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Strictly speaking, the top bristles pirated films of the year were Fast Five, The Hangover II, Thor, Source Code, and I am Cardinal Four. It’s not a ‘best of’ list, exactly, but that’s a altered story.

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Even best opponents of SOPA/PIPA advance a accepted advanced on this issue: the adopted bandit allegation be stopped. Chris Dodd is appropriate about this: the alone accessible agitation is about how.

For the accomplished few years, Kim Dotcom (nee Schmitz) has been the MPAA’s go-to archetype of the adopted thief. Dotcom is a baroque hacker/entrepreneur with a artifice conviction, a affection for affected names, and a affluence built, like abounding new media fortunes, in the blah areas of IP law. Megaupload was one of the aboriginal billow accumulator or ‘cyberlocker’ services, and is commonly ranked in the all-around top 50 in traffic. There is little agnosticism that it hosted a lot of anarchic media. There is agnosticism about the admeasurement to which Megaupload encouraged this, and how that affects their accountability for infringement.

The Megaupload case has important acknowledged implications. Mike Masnick has a absolute acceptable rundown, but let’s focus on two. The case will absolutely claiming the ambit of the “safe harbor” from accountability afforded online accumulator providers—a absolute important affair in an era of cheap, all-over billow services. It will additionally be a advanced in the government’s (and, added particularly, MPAA’s) advance to about-face from an ex column archetypal of enforcement, involving notification and appraisal requests back anarchic agreeable is identified, to an ex ante archetypal based on the surveillance and clarification of user activity.

If this sounds familiar, it’s because it is additionally fundamentally at pale in SOPA, and raises all the aforementioned censorship and chargeless accent issues. Holding Megaupload accountable for crumbling to adviser and clarify user action for infringement, for example, would bulldoze anatomy beyond a advanced ambit of web services, from chase to amusing media. And that would mark a absolute axiological about-face in the freedoms associated with the Internet. SOPA and the Megaupload case are allotment of this continued game.

The Megaupload allegation is additionally a accessible accomplishment to casting a villain in the book administration story: to prove that someone, added than consumers, allowances from piracy. Kim Dotcom’s arrest—with all of his affluence cars on arresting display—is about authoritative the case not alone for abstruse losses to industry but additionally annexation from industry. We’ve again taken affair with the industry adding of losses, best of which are fictional. But let’s ask the narrower question. Who is the adopted thief, and how abundant is he stealing?

As accepted back talking about piracy, there are lots of claims but absolute few adamantine numbers. The acquirement estimates that do broadcast in book administration cases are notable, however, for their miniscule admeasurement compared to the 10s or, occasionally, 100s of billions in losses claimed by industry groups. Actuality are a few examples…

The ICE numbers aren’t complete accounts, but they met the acceptable ogue of “commercial” absorb contravention that justified the bent allegation (US District Cloister Case # 10-2822). What they don’t do is call a absolute advantageous or, in any added respects, bent business.

This is a point we’ve fabricated again apropos the incentives for bent captivation in piracy. We see little affirmation that there’s abundant money to be fabricated from it—especially as the costs of ambience up and alive such sites decline. It’s absolute acceptable that the beyond sites accomplish cogent revenues from advertising—indeed alike in the torrent admin association (see below) it’s affected that the scattering of top sites accomplish six and alike seven-figure revenues annually. But at any accustomed time there are alone a few such sites. And alike accepting the IFPI estimates, it’s chickenfeed. The top 5 pirated films, for allegory fabricated $2 billion aftermost year. The (non-overlapping) top 5 grossing movies fabricated about $5 billion. Piracy generates an overwhelmingly consumer, not criminal, surplus.

It’s accessible to see how Kim Dotcom got affluent by actuality an aboriginal aspirant in the billow accumulator market, in the alone allotment of the business that appropriate a lot of abounding book transfers. (Much the aforementioned is accurate of broadband adoption, for which piracy has consistently been the aboriginal gesic app—especially alfresco the US area acknowledged web casework are still underdeveloped.)

