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MegaUpload’s Shutdown: Financial Implications for Artists

Mike Masnick points out something that a large portion of the media missed in initial discussions surrounding the MegaUpload seizures:

There’s a key point in all of this that we missed in our earlier analysis about paid accounts at Megaupload. In the indictment, the government seems to assume that paid accounts are clearly all about illegal infringing works. But that’s not always the case. In fact, plenty of big name artists – especially in the hip hop world – use the paid accounts to make themselves money. This is how they release tracks. You sign up for a paid account from services like Megaupload, which pay you if you get a ton of downloads. For big name artists, that’s easy: of course you get a ton of downloads. So it’s a great business model for artists: they get paid and their fans get music for free. Everyone wins. Oh… except for the old gatekeeper labels.

There were certainly a large number of files that were potentially infringing – with the ability to ascertain whether something is or isn’t infringing being impossible to conduct automatically using digital systems because of legal ambiguities – but there were also many clearly non-infringing files. Those that were directly uploaded by artists for download were amongst this latter category.

While some artists who have already made it big might suffer a decrease in revenue/earnings, but still enjoy a life dedicated to creating new works, those who have yet to ‘break through’ will suffer disproportionately from losing an easy-to-use service that could generate some revenue. The smallest artists lose, the largest lose, and consumers lose. I’m not even certain that the labels themselves ‘win’, insofar as generating bad will likely hinders their ability to establish strong (positive) brand relationships with prospective consumers.