Could Megaupload have been a success like YouTube?

Kim Dotcom sued by Hollywood studios

The legal woes for Megaupload’s founder Kim Dotcom continue with today’s news that six movie studios including Fox, Disney, Paramount, Columbia, Universal and Warner have filed a lawsuit in federal court charging Dotcom and his site with “massive” copyright infringement.  From the complaint filed in federal district court in Virginia:

1. Until January 2012, when defendants were indicted on federal charges, defendants operated the notorious website and service located at www.Megaupload.com (“Megaupload” or ”Megaupload website”) as a commercial online hub for publicly providing popular copyrighted content, including thousands of plaintiffs’ copyrighted works, over the Internet to millions of Megaupload users without authorization ox license. On a daily basis, defendants intentionally infringed plaintiffs’ copyrighted motion picture and television programs on a massive scale and for a substantial profit. Defendants carried out this intentional, large-scale theft of plaintiffs’ intellectual property primarily through the operation of the Megaupload website, as well as associated websites like the video streanning service located at www.Megavideo.com (“Megavideo”).

2. Defendants intentionally and actively encouraged theix users to upload to the Megaupload computer servers infringing copies of the most popular entertainment content, including plaintiffs’ copyrighted television shows and movies. For example, through Megaupload’s “Uploader Rewards” program, defendants openly paid Megaupload users money to upload popular unauthorized and unlicensed content, including plaintiffs’ copyrighted television shows and movies, onto Megaupload’s computer servers. Pursuant to the Uploader Rewards program, the more often an uploaded file was downloaded by other users, the more money the uploader made.

3. Once a Megaupload user uploaded a file, defendants provided that user with a “link” to the infringing content and encouraged the user to disseminate the “link” as broadly as possible on the Internet so that as many people as possible would find the link and use it to download the infringing content from Megaupload’s servers.

4. Defendants profited handsomely from this copyright infringement in at least two ways: by selling users “premium” subscriptions, which enabled rapid, unrestricted downloading; and by selling online advertising space to advertisers.

The complaint goes to describe the site’s business model–one built on piracy whereby the more content uploaded, the more traffic for the site, and the more ad and subscription revenue earned–more than 25 million according to the complaint.  It also pokes holes in the claims of Dotcom, and his apologists, that the site was a legitimate enterprise that merely provided storage for its users:

Contrary to some of defendants’ public assertions, Megaupload was not designed to be a private data storage provider. Users without premium subscriptions were restricted not only in their downloading capabilities, but also in their ability to store files on the site. Any content they uploaded would be deleted if it was not also downloaded within a certain period of time —after 21 days in the case of unregistered, anonymous users and after 90 days in the case of registered users who were not premium subscribers. Only premium subscribers (estimated to be 1% of users) could use Megaupload for long-term file storage. Thus, by design, Megaupload functioned not as a private online storage locker, but rather as a hub for uploading and downloading infringing copies of popular movies and television shows, including plaintiffs’ copyrighted works.

With this latest legal salvo fired against Megaupload and its founder perhaps it’s worth taking a moment to examine why YouTube, another site dependent on user-generated content (UGC) managed to survive and thrive, despite early accusations (and a major lawsuit) that labeled it a piracy cornucopia.  Why did Megaupload end up on the dust bin of history while YouTube has become a web video (and music) juggernaut?

The early growth and popularity of both sites was dependent on the public’s general disregard for copyright law.  Sure, some of the traffic to YouTube was generated by cute cat videos gone viral, but much of the site’s popular content included clips and often entire copies of tv shows and movies–content uploaders certainly had no right to disseminate.   Like Megaupload, YouTube hid behind the shield of “safe harbor” and monetized the content with advertising but unlike Megaupload, the site did not offer cash or other incentives to uploaders, not directly anyway.*

In 2007 Viacom filed suit against YouTube and like today’s filing against Megaupload, the charge was “massive” and “brazen”  copyright infringement. After seven years of legal back and forth, the parties finally announced they had settled the case in March, one week before they were scheduled to again face off in court.  The companies issued a joint statement which characterized the resolution this way: “The settlement reflects the growing collaborative dialogue between our two companies on important opportunities, and we look forward to working more closely together.”

Ultimately what separates YouTube/Google’s success versus Megaupload’s demise lies with the fact that the head honchos at Google determined that respecting copyright ultimately provided a better business model than ignoring it.  On the heels of Viacom’s infringement suit,  YouTube introduced its Content ID (digital fingerprinting) system in 2008 which gave rights holders a (relatively) efficient way to deal the massive copyright abuses that plagued the site.  Rather than send hundreds, if not thousands of DMCA takedowns, musicians and filmmakers could claim content they own and be proactive in blocking, removing, or monetizing it.  The key was that Content ID allowed the creators to determine if and how their content could be viewed on YouTube, not the other way around.

