Hotfile: If It Looks Like A Duck…

A brief post to get some facts and sense into the continued fallout from my quotes on the BBC about HotfileTech Dirt’s otherwise fair and balanced piece unfortunately misinterprets a key issue as do many of the comments there.

Here’s the original quote that caused all the controversy:

“If the service providers are serious about wanting to heed the industry’s concerns then instead of assuming that all of the content is legitimate until found otherwise, they should actually assume that most of the content is illegal and take action.”

I stand by that quote 100% but let’s be crystal clear what it means: the service providers (i.e. the Locker services such as Hotfile) should stop misusing Safe Harbour arguments and admit to what they already know, i.e. that most of the content up there is copyright infringing professional content.  It does not however mean that it should be assumed that the average user of the service is uploading infringing content.  Indeed there are plenty of legitimate uses, but the majority of the content is not legitimate.  And I invite anyone to provide evidence that shows otherwise.  Until then I’ll apply inductive reasoning:  If it looks like a duck, swims like a duck, and quacks like a duck, then it’s probably a duck.

A Simple Equation

So how I can simultaneously argue that the majority of content on Hotfile is illegal but the majority of users are not necessarily uploading illegal content?  The answer lies in a simple equation:

A minority of users (typically Hotfile’s pay per click affiliate partners) upload almost exclusively pirated material and account for the majority of files.

Thus the majority of content can be illegal even if the majority of users don’t populate it with illegal content.  Unfortunately those people who do upload legitimate files, such HD home movies, HD training and educational videos etc.  are essentially Hotfile’s human shield.  Hotfile is in the business of making money via illegal content.  They are not a Dropbox.  They are not in the business of making money off files which will have audiences numbered in the 10s, 100’s or low 1000’s.   And the majority of people who seek out Hotfile for content (though probably don’t upload themselves) do so to find illegal content.  If in doubt, take a look at any of the satellite sites which are used to navigate through Hotfile’s vast database.  For example the tag line on the most popular Hotfile search engine, aptly name Hotfile Search Engine is

“Search Everything on hotfile.com. Free Movies, Games, Software, Music…”.

If Hotfile Wants to Go Legit It Must Sacrifice Much of Its Revenue

So let’s not dress up Hotfile for something it is not.  It is a site designed to make money from unlicensed content and the majority of files and traffic are for that same unlicensed content.  If Hotfile really want to go legit they need to ban the affiliate customers who repeatedly upload illegal content.  Of course if they did that they would lose their core revenue stream.  But if Hotfile are serious about being legit then that is exactly what they need to do.  Until then, all of the Safe Harbour bluster only goes to pollute and discredit this incredibly important basic tenet of the web.  And once Hotfile finally goes down the tube, which it will, it is the rest of us who will be paying the price of more draconian legislation because Hotfile just shot Safe Harbour between the eyes.

Hotfile, the Wolf in Sheep’s Clothing of the Safe Harbour Debate

Last week I found myself in the midst of a heated debate about online piracy.  The discussion had its origins in comments I made to the BBC concerning legal action being taken by media companies against digital locker service Hotfile.  The contentious point was my assertion that for a site like Hotfile the starting point should be to assume that the majority of the content on the site is unlicensed professional content, not the site’s assertion that the majority of the content is legitimate. That is not to say that there are not perfectly legitimate uses for Hotfile nor that there are not some people who get real value out of the service without ever touching a piece of unlicensed content.  However let’s be very clear, this is not how the vast majority of people use the service nor how the company makes the vast majority of its revenue.  To argue otherwise, as indeed Hotfile does, is disingenuous in the extreme.

Everything Has Happened Before and Will Happen Again

I have been a media analyst long enough to have tracked the rise and fall of those piracy pioneers MP3.com and Napster.  With Napster, as it scrambled to defend itself from media industry onslaught, I witnessed a pattern of events which have remained remarkably consistent despite technology changing dramatically:

  • Stage 1: protest innocence, claiming that the site has many legitimate uses and that they would never condone copyright infringement
  • Stage 2: insist that they are doing everything they can to combat piracy, taking down infringing files as soon as they find them
  • Stage 3: offer to implement further measures, such as audio finger printing 
  • Stage 4: publicly state what a fantastic job they are doing of take downs (just as the court case progresses towards judgement)
  • Stage 5: claim that the media industry is broken and will never survive the digital age (when they’ve lost the court case).

