It’s no secret that the entertainment industries believe search engines are not delivering enough when it comes to protecting copyright works. Just last month, the RIAA and IFPI accused Google of massively profiting from piracy, while putting up barriers to make life difficult for rightsholders.
If the copyright industry had their way, Google and other search engines would no longer link to sites such as The Pirate Bay and isoHunt. In a detailed proposal handed out during a meeting with Google, Yahoo and Bing, various copyright holders made their demands clear.
The document, which describes a government-overlooked “Voluntary Code of Practice” for search engines, was not intended for public consumption but the Open Rights Group obtained it through a Freedom of Information (FOI) request.
In short, the rightsholders want the search engines to make substantial changes so that pirated content becomes harder to find, or is de-listed entirely. In addition, they want to boost the rankings of licensed content. Below are the three new measures they propose.
Assign lower rankings to sites that repeatedly make available unlicensed content in breach of copyright
Prioritize websites that obtain certification as a licensed site under a recognised scheme
Stop indexing websites that are subject to court orders while establishing suitable procedures to de-index substantially infringing sites
In the document rightsholders explain that they find it inexcusable that some websites – Pirate Bay and Isohunt in particular – are still indexed by all major search engines even though courts have ruled they facilitate copyright infringement.
Not surprisingly, there is no mention of the collateral damage that such a broad filter would bring with it – many artists and other legitimate individuals are known to use these websites to share their works.
The document further details how many of the top search results for music, movies and books crrently link to pirated copies. In order to stop this, the rightsholders propose that Google and other search engines systematically assign a lower ranking to possibly infringing pages.
“We propose that in order to further protect consumers and to encourage responsible behaviour among websites, the extent of illegal content on a website should become a factor influencing the ranking of that website in search results returned to consumers,” they write.
This should be doable according to the rightsholders, as Google already influences its search results based on various other criteria, such as the lower rankings that are assigned to so-called content farms.
“Given that Google already de-ranks and de-lists sites that do not meet its own ‘quality guidelines’ or otherwise violate its policies, we do not believe that search engines would face significant legal exposure if they were to de-rank or de-list sites using an objective measure, based on their actions in response to legal DMCA complaints, in pursuit of the legitimate objective of preventing their service being used to facilitate copyright infringement,” they write.
Conversely, it’s argued that search engines should also boost the ranking of legitimate sites for certain ‘relevant’ searches. A list of relevant terms to match to these relevant searches should be provided by pro-copyright groups. In the proposal, the rightsholders give the following example in the case of music files.
“We would propose that prioritisation be enabled for searches that contain any of the following key search terms: “mp3″, “flac”, “wma”, “aac”, “torrent”, “download”, “rip”, “stream” or “listen”, “free”, when combined with an artist name, song or album title contained on a list to be regularly updated and provided to a search engine by a recognised and properly mandated agency representing rights holders for a particular sector, such as BPI.”
Aside from these new proposals, the document also calls on the search engines to improve the censorship measures already in place, such as Google’s keyword filter for their “instant” and “autocomplete” services.
Although the proposal from the rightsholders is not a direct threat as it is a long way from being accepted, it clearly shows that rightsholders see censorship as the way forward. The search engines on the other hand were not impressed and are expected to supply a proposal of their own in a future meeting. Again behind closed doors.
Last October, the High Court in London handed down a judgment to BT, one of the UK’s largest Internet service providers. The injunction – the first of its type in UK history – ordered BT to block subscriber access to Usenet indexing site Newzbin2 on copyright grounds.
Although Newzbin2 anticipated the result and had already prepared circumvention software to enable BT users to carry on using the site, it still has a key vulnerability – its US-seizable .COM domain. According to the site’s operators, that weakness is now being addressed.
“Newzbin is leaving the American Internet. In a couple of weeks we will cease to use the newzbin.com domain and move to newzbin2.es,” says the site’s Mr White.
“We regret the need to do this but, thanks to the retards in the US Government and the MPA, a ‘.com’ address is no longer viable. Really, any domain controlled by the US government proxy Verisign isn’t viable.”
No exact date has been given for the switch but it will be during the next few weeks. For “legal reasons” the old .COM domain, which Newzbin2′s operators say is currently rented from a 3rd party, will not redirect or even provide a link to the new Spanish domain.
During 2012 it’s expected that the site’s unblocking tool will see wider use as other ISPs are also expected to begin blocking Newzbin2. But according to the site, thus far censorship has had the opposite effect.
“I can’t give exact figures but an executive summary would be that, from our Apache logs, traffic grew steadily over 2011 with a big spike about the time we were blocked; down a little since then, but still at higher levels than ever before,” Mr White told TorrentFreak.
“Overall the MPA’s web blocking has had something of a Streisand Effect on our traffic levels. It seems that they are driving users to us. Our best friend is our worst enemy,” he notes.
