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This Was Kim Dotcom’s Crazy Plan to Save the Music Business

Kim Dotcom is known to be more than a little eccentric. The former CEO of the now defunct file sharing site Megaupload used to partake in illegal street racing, stars in his own Euro-dance songs and once owned a car with a “MAFIA” license plate.

So it’s no surprise that his scheme to save the music industry, which Dotcom laid out in detail in a call with Universal Music Group executives days before Megaupload got shut down by authorities in early 2012, wasn’t exactly about playing by the books either. The real surprise is that his take-no-prisoners scheme apparently was well-received by execs of the world’s biggest music label.

Dotcom published a recording of the call on SoundCloud in mid-August, and the details are fascinating: Megaupload was working on its own music service dubbed Megabox before it got shut down, and Dotcom was looking to license music from Universal for its venture.

But Megabox wasn’t just a run-of-the-mill iTunes clone. Instead, it was integrated with a technology dubbed Megakey that would have prompted users to install a small program on their computers. The software would then monitor the computer’s entire network traffic, intercept advertising from third-party websites and swap out ten percent of all ads for advertising from Dotcom’s own ad network. “We are basically using the principle of an ad blocker, but instead of making it blank, we replace the ads,” Dotcom said during the call.

Dotcom was testing the ad-injection technology with a three month-long limited beta test that provided users with free access to certain paid Megaupload features in exchange for the installation of the Megakey app on their computers. As part of that test, Megakey was installed 2.3 million times, he said. However, Dotcom had plans to go much bigger. With a potential install base of 100 million users, he told Universal’s executives, Megakey could easily generate $2.5 billion in revenue per year.

At one point in the conversation, Dotcom suggested that the app would monitor people’s web browsing behavior, including their activity on social networks, to gather ad targeting data. “But we wouldn’t do anything that the user doesn’t know, or doesn’t allow us to do,” he added.

Still, Dotcom was aware that blocking and replacing ads from web publishers would be a dicey subject. “There will be a little bit of controversy about this business model, basically taking away ad dollars from third-party sites,” he admitted, adding that he had lawyers look over the scheme to make sure it was within the letter of the law. “Legally, it will be quite difficult to challenge this, but there is a moral element,” he said.

However, Dotcom also had an idea to help Universal and other content owners deal with these moral issues. “If we were to do a partnership with UMG, we would advise to only for example in the start replace ads that are being served by Google,” he can be heard saying, arguing that Google had been a big beneficiary of piracy. He added: “Replacing ads from Google would be a fair thing. You are basically charging a little tax for all the benefits that they have with your content.”

That line of thought apparently went over well with the people on the other end of the call. “I completely agree,” Universal’s former global digital business president Rob Wells can be heard saying. Later during the conversation, Universal’s executives muse that it would be good to have a “white list” of sites that aren’t targeted for ad replacement. “But Google will not be on that list,” Wells can be heard saying, followed by laughter.

Wells, who left Universal in February, seemed in general quite taken by the scheme. At one point, he can be heard saying: “I will happily do a deal with you guys. Not an issue.” Still, it’s unclear from the conversation if Universal would have actually followed through. Executives can be heard sketching out next steps in broad strokes, but having conversations like these doesn’t necessarily mean that both sides would have been able to strike a commercial agreement.

In the end, we will never know; authorities shut down Megaupload days later. Dotcom’s Musicbox service has since reemerged as Baboom, but the company has given up on any ad injection plans, and isn’t affiliated with its controversial founder anymore.

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