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Could Apple (NASDAQ:AAPL) Have Secretly Conspired To Kill Off MegaUpload?

01/24/12 by  
Filed under Bourbon & Bayonets

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The popular file-hosting site MegaUpload is officially closed. But is someone other than the DOJ to blame?

Users of Google+ are buzzing with controversy this week as people begin to realize that MegaUpload’s closure came just one month after the company announced a new streaming music service: MegaBox. MegaBox was designed to give artists a mind-blowing 90% of their earnings. That number is unheard of in the music industry. The company also intended to pay artists for free downloads. Technically, the latter offer is not all that different from the deal given to artists and record labels that join Spotify. But the 90% profit margin for paid downloads could have forever changed the business.

This has prompted many to question the source of MegaUpload’s closure. Could the music industry have been the primary culprit? Could record labels have coaxed the Department of Justice into making a move before MegaUpload had a chance to launch its first major (and wholeheartedly legal) venture? It’s not as if there aren’t other file-sharing and file-hosting sites for the DOJ to go after. But it chose to make MegaUpload its primary target, and many people want to know why.

Let’s suppose, for a moment, that record labels are innocent in this scenario. Who, if anyone, might have pushed for the DOJ to take action?

I’ll give you a hint: it’s a company that’s named after a fruit and it rhymes with Snapple (NYSE:DPS).

Yes, that’s right: Apple (NASDAQ:AAPL).

Realistically, the iPod maker is probably innocent in this scenario. The company would never conspire with others for its own personal gain. That couldn’t possibly happen.

But let’s pretend that Apple was willing to do absolutely anything to get ahead. In that case, MegaBox could have been thought of as a deadly threat to iTunes – one that needed to be exterminated quickly.

That’s not to say that MegaBox would have been able to actually hurt iTunes. But thus far, no other pay-per-download music service has presented a significant threat to Apple. This is primarily because most of them suck. But it’s also because Apple offers a great venue for artists to debut, promote, and distribute their work. Record labels like it because they get to keep most of the profits and continue to screw over hardworking artists who must tour for months to make a buck, or find a way to sell a zillion t-shirts. Even then they will struggle. For every Lady Gaga success story, music fans can find a thousand starving artists who are going nowhere because, no matter what they do, record labels still run the show. Not even Spotify is safe from the industry’s influence.

If MegaUpload’s promises are to be believed, MegaBox would have given artists an alternative option – one where they actually got paid. Would the record labels have attempted to step in and control the whole venture? Yes. But even if they could rule the front page with payola, artists would still be entitled to a larger cut of the profits.

Thus, it would certainly appear that MegaBox would have been a greater threat to greedy labels than anyone else. But with MegaBox, labels could have still been in the picture. Just because artists had the potential to make more money does not mean that they actually would. Labels could have feasibly purchased all of the ad space on MegaBox (something new and indie artists could not afford to do), implemented a payola system, and told artists that if they don’t give up some of their 90% profits, they wouldn’t get the support of a label. Inevitably, some artists would cave and the music industry would continue as it has for the last 50 years. Only the toughest, wisest, and most inspired artists would have the balls to walk away from the so-called security of a record deal and maintain their independence.

And those who walk wouldn’t go to iTunes. And why would labels if they can earn a higher profit margin elsewhere?

iTunes would be able to maintain its dominance for a while, just as Blockbuster initially held its own against Netflix (NASDAQ:NFLX). MySpace was initially a formidable competitor to Facebook. Music CDs initially stood up to streams and downloads. Things change. Technology – especially those that apply to the various entertainment industries – is constantly evolving. From what we know about MegaUpload’s ambitious endeavor, MegaBox could have been the one to lead the next evolution. It could have been a beautiful thing for consumers and musicians alike. But consumers and musicians don’t really call the shots, now do they?

All things likely, Apple isn’t guilty of anything here. The labels are probably innocent as well. Almost certainly, the Department of Justice chose to go after MegaUpload because it was one of the top 100 file-hosting sites in the country and not because it was coerced by a third-party. Those are the “logical” outcomes, you could say. And they are probably true.

But is that really what you believe?

Louis Bedigian

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One Comment on "Could Apple (NASDAQ:AAPL) Have Secretly Conspired To Kill Off MegaUpload?"

  1. David on Wed, 25th Jan 2012 1:28 PM 

    As the takedown of Megaupload has been in planning for about a year, according to most reports, it is not likely to be due to something that happened last month.

    Also, it is incorrect to say that it is ‘unheard of’ for artists to get 90% of sales revenue. That is normal with independent distribution services like CD Baby. The catch is that it is only possible when artists finance and produce their own records. If they have a contract with a record company, which pays for production, pays the artist an advance, and takes the financial risk, not unnaturally the record company expects to take a share of the profits. Whether it is too large a share is debatable, but the basic principle is reasonable enough. And it would of course prevent artists under contract to a record company from joining the Megaupload scheme, which leads me to think it was probably a PR stunt anyway, enabling Mega to pose as the ‘artist’s friend’.

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