Nevertheless, Newzbin2′s operators aren’t simply cruising. Mr White told TorrentFreak that they intend to use the trust they’ve built up in the community to launch a secure VPN service which will not only allow anonymous Internet use, but will also defeat site-blocking measures.
But surprisingly, especially given the astonishing MegaUpload-related developments of the last week, they also intend to launch a cyberlocker service.
“Our reaction to Megaupload and the fallout was twofold. On the one level this is a very important case because if New Zealand extradite Dotcom to the US, which is where the smart money is I reckon, it will be a fascinating exhibition of the MPA’s legal strategy against cyberlockers. It may be the feds prosecuting but we all know that the MPA’s hand is up their puppet ass,” says Mr White.
“The shame for Dotcom was only that he didn’t spend his money on politicians & cops rather than godawful pink Cadillacs. And how INTERESTING that the FBI have shown publicly that they really can backdoor Skype,” he added.
Mr White described the ensuing pandemonium in the cyberlocker market as “like a herd of elephants being frightened by bees” and advised site operators who have done nothing wrong to “man up and show some spine.”
Newzbin2 assure us that their forthcoming service will be “legal from the ground up” but predict their service will receive “sniping from the malodorous content dinosaurs.”
In an uncertain world and even more uncertain cyberlocker market, that last prediction is probably the most certain we’ve heard all week.
With a self-proclaimed 50 million users a day, MegaUpload was one of the largest file-hosting sites on the Internet.
Last week the feds shut down the popular site accusing its founder and six others of money-laundering and several copyright related crimes. The site’s former users, meanwhile, are left without their files and forced to find a new place to share.
The big question is, where do these millions of people go now?
The RIAA hopes that the people who used MegaUpload to share copyrighted music are turning to iTunes, but this is not the case for everyone. A look at the traffic of some of the MegaUpload alternatives shows that millions have simply migrated to other file-hosting sites.
The graph below shows a sharp increase in traffic for four popular MegaUpload ‘replacements’ since last week. Based on data from various traffic measurement sites, Depositfiles, Uploaded.to, Hotfile and Rapidshare welcomed hundreds of thousands of extra visitors.
The example above is just the tip of the iceberg, as there are many other sites that experienced a surge in traffic including Filepost, Hulkshare, Netload.in, Uploading, zShare.net and many others. Whether the newcomers will remain on board has yet to be seen, but it is clear that millions of former MegaUpload users are migrating to other sites.
As the cyberlocker landscape stands now, 4shared.com remains by far the largest site on the Internet. With an estimated 2.5 billion page views, 4Shared is more than twice the size of MegaUpload before it was shut down.
Needless to say, 4Shared is deeply concerned about the recent developments, but the company also told TorrentFreak that they have nothing to worry about themselves.
“This case has a great negative impact on file storage services and the Internet overall,” a spokesman said, adding that “4shared has some of the most strict house rules among all other file storage services and there’s no need for any changes.”
With many sites still in a state of shock, it might take a few weeks to see what the precise effect of the MegaUpload shutdown is. One thing is for sure though, many of MegaUpload’s former users haven’t given up downloading and sharing just yet.
There’s been a lot of talk about censorship lately. Last week the Internet witnessed the largest protest in its history, against the Internet censorship bills PIPA and SOPA. And earlier this month ISPs in Finland and the Netherlands were ordered to censor The Pirate Bay.
Alongside the millions who protest against these increasing censorship initiatives, there’s also a group of people who come up with ways to route around it. One of these projects is the RePress plugin for WordPress.
The plugin is developed by the hosting company Greenhost and allows everyone with a WordPress blog to start a proxy for sites that are censored elsewhere in the world. As an example, Greenhost have setup a Pirate Bay and Wikileaks proxy.
“By adding this plug-in to your WordPress website it will start functioning as a proxy and uncensor any blocked website you’d like,” Greenhost explains. “The only thing you’ll need is a WordPress website and the ability to install new plug-ins. After that you can maintain a list of websites you’d like to keep open freely available on the web.”
Repress Options
One of the main motivations for the plugin’s developers was to provide people in the Netherlands full access to The Pirate Bay when the recent court order is enforced. However, if SOPA or PIPA pass there might also be a need for people in the US to have a tool like this.
“We hope people outside Holland use the plug-in to uncensor piratebay.org, as it is in danger of being blocked in our country after a court-ruling. In the Netherlands we could then uncensor websites for people in oppressive regimes like Iran, Syria or the US after SOPA is passed.”
“[SOPA and PIPA] are said to defend the interests of the Entertainment industry, but will mainly cause grave and undeniable damage to the Open and Free web and all of its users: from the end-consumer to the cutting edge developers and inventors. Our aim is to make this impossible,” the Greenhost team notes.
Although the plugin can’t prevent domain names from being seized, it is indeed a good solution to bypass all of the common blocking measures that are used today.
