Tuesday, January 24, 2012

Panic sets in after Megaupload shutdown

File sharing sites are beginning to panic, shutting down or restricting their services following the FBI raid on Megaupload last week. But it is not just those who blatantly infringe copyright that are at threat. Even popular sites such as Amazon S3, Dropbox, iCloud, Google apps and Microsoft's SkyDrive may be scrutinised, forcing their owners to rethink their business models.

Small victory

When Megaupload was taken down last week by the FBI it was a victory for those in the music and film industry who say they were losing millions of dollars daily because of the site's deliberate flouting of copyright and distribution of music and video files.

There are of course millions of users who will feel aggrieved that they can no longer obtain the latest music release of Hollywood blockbuster for free.

Home-taping to file-sharing

Arguments persist over the reasons why individuals are not prepared to pay for CDs or legitimate music downloads. Some argue that the price asked for by music companies or film distributors is too high, while some insist that people will always opt for the free download however cheap the companies make their product.

Issues concerning copyright infringement have persisted for many years. Home-taping in the 1980's concerned record companies so much that the British Phonographic Industry launched a campaign to counter the threat. It its Home Taping Is Killing Music campaign record companies asserted that innovation and funding for new talent would dry up. However some groups directly opposed the campaign. British band Bow Wow Wow released a cassette single "C30, C60, C90 Go" on a cassette that featured a blank side that the buyer could record their own music, causing consternation for the record company behind the release. Some groups went further by encouraging fans to record music illegally. The tape version of the Dead Kennedys e.p. "In God We Trust Inc." also had one blank side. The blank side was printed with the message, "Home taping is killing record industry profits! We left this side blank so you can help."

The stakes for record companies grew with the advent of the MP3, the Internet and Peer to Peer [P2P] sites such as Napster which enabled people to share music files. Napster, and others like it, were forced to change to a different business model and begin charging users, sending profits to the record companies.

But the war on copyright infringement was not over as sites like Megaupload began to facilitate file-sharing on a far bigger scale. And as the recording industry upped the anti it seemed that file-sharing sites were beginning to look at ways to protect their own interests as well as those of the music industry.

"Sharing profits"

Some reports surfacing on the web have suggested that Megaupload was shutdown because of its plan to launch a cloud-based music locker, download store, and do-it-yourself artist service. Called MegaBox it was said to have already been in beta testing in November last year and had supposedly built a list of partners including 7digital, Gracenote, Rovi, and Amazon MP3 [DMN]

This may have been an attempt to appease the music industry and hand profits back to the artists, though it may have been too little, too late.

According to Kim Dotcom himself, Megabox would pay back the artists even if music was downloaded for free. Speaking to TorrentFreak, Mr Dotcom said, "UMG [Universal Music Group] knows that we are going to compete with them via our own music venture called Megabox.com, a site that will soon allow artists to sell their creations directly to consumers while allowing artists to keep 90 percent of earnings."

"We have a solution called the Megakey that will allow artists to earn income from users who download music for free," Dotcom claimed. "Yes that's right, we will pay artists even for free downloads.  The Megakey business model has been tested with over a million users and it works."


Some might well be sceptical of Kim Schmitz's claims, especially given his well publicised chequered history of computer fraud, handling of stolen goods, stealing credit card numbers, insider trading and embezzlement. And it seems that while some artists had lent their support to the proposed venture, the record companies were less than impressed.

Mr Dotcom had secured support from many artists for Megabox and made a video featuring the likes of P Diddy, Will.i.am, Alicia Keys, Kanye West, Snoop Dogg, Chris Brown, The Game and Mary J Blige. But the video had the shortest shelf-life ever for a product containing such high-profile artists after UMG stepped in claiming copyright breaches and forced its removal from YouTube [TorrentFreak].

UMG had less success getting it removed from Chinese based Youku where several users posted the promotional video. After a battle with UMG, Megaupload managed to get the video reinstated on YouTube by  late December [TorrentFreak].


But it was obvious the battle was not over, either with the likes of UMG or authorities who insisted Megaupload were breaking copyright laws. It all came to an abrupt end for Mr Dotcom last Friday however when New Zealand police raided his multi-million dollar estate in Auckland and seized expensive cars, a sawn-off shotgun and froze bank accounts containing millions of dollars.

