A report by NetNames for the Digital Citizens Alliance has found that the “overwhelming use of cyberlockers is for content theft.” At least 79-84% of sampled files on 30 of the most popular online file sharing destinations infringed copyright, according to the analysis.
The report also estimates that the sites generate profit margins of 88-96% on combined revenue of over $95 million per year. The primary sources of income are premium account subscriptions enabled by payment processors such as VISA and MasterCard, and advertising.
Every cyberlocker that offered paid premium accounts to users provided the ability to pay for those subscriptions by Visa or MasterCard, with only one exception. Only a single cyberlocker accepted PayPal.
PayPal’s policy regarding intellectual property rights is to prohibit transactions for infringing items.
PayPal prohibits transactions for counterfeit items and unauthorized replicas or copies of items. Examples include (but are not limited to) counterfeit watches, handbags or accessories, and unauthorized copies of software programs, video games, music, movies, television programs, and photographs. Users that offer access to copyrighted materials through PayPal must maintain an adequate process to receive and resolve infringement notifications from rights owners.
PayPal also prohibits transactions for devices that allow domestic video game consoles to play back-up or import versions of video games, including mod chips, game enhancers, and boot disks.
PayPAl also enforces the prohibition.
To be accepted by PayPal, file-hosting services now have to comply with a list of far-reaching demands entirely targeted at copyright-infringing and otherwise illegal files.
“This has a paralyzing effect on the file-hosting industry where 90% of the users of some sites pay using PayPal,” according to the owner of a major file-hosting service who wishes to remain anonymous. Cyberlockers that used to rely on PayPal have been forced to switch to alternatives.
A report issued by MediaLink for the Digital Citizens Alliance in February showed that websites dealing primarily in pirated content are making hundreds of millions in profits by hijacking online advertising. The advertising industry is working to combat the problem.
Online piracy is not just a million dollar problem. The profits that cyberlockers make from premium subscriptions and online ads don’t reflect the lost sales to American firms. The fair market value of the pirated video games, films, music, software programs and other products that can be stored in a digital file is likely in the billions. The Commission on the Theft of American Intellectual Property last year agreed with a government estimate that the impact of all forms of international IP theft alone on the American economy is “likely to be comparable to the current annual level of U.S. exports to Asia–over $300 billion” per year. The report asserted that if IP were to “receive the same protection overseas that it does here, the American economy would add millions of jobs.”
Whether overseas or even here, law enforcement can’t combat intellectual property theft alone. PayPal has shown that payment processors can play a significant role in taking the profit out of this criminal activity.