The RePress initiative is applauded by several politicians, including European Parliament member Marietje Schaake. “This is a fantastic opportunity for human rights activists and a solution for people who face technological censorship and repression,” she told Webwereld.
To those eager to start their own proxy of blocked websites, RePress can be downloaded in the WordPress repository.
Yesterday morning, Kim Dotcom had his application for bail denied at the North Shore District Court in New Zealand.
Judge David McNaughton said that the scale of the charges against the MegaUpload founder combined with his significant resources meant that there was a significant risk he could flee, possibly to his birthplace, Germany.
In a later hearing at the same location, lawyer Guy Foley argued that Dotcom’s alleged co-conspirators – Bram van der Kolk, 29, Finn Batato, 38, and Mathias Ortmann, 40 – are of good character and deserved bail.
This morning Judge McNaughton handed down his decision. He granted bail to both Dutch national Bram van der Kolk and Finn Batato from Germany, but denied bail to Ortmann due to financial concerns.
According to Stuff, the FBI’s records show that Ortmann made around $14.5 million from the company between 2005 and 2010, and an additional $3 million in 2011. His accounts, however, show $20.2 million, some $3.5 million more. Ortmann’s lawyer has until tomorrow to come up with an explanation.
Yesterday, Guy Foley described programmer and networking expert Bram van der Kolk as a family man and today his wife Asia expressed relief that he would be coming home.
“I’m just glad my husband is going to be able to play with our baby again,” she said.
Although the Judge granted the pair bail, he ordered them detained for a further week so that their homes could be assessed for surveillance equipment suitability. It’s becoming ever more clear that being monitored is nothing new for these MegaUpload employees.
The US Department of Justice’s indictment showed that the operators of MegaUpload had been subjected to monitoring over the past several years, but a piece of evidence presented in court yesterday revealed not only how far back, but just how deep that surveillance went.
Documents produced by the FBI reportedly show the details of a 2007 Skype conversation between Bram van der Kolk and Mathias Ortmann where they mulled a situation where Kim Dotcom might run off with “the money”.
Although no context was provided by the FBI, Van der Kolk allegedly described the situation with Dotcom more than 4 years ago as “a bit risky” but with Ortmann offering assurances that since Dotcom was “operationally dependent” on the pair he could not “sneak away with the money.”
“What if the shit really hits the fan? Would he take the last little bit of money and take off? He’s good at that,” Van der Kolk replied.
“True,” said Ortmann, “But with his spending nowadays he will attempt to get the shit off the fan, and that’s what he needs us for.”
Dotcom will remain in custody until at least 22nd February.
In recent weeks millions of people have spoken out against the pending PIPA and SOPA anti-piracy bills, which have both been delayed as a result.
Today we can add a VP at one of the major RIAA labels to this list, which is quite unique and yet another game changer.
Speaking for himself, EMI’s VP of Urban Promotions Craig Davis said that the two pending anti-piracy bills are not the way to move forward.
“Personally, I feel that the method they’re using is incorrect. All it will do is cause headaches and issues for everyone,” Davis noted.
While the EMI VP opposes PIPA and SOPA, he does admit that piracy is a problem. However, Davis thinks that the problem can be better solved from within the music industry itself. In other words, the key to solving piracy isn’t legislation, but innovation.
“I do believe that a person should be compensated for their work. I feel that piracy is a big issue, and things like Spotify will assist in combating this problem,” he said.
Reiterating this point, the EMI VP refers to comments that were recently made by Gabe Newell. The Valve co-founder said that piracy is a service issue – once you give people what they want it will mostly disappear.
“Gabe Newell is correct, it’s a service issue not an issue of money. Sales have gone up from sales concerts and merchandise, it’s obvious that our fans still love music. We’re just not giving them their music in an easier way,” Davis noted.
Adding to the above, Davis also commented negatively on DRM in a separate question that he was asked on Reddit.
“Personally I’m not happy with the way DRM is right now. We need to re-evaluate technology to find a better way to give you music,” he wrote.
Davis’ take on the piracy problem stands in clear contrast with the policy of the RIAA, who tend to prefer the repressive approach over innovation. Defining piracy as a service issue, however, is in line with the things we, and many others with us, have been saying for years.
People are happy to pay as long as they get what they want.
This is also illustrated by the fact that people are willing to pay hundreds of millions of dollars for premium access to file-hosting sites, often to download content that’s not available at all legally, or only in inferior quality. In recent years the music industry has caught up quite a bit by removing DRM and launching services like Spotify. But the movie industry is lagging behind, especially outside the US.
Implementing harsh anti-piracy laws and disconnecting file-sharers from the Internet doesn’t change the mismatch between what the public wants and what the industry offers. Improving availability, quality and other service issues can probably make a much bigger impact.
It’s good to see that some people in the industry are well aware of this, but we doubt that the RIAA would make itself obsolete by agreeing.
