that content creators were the victors this time ’round.
P.S. for more analysis on the case against Kim Dotcom and copyright law I suggest Robert Parloff’s excellent piece published in Fortune Magazine in 2012: Megaupload and the twilight of copyright
by Ellen Seidler | Copyright, Film, Piracy
Santa doesn’t have much in his stocking this year for pirate website
Not to sound to be a grinch, but I must say it warms my heart during this holiday season to see pirate websites on the verge of closure, begging for donations. I wrote about x264.bb site losing access to PayPal and turning to Bitcoin as a source of donations. Well, apparently that isn’t going too well because, according to an email received today, the site is on the verge of closing due to lack of funds.
Due to insufficient funding from donation, we deeply regret to inform that x264-BB might not be able to survive should the donations are not coming in by the end of December 2013. We hate to see this great community die off, therefore we are seeking for everyone’s help now, kindly donate generously to help keep this website alive.
Alternatively, should there be any individual with ample monetary support who wishes to buy over x264-BB and able to support x264-BB for long term, send an email to: [email protected] with your offer price, please bear in mind that we will only sell off x264-BB as the last resort. All offers must be at logical prices and we will make the final decision for the sell-off at our sole discretion.
Now, before you get all teary-eyed over their possible demise, you should know that this site is in the business of piracy. Basically it offers its members a place to “share” download links and earn money via cyberlocker affiliate accounts. The more downloads forum users attract to their links, the more they earn. The site, which at one point boasted having 100k member, displayed advertising in the past, but now seems to depend primarily on donations for their survival. They explain their need for donations as follows:
Dear all, The Staff here at x264-BB truly value and appreciate the support that you all provide as members. With your help we have seen this community grow to where we are now fast approaching 100k members! Hard to believe for those who were here with us from the very start to partake in our humble beginning, but with your constant support we have been able to reach milestones. It would honor us if you would continue to support x264-BB through a small contribution.
This forum, and others like it, thrived during Megaupload (and other cyberlocker’s heyday). When Megaupload was taken offline by the feds, cyberlocker sites that mirrored its business model fell like dominoes as their operators chose not to suffer the same fate as Kim Dotcom. Now that the black market business model of paying affiliates to upload stolen content is fading, so too it seems is this pirate eco-system. Another factor in x264’s difficulties is due to the cornucopia of legit streaming sites now available. Just goes to show you that with a little nudge from law enforcement, legit sites can compete and win back the market.
Hopefully all the folks at x264 will get in their Xmas stocking is a lump of coal.
by Ellen Seidler | Ad Sponsored Piracy, Copyright, Film, Piracy
Many American companies still have their fingers in the Piracy Profit Pie
While Bitcoin, the shady crypto-currency, may be emerging as a potential new not-so-legal tender in the black market of online piracy, the fact remains that mainstream companies like Google, Visa and Mastercard still play a major role in facilitating the flow of money that’s exchanged (and earned) in this illicit underground economy.
There’s no question that cloud-based pirate cyberlocker havens took a hit after the demise of big daddy Megaupload with many of the biggest once scattering like cock roaches when the feds took action. Despite that much-needed house-cleaning, offshore cyberlockers continue to be a major source of pirated content thanks to the profits they generate with little risk and much reward. Unfortunately, despite lip-service to the contrary, ad networks like Google’s AdSense and payment processors like Visa and MasterCard remain an integral part of the system, acting as unseemly middlemen–earning income for themselves and the content thieves. Here’s how it works.
- Pirate uploads stolen content (movies, music, books, etc) to cyberlocker (usually to multiple sites)
- Pirate advertises the file’s download links on forums far and wide to attract “customers” to earn cash incentives from cyberlocker
- Cyberlocker offer incentives to pirates to upload and “share” popular (pirated) content to attract traffic
- More traffic means more income for Cyberlocker via advertising (from services like Google AdSense) and premium subscriptions (paid for with Visa, MasterCard, etc)
- Cyberlocker pays cash rewards to pirate uploader based downloads, referrals, and premium subscription sales
- Everyone makes money in this system EXCEPT the content creators
Below are a series a graphics illustrate the pirate business model at work. Pirate forum x264-bb is a web “forum” in the business of promoting pirated download links to a variety of pirated movies and TV shows. The site boasts strict guidelines for users to follow when posting links to their pirated content–ironic to say the least, particularly the admonition not to make more downloads (mirrors) “unless authorized by the original encoder.” I guess there’s honor among thieves after all…
Below is an example of a typical post on the forum, advertising download links for the movie “Despicable Me” by a user aditkhan (who boasts over 6,899 posts).
