Pirate Bay's Plans Too Clever By Half: Arbitrage Consumer Bandwidth

from the this-looks-like-a-mess dept

There’s a bunch of news coming out about the sale of The Pirate Bay to GGF, though it’s still not making very much sense, I’m still wondering if the deal will really happen. However, it appears that GGF has started working with Wayne Ross, who ran Grokster and Mashboxx, in an attempt to get him to negotiate with the labels. In an interview, he more or less reveals GGF’s plans for The Pirate Bay.

Basically, you’ll have to pay to leech, but the more resources you “contribute” to the system, the less you’ll have to pay, and if you contribute enough resources/bandwidth, then you might actually make some money. Then, on top of that, they believe that some content providers/ISPs will pay for offloading their bandwidth. That explains some of the earlier statements made by GGF. In theory, the idea is that it makes everyone happy. Those who pay for bandwidth on hosting content can pay a lot less. Users who contribute bandwidth end up getting free content (or potentially even making some money). And, of course, the content owners get paid.

Except… that idyllic picture starts to break down when you start to run through the details. The second the paywall goes up, an awful lot of users will abandon The Pirate Bay for friendlier non-barrier-happy sites. That takes away pretty much the entire advantage of The Pirate Bay to make this work. Even the appeal of potentially making money probably won’t attract enough users. Second problem? There’s no way the economics works out nicely on this one. We’ve already seen the sort of ridiculous rates that the RIAA wants to charge for individual streams/downloads of music. Put those numbers into this model and start doing the math… and start laughing. There’s no way that much money comes into the system. None.

Finally, it leaves out an important party who clearly will not like this setup at all — even if all the rest of it works: consumer ISPs. The real “ingenious” part of the plan appears to be that some content hosters/service providers are effectively pushing bandwidth costs away from themselves, and dumping them on retail ISPs, who offer flat-rate connections. So the real “costs” are hidden in the typical flat-rate plans of ISPs.

It’s effectively a sneaky arbitrage play, whereby The Pirate Bay tries to aggregate all the unused flat-rate ISP bandwidth, and wholesale it to others, paying copyright holders in cash, and downloaders in free/cheap content. But the ISPs whose bandwidth is getting used don’t get paid, meaning they’re more likely to push back even more against unlimited connection plans. I just can’t see how this works.

Oh, right, in the meantime, it’s not clear the recording industry has any interest in playing along. They’re already demanding that cash from the sale go to them, rather than the founders. Of course, that’s a bit misguided, since the founders no longer own The Pirate Bay, having handed the ownership over to others in 2006. So they won’t be getting any of the money from the sale. The recording industry basically says it doesn’t believe that to be true, and will use the sale as evidence that the founders should pay up. Thus, it’s difficult to see them rushing out to embrace this already questionable arbitrage play.

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Companies: ggf, the pirate bay

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Comments on “Pirate Bay's Plans Too Clever By Half: Arbitrage Consumer Bandwidth”

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Matt says:

The plan that Wayne Rosso and others like Ted Cohen have been promoting for the past 5 years is pretty much a collective licencing agreement that has been promoted by the EFF since 2004 .


This may or may not work but if the new Pirate bay and the labels convince the ISPs that its in their interest to sell such a service and they get a cut of the subscription and they don’t have to worry about DCMA compliance because their users will just pay for the service as part of thier internet bill or it will be a opt in service that you can purchase through your ISP it might just be successful .

But as you pointed out the current internet streaming rates are crazy but in this econamy when the record labels are losing money and going backrupt they might just adopt collective licencing .

Anonymous Coward says:

not happening

i want to know what rates they’re looking at because i could write a little layer to interface their app with S3’s hosting which only runs 15c/gb no commitment.

also you can get virtual hosting for $15/mo with insane transfer caps which would be even easier. you’d start uploading the hottest songs as soon as they get out so you can seed as much as possible. and the last thing the RIAA wants is for anyone else to profit off of the content they bought the copyrights to. they’re only going to do this if they net over 70 cents per song (they get 60-70c per song from itunes depending on the label). it’s a joke to think they’d want to let itunes get undercut when they have a tight leash on apple.

Jim (user link) says:

Don't forget the DRM requirement!

Although all major music labels will sell MP3s, they still want DRM for videos (which means they have clearly learned nothing). All major movie studios currently WILL NOT allow someone to legally distribute their movies over the Internet as downloads without DRM. So, unless TBP adopts DRM, there is still no way they are going to distribute even old releases from the majors (Sony Pictures, MGM, Universal, Disney, Fox) or even large independents (Lionsgate), without value-destroying DRM. The only exception to that rule is Flash streaming, which employs a collection of measures (i.e. SWF authentication, encrypted streaming, etc.) that the majors call DRM light.