Following the dramatic events of the previous 24 hours, last Friday the founder of MegaUpload, Kim Dotcom, was denied bail in an extradition hearing in New Zealand.
Dotcom, who along with several of his employees was raided by armed police in helicopters the day before, is wanted in the United States on racketeering, copyright infringement and money laundering charges.
The hearing was adjourned until Monday this week with Judge David McNaughton delivering his decision this morning at the North Shore District Court.
Noting the scale of the charges against Dotcom and his considerable resources, Judge McNaughton said he that he had no doubt that fleeing New Zealand could be real possibility for the MegaUpload founder.
Judge McNaughton said that if Dotcom could somehow make his way to his birthplace of Germany, extradition would prove impossible since the country has no such agreement with the United States.
Essentially agreeing with prosecutor Anne Toohey, who had described Dotcom as a “significant” flight risk, Judge McNaughton denied the 38-year-old bail and remanded him in custody until 22nd February.
Dotcom’s lawyer, Paul Davison, QC, said that decision would be immediately appealed to the High Court.
“We were hopeful that the judge would accept our intentions and our arguments and see that there was no risk whatsoever of Kim Dotcom seeking to leave New Zealand.
“All of his assets have been frozen, all of his resources have been taken,” he said as he left court today.
“He’s living here with his wife and family, he has no intention whatsoever of endeavoring to leave New Zealand.”
Also appearing in Court today were Dotcom’s alleged co-conspirators Bram van der Kolk, 29, Finn Batato, 38, and Mathias Ortmann, 40.
In a hearing following Mr Dotcom’s, the lawyer representing the three men, Guy Foley, said his clients did not enjoy the same resources as the MegaUpload founder. Foley said that in the absence of a guilty verdict there should be a presumption of innocence.
He described Batato, as a “fair player” who denies involvement in the alleged conspiracy. Prosecutor Anne Toohey described Batato as a series flight risk who, in common with Dotcom, could seek to flee to Germany.
In defense of der Kolk, Foley described him as a family man who had a wife and child in New Zealand. He added that it was troubling that in evidence submitted to the court the FBI had supplied a photograph of someone else.
Ortmann, said Foley, is “decent, modest, honest and reliable” man who would not flee. Prosecutor Toohey said as a German national, fleeing there was a real possibility.
The decision on whether to grant bail to der Kolk, Batato and Ortmann will be delivered tomorrow.
The majority of the reports and press releases put out by the music industry in the past several years can be summarized in a few words: “Piracy is evil and we lose a lot of money because of it.”
Even today, when more music is being sold than ever before, the RIAA, IFPI and other music groups still lobby hard for draconian measures to curb piracy. Whether it’s SOPA, PIPA or similar legislation as currently being presented in Finland and Ireland, the music industry begs governments to help them out.
One of the countries where these lobbying efforts have paid off is France, where Internet users are now monitored by the state and disconnected if they are caught pirating three times. The big question is whether this law, which costs 11 million euros a year, has any effect at all.
Yes, says the music industry, backing up their claim with a non-peer reviewed academic study. Last week some of the results were already teased to the press, and yesterday they were presented to the public, coinciding with the publication of this year’s Digital Music Report published by IFPI.
We decided to take a look at the two reports, and the only reasonable conclusion we can make is that France’s three-strikes anti-piracy law is not having ANY affect at all. Let’s start off with how IFPI summarizes the results in their report.
“The analysis found that French iTunes sales saw a significant uplift at exactly the period when awareness of Hadopi was at its highest, in Spring 2009, when the law was being debated in the National Assembly.”
This is bogus. The researchers don’t conclude this at all. There is no uplift in sales reported. What the researchers found is that in France, compared to five other European countries, more music was sold through iTunes. Looking at the graph below (from the report), it’s clear that the “uplift” in France before Hadopi was introduced (March 2009) is actually much sharper than the two years after.
French iTunes sales vs control group vs Google trend
Another quote from the IFPI report:
“This effect was maintained throughout the period studied. French iTunes sales were 22.5 per cent higher for singles and 25 per cent higher for digital albums than they would have been, on average, in the absence of Hadopi.”
This is interesting, and indeed pretty much what the researchers conclude. However, as long-time followers of Hadopi and other anti-piracy laws, this conclusion doesn’t feel right. The huge increase in sales reported by the researchers is based on the alleged impact Hadopi had in the year and a half before it went into effect, not after
The following footnote from the researchers is also quite revealing.
“We also estimated the model for the 6 months before and after September 2010, as this was the first month that HADOPI began sending out first notices. In this case, the resulting coefficient was close to zero and statistically insignificant.”
Indeed, when the three-strikes warnings were actually sent out, there was no effect on iTunes sales compared to the control countries. This is unusual, because you would expect that the hundreds of thousands of warnings that went out would have had more of an impact than the ‘news’ that this could happen in the future.
