On Thursday, January 19, the U.S. Justice Department shut down Megaupload, an extremely popular file-locker site that claimed 50 million users per day. Seven of its employees were charged with conspiracy to commit racketeering and criminal copyright infringement, and four were arrested in New Zealand, where the site's flamboyant founder, Kim Dotcom (ne Schmitz), rented a mansion. File lockers tend to promote themselves as productivity tools that provide an easy way to circulate files too big for e-mail among groups of collaborators, but in reality they're barely sub-rosa troves of copyrighted material—I'm sure more of their operators would get visits from the FBI if it were easier to hold them legally responsible for the piracy committed by their users.
Megaupload allowed you to share material uploaded to its servers only with specific friends or coworkers, but you could also make it available to the entire Internet. At least until it was shut down, googling the title of an album, along with the word "rar" or "zip" (extensions commonly attached to compressed files), would likely yield several links to locker sites where someone had shared it illegally. After the bust, though, a number of other major file-locker sites dramatically curtailed users' file-sharing ability—some went dark entirely, and some disabled the public-sharing options that allowed anyone to download the content. In both cases this retroactively broke established links to public files.
File-locker sites aren't just visited by illicit traders of copyrighted entertainment, though; they've also been hugely popular with hip-hop artists, who've used them legally to distribute albums and mix tapes. (Or at least somewhat legally—many mix tapes exist in a gray area with respect to copyrighted material.) When Megaupload went down, it took an untold number of rap records with it, and so far only a tiny fraction have found new homes on other sites. Some never will.
The RIAA and the MPAA have a considerable financial stake in seeing Megaupload taken out; RIAA vice president Joshua P. Friedlander predicts a postshutdown spike in music sales similar to the one that followed the 2010 shuttering of P2P network Limewire.
"In hip-hop, that's the model right now," says Ted Brinkofski, founder of Hulkshare, which is specifically aimed at hip-hop artists and ranks as one of the bigger file lockers to stay completely functional after the Megaupload bust. "You give out the music for free, and you make your money elsewhere. People in the hip-hop environment have been pretty innovative in trying to adapt. Instead of being in the MPAA or RIAA's position, where we're trying to hold on to what we have or go back to old models, in hip-hop they're moving forward. They're like, OK, we're just going to write off the fact that people aren't going to buy our music anymore. Also there are so many people making music and they're so competitive that people are paying to release their music for free. It's getting to the point where it's that crazy."
Kim Dotcom likes to play up his connections to the hip-hop world. Megaupload's website listed rap producer Swizz Beatz as its CEO, though Beatz has no stake in the company; Megaupload lawyer Ira Rothken now says he had yet to accept the position. And on December 9 the site posted a promotional video to YouTube built around an original track titled "Megaupload Mega Song," featuring on-camera endorsements from Kanye West, Sean Combs, Lil Jon, and the Game. (According to his lawyer, Dotcom is working on an album with the song's producer, Printz Board.)
Universal Music Group was obviously displeased to see some of its biggest moneymakers endorsing a company that's no doubt done more than its part to erode record sales. Soon after "Megaupload Mega Song" started making the rounds, UMG filed a takedown notice with YouTube, forcing the video offline several times by claiming infringement on copyrights it owned. But Dotcom got the video reinstated by convincing YouTube that it didn't use material owned by UMG, only artists who have contracts with the label.
This beef was still fresh on December 21, when Dotcom announced an iTunes competitor, Megabox, and upgraded the threat he posed to the big labels: if it had launched, he could've gone from costing them sales to stealing their artists. He claimed in a statement at megabox.com (the site's now down) that the service would've allowed musicians to sell directly to consumers and keep 90 percent of the profit, as well as earn money from users who downloaded the material for free.
Though this proposed model sounds a bit like a pipe dream—Dotcom didn't explain the mechanisms that would make it work—it's worth noting that Megaupload made $175 million during its lifetime (at least according to prosecutors) despite the fact that the vast majority of its users paid nothing for the service. It must have been chilling for UMG executives to see the mockup of the Megabox user interface that was going around—it included the cover art for the Black Eyed Peas' Elephunk, a UMG release that has so far sold nearly nine million copies. It certainly made Will.i.am's appearance in the "Megaupload Mega Song" video considerably more threatening than the average Will.i.am cameo.
The federal indictment contains plenty of evidence that Megaupload violated copyright laws on a massive scale, including excerpted e-mails in which employees of the company discuss trading digital copies of Seinfeld episodes. The RIAA and the MPAA have a considerable financial stake in seeing it taken out; RIAA vice president Joshua P. Friedlander predicts a postshutdown spike in music sales similar to the one that followed the 2010 shuttering of P2P network Limewire. The Internet is already awash in conspiracy theories claiming that the Megaupload bust was a preemptive strike against Megabox, carried out by the Justice Department at the bidding of the RIAA, but it's far from likely that things actually went down that way. For one thing, the Justice Department says it began its investigation two years ago. And despite the tremendous influence of the entertainment industry in Washington, it couldn't have convinced the FBI to orchestrate a raid with just three weeks' notice.
Odds are the RIAA dodged the Megabox bullet by luck. How much damage that bullet could do is now a purely hypothetical matter, and depending on how things go for Dotcom at trial, it may stay that way forever. It probably would've been significant, though—after all, Dotcom earned the loyalty of a whole generation of hip-hop artists with a distribution model that didn't even give them the option of getting paid. Imagine what he could do if he offered them money.