How ‘Cyberlockers’ Became The Biggest Problem In Piracy

Red Lockers

Since Napster exploded into the public consciousness when it was founded 12 years ago, the world of digital piracy has been associated with a particular type of software-“peer-to-peer” download services. (Sometimes fairly, sometimes not.) Either way, 2011 is likely to be the year when P2P is finally eclipsed by “cyberlockers,” a wildly popular type of site that many in the entertainment industry see as a new threat that could be even bigger than P2P. So what are cyberlockers, anyway? Why are they so popular-and so alarming to those who fight against piracy?

What is a cyberlocker? Simply put, it’s an online service that allows users to store and share large files. A few of the most popular services are RapidShare, Hotfile, Mediafire, as well as Megaupload and its sister site Megavideo. Typically users can get a web link, or URL, to share the files with whom they choose. The services normally offer some storage and downloading services for free, and then charge for premium accounts that include better storage and faster file transfers. (RapidShare, for example, gives all users the ability to upload 500 MB files for 30 days or less, while “RapidPro” users can upload files up to 2 GB and keep them stored permanently.) Importantly, these services do not provide search engines that allow users to search for what other people uploaded.

So what’s the piracy problem? While cyberlockers have plenty of legitimate uses-they’re useful for sharing any type of work-related file one can think of-they can also be used to illegally share copyrighted material. And while the major services themselves don’t provide search engines, there are a number of third-party search engines that go ahead do provide that service. They also advertise what they do (FilesTube.com, for example, advertises right on its front page that it can help a user “search for files on rapidshare and other download sites.”) A search for a popular movie or TV show on one of these specialized search engines, like FilesTube.com, shows there’s plenty of pirated material that’s easily accessed through cyberlocker sites.

So how big a deal is this, really? Pretty darn huge. MarkMonitor, a company that helps big brands protect their trademarks, released a report recently that estimated that RapidShare, Megaupload and Megavideo together generate more than 21 billion visits per year. Those numbers suggest the sites are enabling some type of activity that’s a lot more attractive than, say, sending an updated spreadsheet to your company’s London office.

There’s big money in websites with user bases of that size. According to piracy-news blog TorrentFreak, the German man believed to be MegaUpload’s founder, Kim Schmitz, bought New Zealand’s most expensive house last year for a bit more than $20 million. At the same time, the 36-year-old Schmitz was reportedly under investigation by N.Z. authorities for using multiple names to register his three luxury cars (adorned with license plates reading GOD, WANTED, and GUILTY.)

Entertainment execs are really worried that these sites could bring piracy even further into the mainstream. Paramount Pictures COO Frederick Huntsberry said in June that “cyberlockers now represent the preferred method by which consumers are enjoying pirated content.” Cyberlocker-based piracy methods are often just a few clicks away from a Google search for popular content-and that’s true despite the fact that Google doesn’t scrape the lockers the way a specialized search engine like FilesTube does (though Google does comb FilesTube).

Viacom (NYSE: VIA) GC Michael Fricklas gave a speech at Yale last year in 2009 where he denounced Rapidshare as a threat to the entertainment industry. “RapidShare has a business model that’s… very interesting,” said Fricklas, describing a RapidShare program that at one point actually paid users to share their files. (That incentive program was shut down last year.) “This is not a guy in his garage,” continued Fricklas. “We figure [RapidShare makes] anywhere from $14 million to $175 million in profit a year. It’s very handy to be able to have a media business when you don’t have to pay for the content.”

If cyberlockers grow in popularity it could also thwart entertainment industry plans to get better control over piracy by installing “three strikes” regimes in various countries. Those systems hope to monitor and catch users who illegally share content over BitTorrent clients-but they can only be caught because the BitTorrent exchanges essentially go on in public and investigators can monitor which IP addresses exchange a particular piece of content. That’s an approach that’s basically impossible with cyberlockers because downloading from a locker is a one-to-one transaction.

What are copyright holders going to do about it? Well, they’ve filed a few lawsuits, but so far that isn’t working out too well. File-sharing has plenty of legitimate uses, and the companies who run this new breed of file-sharing software have been sticking up for themselves in court and elsewhere. Rapidshare, a Swiss company, has already won one lawsuit brought against it in Germany and won an important early ruling in a copyright lawsuit brought against it in a U.S. court. Fundamentally, it may turn out the cyberlocker companies just need to do what a service like YouTube needs to do to stay on the right side of copyright law-respond quickly and appropriately when they get takedown notices from rights-holders.

And it’s going to be hard to isolate the companies politically when internet giants are providing services similar to the cyberlocker companies. Google Docs, which at one time allowed users to only exchange certain work-related files like Microsoft (NSDQ: MSFT) Word or Excel documents, changed its business model in 2010 to allow the exchange of any file format. That makes it pretty similar to the cyberlockers that have the entertainment industry pulling its hair out.

Finally, the cyberlocker companies themselves are making it clear they aren’t going to sit around and let themselves get painted as the next Napster. They’re pushing back against the trash talk-hard. Just a day after the MarkMonitor report came out, citing RapidShare as a “top digital piracy” service, RapidShare fired out an indignant press release saying it might sue for defamation. It responds quickly when copyright owners demand removal of a file, it noted, just like a mainstream service like YouTube (NSDQ: GOOG). A day later, MegaUpload pushed back in a similar manner.

Again, the cyberlocker company said it wasn’t doing anything different than what the big boys do. As it said in a statement given to Torrentfreak, “If Mega is a rogue operator, as we have been unfairly labelled by the MPAA and RIAA, then what about *Google*? What about *Yahoo*? And every single ISP?”

Update: Here’s a video demo from BTIG analyst Rich Greenfield explaining to clients (sub. req.) how pirates can use cyberlockers to trade movies as new as Black Swan.
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