In addition, if we look at the search trends for Hadopi and The Pirate Bay we don’t see a drop in interest for the latter, suggesting that the interest for pirated goods remained stable.
Hadopi vs Pirate Bay
The researchers, however, are convinced that their findings are the result of the “potential implementation” of Hadopi. We find this strange. Could there be an alternative explanation? Let’s have a guess.
At the same time Hadopi was introduced (early 2009) there was a lot of buzz around Spotify in several of the countries that were used as a control group in this study. Could it be that Spotify resulted in relatively less iTunes sales in countries like UK and Spain than in France? This could potentially explain all of the findings reported in the study. And that’s probably just one of the many alternative explanations.
Whatever the case, concluding that expensive privacy-invading legislation such as the French Hadopi is boosting sales is going way too far.
Hundreds of years ago, before the advent of any type of electrical communication, the horseback delivery rider clutching an important letter destined for a location 4 days trot away must’ve longed for a better day.
But if you told him back then that you could deliver that letter before he could saddle his horse, he would suspect that either witchcraft or alcohol were at play.
In the 20th and 21st centuries we became more open to the notion that amazing things can be achieved without magic, but occasionally we still fall short in our predictions for the future.
Downloading digital media is so last decade now, even your grandmother can do it, but just a handful of years ago “You wouldn’t download a car” gained traction, a lighthearted meme that took the notion of Internet file-sharing to an intentionally ridiculous level. Several years later, however, it’s not looking quite so outrageous.
Soon, the interest in digital files will take a new direction, not because they transform into music, movies or books, but because they will possess the ‘genetic’ code for physical objects.
“We believe that the next step in copying will be made from digital form into physical form. It will be physical objects. Or as we decided to call them: Physibles,” says The Pirate Bay as they announce a new 3D printing section of their site.
“Data objects are able (and feasible) to become physical. We believe that things like three dimensional printers, scanners and such are just the first step. We believe that in the nearby future you will print your spare parts for your vehicles. You will download your sneakers within 20 years,” they add.
Although free sneakers in two decades sounds intriguing, creating physical objects from digital files is a reality now, as pointed out by 3D printing site Shapeways.
“Being able to download product files is not new, Shapeways has had downloadable models for years, as has Thingiverse and Google Warehouse, but let’s see how this affects the 3D printing IP debate,” the company says on its blog in response to the TPB announcement.
That’s right. The ever-looming copyright bogeyman, just waiting to throw his spanner in the 3D printer works.
In the future, however, instead of Hollywood taking action against 3D object pirates (although Paramount did actually do that in 2011), they could well be outnumbered by just about every major product manufacturer in the world – possibly even some 3D printer manufacturers themselves, since they can already print themselves.
But as pointed out by The Pirate Bay, there are huge potential benefits to be had.
“No more shipping huge amount of products around the world. No more shipping the broken products back. No more child labor. We’ll be able to print food for hungry people. We’ll be able to share not only a recipe, but the full meal. We’ll be able to actually copy that floppy, if we needed one,” they conclude.
So, when the writers at TorrentFreak are (more) old and gray, the children of today’s readers might be browsing The Pirate Bay III wondering which car to download. Or, as the coincidentally relevant (slightly NSFW) SOPA protest song embedded below suggests, even a boat. Or a cow.
Even most opponents of SOPA/PIPA maintain a common front on this issue: the foreign thief must be stopped. Chris Dodd is right about this: the only public debate is about how.
For the past few years, Kim Dotcom (nee Schmitz) has been the MPAA’s go-to example of the foreign thief. Dotcom is a flamboyant hacker/entrepreneur with a fraud conviction, a penchant for fake names, and a fortune built, like many new media fortunes, in the grey areas of IP law. Megaupload was one of the first cloud storage or ‘cyberlocker’ services, and is routinely ranked in the global top 50 in traffic. There is little doubt that it hosted a lot of infringing media. There is doubt about the extent to which Megaupload encouraged this, and how that affects their liability for infringement.
The Megaupload case has important legal implications. Mike Masnick has a very good rundown, but let’s focus on two. The case will certainly challenge the scope of the “safe harbor” from liability afforded online storage providers—a very important issue in an era of cheap, ubiquitous cloud services. It will also be a front in the government’s (and, more particularly, MPAA’s) push to shift from an ex post model of enforcement, involving notification and takedown requests when infringing content is identified, to an ex ante model based on the surveillance and filtering of user activity.
If this sounds familiar, it’s because it is also fundamentally at stake in SOPA, and raises all the same censorship and free speech issues. Holding Megaupload liable for failing to monitor and filter user activity for infringement, for example, would compel monitoring across a wide range of web services, from search to social media. And that would mark a very fundamental shift in the freedoms associated with the Internet. SOPA and the Megaupload case are part of this long game.
