Kim Dotcom, megalomaniac mastermind of Megaupload

While awaiting for the outcome of criminal proceedings against him in New Zealand–and never one to be deterred by law or conscience–Megaupload’s Kim Dotcom has been busy hatching plans for a brand new online, cloud-based offering called “Mega.”  According to a story in Wired, Dotcom’s new venture will “allow users to once again upload, store, and share large data files, albeit by different rules.”

In a “letter to Hollywood” published earlier this year, Dotcom warbled on about how much he “loved” Hollywood and claimed his vision was merely an innovative next step in a new online frontier.

Businesses and individuals will keep looking for faster connectivity, more robust online storage and more privacy. Transferring large pieces of content over the Internet will become common — not because global citizens are evil but because economic forces leading to “speed of light” data transfer and storage are so beneficial to societal growth…Providing “freemium” cloud storage to society is not a crime.

Of course providing “freemium” storage is not a crime, but paying people to uploaded stolen content and earning a profit from it is.  In reviewing the features of Dotcom’s new “Mega” offering, it’s not entirely clear just how the site will make money and therein lies the rub.  Will its business model resemble that of its defunct predecessor Megaupload or will it be a legitimate site like Dropbox or Yousendit?

The distinction between the two types of sites is significant.  For criminal cyber-lockers, content theft is the engine that generates traffic, and thus income, for the site.  When cash rewards are offered, users are incentivized to spread download links far and wide via online forums as though unleashing a virus.  They engage in piracy not out of altruism, but to make money.  Part of the indictment against Megaupload describes this aspect of the operation:

Third, for much of its operation, the Mega Conspiracy has offered an “Uploader Rewards” Program, which promised premium subscribers transfers of cash and other financial incentives to upload popular works, including copyrighted works, to computer servers under the Mega Conspiracy’s direct control and for the Conspiracy’s ultimate financial benefit. The more popular content that present on Mega Conspiracy servers would increase the number of visitors and premium users that the Conspiracy could monetize. In total, the Mega Conspiracy directly paid uploaders millions of dollars through online payments.

Legitimate sites, on the other hand, provide a number of valid (and legal) services that end-users are willing to pay for.  While it’s certainly possible to share illegal content via these sites, if there’s no financial upside, most won’t bother.

As for Kim Dotcom, despite protestations to the contrary, there’s little evidence that he’s is in business to do public service.  For him, monetizing stolen content has provided an efficient way to make millions and fund a lavish lifestyle featuring multiple mansions, yachts, and more.  This new enterprise will also undoubtedly be designed to make many more millions.  What remains to be seen is exactly how that will happen.

Will this new site, like its predecessor, depend on content theft to drive its core business?  Dotcom and his cohorts have reportedly developed a system whereby all uploaded files will be encrypted and only the uploader has access (or knowledge) of what that encryption key is.  From their perspective, this absolves Mega from any responsibility as to what types of content users share (from pirated films to child porn).  Another significant change will reportedly be the way files are stored on Mega servers.  Like the new cloud-based Pirate Bay, this new Mega is being designed to operate beyond the reach of law enforcement. From Wired:

One of the more unique wrinkles of the new service may come from Mega’s decision not to deploy so-called de-duplication on its servers, meaning that if a user decides to upload the same copyright-infringing file 100 times, it would result in 100 different files and 100 distinct decryption keys. Removing them would require 100 takedown notices of the type typically sent by rights holders like movie studios and record companies.

Increased anonymity aside, why would someone want to upload 100 copies of a file unless there is some type of incentive to do so?

We’ll have to wait and see exactly how the new Mega will entice users to upload (and share) content in order to transform traffic into revenue.  What’s past is prologue, and with cyber-lockers we’ve seen greed has a way of morphing into crime.  Unfortunately, unless Mega utilizes a revolutionary new business model to match their revolutionary new cloud-based nexus, it’s likely content creators will be back to square one when it comes to fighting against the world’s preeminent online pirate.