Will the Government Sabotage the Cloud?

Jan. 19 was a glorious day. The whole Internet was united in celebration as it saved the LOLcats from SOPA-PIPA. Nevertheless they could not has cheezburger for long. A day later, the swift hammer of American justice fell hard on Megaupload.com, a New Zealand-based and Hong-Kong-registered cloud hosting site. Its crime: piracy -- $500 million worth. The kingpin-style takedown confiscated Megaupload's hardware during swarming its founder's mansion with police.

World where piracy rules

In a world where piracy rules... Megaupload's management got hit with the dreaded RICO statute, so you know the feds mean business. The charges are bazookas aimed at a purported piracy haven, whose management repeatedly thumbed its nose at takedown requests. But, no civil suits were ever filed against Megaupload.

Napster and Grokster are similar cases, nevertheless neither was prosecuted with such heavy-handedness. Both shut down voluntarily to comply with government injunctions from civil suits. If suspected copyright infringers are now subject to arrest and extradition earlier copyright holders bother to file a civil suit, the cloud computing industry, its users -- and, as a matter of fact, the entire Internet -- should all be worried.

Explosive revelation

An explosive revelation... It's not just entertainment that gets pirated, though those industries seem to take it more personally. Globally, about 40% of all software is presumed pirated. But, Microsoft , which has typically supported stricter copyright protection, decided SOPA went too far and convinced the Business Software Alliance to withdraw its support.

The film industry claimed that it lost $6.1 billion in 2005, a year in which its combined American box office and DVD sales were $30.5 billion -- 20% of the total take, not counting revenue from domestic television or international sources. Has the scourge of piracy brought the industry to its knees?

Can they save themselves? News Corp, Viacom , CBS, Disney, and Time Warner all managed to boost the take from their diversified media empires over the last few years. During $6.1 billion may seem like a catastrophic loss, other high-end estimates I've found veer more toward the $3 billion to $4 billion range. How much would that affect film industry earnings?

Sources: Boxofficemojo.com, Digital Entertainment Group, and SNL Kagan. All figures are U.S. totals. Network TV advertising not included. *Estimated based on SNL Kagan projections from late 2011.

Last year, a $4 billion loss would have been worth 7% of industry revenue. If the film industry were to suffer piracy at Microsoft's level, it would have lost out on close to $24 billion. Think about that for a moment. The film industry has been remarkably successful at transitioning from an economy of relatively tight control to one of much easier availability without losing its earning power. Despite what appears to be far larger losses, even Microsoft recognized how dangerous SOPA was.

If box office and video revenue seems anemic, like as not the industry might blame its own overreliance on gimmickry and repetition instead of pirates. There was not one original movie among last year's top 10 highest-grossing films, unless you count predictable comic book port Thor, shortly to be regurgitated on theatergoers with an explosion- and brawl-packed 3-D sequel.

The Infringing

"The Infringing," coming this summer to theaters everywhere The entertainment industry is so afraid of research that it seems more willing to hinder future growth than innovate its way out. Megaupload's takedown could be a crippling blow to the cloud, if for no other reason than the precedent it sets. Any given online host is likely to have copyrighted material on its servers at any given time. It's virtually impossible to avoid having copyrighted material show up on someone else's site unless the material is so uninteresting that no one ever wants to see it.

Carbonite tries to scare consumers into buying its cloud storage. You wouldn't want to lose your valuable files, so get some cloud storage and be safe! Now that Megaupload's users have likely lost access to their files forever, that advertising rings hollow. It's a slippery slope from here, and in many ways, the cloud's at a disadvantage. How do you convince the government they're wrong when many politicians have no idea how the Internet works?

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