The Megaupload indictment is also a public effort to cast a villain in the file sharing story: to prove that someone, other than consumers, benefits from piracy. Kim Dotcom’s arrest—with all of his luxury cars on prominent display—is about making the case not only for abstract losses to industry but also theftfrom industry. We’ve repeatedly taken issue with the industry calculation of losses, most of which are fictional. But let’s ask the narrower question. Who is the foreign thief, and how much is he stealing?
As usual when talking about piracy, there are lots of claims but very few hard numbers. The revenue estimates that do circulate in file sharing cases are notable, however, for their miniscule size compared to the 10s or, occasionally, 100s of billions in losses claimed by industry groups. Here are a few examples…
The Swedish trial of The Pirate Bay trial in 2009 became an occasion for all sorts of competing estimates of revenues. Record industry group IFPI estimated the site’s revenues at $3 million per year. The MPAA described $5 million in revenues. But prosecutors endorsed a much lower number: $170,000 from advertising (against what the defense characterized as $112,000/year in server/bandwidth costs and $100,000 per year in revenue). This is for a site that appears consistently among the top 100 visited sites in the world.
NinjaVideo, a Brooklyn-based movie indexing site whose owners were arrested in 2011, was alleged by prosecutors to have made $500,000 in 2½ years. After the site began to make money, the four administrators split the revenue, netting around $33,000/year each after expenses. Hana Beshara, the site’s primary owner, was sentenced to 22 months in prison under the US No Electronic Theft (NET) Act.
Brian McCarthy, the owner of Channelsurfing.net, a Texas-based sports streaming site, was alleged by prosecutors to have made $90,000 over five years. He also faces jail time and fines under the NET Act.
Immigrations and Customs Enforcement (ICE) made some partial revenue estimates for targets of its 2010 domain name seizure program, Operation In Our Sites, based on information from advertising network Valueclick. According to ICE investigators, Torrentfinder, a BitTorrent site, made about $15,000 in ad revenue from Valueclick over a year in 2008-2009. Onsmash, a music link site, made around $2,500 in 2009-2010.
The ICE numbers aren’t complete accounts, but they met the traditional definition of “commercial” copyright infringement that justified the criminal charge (US District Court Case # 10-2822). What they don’t do is describe a very lucrative or, in any other respects, criminal business.
This is a point we’ve made repeatedly regarding the incentives for criminal involvement in piracy. We see little evidence that there’s much money to be made from it—especially as the costs of setting up and running such sites decline. It’s very likely that the larger sites generate significant revenues from advertising—indeed even in the torrent admin community (see below) it’s assumed that the handful of top sites generate six and even seven-figure revenues annually. But at any given time there are only a few such sites. And even accepting the IFPI estimates, it’s chickenfeed. The top 5 pirated films, for comparison made $2 billion last year. The (non-overlapping) top 5 grossing movies made nearly $5 billion. Piracy generates an overwhelmingly consumer, not criminal, surplus.
It’s easy to see how Kim Dotcom got rich by being an early entrant in the cloud storage market, in the only part of the business that required a lot of large file transfers. (Much the same is true of broadband adoption, for which piracy has always been the early killer app—especially outside the US where legal web services are still underdeveloped.)
As a subscription business selling a scarce commodity, Megaupload’s revenues were many times larger than the largest torrent or link sites. In 2010, execs at Paramount Pictures estimated (in testimony to Congress) its profits at between $41 million and $300 million per year, with the range reflecting different assumptions about its subscription rate. The Justice Department’s recent indictment put the number below the low end of the range—committing to only $175 million in total revenues since 2005–under $30 million/year–and reflecting a roughly 7-1 split between subscriptions and advertising. There are no estimates of how much of this came from legal sources.
In contrast, it’s hard to see how this model remains lucrative. Storage costs are falling rapidly, and there are no barriers to entry or significant network effects. For a comparable market, look to the highly competitive web hosting business rather than search engines or operating systems, which have more characteristics of natural monopolies. Many companies–including Megaupload–already give large amounts of storage away. Many compete for “premium” users, either with inducements or bundling with other services.
The sum of Megaupload’s activities may well satisfy a court that it encouraged large-scale copyright infringement, and therefore should be held liable. But Megaupload’s survival is not the main concern: it’s what happens when all storage is mirrored in the cloud. It’s whether we’ll monitor and police the core features of the web: storage, linking, and search.
The Torrent Admins Survey
Now that the nerds have (provisionally) won the argument that DNS blocking could break the Internet, attention will turn to “follow the money” enforcement strategies—especially those targeting advertising and payment systems. We might ask, in this context, what “follow the money” looks like in a sector where there are few barriers to entry and costs are falling toward zero?