Pirate uploaders generally post “mirrored” links (identical files on multiple sites) so that downloaders aren’t disappointed if the first set of links disappears. In this case he has posted identical links on cyberlockers FileParadox.com and RyuShare.com. Note that the movie file offered in multiple parts to increase page views and profits.
Below is one of the downloads link on FileParadox. Note the inducements to purchase “premium” subscription as well as a Google-served AdSense advertisement at the bottom of the page that ironically promotes AdSense.
If downloaders do want to sign up for premium service (and access to high-speed downloads of stolen files) they can pay using Visa, MasterCard, Discover, American Express and more.
Even if the downloader doesn’t choose to become a premium member, FileParadox still earns income thanks to Google’s AdSense advertising.
I created an account on FileParadox in order to show you what their reporting page looks like. There are various ways uploaders can earn money by uploaded stolen content: # of downloads, # of premium accounts sold, and referrals.
Aditkhan reminds forum members to “support” him by creating an account (referral) and upgrading (premium sales). It doesn’t seem like a stretch to guess that aditkhan wouldn’t be so busy stealing, uploading and sharing links if he didn’t make money doing so. Clearly Google, Visa, MasterCard, Discover and American Express apparently don’t mind adding to their coffers and taking a cut of the action either. Their voluntary “best practices” agreements seem–at this point–to be full of holes.,,
by Ellen Seidler | Copyright, Film, Piracy
Misleading headlines are nothing new in the news business and so it’s no surprise to experience déjà vu reading the misleading headlines trumpeting a study released this week by researchers at the University of Munich and Copenhagen Business Schools, “Piracy and Movie Revenues: Evidence from Megaupload: A Tale of the Long Tail?” Never mind that nearly identical headlines circulated in fall of 2012 when an abstract for the same study was originally released and rebutted.
Now, nearly a year later, this new (old) study purports to show that the feds shutdown of notorious pirate site Megaupload in early 2012 was bad for the movie business at least in terms of non-blockbusters.
We find that box office revenues of a majority of movies did not increase. While for a mid-range of movies the effect of the shutdown is even negative, only large blockbusters could benefit from the absence of Megaupload. We argue that this is due to social network effects, where online piracy acts as a mechanism to spread information about a good from consumers with low willingness to pay to consumers with high willingness to pay. This information-spreading effect of illegal downloads seems to be especially important for movies with smaller audiences.
What about “smaller” independent films that don’t have a theatrical release?
Comparisons of box office revenues aside–and despite obvious weakness in their methodology–the study’s authors fail to give any consideration to the fact that most indie films released these days do not have theatrical releases. Shouldn’t such films be included as “movies with smaller audiences?” Why are their revenues not factored into this study?
For these “smaller” films the only way to earn revenue is through VOD, DVD, and TV sales–placing them in a head-to-head competition for viewers against pirate cyberlocker sites like Megaupload. With a mere click of a mouse Megaupload users could download a movie (for free). Why go to iTunes and pay to watch a film when one could just as easily download it in HD for free? No matter the spin, Megaupload diluted legit sales for these “smaller” films. To argue that Kim Dotcom’s business model (which earned him millions) bolstered filmmakers’ revenues is just delusive.
The Megaupload shutdown did have a positive impact on digital sales
If you want studies, contrast the Munich study’s findings with a one published by Carnegie Mellon researchers earlier this year that found the opposite to be true:
After controlling for country-specific trends and the Christmas holiday, a country’s pre-shutdown Megaupload penetration rate (the % of Internet users that accessed Megaupload or Megavideo during December 2011) was statistically independent of its week-to-week changes in sales. However, immediately following the shutdown, there was a positive and statistically significant relationship between a country’s sales growth and it’s pre-shutdown Megaupload penetration, such that for each additional 1% (lost) penetration of Megaupload the post-shutdown sales increase was between 2.5% and 3.8% higher (depending on which of our models you believe to be most accurate).
