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