To find out more, we prepared a short survey of torrent site administrators, which was circulated through torrent admin lists and IRC channels by some trusted intermediaries. We received 11 responses to our survey—most of them anonymous; most of them ‘vouched for’ by our partners; and most of them anonymized through various services. We neither asked for nor received identifying information. This is, in other words, a small sample with some big caveats (such as selection bias). Nonetheless, the responses tell an interesting story.
Responses came from a pretty wide spectrum of sites, including:
2 that receive over 10 million visits per month
2 that receive 2-10 million visits per month
2 that receive 500,000 – 2 million visits per month
2 that receive 25,000-100,000 visits per month
2 that receive less than 25,000 visits per month.
1 that did not specify traffic
To provide some reference points, the two current largest torrent sites—the Pirate Bay and Torrentz—receive roughly 88 million visits/month and 46 million visits/month respectively (according to Google Adwords. There are claims that this significantly undershoots traffic on those sites.) Although cyberlocker sites like Megaupload and Mediafire now outdraw torrent sites by a wide margin, the latter remain a good indicator of the cost structure—and costs of entry—of large scale file sharing. BitTorrent is now a thoroughly commoditized technology, running on low cost hardware with freely available software. Cyberlockers are slightly further behind.
How much does running a torrent site cost? The largest site in our survey, with over 10 million visits per month, was also the most expensive. It reported server and bandwidth costs of $25,000-$30,000 per year. Most of the sites operate on less than $10,000 per year. A couple of the smaller ones were under $3,000.
How much money do these sites make, and how? Of the eleven responses, only the largest site used advertising. It reported a roughly break-even operation, with costs covered in most months by advertising. The other ten do not use advertising. These are typically the smaller, private trackers that require invitations to join—a category that nonetheless reaches into the millions of visits per month.
Eight indicated that they meet the majority of their expenses through member donations. Only one indicated that it fully met expenses this way. Only one earned additional income through affiliate links. The balance typically comes out of the pockets of the site administrators.
Although we received less information on staffing, several indicated that they operated entirely with volunteer labor—in a couple cases involving communities of a dozen or more administrators. This is the norm among smaller, private sites.
The picture that emerges from the survey is one of financially fragile but low cost operations, dependent on volunteer labor, subsidized by users and founders, and characterized by a strong sense of mission to make work more widely available within fan communities. Few such sites make or seek to make money. Many are specialized communities exchanging media of particular types, genres, or languages. A site like NinjaVideo began this way, but grew into a larger, revenue-making operation.
Rights holder pressure on payment systems is not new, but it has been ad hoc. Credit card companies were enlisted in the mid 2000s, when the record industry group IFPI waged war against the (nominally legal) Russian pay-download site AllofMP3. Industry threats against safe harbor provisions for payment providers played an important role in this process. No payment provider wants to tangle with industry lawyers on behalf of an accused infringing site, even if there is no legal basis for cutting off service. Few accused sites are able to lawyer up to respond. Strict legality doesn’t make much difference in such contexts. One site administrator showed us a letter from a payment provider terminating service based on a DMCA complaint—a law that makes no such provisions.
SOPA and PIPA legalize these strategies and make them much easier to use. Under SOPA, rights holders gain a strong right of “private action” that allows them to issue cut off letters directly to advertising services and payment systems. The latter must cut off service or face secondary liability for infringement. Under SOPA, moreover, neither the payment system nor the rights holder is liable for damages from any mistaken or overly broad actions. The “safe harbor,” under these circumstances, is repurposed to empower the complainant rather than the user.
Independent of the potential for collateral damage, SOPA and PIPA are best understood as collections of harassment measures for pirate sites, rather than any sort of “solution” to piracy. A loss of advertising revenue would harm some file sharing sites—especially the larger, more public sites that have grown into advertising-dependent commercial operations. The loss of primary payment systems such as PayPal would complicate life for the smaller torrent sites, but wouldn’t cut off revenues: there are many ways to manage the modest donation systems that keep these sites in business.
Some parts of the file sharing ecology, consequently would be vulnerable to payment system attacks. But the overall impact is likely to be low. Much of the file sharing ecology already operates at very low cost, on minimal revenue. Much of the labor is volunteer—with advertising and the “professionalization” of staff a matter of choice rather than necessity. And infrastructure costs are falling.
We talk about the efficacy of enforcement at some length in our Media Piracy report. Many readers have concluded that enforcement doesn’t work. But that isn’t what we say. We say, rather, that we’ve found no evidence that it has worked. The main factors shaping piracy are price, income, and the declining cost of technology–and that will remain the case. But it seems entirely possible that some impact can be bought at a high enough price. The numerous critiques of SOPA and PIPA provide a good idea of that price—a broken, arbitrary, copyright surveillance regime and an Internet culture reorganized around the established content providers.
