A mega business model

WILLIAM MACE

Featuring some of New Zealand's best acting talent, Sione's 2: Unfinished Business hit the nation's cinema screens last week.

But South Pacific Pictures boss John Barnett, who is also the film's executive producer, considers that "unfinished business" to include up to $1 million in box office takings that the movie franchise's first instalment was robbed of.

In 2006 the original film, Sione's Wedding, was copied by a rogue production staff member and pirated DVD copies were leaked to the public weeks before the film was even in cinemas.

The leak cost the film's makers dearly, particularly in the South Auckland Polynesian communities where it was thought the release would be most popular.

Sione's Wedding eventually grossed just over $4m with about 3 per cent of that coming through south Auckland cinemas.

In the first week of the sequel's release that percentage was up around 10 per cent and the film had grossed $1m within a week, around 20 per cent more than its predecessor's first week, said Barnett.

Suffice to say he, along with other copyright holders, are happy to hear that New Zealand-based file-sharing site Megaupload.com has been shut down: ''People seem to think that everything is available for free all the time, and it isn't'', says Barnett.

Megupload's creator Kim Dotcom may rent a $30m mansion north of Auckland with $6m worth of luxury vehicles in the garage, but if the copyright infringement allegations are true he would seem to share more in common with flea-market Sione's Wedding DVD pirates than his wealthy Coatesville neighbours.

Dotcom was arrested in a dramatic helicopter-led police raid at his property last week, and was this week told he must stay in jail until another appearance in the North Shore District Court in late February.

The United States Government is asking Megaupload to answer for its users' storing and sharing of copyright protected material - namely music, movies and software - which it estimates has caused an estimated $500m worth of harm to copyright holders.

But while the impact of the prosecution will be felt amongst the internet users who rely on pirated material for their entertainment, how will it affect New Zealand business owners who use similar online storage sites for legitimate data?

Megaupload's service was a form of ''cloud computing'' in the sense that it served as off-site data storage _ it just so happened that one piece of data stored by one user could be accessed and copied by thousands of other users.

That's not the case with commercial cloud computing providers, like New Zealand's Revera.

Co-founder, director and former chief executive of Revera Wayne Norrie believes the Megaupload story was a ''bubble waiting to come to the surface'' of public attention and legal precedent.

''From one perspective it's a good thing and from another perspective it's going to be quite divisive, but it's certainly going to generate a lot of debate and probably going to show up flaws in intellectual property law, in internet law, and in extradition law,'' says Norrie.

He's confident it won't show up any flaws in Revera's premium business-focussed model, although he says the saga is a chance for the business community to become more educated about exactly what ''The Cloud'' is.

''In cloud computing that we use for commercial businesses the data and applications aren't shared, they're held privately, the only thing you're sharing is disk space and even that's isolated.''

But Norrie says he can't guarantee, no more than sites like Megaupload can, that what is being stored isn't pirated material, or otherwise illegal.

''Whether the data that's stored there is a legal set of bits and bytes or an illegal set of bits and bytes, it's a little but like a bank vault and we don't actually know what those bits and bytes are.

''You rent a bank vault, you put stuff in the box and lock it up and the bank vault provider guarantees that no one will get at it, but it doesn't know what's in it and cloud storage providers are like that by design.''

It's the design of the service that is key and it's worth doing some research before you let go of your precious information on exactly which providers have designed their regulatory functions, as well as their systems, to keep your ''bits and bytes'' safe.

If cloud storage providers can have their databases frozen for something illegal that a majority of users aren't doing, then where does that leave them?

In Megaupload's case, it looks like it leaves them frozen for as long as the case takes to run its course, which could be years, says AJ Park copyright law expert Simon Fogarty.

''If these guys are convicted for copyright infringement what it says to cloud computing companies is you have some responsibility for ensuring there is no illegal file-sharing going on on your cloud computing system.''

That responsibility is not only to legal authorities of whatever jurisdiction you may be operating in, but also to the people using your service.

RapidShare, a company providing a similar service to Megaupload's, has been particularly vocal in distancing itself from the practices particular to that site.

RapidShare's attorney Daniel Raimer told FastCompany.com that while the business model of RapidShare and Megaupload were as similar to each other as they were to Microsoft's SkyDrive or Apple's iCloud, there were differences in their approach.

''The business from an ethical standpoint is really similar. The main difference is, what exactly is your business model? Are you aiding piracy? Is your intent to make money by attracting pirates and getting attention from copyright pirates? Or do you want to have serious customers and long-time relationships with satisfied people from all over the world, who trust you?'' said Raimer.

Fogarty also believes culpability comes down to intent of the service provider and their actions to follow up their stated intentions.

He says the indictment shows the prosecution depends on the defendants' knowledge that there was illegal file-sharing going on; that they encouraged it, that they made money from it, and that they paid rewards to users who contributed to it.

''They tried to put a public face on it in saying that they agreed to comply with Takedown notices [under US copyright law] to remove infringing works, and not to host infringing works, but that doesn't seem to be the case from what the indictment says.

''The ideal scenario would be that you don't agree to host any materials that are unlawfully copied, that any material deemed to be unlawful would be removed, and that as a host you would be cooperating with any law enforcement agencies over any allegations that there are infringements or other criminal activity.

''But that's going to have to be weighed up with a customer's right to privacy as well, and it's going to be a bit of a balancing act if people start saying, 'Hey can you guarantee you're site's always going to be up?'.''

''I think a lot of them will be looking very closely at what's happening and if they are doing things unlawfully they might be thinking 'We've had a good run and it might be time to pull the plug'.''

If you're playing above board, Fogarty suggests taking a fresh look at your terms and conditions, because clients certainly will be from now on.

Whether or not the extradition and prosecution of Megaupload is successful, there should be a silver lining for ''the Cloud'' if providers are willing to inform businesses of the possible flaws and dangers.

It seems the convenience of a web-connected society can't yet substitute for a close and coordinated professional relationship.

How does Megaupload work?

Megaupload has boasted of having more than 150 million registered users and 50 million daily visitors, according to the FBI indictment. At one point, it was estimated to be the 13th most frequently visited website on the Internet.

Users could upload material to the company's sites which then would create a link that could be distributed. The sites, which included video, music and pornography, did not provide search capabilities but rather relied on others to publish the links, the indictment said.

Users could purchase premium membership to the site to obtain faster upload and download services, which became the primary source of revenue for the site.

Material that was not regularly downloaded was deleted and financial incentives were offered for uploading and linking to popular content.

Advertising revenue was also earned from the web pages linking to copyrighted material.

- © Fairfax NZ News