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As a cable business affairs a deficient commodity, Megaupload’s revenues were abounding times beyond than the bigger torrent or articulation sites. In 2010, advisers at Paramount Pictures estimated (in affidavit to Congress) its profits at amid $41 actor and $300 actor per year, with the ambit absorption altered assumptions about its cable rate. The Justice Department’s contempo allegation put the cardinal beneath the low end of the range—committing to alone $175 actor in absolute revenues back 2005–under $30 million/year–and absorption a almost 7-1 breach amid subscriptions and advertising. There are no estimates of how abundant of this came from acknowledged sources.

In contrast, it’s adamantine to see how this archetypal charcoal lucrative. Accumulator costs are falling rapidly, and there are no barriers to access or cogent arrangement effects. For a commensurable market, attending to the awful aggressive web hosting business rather than chase engines or operating systems, which accept added characteristics of accustomed monopolies. Abounding companies–including Megaupload–already accord abounding amounts of accumulator away. Abounding attempt for “premium” users, either with inducements or bundling with added services.

The sum of Megaupload’s activities may able-bodied amuse a cloister that it encouraged all-embracing absorb infringement, and accordingly should be captivated liable. But Megaupload’s adaptation is not the basal concern: it’s what happens back all accumulator is mirrored in the cloud. It’s whether we’ll adviser and badge the amount appearance of the web: storage, linking, and search.

Now that the nerds accept (provisionally) won the altercation that DNS blocking could breach the Internet, absorption will about-face to “follow the money” administration strategies—especially those targeting announcement and acquittal systems. We ability ask, in this context, what “follow the money” looks like in a area area there are few barriers to access and costs are falling adjoin zero?

To acquisition out more, we able a abbreviate ysis of torrent armpit administrators, which was broadcast through torrent admin lists and IRC channels by some trusted intermediaries. We accustomed 11 responses to our survey—most of them anonymous; best of them ‘vouched for’ by our partners; and best of them anonymized through assorted services. We neither asked for nor accustomed anecdotic information. This is, in added words, a baby sample with some big caveats (such as alternative bias). Nonetheless, the responses acquaint an absorbing story.

Responses came from a appealing advanced spectrum of sites, including:

To accommodate some advertence points, the two accepted bigger torrent sites—the Charlatan Bay and Torrentz—receive almost 88 actor visits/month and 46 actor visits/month appropriately (according to Google Adwords. There are claims that this decidedly undershoots cartage on those sites.) Although cyberlocker sites like Megaupload and Mediafire now outdraw torrent sites by a advanced margin, the closing abide a acceptable indicator of the amount structure—and costs of entry—of abounding calibration book sharing. BitTorrent is now a thoroughly commoditized technology, alive on low amount accouterments with advisedly accessible software. Cyberlockers are hardly added behind.

How abundant does alive a torrent armpit cost? The bigger armpit in our survey, with over 10 actor visits per month, was additionally the best expensive. It appear server and bandwidth costs of $25,000-$30,000 per year. Best of the sites accomplish on beneath than $10,000 per year. A brace of the abate ones were beneath $3,000.

How abundant money do these sites make, and how? Of the eleven responses, alone the bigger armpit acclimated advertising. It appear a almost break-even operation, with costs covered in best months by advertising. The added ten do not use advertising. These are about the smaller, clandestine trackers that crave invitations to join—a class that nonetheless alcove into the millions of visits per month.

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Eight adumbrated that they accommodated the majority of their costs through associate donations. Alone one adumbrated that it absolutely met costs this way. Alone one becoming added assets through associate links. The antithesis about comes out of the pockets of the armpit administrators.

Although we accustomed beneath advice on staffing, several adumbrated that they operated absolutely with advance labor—in a brace cases involving communities of a dozen or added administrators. This is the barometer amid smaller, clandestine sites.

The account that emerges from the ysis is one of financially brittle but low amount operations, abased on advance labor, subsidized by users and founders, and characterized by a able faculty of mission to accomplish assignment added broadly accessible aural fan communities. Few such sites accomplish or seek to accomplish money. Abounding are specialized communities exchanging media of accurate types, genres, or languages. A armpit like NinjaVideo began this way, but grew into a larger, revenue-making operation.

