Implications of the Megaupload takedown.

It came as something of a surprise to those of us following the defeat and subsequent cold storage of SOPA that, just a day later one of the largest file locker websites on the Net, was shut down by the FBI. Data centers in Virginia, Washington DC, New Zealand, and Hong Kong were raided by law enforcement and their cages in those centers were cleaned out. Every last server chugging away in those facilities was seized, and are in the queue for forensic analysis right now. Just a day after Megaupload went dark over a dozen others voluntarily shut down as well, or at least drastically curtailed their operations. On top of that, the owners of Megaupload were similarly raided in the fashion of a good, old-fashioned Miami Vice-style raid that involved helicopter insertion and cutting their way into a bolthole in a mansion. Following the shutdown, #OpMegaupload began and whole sectors of the Net were whited out in a packet storm the likes of which hasn't been seen before, with global traffic levels spiking at 13%+ over normal leaving dozens of websites inaccessible thanks to a new DDoS utility that you may not be aware you're running if you clicked on the wrong link.

So, what does this all mean?

Like many things today, it's complicated. The owners of Megaupload were brought up on charges of money laundering and racketeering among other things, and the US Department of Justice is working on extraditing them from New Zealand for trial. The reason that financial conspiracy charges are being levelled against them is because the company made millions of US dollars every year in ad revenue as well as referrals for paying prosumer users of the website (i.e., you have a paid account, someone downloads a file you uploaded, you get so much money). They're saying that the site cost the music industry half a billion dollars in lost revenue (even though they're showing record profits). I won't kid you, before those sites went down there were stupid amounts of pirated MP3s and videos of all kinds filling those sites, so many that whole search engines sprang up to help users find anything. On the other hand, Megaupload was also a great way of distributing bundles of information, such as TrueCrypt volumes and information of use to activists of all kinds (why, yes, I'm kind of honked about my mirrored Syria footage needing to be re-uploaded, why do you ask?). A lot of people had their own stuff uploaded to those file lockers, and now it's all gone. Some of us who aren't in a position to carry around removable storage have to rebuild our public caches from scratch. Also, some pretty big stars in popular music figured out how to use Megaupload as part of their public presence and branding to make it big and they've just been chopped off at the knees.

Some subtle implications have arisen as more information was released. Firstly, it seems that the four founders of Megaupload had been under surveillance since 2007 at the very earliest, and conversations that took place over Skype were intercepted and decrypted by law enforcement agencies. Second, DMCA takedown requests are hard. Rather than follow legally documented channels to get copywritten material that was posted without permission removed, it seems to be easier to just nuke the target. So far as is known, Megaupload, et al honored DMCA takedown requests to their best of their ability, so there were means of recourse to copyright holders. Thirdly, the MPAA and RIAA are afraid of us. The online blackout got the attention of a lot of people who might not otherwise have even heard of SOPA or PIPA. It also seems that the RIAA is starting to worry about bands not signing with member labels, but instead using the plethora of home recording hardware and software to make music just as well produced as that recorded and mixed in the studio and distributed for next to no overhead online. Given how the music industry treats its signees, can you blame them for going indie and doing better in the long run than they would signed to a big label? Especially when an album can go gold but the artist will never see a dime from it?

A coupel of days ago something very interesting crossed my Google+ feed: perhaps the timing of the shutdown of Megaupload was not coincidental at all. On 21 December 2011 Megaupload announced that it would be starting its own online music store, MegaBox. If it had taken off, not only would you have been able to buy music easily and cheaply, but you could store your own music online so you could listen to it anywhere you wanted and aspiring artists could also add their music to MegaBox and distribute it easily, without having to set up so much of the back-end yourself. MegaBox had already partnered with some of the bigger online music distribution outfits, including Amazon; those outfits didn't get to where they are today without being business savvy, so I'd call their signing on the dotted line an endorsement of the business model and the owners' veracity. Also, and I'm going to quote verbatim from the press release I just linked to, ", a site that will soon allow artists to sell their creations directly to consumers while allowing artists to keep 90 percent of earnings."

Go back and look at those Techdirt articles I linked to, where exactly how much money musicians don't make when signed to the big labels is broken down in detail. Now consider the fact that, using Megaupload's existing referral credit system artists who made their music free on MegaBox would still make some money per download. As Kim Dotcom proved, when you have some people paying to maintain accounts on your site, a lot of ad revenue, and paying customers kick a little money each other's way automatically for downloading something, a setup which makes your service not only popular but the place to distribute files, it works like a champ. Give your users what they want, make it easy and make it possible to make a little cash on the side, and they'll be all over you like flies on potato salad. When you take into account how much money the industry spent on lobbying those two bills (over $200mus) and how much influence those big media companies have inside the DC Beltway, it's pretty easy to start wondering how many phone calls were placed on the west coast that consisted of "Do it, and do it right now."

Rather famously, one Chris Dodd, former US Senator who now runs the MPAA, said on national television the following:

Candidly, those who count on quote ‘Hollywood’ for support need to understand that this industry is watching very carefully who’s going to stand up for them when their job is at stake. Don’t ask me to write a check for you when you think your job is at risk and then don’t pay any attention to me when my job is at stake...

I would caution people don’t make the assumption that because the quote ‘Hollywood community’ has been historically supportive of Democrats, which they have, don’t make the false assumptions this year that because we did it in years past, we will do it this year. These issues before us — this is the only issue that goes right to the heart of this industry.

Doesn't that sound like a threat to you? Or someone who's committed bribery on rather a large scale threatening to stop the flow of money? 30,000 people and more every day seem to think so, and are calling for a full investigation.

All of the tools for success as an independent anything already exist, and have been showing positive results for years. The business models are known, debugged, and well documented. Putting things online for people to download is as cheap as air; same with posting 45 second clips for people to listen to and decide if they like it or not. After all, people hate paying for things that they discover they don't like. Micropayments make it easy to buy just one song you like rather than a whole album you don't for that one song. Portable devices that let you listen to and watch whatever you like are the norm and not the exception. Having access to your data wherever it may be wherever you happen to be lets people listen to what they love wherever they want to, and word gets out that way. Not treating your customers like criminals has proven to be a strategy that works; just as iTunes, eMusic, and Amazon's MP3 store. The more hoops people have to jump through to do anything, the less likely it is that they're going to do it your way, and their way may coincide in no way, shape, or form with what you're hoping to achieve. The big companies, the ones who've been helping to shape our culture for nearly a century, are terrified of losing their market position and control to individuals and nimble groups who've figured out how to do everything the big companies do themselves for a fraction of the price and effort, and have left them in the dust. Rather than embracing the new system the MPAA and RIAA are doing their damndest to take it apart because they don't have control over the channels of distribution they once enjoyed. They're making bank, that's not a question, but their lack of control terrifies them. The distribution channel are controlled by the consumer and not the company, a reversal of the traditional way things are done. Moreover, they've suddenly remembered where their profit comes from - it comes from people who are deciding with their wallets what to watch, listen to, and read.