Megaupload paid lip service to honoring DMCA takedown requests, but in actuality was playing a shell game, removing infringing links but not removing the actual files.  If you read the 70 page federal indictment against notorious pirate cyberlocker website Megaupload, you will find this charge on page 10, section 22:

When a file is being uploaded to Megaupload.com, the Conspiracy’s automated system calculates a unique identifier for the file (called a “MD5 hash”) that is generated using a mathematical algorithm. If, after the MD5 hash calculation, the system determines that the uploading file already exists on a server controlled by the Mega Conspiracy, Megaupload.com does not reproduce a second copy of the file on that server. Instead, the system provides a newand unique URL link to the new user that is pointed to the original file already present on the server. If there is more than one URL link to a file, then any attempt by the copyright holder to terminate access to the file using the Abuse Tool or other DMCA takedown request will fail because the additional access links will continue to be available.

During my dealings with Megaupload I’d long suspected as much.  Time after time, I’d remove links using Megaupload’s content management tool only to see a duplicate file reappear (with a new  link) minutes later.  Of course, unlike federal authorities, I did not have access to the actual content residing on Megaupload’s servers, so I couldn’t really prove it.

In the fall of 2011 while I was researching a pirate blog that offered illegal downloads to LGBT films, I saw that the film “Kyss Mig” was being pirated.  Since it’s a film distributed by the same company (Wolfe Video) that distributes our film I notified them of the infringing link.  A DMCA notice was sent and, as expected, the link was disabled.  However, when I went back to the website the following day I noticed that the disabled link had been replaced by a new one.  That led me to again notify Wolfe and the exercise in futility was repeated.  A few days later I noticed that the link was alive yet again, but the blog owner had changed things up (to protect her download) and the link now took me to an intermediate site “undeadlink.com.”

Essentially the site offered a convenient way to regenerate links to supposedly “dead” files on Megaupload (and apparently Fileserve).  If Megaupload had actually removed the infringing file when it was originally reported, this wouldn’t have been an option.  However, because Megaupload apparently did exactly what is spelled out in the indictment, it was very possible (and efficient).  When I discovered what was going on last fall, and that it verified my suspicions, I decided to record the process.  This video documents what I found.

[fve]http://vimeo.com/35648310[/fve]

Dotcom likes to pontificate (to anyone who will listen) and claims he’s “…at the forefront of creating the cool stuff that will allow creative works to thrive in an Internet age. I have the solutions to your problems. I am not your enemy.”  Were that really true, why didn’t Mr. Dotcom use technology to transform Megaupload.com into legitimate UGC  site by implementing a Content ID system like Youtube’s?  Oh right, he would have had to share the profits. Despite disingenuous rhetoric to the contrary, unlike YouTube, Megaupload actually employed technology to ensure that copyright infringement continued rather than prevent it.

It’s an ethos that has allowed online piracy for profit (under the guise of innovation) to propagate across the globe.  Why invest in a product when it’s just as easy to steal (and monetize) it?  Of course Dotcom and Michael Robertson (founder of MP3tunes who was found liable and hit with a 41 million dollar verdict last month in a copyright infringement suit) have both discovered there are consequences to such theft, but this should be the norm, not the exception.  Dotcom’s unbridled hubris and greed got the better of him.  One can only imagine what he could have achieved had he crossed over from the dark side and followed YouTube’s lead.

Moving forward, preventing such businesses from taking root in the first place should be one goal in Congressional efforts to update the Digital Millennium Copyright Act for the 21st century.  For all its faults, YouTube’s Content ID system lights the way for a possible path forward in redefining “safe harbor.”  If a website’s business model to is predicated on “sharing” creative work, providing content creators with technological tools to safeguard their work should be a requirement for meeting the “safe harbor” provisions of the law. Such a requirement would not “break” the internet.  It actually would could go a long way in fixing what’s currently broken.

Meanwhile, while YouTube has thrived where Megaupload has failed, businesses like YouTube can and should better reward the creators on whose work they depend.  As online distribution options grow and improve, hopefully many will say goodbye to the opaque revenue “sharing” model imposed by YouTube (and others) and take their content to sites/businesses where formulas for compensation are more transparent, and more generous to those who actually create the content.

BTW, is there a way indie artists could jump on board the lawsuit filed by the studios?  Why not make it a class action affair?  There are plenty of indie musicians, filmmakers and authors around the world whose works (and livelihoods) were ripped off by Kim Dotcom’s enterprise. In their lawsuit the studios are asking for maximum statutory damages of $150,000 per infringement plus the profits the defendants generated.  Just imagine how many new works might be in the offing if those thousands of creators whose works were pirated on Megaupload were awarded damages along with the studios?

 

*To this day there are still some YouTube users ‘s that earn ad revenue by uploading dubious content.  Of course YouTube/Google earns income off these uploads too.