Editorial: Kim Dotcom, noisy rogue with a commonplace startup idea

Peer-to-peer (P2P) file sharing has traditionally operated on a narrow ledge between perceptions of legality and illegality. The legitimacy of underlying file-transfer technology is never in dispute, though media companies might hate the unleashing of content that it represents. The narrow ledge is balanced between two activities: directly infringing copyright (what some users do), and indirectly facilitating infringement by providing a platform that makes it easy (what P2P platforms do). One purpose of the Digital Millennium Copyright Act (DMCA) is to protect the technology of file sharing, and companies that use it, by inventing a theoretical "safe harbor" that shelters all sorts of user-powered platforms from the consequences of illegal actions by the users.

If media companies hate digitization generally, they particularly loathe Kim Dotcom and his entrepreneurial file-transfer platforms. Their revulsion was fulfilled exactly a year ago when the US Justice Department shut down, a network of shareable cloud lockers focused on music, movies and images. Like a recurring nightmare, and in apparent commemoration of the anniversary, Megaupload's bumptious founder is launching Mega, an evolved version of the same idea. Mega further narrows the P2P ledge and fleshes out its founder's complex ambition.

When the hot spotlight of scrutiny is turned toward file-sharing companies, their official statements typically contain a coded acknowledgment of where their bread is buttered. During Megaupload's heyday, when the site was classified in an industry report as a major "digital piracy" destination, the site's PR statement was predictably DMCA-sheltered: "Activity that violates our terms of service or our acceptable use policy is not tolerated, and we go to great lengths to swiftly process legitimate DMCA takedown notices." In other words: "It's not us; we just provide the space. Talk to the users."

Editorial Kim Dotcom, noisy rogue with a commonplace startup idea

The music industry learned how to talk to the users of P2P watering holes like Napster, LimeWire and BitTorrent, taking their lawsuits to the streets through the 2000s. The recording industry has sued more than 30,000 individuals for (intentional or inadvertent) file sharing of songs, sometimes litigating for outrageous and indemonstrable damages. (The RIAA has enlisted major ISPs in the policing effort.)

It is perhaps worth noting a legal technicality: Infringement occurs in the uploading part of a file-sharing transaction, not the downloading. When somebody takes a single music track in a P2P setting, the sources are liable. But when the downloader remains logged into the platform, that person's computer immediately becomes a potential source of many more instances of copyright violation. Modern file sharing resembles a closed loop in which giving and taking form an unbroken and continuously revolving circle.

If file-sharing entrepreneurs like Kim Dotcom maximize the DMCA's shielding with winking references to terms of service, media companies and their lobbyists approach the narrow ledge with a reverse image of the same "C'mon, we all know what's going on here" subtext. Getting government action on their takedown aspirations depends on the extent to which they can convince judges that the offending platforms either encourage infringing activity beyond the inherent potential for it, or fail to adequately remedy copyright breakage.

Demonizing platforms upon which piracy can flourish is a lot harder when media stars endorse those platforms. That's what happened in December 2011 when Megaupload distributed a promotional video called "The Mega Song," featuring singing, rapping and spoken endorsements by a power lineup of performers and producers including Kanye West, Alicia Keys and Snoop Dogg. The Megaupload service was clearly pitched as a collaboration tool that expedited global transfers of music production files. There was no coy blurring of legal lines in the video's narrative, but it was easy to view "The Mega Song" as a defensive viral strike against intensifying perceptions of illegality.

Editorial Kim Dotcom, noisy rogue with a commonplace startup idea

Whatever the video's purpose, beloved music celebs were acting as spokespeople in direct opposition to legal actions of their corporate overlords. A riotous tug of war ensued in which the video disappeared from YouTube, reappeared, was whisked off again and was finally reinstated with something close to a rebuke by YouTube aimed at the Universal Music Group, which had initiated the DMCA takedown request.