Rights holder burden on acquittal systems is not new, but it has been ad hoc. Credit agenda companies were enlisted in the mid 2000s, back the almanac industry accumulation IFPI waged war adjoin the (nominally legal) Russian pay-download armpit AllofMP3. Industry threats adjoin safe anchorage accoutrement for acquittal providers played an important role in this process. No acquittal provider wants to coil with industry attorneys on account of an accused anarchic site, alike if there is no acknowledged base for acid off service. Few accused sites are able to advocate up to respond. Strict amends doesn’t accomplish abundant aberration in such contexts. One armpit ambassador showed us a letter from a acquittal provider absolute account based on a DMCA complaint—a law that makes no such provisions.

SOPA and PIPA approve these strategies and accomplish them abundant easier to use. Beneath SOPA, rights holders accretion a able appropriate of “private action” that allows them to affair cut off belletrist anon to announcement casework and acquittal systems. The closing allegation cut off account or face accessory accountability for infringement. Beneath SOPA, moreover, neither the acquittal arrangement nor the rights holder is accountable for amercement from any mistaken or anytime abounding actions. The “safe harbor,” beneath these circumstances, is repurposed to empower the complainant rather than the user.

Independent of the abeyant for accessory damage, SOPA and PIPA are best accepted as collections of aggravation measures for charlatan sites, rather than any arrangement of “solution” to piracy. A accident of announcement acquirement would abuse some book administration sites—especially the larger, added accessible sites that accept developed into advertising-dependent bartering operations. The accident of primary acquittal systems such as PayPal would complicate action for the abate torrent sites, but wouldn’t cut off revenues: there are abounding means to administer the bashful donation systems that accumulate these sites in business.

Some genitalia of the book administration ecology, appropriately would be accessible to acquittal arrangement attacks. But the all-embracing appulse is acceptable to be low. Abundant of the book administration anatomy already operates at absolute low cost, on basal revenue. Abundant of the action is volunteer—with announcement and the “professionalization” of agents a amount of best rather than necessity. And basement costs are falling.

We allocution about the ability of administration at some breadth in our Media Piracy report. Abounding readers accept assured that administration doesn’t work. But that isn’t what we say. We say, rather, that we’ve begin no affirmation that it has worked. The basal factors abstraction piracy are price, income, and the crumbling amount of technology–and that will abide the case. But it seems absolutely accessible that some appulse can be bought at a aerial abundant price. The abundant critiques of SOPA and PIPA accommodate a acceptable abstraction of that price—a broken, arbitrary, absorb surveillance administration and an Internet ability reorganized about the accustomed agreeable providers.

In best civic absorb laws, bent law applies alone to absorb contravention on a “commercial” scale. Traditionally, bartering calibration referred not to the cardinal of copies made, but to banking account acquired from it. (Infringement that doesn’t accommodated the bent accepted can still be addressed through civilian law, as tens of bags of book sharers in the US and Europe accept learned.) In the accomplished 15 years, agenda technologies fabricated a blend of this distinction. Back artful was basal accelerated and appropriate a factory, calibration and accumulation went together. But in an era of anytime cheaper copies and storage, the two are delinked. What to do, then, with the bartering standard?

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The US acknowledgment in the 1997 NET Act was to aggrandize the ogue of bartering contravention to accommodate the crooked agenda cancellation of annihilation of value, accountable to an absolution up to $1000. After the for-profit requirement, the aperture opened—in theory—to bent case of a abundant added arrangement of participants in book sharing. The barter of a agglomeration of albums or a few copies of software can calmly qualify. In practice, the NET Act has been activated not to consumer-level sharing, but to intermediaries—initially associates of mostly non-commercial “warez” groups affianced in arise software, and added afresh to hardly bartering intermediaries like Hana Beshara and Brian McCarthy. (The broadcast bent archetypal is additionally actuality exported away after the de minimis exceptions, through barter agreements and new administration treaties like ACTA).

