Was Megaupload Targeted Because Of Its Upcoming Megabox Digital Jukebox Service?

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Last Thursday the US Justice Department came down hard on Megaupload and its mega founder, Kim Dotcom. In the days since, there has been a shake-up of sorts in the digital storage realm. Several smaller sites have drastically changed their business models. Others, like MediaFire, reached out to me after I published this post attempting to distance themselves from Megaupload.

However, yesterday, a new theory surfaced that indicates Megaupload’s demise had less to do with piracy than previously thought. This theory stems from a 2011 article detailing Megaupload’s upcoming Megabox music store and DIY artist distribution service that would have completely disrupted the music industry.

TorrentFreak first reported about the service in early December 2011. Megabox was just in beta at that time with listed partners of 7digital, Gracenote, Rovi, and Amazon. Megaupload was in a heated marketing battle with the RIAA and MPAA who featured Kim Dotcom in an anti-piracy movie (5:10 mark). The site had just sued Universal Music Group for wrongly blocking Megaupload’s recent star-studded YouTube campaign. Things were getting vicious in December but the quiet launch of Megabox might have been the straw that broke the millionaire’s back.

Dotcom described Megabox as Megaupload’s iTunes competitor, which would even eventually offer free premium movies via Megamovie, a site set to launch in 2012. This service would take Megaupload from being just a digital locker site to a full-fledged player in the digital content game.

The kicker was Megabox would cater to unsigned artists and allow anyone to sell their creations while allowing the artist to retain 90% of the earnings. Or, artists could even giveaway their songs and would be paid through a service called Megakey. “Yes that’s right, we will pay artists even for free downloads. The Megakey business model has been tested with over a million users and it works,” Kim Dotcom told TorrentFreak in December. Megabox was planning on bypassing the labels, RIAA, and the entire music establishment.

Megaupload was likely large enough to actually find success. Other services have tried what Megabox was set to do, but Megaupload was massive. Prior to its closure last week, the site was estimated to be the 13th most visited site on the Internet, accounting for 4% of all worldwide Internet traffic. It boasted 180 million registered users with over 50 million visiting the site daily. Megaupload was already a seemingly trusted service for artists to distribute their work. Megabox would have a monetized that popularity by passing on the bulk of the earnings back to the artists.

“You can expect several Megabox announcements next year including exclusive deals with artists who are eager to depart from outdated business models,” said Dotcom late last year. But that’s probably not going to happen. Kim Dotcom and several other Megaupload executives are now awaiting trial on various charges including racketeering, money laundering, and various counts of piracy. It seems they flew too close to the sun. High on success and a half a world away in New Zealand and Hong Kong, they attempted to take on the music industry head-on. Now they’re in jail.