The FBI and the American media industry bodies must be feeling good about their attack on the MegaUpload file-sharing site and the arrest in New Zealand of Kim 'Dotcom' Schmitz. The action has prompted a string of rival file-sharing and "cyberlocker" sites to restrict or close down their services. This includes FileSonic, FileServe, FileJungle, UploadBox, UploadStation, X7.to and VideoBB.
However, the whole cloud storage industry should be feeling correspondingly queasy. If sites such as MegaUpload are required to vet file uploads to make sure they do not infringe copyright, there's no reason why Google, Microsoft, Amazon, Apple and others should not have to meet the same requirement. Since this task is onerous and fraught with complications, the cost would cause serious damage to the cloud storage business.
The MegaUpload action will have stopped many millions of file downloads (including many legitimate ones), but it is unlikely to provide more than a brief respite. Many other file-sharing sites were still running when last checked, including Hotfile, WUpload, Rapidshare, UploadKing, and Zshare. Sites based in Russia, such as DepositFiles and Oron, are working normally, and may prove more difficult to remove.*
Further, the enormous amount of file-sharing via BitTorrent has not been affected, and may well increase. This is bad for the internet, because BitTorrent is an abusive protocol. A cyberlocker download uses a single stream to download a file, and the download takes a few minutes. A BitTorrent download can open dozens of streams and take hours or even days to complete.
The situation is somewhat difficult to track because download sites may be selectively blocking users from the USA and probably from Europe, based on their IP addresses. Some sites have blocked sharing while enabling users to download their own files. Many seem to be discontinuing their reward and affiliate schemes whereby users are paid according to the number of times their files are downloaded. This has encouraged some users to upload copyright material, because they make money from it.
It appears that the MegaUpload action will also have killed the company's legal music download project, MegaBox. According to a guest post by Kim Dotcom at TorrentFreak in December, this offered to distribute music while paying musicians 90 percent of the fee. Further, content providers would also be paid when users downloaded their tracks for free. This is dramatically better than any deal likely to be offered by the music industry majors.
The MegaBox service has been running in beta with four listed but unconfirmed partners: 7digital, Gracenote, Rovi, and Amazon MP3.
While there has been speculation that MegaBox is the "real" reason for the attack on MegaUpload, this seems unlikely. It involved complex multinational co-operation, and the FBI just doesn't move that quickly. In any case, there are already services that enable musicians to deal directly with consumers, such as CD Baby, and plenty of other people could try the same idea.
Either way, if the music industry seriously thinks it can stop file sharing by legal means then it is deluded. In the long run, the action against MegaUpload is unlikely to be any more successful than previous actions against Napster, KaZaA, Limewire, Grokster, The Pirate Bay and other services.
As the success of Spotify, Amazon's MP3 store and Apple's iTunes (plus video services from Netflix and Hulu) have shown, legislation is less effective than offering consumers a convenient way to get what they want at a price they are willing to pay.
The FBI accused MegaUpload of making more than $175 million from its service since 2005, and while this number could be ludicrously inflated, the success of cyberlocker rewards and affiliate schemes shows there is money to be made even from free downloads. Unfortunately, the music industry appears unlikely to get the message.
* The Anonymous group reportedly said it was setting up a file-sharing site at Anonyupload but @YourAnonNews on Twitter said: "FYI - We have NO affiliation with this site, and by the looks of it, this is a SCAM".