It was clear this was no ordinary operation. New Zealand police had been cooperating with the United States' FBI and Justice Department, Hong Kong Customs and the Hong Kong Department of Justice, the Netherlands Police Agency and the Public Prosecutor's Office for Serious Fraud and Environmental Crime in Rotterdam, London's Metropolitan Police Service, Germany's Bundeskriminalamt and the German Public Prosecutors, the Royal Canadian Mounted Police and the Canadian Department of Justice in the investigation preceding the arrests.

The indictment alleges that a criminal enterprise was led by Kim Dotcom, aka Kim Schmitz and Kim Tim Jim Vestor, 37, a resident of both Hong Kong and New Zealand. It states that Dotcom founded Megaupload Limited and is the director and sole shareholder of Vestor Limited, which has been used to hold his ownership interests in the Mega-affiliated sites.

Mega conspiracy

In addition, the indictment names several others involved in what has been termed the "Mega conspiracy". Finn Batato, 38, citizen and resident of Germany is described as Megaupload's chief marketing officer. Július Benčko, 35, a citizen and resident of Slovakia, is the graphic designer and of particular interest to authorities who claim he played a major part in a racketeering conspiracy, conspiracy to commit copyright infringement and money laundering along with Kim Schmitz.

Others named are Sven Echternach, 39, a citizen and resident of Germany, and head of business development, Mathias Ortmann, 40, a citizen of Germany and resident of both Germany and Hong Kong, described as the chief technical officer, co-founder and director, Andrus Nomm, 32, a citizen of Estonia and resident of both Turkey and Estonia, a software programmer and head of the development software division and Bram van der Kolk, aka Bramos, 29, a Dutch citizen and resident of both the Netherlands and New Zealand, who oversaw programming and the underlying network structure for the Mega conspiracy websites.

While Schmitz, Ortmann, van der Kolk and Batato were apprehended in Thursday's raid, Benčko remains at large. Echternach and Nomm were arrested in Europe over the weekend [Reuters].

Sharing sites react

The fallout of the Mega conspiracy saga is creating some concern in the online community and particularly for file sharing sites. On Monday FileSonic stopped sharing only allowing users to download their own content. Other sites have also begun to restrict access or embark on a mass cleaning-up of their websites to delete what might be considered to be copyrighted material.

4shared, MediaFire and FileServe have started to delete files & accounts while others are closing affiliate programs, blocking US IP addresses as well checking for files which infringe copyright. UploadStation, owned by FileServe, has engaged in a process of mass deletion, and is testing USA IP blocking. It has, like FileSonic, shutdown file-sharing completely. Some sites seem content with closing their affiliation with other sites and cleaning up their hosted content. VideoBB, VideoZer and Wupload are all engaged in mass deletion but have also severed links with other portals. Others such as Uploaded have simply banned US IP addresses, perhaps in the hope of dropping off the FBI's radar.

Some sites have shut up shop altogether. Enterupload, previously boasted a service enabling users to host large files, images, videos, audio and flash. However the site now redirects to gev.com a technology and news website.

UploadBox is effectively closed with its file hosting service no longer available. All files will be deleted on January 30th, though users who uploaded the content may retrieve the data before this date. And x7.to is also unavailable with visitors to the site greeted with a message in German which translates as "We regret to inform you that we have stopped our service completely."

Amazon, Dropbox & Google apps at risk

Other sites seen as the more legitimate end of file-sharing are also feeling threatened according to the Daily MailAmazon S3, Dropbox and YouSendIt all facilitate the sharing of large files with other individuals, though it is usually done selectively rather than making content freely available to all. Even Google Docs could be used to host and share content, both publicly or privately, which may also make it the target of US legislators.

Nonetheless, the fact that a ripped CD could be shared via these platforms might raise concerns within the companies concerned. Mike Masnick, editor of the Techdirt blog, said, "There's a real worry that [the Megaupload case] creates chilling effects for lots of legitimate services who do things like de-duplification [sic], or have legitimate backup services. If you're running Amazon S3 or Dropbox, do you now suddenly change how you do business, just to avoid the possibility of being accused of racketeering and criminal copyright infringement? That's worrisome."

Battle not over

The case against Megaupload has certainly shaken the file-sharing community, though there are a few that claim they are not threatened. RapidShare, based in Switzerland, has publicly stated that its users need not worry. "There is no reason to be concerned," the site said on its Facebook page. "We aren't threatened in any way."

They may not be concerned but it is clear that US lawmakers are homing in on anyone who breaches copyright. As for those wanting to share illegal copies of the latest music release it may all move underground, using P2P or FTP. Some may even resort to old fashioned sharing by sending CDs and DVDs through the post.

tvnewswatch, London, UK

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