The top 30 cyberlockers make nearly $100 million a year from stolen creative works and are facilitated by major credit card companies. That’s a key takeaway from a new report, released today by the Digital Citizens Alliance, providing further proof that piracy is, more than ever, a big business driven by profits.

It is common knowledge that pirate sites profit from advertising placements and subscriptions – credit card logos are commonly found on such sites. Now, we are seeing just how profitable the pirates are.

Today’s report, compiled by NetNames, is the most detailed account of how cyberlockers profit from piracy – and how major credit card companies are playing an indispensable role in the for-profit theft of creative works.

Cyberlockers are similar to – and sometimes confused with – legitimate cloud storage services like Dropbox or Google Drive. However, there is a major difference: cyberlockers set up incentives for users to upload unauthorized content files and then encourage others to download them, making money by selling advertisements around the content or premium access subscriptions.

The report examined the business models and profitability of the top 30 cyberlockers, including the 15 most popular “direct download cyberlockers” (which store files for users to download) and the 15 most popular “streaming cyberlockers” (which host files that users access through streaming services).

Key findings: 

• $96.2 million in total annual revenue across 30 sites, or $3.2 million per site. One site made $17.6 million. (These figures are based on what the authors call a highly conservative analysis.)
• Profit margins for cyberlockers can reach as high as 86%, since there is a high demand for stolen content and little overhead cost (including NO content cost) to doing business.
• The overwhelming use of cyberlockers is for content theft. Analysis of a sampling of the files found that at least 78.6 percent of files on direct download cyberlockers and 83.7 percent of files on streaming cyberlockers were unauthorized copies of books, films, television shows, and games.
• With a single exception, every cyberlocker that offered paid premium accounts to users gave them the ability to pay for those subscriptions by Visa or MasterCard. Only a single cyberlocker accepted PayPal, which suggests that the company has a policy to not do business with pirate cyberlocker sites. (And if that is the case, the creative community thanks them!)
• 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 $63.1 million in annual revenue ($4.2 million per site).
  • The 15 largest streaming cyberlockers combined to make $33 million in annual revenue, which breaks down to $2.2 million per site annually, a rate of profit of 87.6 percent.
  • The most profitable streaming cyberlocker generated annual profit of $8.1 million from revenue of $8.4 million, a rate of profit of 96.3 percent.
  • 71.1 percent of streaming cyberlocker revenue came from advertising and 23.1 percent from premium account subscriptions enabled by payment processors.

In February, the Digital Citizens Alliance released a report on how advertising revenue from some of the best-known consumer brands flows to pirate sites. It looked at a sample of nearly 600 illegal sites and estimated that they made $227 million in annual advertising revenue – with profit margins of 80-94 percent.

Back in 2012, the indictment of Kim Dotcom’s Megaupload revealed total revenue of $175 million during its six years of operation, with $150 million coming from premium subscription sales.

All legitimate businesses have a shared interest in a vibrant, legal digital marketplace for creative content. There is no good reason to do business with pirate sites that undermine the creative economy.

To their credit, leaders from the advertising community have pledged to do more to prevent the flow of ad dollars to pirate sites; specifically, by using new technical tools that have recently entered the market. In June, more than two dozen members of the creative community wrote a letter commending them for it.

“Now we are asking credit card companies to make their own pledge,” said CreativeFuture Executive Director Ruth Vitale. “If MasterCard, Visa, and other credit companies say ‘no’ to authorizing payments to pirate sites, those sites are less likely to keep facilitating digital theft – which will benefit creators and allow new, legitimate, and competitive forms of digital distribution to flourish.

See full report, “Behind the Cyberlocker Door: A Report on the Shadowy Cyberlocker Business and How Cyberlockers Use Credit Card Companies to Make Millions.”