The Commercial Scale Standard
In most national copyright laws, criminal law applies only to copyright infringement on a “commercial” scale. Traditionally, commercial scale referred not to the number of copies made, but to financial benefit derived from it. (Infringement that doesn’t meet the criminal standard can still be addressed through civil law, as tens of thousands of file sharers in the US and Europe have learned.) In the past 15 years, digital technologies made a mess of this distinction. When copying was capital intensive and required a factory, scale and profit went together. But in an era of ever cheaper copies and storage, the two are delinked. What to do, then, with the commercial standard?
The US response in the 1997 NET Act was to expand the definition of commercial infringement to include the unauthorized digital receipt of anything of value, subject to an exemption up to $1000. Without the for-profit requirement, the door opened—in theory—to criminal prosecution of a much wider array of participants in file sharing. The exchange of a bunch of albums or a few copies of software can easily qualify. In practice, the NET Act has been applied not to consumer-level sharing, but to intermediaries—initially members of mostly non-commercial “warez” groups engaged in cracking software, and more recently to marginally commercial intermediaries like Hana Beshara and Brian McCarthy. (The expanded criminal model is also being exported abroad without the de minimis exceptions, through trade agreements and new enforcement treaties like ACTA).
In our view, this is a bad way to resolve the confusion around the commercial standard. It dramatically expands criminal liability without any corresponding intention of enforcing it. Law enforcement, under such circumstances, becomes arbitrary and easily captured by private parties. Industry lobbying secures funding for enforcement agencies and enforcement agencies return the favor, turning to stakeholders for staffing, planning, and cost sharing. Personnel flows between the two, anchored in the understanding that government service is rewarded later in the private sector.
The US Attorney leading the Megaupload case, for example, is Neil MacBride, former head of enforcement for the Business Software Alliance. The Obama transition brought at least five RIAA lawyers to the Department of Justice. The Megaupload indictment, both in its tone and its kitchen sink approach to infringement, could have been written by the MPAA. The distinction has become a formality.
So what to do? As long as we have a culture organized around copyright, there should be ways to define and police violations of it. But our current definitions needs a rethink. There is ample reason to see unauthorized copying and file-sharing as inevitable in the digital era and more–as inextricable from the core features of general computing and the Internet. The law should recognize this because doing so protects the wider set of freedoms to express and innovate that build on those features. Both individuals and companies should be accorded wide latitude in their use. That said, there is no reason to defend piracy as a profit-making activity.
So one place to start might be to ditch the NET Act and SOPA and restore a narrower commercial scale standard for criminal infringement, along with a less draconian set of penalties for the times when it is invoked. Such a standard would make profit the trigger, and make that the basis for any follow-the-money actions against payment systems or advertisers. This bar could be set high enough to exempt the marginal member-subsidized torrent sites, since these are little more than group implementations of search, store, and link–the building blocks of the web. They cost little today and less tomorrow.
But the bar could also be low enough to encompass sites that start to generate a lot of money. Drawing such distinctions could help restore a useful middle ground—retaining a threshold for enforcement while rejecting both the universal liability envisioned in the Net Act and the universal surveillance implied in SOPA. It would better align the law with the actual capabilities of law enforcement to enforce, and thereby make enforcement less arbitrary. And it would help articulate a much wider zone of personal freedom to copy, based on a recognition of the wider importance of unhindered, unmonitored use the core capacities of the web.
A reinvigorated commercial standard won’t end piracy. Nothing short of a copyright surveillance state would, to any significant degree. But the commercial standard would help drive file sharing into the non-commercial economy, leaving more room for creative, legal, low-cost commercial alternatives. That’s not a sufficient definition of copyright reform, but it may be a necessary step if we’re to bring law into line with the basic economics of our digital culture. The law can’t eliminate piracy, but it can help make it irrelevant.
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Addendum: Regarding the monetary harm of Megaupload’s activities, the Justice Department characterized it, without explanation, as “well in excess of $500,000,000” since 2006. And although that number is probably meant to impress, it’s somewhat baffling. Even without a per annum breakdown, it comes nowhere near the annual piracy losses claimed by the major industry groups—whether the BSA’s $58 billion loss claims for software losses in 2010 or the “conservative” $26 billion estimate for movie, music, and software piracy from 2007, which lazy journalists still allow to circulate. This for the site that MPAA called “By all estimates… the largest and most active criminally operated website targeting creative content in the world.”
Since we’re using made up numbers here, let’s make up some more–and for the sake of argument, some extremely favorable ones for the Justice Department’s effort to paint Megaupload as the big bad. Posit that all $500 million in losses came in 2011. Posit the $26 billion loss number. Megaupload’s contribution to the pirate economy tops out at 2%.
About TheAuthor
Joe Karaganis is the vice president at The American Assembly at Columbia University and former Program Director at the Social Science Research Council
It’s no secret that the entertainment industries believe search engines are not delivering enough when it comes to protecting copyright works. Just last month, the RIAA and IFPI accused Google of massively profiting from piracy, while putting up barriers to make life difficult for rightsholders.
TorrentFreak 
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