The fact that these trends didn’t exist before the shutdown but existed after the shutdown suggests a causal effect of the shutdown on digital sales, and we find a similar (but slightly weaker) relationship for digital rentals. In aggregate, our estimates suggest that, across the 12 countries in our study, revenues from digital sales and rentals for the two studios were 6-10% higher than they would have been if Megaupload hadn’t been shutdown.
As in 2012, the MPAA wasted no time in releasing a statement denouncing the study:
An independent review of the academic research available has shown that the vast majority of research available in fact does show that piracy does harm sales…And a recent study from Carnegie Mellon University found that digital sales in countries where Megaupload was popular increased after Megaupload shut down. And in fact, the Munich and Copenhagen paper also finds that box office increased after Megaupload shutdown for an important segment of titles that they don’t clearly define, although it’s hard from the study’s descriptions to determine exactly what the control and treatment sample groups are, among other key factors. Unfortunately, in order to reach its conclusion, the Munich and Copenhagen study also all but ignores a critical piece of the box office picture – how timing or other factors that are completely unrelated to Megaupload impact the box office performance of small, medium or large films.”
If studios determine that “shutting Megaupload” hurt their profits why wouldn’t they adjust their marketing and distribution strategies to mirror the cyberlocker business model? Hollywood is in the business of making money and they don’t seem to be rushing to give away free downloads of their movies to generate buzz and box office.
Ultimately it’s the rights holders–not online pirates–who have the legal right to decide how their copyrighted work is distributed and marketed. Study or no study, the reality is that Kim Dotcom is a parasite who made millions by feeding of the work of others. His loss is our gain.
by Ellen Seidler | Copyright, Law, Music, Piracy, Tech
MPAA victory against Hotfile is a victory shared by all content creators hurt by online piracy
The best news in the fight against online piracy since Megaupload’s demise came yesterday as the MPAA annouced a big victory in their copyright infringement lawsuit against Hotfile, a cloud-based cyberlocker website known to harbor pirated movies, music, books and more. Though specific details of the court decision won’t be released for another two weeks, the judge issued a summary judgement in favor of the plaintiffs. From the LA Times:
This decision sends a clear signal that businesses like Hotfile that are built on a foundation of stolen works will be held accountable for the damage they do both to the hardworking people in the creative industries and to a secure, legitimate Internet,” said former Sen. Christopher J. Dodd, Chairman and CEO of the Motion Picture Assn. of America.
“We applaud the court for recognizing that Hotfile was not simply a storage locker, but an entire business model built on mass distribution of stolen content,” Dodd added. “Today’s decision is a victory for all of the men and women who work hard to create our favorite movies and TV shows, and it’s a victory for audiences who deserve to feel confident that the content they’re watching online is high quality, legitimate and secure.
Headlines called the decision a huge victory for the MPAA, which of course it is, but it’s also important to appreciate that it’s really a victory for the rest of us who create content for a living. Cyberlocker sites do not discriminate, offering pirated copies of indie films alongside the latest Hollywood blockbusters. It’s a business model that depends on stolen content (and the website traffic it attracts) to make money and pirate operators are happy to exploit the public’s thirst for free content, no matter the source. Hopefully this court decision will cause other pirates who operate similar sites and willfully facilitate copyright infringement to give pause.
Given these developments I thought I’d repost “Cyberlockers: Explaining Piracy’s Profit Pyramid ” a piece I wrote in 2011 explaining the cyberlocker (pirate) business model whereby operators earn millions by monetizing content theft at the expense of content creators around the globe. Some of the names have changed, but they piracy game remains the same.
First of all, make no mistake, the vast majority of today’s piracy is driven by the thing that has motivated mankind since time began—the desire to make money. If you take the time to spend a few minutes online exploring websites engaged in piracy (most people who speak out on the issue don’t seem to bother) you’ll quickly recognize that money is at the center of everything.
Mediafire download link (for flm-Unhappy Birthday) featuring Google ads.
If the ads aren’t hitting you squarely in the face, or the offers of high-speed, high quality downloads don’t spark suspicion, then perhaps it’s time to clean your glasses. How ‘bout I take you on a tour?