You are right, Mike. Most current users will simply abandon TPB. And unless the new site offers consumers something more with their download, such as easy DVD burning, quality guarantee, etc., then all users will abandon TPB. You did, however, forget to mention major studios’ DRM requirement for any kind of download, which by itself would make TPB as unusable as every other DRM-based download offering ever created.

Fausty (user link) says:

Not too complex

This is rather sad to watch unfold, because the actual “story” behind what’s going on with TPB has been crystal clear since the day of the announcement: Pump and Dump


This “purchase” (which is actually structured as a classic reverse merger) was never intended to close. The “buyer” doesn’t have the cash and has no specific plans to raise the cash. The shareholders (whoever they are) can vote down the “purchase” (i.e. merger) with no harm and no foul.

Why bother, then? Well, it’s rather simple: someone’s made many millions of dollars selling off worthless stock into the newly-active float while the drooling media has crawled all over this “story.” If this were done in the US, they’d already be writing up securities fraud indictments – but I’m not sure Sweden is used to this sort of straight-out ghetto manipulation of markets and market information.

Gotta hand it to the guys who ran the scam, they bet the media would be gullible for anything TPB said and would spend weeks “analyzing” the “purchase” – while they unloaded their stock in the meantime. It was well-executed and smoothly performed. The one thing that could have stopped it dead in its tracks – journalists actually asking questions, instead of just reprinting press releases – seems to have been safely avoided.

Fausty |www.cultureghost.org

Neo-Leper (profile) says:

I made some comments on the Suprbay about TPB and what was going on. I started out defending the TPB and then a mod and myself went back and fourth. I finally got annoyed. It seemed like they where not telling the whole story and one had to just agree with everything they said, without question. So all that one could do was nod yes, and say “I agree.”

Well the debate went on for sometime and then they banned me for being a troll. That really pissed me off, to say the least. Up until that point I was a die hard Pirate Bay fan and supporter, though now I have ask myself why.

The next day the ban was gone. Didn’t matter. I decided to delete all my torrents there and I haven’t been back since.

If they want to be taken seriously then they need to start engaging debate and not shutting people out. Even if they don’t like what a person says or if they disagree with it. If a person comes around with false information, then it is simple. Proof them wrong. If you don’t and just push them away then people are going to wonder and the questions they try to avoid will stay in the back of peoples heads.

I am not really sure what their game is, but I see it blowing up in their face. Nothing they are doing is making any sense. A lot of talk but no walk.

Brendy says:

Kill 1, 10 more will pop up

I don’t know why they think this business model will work. Pirates can get shit for free elsewhere, so why would they want to have to deal with a burden of wasting a week’s worth of bandwidth to be able to download 1 CD. Who would have purchased the pirate bay without doing a little research into the pirate mentality? Keep shutting us down and we’ll just find better, more obscure ways to distribute content. I mean just look at OiNK…after its fall, there are even MORE sites now with just as large as a user base and even better user interfaces.

The pirate bay was a crap site, but it was very good as a tracker. It had a very crappy user interface and it was difficult to search for shit you want. Google > *.

Anonymous Coward says:

You guys just don’t get it. This is all the cash grab, the time when the founders of TPB thumb their noses at all of you, laugh, and move offshore to enjoy their ill gotten gains. Don’t let the hype fool you, each of the main players is likely a millionaire many times over by now, and this “sale to company X” stuff is just another way for them to make money. Buying into the company before the announcement was made, or getting some or part of the payment in stock (at it’s pre-buying price) would give them incredible wealth. That doesn’t even consider the huge amounts of money made while the site was running.

TPB guys aren’t as clever as they think, all the crap will catch up with them soon enough.

Merrick says:


Hey Fausty, i’ve seen you repeat these claims on numerous sites and you’ve been telling anyone who will listen about your ideas. There are many people reporting on this issue who have better contacts than you, are far less corrosive than you and are better informed than you. It’s pretty arrogant to believe that only you know the truth when you have no contacts with Peter Sunde and the others and no contact with GGF. If your idea, and thats all it is, an idea, held water and you could back it up with facts, someone would print it. You dont have any facts, just speculation, so may I humbly suggest you get some facts first then people might listen.

aliuberalles (profile) says:

pirate bay is a sinking ship

GGF actually thinks that they will be able to run the Piratebay as a pay site, well news flash…
NO-ONE is going to pay your kings randsom for the privilage of that web space.
For what purpose?
so the movie studios and record industry can steal all the $$?
none of the heavy seeders or downloaders are going to pay
how naive can you people be?

UNF (profile) says:

Analysis of GGF + TPB deal ...

Swedish press reports since this story broke indicate that GGF CEO Hans Pandeya’s reputation may be pure as yellow circles in the snow.

In its 4 years of trading, GGF has consistently lost money and never paid a dividend to its stockholders.