You will probably have noticed an uncanny similarity to the Hotfile case, despite the intervening decade of transformation in technology.  The simple fact is that these services never intend to set themselves up as productivity sites, or UCG destinations.  If they did they would have used screening technology at inception to ensure pirated content didn’t make it there in the first place, not protest innocent intent once they get on media companies’ radar.

What has changed since the comparatively innocent days of Napster is an overt commercialization of piracy.  Whether that be the Pirate Bay’s ad business or Megaupload founder Kim Dotcom’s fleet of luxury cars, piracy is big business these days.  In the specific case of Hotfile,  Digital Piracy consultant James Brandes has identified that Hotfile’s financial model depends upon a network of Pay Per Click Affiliate partners who are effectively incentivised to seed movies, TV shows and other such content to Hotfile because that is what will drive users and thus clicks.  Hotfile may make the token effort of banning individuals who upload, but not these cash cows who are responsible for a vast chunk (the majority?) of the illegal content on the site.  And just in case you are in any doubt as to the breadth of unlicensed content on Hotfile, enter the name of a movie of your choice in this Google search within the Hotfile domain and look at the number of file links displayed.

Hotfile is No Champion of Safe Harbour, Instead a Wolf in Sheep’s Clothing

One of the reasons it is important to reveal the true nature of Hotfile is because of the way in which it sullies, discredits and diminishes the Safe Harbour debate.  Hotfile, Megaupload et al are not champions of a censorship-free web.   They are most certainly not a Wiki Leaks for the media world.  They are overtly commercial entities that make money from the sharing of other companies’ intellectual property, who then shield themselves with arguments of being neutral vessel for other’s activity.  Hotfile is a wolf in sheep’s clothing for the Safe Harbour debate.  Anyone who supports the principle of Safe Harbour and wants to see it remain a valid and relevant tenet of the web should oppose Hotfile’s annexing of the debate for its own purely commercial purposes. Every time a company like Hotfile misappropriates Safe Harbour, the concept loses a little more validity, and such mis-uses go onto be cited as evidence of flaws by those who lobby against it.

Piracy and the Innovation Imperative

Clarifying Hotfile’s mendacious positioning however should not divert media businesses from the most important challenge the piracy presents. No, not diminishing revenues, but the innovation imperative.  The simple fact is that unlicensed locker services, P2P networks, darknets, the whole caboodle, fill a consumer need vacuum.  The content being free is of course pivotal to their popularity, but just as important are factors such as convenience, depth of catalogue, lack of DRM and device compatability.   There will always be a market for illegal services as long as they provide more depth of content than the licensed services and without the velvet handcuffs of device lock-ins.

Fighting free with free itself is of course part of the strategy for tackling piracy (as Spotify has shown us in the music space) but more important is conveniently delivering high quality, dynamic content experiences with all the content audiences want. That is the prompt that media companies should take from piracy.  And as I argued over on Music Industry Blog, now is the time to act because the nightmare scenario for media companies is that the pirates turn their attentions to developing great user experiences rather than just secure means of acquiring content.  That, ladies and gentlemen, is when we will really have a piracy problem.

Piracy is relative

A final point to throw into the mix is that piracy, copyright infringement, whatever you want to call it, is not an absolute concept.  Instead it is entirely relative.  Let me illustrate with two anecdotes.

A file sharing site owner was once showing off his new premium app to a former colleague of mine.  When my colleague said he assumed he would be cool with his users uploading a cracked version of the software onto his network his exuberant demeanour suddenly changed.  He robustly argued that he couldn’t allow people to download the software for free because a lot of money had been invested in developing the software and that he had to recoup his investment and make money off it!  Perhaps unsurprisingly he didn’t see the irony nor indeed hypocrisy of his position.

At the other end of the scale, I lost count of how many times when I was at Forrester and at Jupiter, that a record label or a trade body would call me up to talk about one of my reports even though they weren’t paying clients. When I’d ask them where they got the reports from they said they’d been sent them by colleagues, without even a pause in breath.

Clearly for those labels, just as for the P2P site, protecting IP is a fluid concept that applies very differently to other parties than it does to them. And therein lies a key reason why the piracy debate will never truly resolve, because one person’s piracy is another persons’ fair use.