Kim Dotcom and the Future of Digital Distribution
7/1/2012 by: Roy Taylor
As far as I can tell, 37 year old Kim Dotcom is not a particularly nice man. However, he might be about to become the most important person in technology and entertainment. That is because of what he has achieved as well as his current court case and its aftermath.
Kim, born Kim Schmitz in 1974, is a German-Finnish businessman and the man behind MegaUpload, the internet file sharing website that upset governments and companies worldwide.
Since most (but not all) of the people I know, have no clue who Kim is, here is some background information on him. According to this Wikipedia page, the enterprising Kim started as a teenager inventing various businesses and avoiding prison. As he got older, he became smarter and in 2001, Kim bought €375,000 of shares of the nearly bankrupt company LetsBuyIt.com. He then told the world he would invest €50 million in the company, money he never had. The news sent the stock soaring 300%. This allowed him to sell his shares a few days later for €1,568,000. His lucky ran out in 2002 however when he was arrested in Bangkok for insider trading but he was kept out of prison with a probated sentence.
The chapter of his life most relevant to this article began on March 21, 2005, when Kim set up Megaupload Limited. Based out of Hong Kong, the site allowed file sharing between people. Users quickly found that they could share files of personal pictures and data but also copies of software, songs, and movies. Basic access was free but the downloads were slow. However, for a fee of $9.99 a month users got a ‘premium service’ which offered much faster downloads, crucial speeds for 4-8GB .mkv movie files. The business took off quickly. At one point it was the 13th most popular site on the internet, with 150 employees, $175M in annual revenue and 50,000,000 unique visitors a day.
Hollywood, represented by the MPAA, and the music industry, represented by the RIAA, were incensed to see so much of their content being shared on such a colossal scale and decided that ‘something had to be done’. MegaUpload was by no means the only service doing this (there are dozens) but it was one of the largest, and more than that, Kim Dotcom’s flamboyant lifestyle and extravagant spending seemed to be rubbing their noses in it.
On January 20th of this year, the New Zealand Police stormed Kim Dotcom’s house and arrested him and some of his team. New Zealand authorities were cooperating with the United States’ FBI and Justice Department, Hong Kong Customs and the Hong Kong Department of Justice, as well as agencies from the UK, the Netherlands and Canada.
Now it appears that the arrest was illegal. Nate Anderson of Ars Technica posted an excellent article about the case. The ruling of New Zealand High Court judge Helen Winkelmann determined the warrant for Kim’s arrest “invalid” in a 56-page decision. This will be poor compensation to the thousands of users who were sharing legal (and in many cases, vital) files on MegaUpload who are now looking to sue the US Justice Dept over their loss of data. Furthermore, the New Zealand Police may face charges over its mishandling of the case.
My guess is that Kim Dotcom will walk free and that he is highly likely to turn around and launch an enormous law suit against all the authorities who targeted him. I bet he either wins or settles out of court too. This is because they were trying to shut down the man building the road because others were speeding on it.
Enter MegaBox. So why does all this make Kim Dotcom potentially one of the most important people in technology and entertainment? Because whatever he may have done in the past, Kim is articulate and has significant backing from many. Despite his legal issues, Kim has worked on a new music service called MegaBox. This service provides free music but still rewards artists. The money comes from the Megakey application that users have to install. Megakey works like an ad blocker, but instead of blocking ads it replaces a small percentage with Mega’s own ads. Those who prefer not to install the app have the option to buy the music instead, so the artists get paid regardless.
The losers will be the record labels, hence the controversy. However, the model could still be hugely successful. Based on their earlier support we are expecting to see P Diddy, Will.i.am, Alicia Keys, Snoop Dogg and Kanye West backing MegaBox. For any rising new artists we expect that MegaBox will be a ‘no brainer’ for getting publicity and initial revenue. To get some idea of his support, take a look at this video here;
When it comes to movies, things are more complicated. The big film studios have a stranglehold over just about every field of distribution for their content. But just as Netflix started with ‘long tail’ content, specialist films, documentaries, etc. so will MegaBox. As we saw with the surprise cult hit ‘Iron Sky‘, which was funded by crowd sourcing and bypassed the large studios, new models of film distribution are coming too.
Once we accept that hardware is a vehicle for distributing content, as described in Forbes yesterday, then technology becomes all about distribution. Because of this. a man who is turning the content distribution industry on its head becomes one of the most important people in the business. MegaUpload might be the precursor to nothing less than MegaContent. The MPAA and RIAA might as well scream at the sea to keep still and get the same effect as it would to try to fight these trends. If I were them I would be inviting Kim for a glass of wine and chat to learn more.
Watch this interview to hear Kim speak for himself.
FILE SHARING, HOLLYWOOD, KIM, KIM DOTCOM, KIM SCHMITZ, MEGAUPLOAD, MEGAUPLOAD LIMITED, MOVIES, MPAA, NEW ZEALAND, NEW ZEALAND HIGH COURT, NEW ZEALAND POLICE, PEER TO PEER, PIPA, PIRACY, RIAA, ROY TAYLOR, SOPA, TECHHOLLYWOOD
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