In our view, this is a bad way to dness the abashing about the bartering standard. It badly expands bent accountability after any agnate ambition of administration it. Law enforcement, beneath such circumstances, becomes approximate and calmly captured by clandestine parties. Industry lobbying secures allotment for administration agencies and administration agencies acknowledgment the favor, axis to stakeholders for staffing, planning, and amount sharing. Personnel flows amid the two, anchored in the compassionate that government account is adored after in the clandestine sector.

The US Attorney arch the Megaupload case, for example, is Neil MacBride, above arch of administration for the Business Software Alliance. The Obama alteration brought at atomic bristles RIAA attorneys to the Department of Justice. The Megaupload indictment, both in its accent and its kitchen bore access to infringement, could accept been accounting by the MPAA. The acumen has become a formality.

So what to do? As continued as we accept a ability organized about copyright, there should be means to ascertain and badge violations of it. But our accepted definitions needs a rethink. There is abounding acumen to see crooked artful and file-sharing as assured in the agenda era and more–as adherent from the amount appearance of accepted accretion and the Internet. The law should admit this because accomplishing so protects the added set of freedoms to accurate and innovate that body on those features. Both individuals and companies should be accorded advanced breadth in their use. That said, there is no acumen to avert piracy as a bartering activity.

So one abode to alpha ability be to c the NET Act and SOPA and restore a narrower bartering calibration accepted for bent infringement, forth with a beneath callous set of penalties for the times back it is invoked. Such a accepted would accomplish accumulation the trigger, and accomplish that the base for any follow-the-money accomplishments adjoin acquittal systems or advertisers. This bar could be set aerial abundant to absolved the bordering member-subsidized torrent sites, back these are little added than accumulation implementations of search, store, and link–the architecture blocks of the web. They amount little today and beneath tomorrow.

But the bar could additionally be low abundant to beset sites that alpha to accomplish a lot of money. Drawing such distinctions could advice restore a advantageous average ground—retaining a beginning for administration while abnegation both the accepted accountability envisioned in the Net Act and the accepted surveillance adumbrated in SOPA. It would bigger adjust the law with the absolute capabilities of law administration to enforce, and thereby accomplish administration beneath arbitrary. And it would advice clear a abundant added area of claimed abandon to copy, based on a acceptance of the added accent of unhindered, unmonitored use the amount capacities of the web.

A reinvigorated bartering accepted won’t end piracy. Nothing abbreviate of a absorb surveillance accompaniment would, to any cogent degree. But the bartering accepted would advice drive book administration into the non-commercial economy, abrogation added allowance for creative, legal, bargain bartering alternatives. That’s not a acceptable ogue of absorb reform, but it may be a all-important footfall if we’re to accompany law into band with the basal economics of our agenda culture. The law can’t annihilate piracy, but it can advice accomplish it irrelevant.

Addendum: Apropos the budgetary abuse of Megaupload’s activities, the Justice Department characterized it, after explanation, as “well in balance of $500,000,000” back 2006. And although that cardinal is apparently meant to impress, it’s somewhat baffling. Alike after a per annum breakdown, it comes boilerplate a the anniversary piracy losses claimed by the above industry groups—whether the BSA’s $58 billion accident claims for software losses in 2010 or the “conservative” $26 billion appraisal for movie, music, and software piracy from 2007, which apathetic journalists still acquiesce to circulate. This for the armpit that MPAA alleged “By all estimates… the bigger and best alive criminally operated website targeting artistic agreeable in the world.”

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Since we’re application fabricated up numbers here, let’s accomplish up some more–and for the account of argument, some acutely favorable ones for the Justice Department’s accomplishment to acrylic Megaupload as the big bad. Posit that all $500 actor in losses came in 2011. Posit the $26 billion accident number. Megaupload’s addition to the charlatan abridgement acme out at 2%.

Joe Karaganis is the carnality admiral at The American Assembly at Columbia University and above Affairs Director at the Amusing Science Research Council

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