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.

Filed Under: arbitrage, bandwidth, bittorrent, business model, content, file sharing, wayne rosso
Companies: ggf, the pirate bay


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  1. icon
    UNF (profile), 18 Jul 2009 @ 5:05pm

    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?


    Sources:
    http://www.aktietorget.se/
    http://www.whatsnext.se/2009/06/30/podcast-with-peter-sunde- on-the-ggfs-accquisition-of-the-pirate-bay/
    http://www.thelocal.se/20420/20090702/

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