Let’s begin with the sites that serve as the lynchpin for today’s online pirates. No, I’m not going to talk about Pirate Bay or other notorious P2P (peer to peer) sites. No need for that. Consumers are all about convenience, and it’s not particularly convenient to download torrents and reconfigure the numerous file parts in order to view a movie. Today it’s all about the one-stop shopping experience, and for that there’s no better storefront than the cyberlockers where, with the click of a mouse, you can download (or watch) your favorite film. You’ll likely find other items on your wish list (e-books, music, software, and more) available for easy download as well.
You’ve probably heard the term “cloud based storage” floating around a lot lately. Well, thanks to companies like Apple, and the recent launch of their cloud based offering called “iCloud,” the notion of storing files online via a virtual hard drive is gaining ground. Cyberlockers have been providing this “service” for nearly half a decade now, and while there is legitimate activity taking place via some cloud-based storage sites like Drop Box and Yousendit, there are many others whose business model is predicated on content theft. The now disabled Megaupload.com is a good example of the latter variety. (Read the indictment for a step-by-step tour through the inner-workings of their criminal enterprise.)
How does an illicit Megaupload-like business model work? Well, if you want to understand how cyber lockers work it’s helpful to think of a company like Amway. Amway’s business success popularized the multi-level marketing style pyramid business model (or scheme ) whereby the operators at the top of the pyramid recruit people to work for them. They, in turn, recruit more workers who, in turn, sell products to the public. Those at the top make money only if they can recruit, and keep, enough people below to do the actual work. Those doing the bulk of the work earn money, but at a much lower rate than those at the top. It’s the trickle up theory of profits.
At any rate, if you journey to the cyberlocker of your choice–Megaupload, Filesonic, Fileserve, Filefactory, Uploading, Uploadstation, Mediafire, Megashares, Sockpuppet, Putlocker, etc. you will see enticements offered encouraging visitors to join this type of profit pyramid.
Cyber lockers offer CASH for uploads.
Why do they do this? Well the cyberlocker business model depends on traffic. In order to drive traffic to their site they need content that will attract visitors. What better carrot than popular movies, books or music? Never mind copyright, there’s the “safe harbor” provision of the DMCA that allows the cyberlocker operators to essentially look the other way (plead ignorance) when it comes to the content that affiliates upload. In fact, if uploaders did abide by a site’s published Terms of Service, the cyberlockers would quickly be out of business.
In other words, cyberlockers depend on an army of affiliates to do the dirty work for them. It’s a scenario that enables the cyberlockers to shield themselves from legal liability, while their servers are simultaneously receiving thousands of (stolen) files every day–fresh content sure to attract new (and returning) customers.
So, in order to set this eco-system into motion, the cyberlockers lure their minions. Uploaders can earn rewards, which usually start at around $35 per 1,000 downloads. Simply put, the more downloads you generate for your file, the more money you earn.
Cyberlockers are booming thanks to profits from piracy.
That fact sets in motion the next level of piracy—the viral spread of the download links. The affiliate armies take their links and post them on download (Warez) forums far and wide. The more these links are “shared” across the web, the more money made.
Click to for PDF with 36 posts of viral links.
To further ensure their earnings, these cyberlocker affiliate pirates—I’ll refer to them as CAPs from now on–usually upload their stolen files to multiple cyberlocker sites. This is called ‘mirroring” and what it means is that if a link is disabled on one cyberlocker site you can easily find the identical file on another. Each CAP generally has affiliate accounts with multiple cyberlockers so that their illicit income won’t suffer if some links are disabled.
Since they are paid per download to maximize profits, CAPs often break a film file into several parts. An average size for an uploaded film is around 700 MB (HD films can easily be double that size) but if divided into smaller chunks, requiring multiple links, and thus multiple downloads, the CAP can earn more download points. There’s a trade-off to this approach, however, as it can dissuade downloaders who prefer the convenience factor of downloading a “single” file.
Film download broken into several links in order to maximize profits.
Some sites like Megavideo (the streaming partner site to Megaupload) offer visitors the ability to watch an entire film streaming online with no download wait time. Watch the film, and if you like it, you can add it to your “collection” and download a copy for later viewing.
So, now that it’s pretty easy to understand how so much illegal content gets uploaded to the cyberlocker sites, let’s look for a moment how site operators turn that traffic into actual income.
At the top of the list is online advertising. Click a cyberlocker download link and you will arrive at a page like this.
Cyber locker site streaming the film “Unhappy Birthday” with Netflix ads serviced by Google.