The video victory was doubtless a tasty triumph for Kim Dotcom (who had a cameo in the vid), but a mere pebble against tectonic industry forces grinding away at his business. The eventual DOJ smackdown a year later was based on several indictments of criminal intent, and culminated in a flashy raid of Kim Dotcom's New Zealand mansion. New Zealand authorities did not extradite Dotcom to face US justice, frustrating American agencies.

Now to the present. The new Mega site is branded as The Privacy Company, a puzzlingly broad imprimatur whose claim rests on browser-level encryption of files as they are uploaded. Other than that, in broad strokes Mega is set up as cloud storage, comparable to Dropbox but with an implicit focus on large entertainment files. (Users get 50GB free of charge, torching the storage limitations of Dropbox and other competitors.) The business modeling features tiered pricing above that free service level. It seems clear that the laser focus on encryption and privacy aims to excite demand for a safer sharing environment -- both for the user and the host.

A glance at the new site's privacy policy might drive a splinter of apprehension in the hopeful P2P addict's heart: Mega categorically states that it collects and keeps unencrypted personal information and IP addresses of logged-in computers. It is only the file that is garbled, making it impossible for Mega to discern its contents and copyright compliance. (It's presumably quite difficult for stalking RIAA and MPAA bots as well.) In the DMCA-informed balance of criminal intent, Mega shifts the scale in favor of the host by making hosted files inscrutable. At the same time, the encryption system makes broad, anonymous file sharing difficult by requiring a decryption key to be shared along with the file.

Philosophically, the "Privacy Company" branding is a call to digital arms that probably won't resonate with average users. To the mainstream internet citizenry, threats to personal privacy involve identity theft resulting from any number of inherent systemic vulnerabilities, or Facebook mishaps in which drunken happy hour photos end up on the screens of mothers and bosses. Dotcom speaks of a human need for "refuge from the community," but I can't see most people affiliating that sentiment with cloud storage. His declamations are more coded rhetoric for the file-sharing ledge.

Editorial Kim Dotcom, noisy rogue with a commonplace startup idea

More interesting than the encryption scheme is a projected service product called Megakey, a revenue engine for free content. At least ingenious, Megakey is described as user-installed software (labeled malware by some) that generates advertising revenue for the site by hijacking ad slots on other sites. If launched, Megakey would take ad blocking in a new direction by removing the original ads from a portion of the sites visited by a Mega user, and replacing them with Mega advertisers.

Put aside ethics for a moment. This contrivance refutes the essential internet advertising model, which sells "inventory" computed as pageviews multiplied by ad units on the page. If there is a revolutionary aspect to Megakey, it is the substitution of one pair of eyeballs across many sites for thousands of eyeballs on one site. If the product materializes, I can imagine Mega developing an understanding of each user based on the unencrypted personal information it harvests, then selling each person's eyeballs at premium rates.

If only kidnapping other websites weren't questionably legal. Or is it? Simple ad blocking is not currently challenged, despite accomplishing the same chief disruptions as Megakey -- altering the display of another owner's website, and deflecting revenue from that owner.

At the core, Kim Dotcom seems to embody a hacker's hybrid value of mayhem and idealism. An established rogue, his public statements refer to meeting with movie producers, and he is explicitly intent on legitimately changing the industry's analog distribution heritage. The entire "Private Company" discourse, and the sketchy revenue model of Megakey, might be fanciful elaborations on the eternal quest to monetize free content -- which has actually become rather a pedestrian startup model. Spotify. Hulu. It is advertising plus subscription, powered by provision deals with content owners. Boom.

Following a beaten path is clearly not the avenue for this drama-loving personality who is trying to make several points at once. If he can find a way to align the movie distribution industry with digital reality, he might play a part in decreasing piracy and de-stigmatizing P2P. Assuming he can stay out of jail.

Brad Hill is a former Vice President at AOL, and the former Director and General Manager of Weblogs, Inc.