Megabox: Can Thinking Inside The Box Work?

By Keith Nelson, Jr.

The major Record Labels thought Megabox is dead. Artists rejoice. It is coming and it will unchain you.

— Kim Dotcom (@KimDotcom) June 20, 2012

Big bank takes little bank. You fight the law and the law wins. Artist creates and company collects. Three seemingly immutable truths from which Megaupload’s radical CEO Kim Dotcom plans to liberate artists. How? Megabox. His promise to artists of a platform to promote and distribute their music for sale, stream and/or download while being paid 90% of the revenue no matter if paid or free stream/download. In a music industry where standard royalty rates are nowhere near that high, and are usually paid to the record label, Megabox proposes a seismic shift in the music business. However, facilitation of copyright infringement charges from the United States Department of Justice on Megaupload and its head officials place the legality and support under question.

So…can it exist?

For months, Kim Dotcom’s revolution was not televised, digitized, or had hardly materialized in information beyond sparse cryptic tidbits. Then suddenly, Kim Dotcom lifts the curtains long enough for a peep briefly inside the inner workings of Megabox via a behind-the-scenes video:

A very intriguing caveat of the video was the title “Megabox Exclusive Artists” above a few artists including streaming music skeptics, The Black Keys. After publicly documented skepticism of the monetary value of music streaming services, their inclusion could be early evidence of the validity of Megabox’s monetary compensation model.  Kanye West, Diddy, and Chris Brown are a few of the major label artists/execs which have openly supported Megaupload in the face of the RIAA deeming the service a “‘go-to’ site for free and illegal music.” Contractual obligations such as set number of albums owed and online distribution limitation vary from artist to artist so an influx of major label artists to join Megabox’s library seems improbable.

A recent report by ArsTechnica explains that Megabox will offer two free account options. One option will be for users to buy music legally from Megabox and another will allow users to download music for free with the installation of their Megakey software. Essentially, Megakey redirects 15% of third-party ads a person views on any website to ads from Megaupload.  Megabox’s two biggest inevitable competitors, iTunes and Spotify, pay royalties to the record labels who then disseminate the funds to the artist based on each artists’ agreed percentage rate (usually 10%).  However, Kim Dotcom told TorrentFreak last June that Megabox will pay content creators a small but potentially game changing difference from the traditional practice of paying royalties to content owners.

“If Megabox can cover its costs with that 10% and generate meaningful revenues for the music industry, it will put pressure on other distributors to sweeten their terms. However this is a big ‘if’,” says Ed Barton of Strategy Analytics in an interview with SoundCtrl

D.A. Wallach, Artist-in-Residence at Spotify, attributed some of the artists’ apprehension with streaming services with wanting to “see iTunes numbers” in relation to royalty payments. iTunes shelled out $3.2 billion to rights holders in 2011. However, iTunes’ well established account base of 400 million might not pose as big of a problem to Megabox since at Megaupload’s peak it was experiencing 45 million unique visitors per day. A practical MegaKey software will produce hundreds of millions of dollars in ad revenue if that volume of traffic persists.

On December of 2011, Kim Dotcom informed TorrentFreak that Megaupload had “hundreds of premium accounts from employees of the companies the RIAA and MPAA represent” and 87% of the Fortune 500 companies at the time had premium accounts. The Megakey software has barely been tested and while it could curb some financial losses, outside funding will still be essential. An inundation of lawsuits from the RIAA and MPAA could scare away potential investors. Kim Dotcom has assured the legality of the service and protection under the Digital Millennium Copyright Act (DMCA) which grants certain online service providers legal immunity of any of its users’ illegal activity. Viacom’s lawsuit against YouTube for similar allegations as Megaupload is facing was dismissed due to the DMCA, only to be revived by a U.S. appeals court.

“The audience has shifted to valuing accessibility and availability over ownership. I think people increasingly want access to lots of music on an all you can eat basis rather than building a digital record collection by downloading tracks,” says Ed Barton.

Radiohead, whose OK Computer album appeared in the Megabox video, released In Rainbows in 2007 on their website for a price determined by the person purchasing. Last year, internet-bred collective Odd Future, before any commercial success, partnered with Red Distribution/SONY for Odd Future Records where they act as independent label, yet are distributed by a major label. Early in the 21st century, iTunes created a centralized and regulated market for record labels as digital music consumption became a byproduct of a society that wants everything and internet piracy delivering. Megabox, in theory, is the next stage of technological adaptation;  an all-in-one music service built on music consumption of any sort.

Keep consuming, people.