There’s a link or stream for a film and there are ads. Various companies serve these ads, but one can’t ignore the fact that Google and other U.S. based ad servers like AdBrite are ubiquitous on the cyberlockers. For the record, the ads seen on the image above and below are served by Google, though now that they’ve changed their icon and obscured their connection to them, it’s more difficult to tell. In any case, no matter who serves the ad, the cyberlocker makes money and the ad service provider makes money. The creator gets squat.
Another cyber locker stream with more ads (provided by Google).
In addition to ad income, cyberlockers derive profit by offering “subscriptions.” In this instance users pay a fee, averaging around $9.00 per month, that enables high-speed downloads on the website. This means instead of waiting a half hour to download a full film, the entire process takes only 3 minutes. For those who are repeat customers, this may be money well spent. In this instance the cyberlocker site is making money and the payment processors (Visa, MasterCard, PayPal and the like) are making money. Again, the content creator earns ZERO.
Cyber lockers cash in on selling subscriptions for high speed downloads.
In order to boost its subscriptions cyber lockers again turn to affiliate rewards. Remember those forums where the CAPs go to spread their viral seed? Well, many, if not most of those forum operators also have relationships with the cyberlockers and are an integral part of the piracy profit pyramid. For every individual they “refer” who becomes a cyberlocker affiliate, they earn a referral fee. Thanks to unfettered access to free content and income, the eco-system of online piracy continues to thrive and grow.
HD-BB an online forum where viral cyberlocker links are spread.
HD-BB is just one example of such a forum. The forum operators boast of the high-quality “rips” shared by its members. If you drill down into forum posts you’ll quickly discover that moderators only allow users to post links to specific, “approved” cyberlockers that the forum has a relationship with. There are also links that direct users to the various affiliate options ensuring that the forum earns its fair share. The forum makes money, the cyberlocker makes money and the creator of the content makes ZERO.
This is what I know.
Now that this black market business model is entrenched as a way of doing business around the globe, what can be done to stop it? Well, I’m afraid that nothing can stop it–piracy will never disappear entirely–but something can be done to mitigate its effects. This can happen if we can encourage the majority of websites at the center of this illicit cyberlocker eco-system to become (more) legitimate.
Cutting off the money that feeds this pirate profit pyramid is one part of the equation, but there’s also another component that may be equally important. It’s a solution that it’s already working right in our own back yard.
I look to Youtube’s solution to piracy as an imperfect, but reasonable fix. Let’s meet the pirates halfway. Why not ask them to set up Content Management Systems (CMS) like the one Youtube has? A system like this would allow content owners to determine the fate of their work. A CMS system basically allows for the fingerprinting of content so that infringing content can be instantly identified upon upload to the cyber locker site.
Dashboard for Youtube’s “Content Management System.”
The content owner could then determine, as they do on Youtube, whether to remove the content, monetize the content, or block it in certain territories. In this scenario the cyberlocker can still earn money off uploaded content, but only at the discretion of the content owner. Users will also be less inclined to post infringing content in the first place. It’s a solution that allows the content owner to take back control from the pirates (thieves) and earn income off files that previously were simply stolen. In this equation, at least everyone gets a piece of the pie.
It’s at this point that the false “piracy is good for business” refrain parroted by piracy apologists begins to gain some traction and some truth. If piracy’s black market business model can be remolded into a practice that can financially compensate the content creator–and restore their control of the content–perhaps it could become better for business.
The problem is that cyberlockers are not going to adopt a CMS system just to be nice. Youtube, a U.S. company, was forced to act under threat of ongoing litigation and legislation. The only way today’s crop of cyberlockers can be forced to institute similar content ID systems is if their current business model becomes unsustainable. For that to happen, like Youtube, they too will need to face the threat of litigation and/or the long arm of the law. At this point, that puts the ball squarely back in the lap of Congress.
That is what I know…
Last night 60 Minutes ran a segment featuring a Bob Simon interview with the now-defunct Megaupload’s Kim Dotcom. Much has already been written, and debated, about the German pirate entrepreneur who currently resides in New Zealand as he fights extradition to the United States on charges of copyright infringement. So did we learn anything new from last night’s broadcast that billed Kim Dotcom (predictably) as “Hollywood’s Villain?”….the short answer–nope.
