Megaupload: The Real Story

Megaupload’s business model is to make as much money as possible as the ‘go to’ site for free and illegal music, movies and more.  By many accounts, the company’s chief has made a lot of money on this illegal enterprise and not one cent of it has gone to songwriters, artists or labels for the downloading of their music, which serves as the primary draw of Megaupload’s business model.  Megaupload deserves its reputation as one of the most egregious online hubs of copyright theft.  If any more proof is needed, consider these facts:

Background.  In the past several years, a new generation of file sharing services has emerged.  These infringement machines allow users to upload copyrighted content which the services then make available to the public worldwide.  This category includes many notorious services known for infringing copyrighted content including Megaupload, RapidShare, Hotfile, and 4Shared.  These services sometimes call themselves “cyberlockers,” but that is a misnomer as a true locker is private and secure (it is locked).  None of these services purport to be just lockers where someone can store their own content in the cloud.  To the contrary, they exist to facilitate the distribution of files on a massive scale. 

Notoriety.  In January 2012 the Department of Justice charged the leaders of Megaupload with widespread online copyright infringement for “running an international organized criminal enterprise allegedly responsible for massive worldwide online piracy of numerous types of copyrighted works, through Megaupload.com and other related sites, generating more than $175 million in criminal proceeds and causing more than half a billion dollars in harm to copyright owners.”

The Obama Administration’s U.S. Trade Representative (USTR) in December 2011 named Megaupload a “notorious market” in an official government report that lists sites where copyright theft is open, pervasive and undermines the respect for the rule of law.  According to USTR, Megaupload, “reportedly based in the Netherlands and Hong Kong, allows for the unauthorized distribution of protected content through subscriptions and reward schemes to popular uploaders.”  Megaupload joins sites such as Sweden’s The Pirate Bay on the government’s list.

The U.S. government’s listing of Megaupload as a “notorious market” is well deserved.  In one recent example, following an investigation by the FBI, Bronx, NY resident Gilberto Sanchez was sentenced to one year in federal prison in December after pleading guilty to uploading a workprint copy of the film "X-Men Origins: Wolverine" to the Internet one month before the film's theatrical release.  The service he used?  Megaupload. 

Popularity.  In its heyday, prior to the U.S. government’s seizure of its web domain, Megaupload was the 75th most visited site on the web, according to Alexa.  By contrast, the massively popular and licensed Internet radio service Pandora ranks 361.  According to the Department of Justice’s news release and indictment, Megaupload.com is advertised as having more than one billion visits to the site, more than 150 million registered users, 50 million daily visitors, and accounted for four percent of the total traffic on the Internet.  Megaupload’s popularity has nothing to do with the ease of storing files and everything to do with the ease of obtaining copyrighted files from others without paying for them.

Relevant Facts:
(Many more in expanded indictment of Megaupload here)

• Megaupload provides hosting, sharing and downloading functionality for both free and Premium (paid) members. While it has no built-in search function or ability to see a particular individuals folder, search engines easily find popular entertainment content on it. As long as a user types in some relevant keywords, such as the name of the song or movie, they can find it on Megaupload.
• Megauploads business model is premised on users interest in finding popular content that they locate and then download. While free members have limits on the number of files they can stream and download in a certain period, paying Premium members can download an unlimited number of files simultaneously.
• Megaupload is well aware of the widespread copyright infringement taking place on its service. The copyright industries have together sent millions of DMCA notices to Megaupload and its related services over the past several years.
• Because the RIAA and other copyright holders routinely send notices to services to take down infringing files, many hits returned by a search engine point to dead links. A user might have to click through many hits before finding a live file to download. Megaupload takes care of that problem. The site advertises a massive “batch” downloading functionality that allows users to verify that links are still good before downloading. This feature is clearly designed to appeal to infringers who want to avoid dead links when they are looking for copyrighted content.
• For a number of years, Megaupload had a rewards program that encouraged users to post popular files that would be downloaded multiple times by compensating them with points and cash. Popular files are invariably copyrighted content as no ones personal files could conceivably be that popular. Although Megaupload has discontinued this program, likely because it is aware that it constitutes a clear case of inducing copyright infringement, the fact that it ever had such a program demonstrates its illicit intent.
• Megaupload also encourages its users to distribute their files directly. Premium membership entitles users to “Send your file to multiple recipients (up to 1000!).” This is not a feature most casual users would require for truly personal files.
• Megaupload generates revenues from both ad placement and premium memberships.    We believe it has generated millions of dollars in revenue for itself while causing billions of dollars of damage to the U.S. copyright industries.