Megabox: an opportunity or a risk for New Zealand artists?

  • Digital
  • October 19, 2012
  • Matt Adams
Megabox: an opportunity or a risk for New Zealand artists?

Earlier this year police swooped on Megaupload founder Kim Dotcom and his buddies in a sleepy suburb north of Auckland. The high profile raid elevated Dotcom from obscurity to a celebrity status within New Zealand normally reserved for professional athletes, teleprompted news readers and reality television personalities.

Kim Dotcom and his cohorts were operating what they called a "cyberlocker" site, a private data storage provider. What they were actually doing is a little unclear. His legal team would say he's operating some sort of safety deposit box. Prosecutors would say he's operating a digital crack house. The truth is probably somewhere in between. 

A Grand Jury indictment filed in February claims that the Megaupload site had 66.6 million registered users as of January 2012. Just under ten percent of these users had ever uploaded a single file. This suggests that most people used the site only to download material.

Current media headlines on this case appear to be dominated by an inquiry into unlawful surveillance by the Government Communications Security Bureau (GSCB) and the legal twists and turns inherent in extraditing Dotcom to the United States to face the music there.

Mega rumour

There are rumours of yet another file sharing site that will allow content owners to monetise digital content. In an article on weblog TorrentFreak last year, Kim Dotcom referred to his new music venture “, a site that will soon allow artists to sell their creations direct to consumers and allowing artists to keep 90 percent of earnings”. 

Details of the new service are still a little sketchy. Will it provide the benefits to New Zealand artists that the hype would suggest? Will it face the same legal challenges as Megaupload? There are a few issues artists need to consider before signing up for the service.

Putting the dinosaurs out of business

This model claims to take a different approach to major record labels like Universal Music Group (UMG), Sony Music Entertainment, Warner Music Group and EMI Group.

According to Dotcom associate Swizz Beatz, the “[music] labels wouldn’t be taking the lion’s share of the revenue as they do now – Megabox would take ten percent and the remaining 90 percent would go to the artists. That leaves zero percent for the suited middle men and as the theory goes, they were very unhappy about that.”

The plan is to give consumers free access to music, financed through the use of an advertising browser plug-in. Dotcom spoke of a “Megakey that will allow artists to earn income from users who download music for free. Yes that’s right, we will pay artists even for free downloads.” will come from the Megakey application that users have to install. The Megakey will work like an advertisement blocker. Instead of blocking ads it will replace some of these ads with advertising content selected by Megabox. Some users will not want to download the Megakey application. It is anticipated that those users will have the option to buy the music instead.

This year we have seen many announcements about Dotcom and his associates. Megabox appears to have taken a backseat. Its would-be founder has had almost all his assets frozen while he defends extradition to the United States to face copyright infringement, racketeering and money laundering charges.

Despite all the events that have occurred this year, there still seems to be a plan to bring Megabox to life . Earlier this year, Megaupload founder Kim Dotcom announced that "The major Record Labels thought Megabox is dead. Artists rejoice. It is coming and it will unchain you".

Back to basics

The property rights involved in these transactions are fairly straightforward. Copyright is a property right that exists in original works. A typical music file in a WAV, AIFF or MP3 file format will include not one but three different copyright works. The New Zealand Copyright Act 1994 recognises the music as a musical work, the lyrics as a literary work and the recording itself as a sound recording.

It is generally up to the copyright owner (the artist or the record label) to take action against unauthorised copying, issuing of works to the public or performance in public.

Learning from others

It is good to learn from your own mistakes. It is perhaps even better to learn from the mistakes of others. There are many file sharing sites that allow content owners to monetise digital content. These include SoundCloud, Spotify, Rhapsody and Pandora. Without exception they come with terms of use. With few exceptions, these terms of use are not read by their users.

Artists signing up for a file sharing site like MegaBox should look carefully at the rights they are giving up. For example, the Terms of Use for SoundCloud have the artist granting a worldwide, non-exclusive and royalty free licence to SoundCloud and other users of SoundCloud. The licence also extends to users of any other websites, apps and/or platforms to which the artist’s content has been shared or embedded.

There is a risk that it is the owners of the file sharing site themselves that are carrying out unauthorised acts. In the case of Megaupload for example, a Grand Jury Indictment filed Jan 5, 2012, alleges that members of the "Mega Conspiracy" themselves wilfully reproduced and distributed infringing copies of copyrighted works using computer servers controlled by the Conspiracy. Artists should be aware of this before authorising such activity. 

Another trap for the unwary is to place too much reliance on a file sharing site keeping content safe. There are legitimate users who have lost content that did not infringe copyright. There is the case of the high school sports reporter and Megaupload customer who is taking court action to get his content back. Honest users are sometimes penalised for the actions of other users. 

While court action is always available, it is more prudent for artists to keep backups of their content. It is certainly more cost-effective, particularly when a New Zealand artist is faced with the prospect of litigation in the United States to retrieve content.

File sharing sites are best treated as file sharing sites rather than archives. SoundCloud in its Terms and Conditions warns that the content of users whose account has been terminated or cancelled will be deleted. In fact, SoundCloud reserves the right to block, remove or delete content at any time for any reason and without liability.

Watch this space

New Zealand artists may welcome another platform on which to promote their work. Let’s hope that those signing up for the service are better off for the experience. Time will tell. Or rather, as Swizz Beatz puts it: “But my thing is like, time will tell everything, you know what I’m saying? People will see what’s what, who’s who.”

  •  Matt Adams is a partner at AJ Park

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