From the start of 2009 GGF stock hovered closely around 0.04 Kroner, until 6 days after TPB verdict, on 23 April, when it tripled to 0.13 before being halted for a few days. Again, on 22.6.09 it suddenly shot from 0.10 to 0.25 on unusually high-volume trades before being halted 43 minutes later at 0.18 Kroner on suspicion of insider trading, this time for 8 days.

On 30.6.09 Pandeya announced TPB (and Peerialism) buyout plan at an 11am press conference, an hour after GGF stock trading resumed at 0.50 Kroner. GGF’s press-release had been posted online at 8:52am and pre-leaked to the Stockholm morning papers.

By Pandeya’s own admission that day, he had not yet entered negotiations with any rights-holder to distribute their content via TPB, yet unilaterally claimed they will facilitate him earning millions $$ monthly in advertising revenue. He further reckoned ISPs will pay him brimming boatloads of lolly for cunningly channeling their server overload through filesharer’s spare flatrate capacity – a notion greeted with skepsis by Jon Karlung, CEO of ISP Bahnhof, carrying 10 percent of Swedish traffic: “They can forget that. No ISP is going to join up and pay. He’s gone off the deep end; the reasoning is totally backward and it’s not going to happen.”

TPB blog at 10.43am the same day, apparently surprised by the fulminant newsflash, belatedly blurted that “TPB might change owner”, confirming what can already be read in the papers and asked its massive userbase to buy GGF shares, with the obvious effect, if followed, of further boosting or supporting the price.

Brokep @ 1pm on 30.6.09 said TPB had been in negotiations with Pandeya for ‘maybe two months’ prior to the announcement, after he had approached them with the initiative, and that he now had 4 weeks to raise the money or the deal would collapse.

On 1.7.09 AktieTorget.se (swedish penny-stock market) placed GGF on its ‘observation/surveillance list’ pending a decision on an investigation into possible insider trading. This remains the position as of today, 17.7.09

Since trading resumed, veritable avalanche volumes of the stock have changed hands at rapidly decaying prices, now back to 0.12 Kroner as of 17.7.09.

On 15.7.09 at the GGF AGM the board of directors authorised raising cash via new issue of up to 100,000,000 shares (+31% of current volume); stock price falls a further 30% over next 2 days.

Pandeya has now hired Wayne Rosso of Grokster/Mashboxx fiasco fame to talk up his current world itinerary allegedly negotiating with copyright organizations, although nothing has been signed as of 17.7.09 the deal must close by start of August.

Despite the chance of any big MAFIAA clients signing up for anything with ‘pirate’ in the name appearing slim to zero, TPB purchase being conditional on GGF being able to use the site ‘legally’ and final approval by their board of directors, the numbers ultimately confronting any waiting venture capitalists do not appear overly alluring:

On 17.7.09 @ 0.12 SEK/share
GGF = 311,344,000 total shares
= 37.4 million kronor market capitalisation

Sale price TPB = 30 million Kronor + same value in new-issue GGF shares = 60 million Kronor
cash = 30 M SEK = 2,711,560 EUR = 3,823,677 USD
shares = 250,000,000 @ 17.07.09 @ 0.12 SEK/share

Sale price Peerialism = 50 million Kronor + same value in new-issue GGF shares = 100 million Kronor
cash = 50 M SEK = 4,519,268 EUR = 6,372,795 USD
shares = 416,666,666 shares @ 17.07.09 @ 0.12 SEK/share

In addition, GGF has undertaken to make initial investments of 25 M SEK in the acquired business.

TOTAL = 185 M SEK = 16,721,292 EUR = 23,579,344 USD
i.e. GGF must raise new capital ~= 4.95 (current market capitalisation)
50% of this in new shares at today’s price = 770,833,333 = +147% volume must swamp value of existing stock.
Question if legally permisible, as AGM has only authorised issue of 100,000,000 shares this year?


Q1: If TPB was actually sold in 2006 as per Sunde, why would the crew negociate with Pandeya in 2009 for the sale of something they no longer own for 30 million SEK cash (coincidentally the exact sum the 4 defendants were fined at trial) plus the same value in new GGF stocks?

Q2: If GGF ever actually writes the cheque, to whom should it be made out, and is this the same person who received TPB site revenue from 2006-9?

Q3: If the GGF plan was legitimate, why announce it so far in advance and prior to any negotiation with third parties to secure their collaboration vital to the proposed business model?

Q4: OTOH, if this were a ‘pump+dump’ share price manipulation, would it matter to the insiders that the sensational cover-story later flops dead?

Q5: Did TPB crew know that Pandeya would make his announcement on 30 June 2009? If they consented to this, why not be present at a joint announcement?

Q6: Who bulk bought GGF shares in run-up to 22.6.09?

Q7: Who bulk sold GGF on days 0 + 1 of announcement?


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