Rogue 'cyberlocker' operators peddling stolen content are making nearly $100 million in annual revenues by operating as hubs for the for-profit distribution of infringing digital copyrighted content, according to a report, Behind the Cyberlocker Door: A Report on How Shadowy Businesses Use Credit Card Companies to Make Millions. released by the Digital Citizens Alliance. The Washington DC-based non-profit Alliance focuses on educating the public and policymakers on the threats faced on the Internet.

The report draws on new research from London-based NetNames, a firm that provides companies with global reach on the Internet whilst protecting their brands from online fraud.

Unlike legitimate cloud storage services whose clients are people and businesses that need to store, access, and share data, the cyberlocker business model is based on attracting customers who desire anonymously to download and/or stream popular, copyright infringing fi les that others have posted.

The cyberlocker business model is designed around content theft. In fact, cyberlockers generally pay or provide various incentives to those who distribute popular infringing content and discourage the use of their services for reliable data storage. As this study shows, the overwhelming bulk of the files distributed by cyberlockers infringe copyright.

This report for the first time looks at the sources of revenue and the operating costs in order to estimate the level of profit that cyberlockers enjoy. Because cyberlockers pay nothing for the main product they distribute - the content created by others - the revenues and profit margins are enormous, say the researchers.

The report examined 30 sites: the fifteen most popular direct download cyberlockers (which store files for users to download to their computers) and the fifteen most popular streaming cyberlockers (which host video files that users stream, rather than download).

Key findings

- Overall, total annual revenue across the 30 cyberlockers total $96.2m or $3.2m per site. One site gathered $17.6m per year in revenue. The report authors reckon these figures are based on a highly conservative analysis and the actual revenues of these cyberlockers are likely to be substantially higher.

- The overwhelming use of cyberlockers is for content theft. Analysis of a sampling of the files on the 30 cyberlocker sites found that the vast majority of files were clearly infringing. At least 78.6% of files on direct download cyberlockers and 83.7% of files on streaming cyberlockers infringed copyright.

- Further, an additional 13.2% of content on direct download cyberlockers and 9.4% of content on streaming cyberlockers was identified as pornography, the bulk of which was believed to be infringing.

- Research shows that the use of cyberlockers is focused on this infringing content: pirated copies of the latest films, TV shows, books, or games generate more download or streaming activity than a piece of personal content such as a wedding video. This means that the amount of content theft that results from the operations of each cyberlocker will be even higher than the percentage of infringing content that was found on each site, according to the researchers.

- 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.

- A deeper look at the revenues and profits shows how profitable content theft is for cyberlockers: The 15 largest direct download cyberlockers combined to make $63.1m in annual revenue, which breaks down to $4.2m per site in annual revenue.

- The most profitable direct download cyberlocker - Hotfile - generated annual profit of $15.2m from revenue of $17.6m, with a profit margin of 86.1%. In a five-month period leading up to the start of legal proceedings against the site by the Motion Pictures Association of America (MPAA), Hotfile made a profit of $13.7m on revenue of $22.4m - a rate of profit of 61.4%.

- 70.6% of direct download cyberlocker revenue came from subscription services enabled by payment processors, and 29.4% came from advertising.

- The 15 largest streaming cyberlockers combined to make $33m in annual revenue, which breaks down to $2.2m per site annually, a rate of profit of 87.6%.

- The most profitable streaming cyberlocker generated annual profit of $8.1m from revenue of $8.4m, a rate of profit of 96.3%.

- 71.1% of streaming cyberlocker revenue came from advertising and 23.1% from premium account subscriptions enabled by payment processors.

The Digital Citizens Alliance call on payment processors such as Visa and MasterCard and advertisers, who often sit idly by as rogue cyberlockers use their networks to help fuel their illicit trade, to be tougher. "Payment processors especially have a role to play in cleaning up these illicit cyberlocker sites. They have the capability to remove their systems from these sites and it's time for them to take responsibility for making the Internet a safer place by helping address the growing problem of content theft and abuse," declares the Alliance.

Story filed 20.10.14