It takes a team to get to #1. 

“Huh?  What? What is Cloudflare? ”

This is the typical reaction from most musicians when I tell them Cloudflare is very bad for artists.  I’m gonna make the argument that Cloudflare is now the key player in piracy ecosystem and thus at the root of the market failure that is driving value of music to zero.  But first let’s back up and start with some fundamentals of the digital music market.

Streaming service and per spin rates

Spotify’s subscription tier pays 8 times what the free* ad supported tier pays per spin. If everyone who used Spotify free tier switched to the subscription tier overall service revenue to artists would at least double, maybe even triple.

Then there is YouTube.  Oy. Where to start. Ad supported YouTube pays about 1/10th what Spotify’s premium tier pays per spin. YouTube represents approximate 56% of all streaming music consumption.  If YouTube could get even 1/4 of their music listeners to subscribe to a premium subscription version of YouTube?  It’s possible that revenues to artists would double or triple again, as it is reasonable to assume a YouTube subscription tier would pay something similar to Spotify premium on a per stream basis.

YouTube has tried to offer a subscription service but it has failed to attract many subscribers. Similarly Spotify has made great efforts to convert free users to premium subscription providers.  But both services have had discouraging results.  Why?

Peer to Peer Piracy and Cyberlockers.

Torrenting, peer to peer, or p2p piracy allows users to illegally download pretty much any song or movie they desire.  Cyberlockers are similar, like Dropbox but chock full of unlicensed music and movies. These sites monetize infringement by charging fees for faster downloads, hosting sketchy advertising or making your computer part of a botnet.  These “services” of course pay the lowest per stream rate of all: $0.00.

While torrenting, p2p and cyberlocker copyright infringement gets less attention than it used to, it’s still going strong.  Curiously there is circumstantial evidence that on a per capita basis torrenting is most popular in wealthy white enclaves in developed countries.   Also my cursory inspection of files available on computers that “seed” the networks suggest users are older and probably have good jobs.

“OMG dad!! Are you torrenting? You’re so embarrassing!”

Market failure.

Now put it all in context.  One of the reasons that Spotify offers a free tier, and YouTube can’t seem to get subscribers for its subscription service is that consumers have the option of stealing music via torrent sites and cyberlockers. Even if a consumer doesn’t actively torrent they know it’s an option. The market for music and culture is no different from any other markets (despite the delusional musings of academic IP law professors). Consumers will gravitate to the cheapest option for any good including music. Licensed services must lower prices to compete with pirate sites.  And suppliers (in this case artists) have virtually no bargaining power even with licensed services.  A usurious rate from YouTube is better than nothing from ThePirateBay.se.  Piracy is the root cause of the market failure.

Rights holders’ Strategies Against p2p and Cyberlockers

One solution to the torrenting and cyberlocker piracy problems are civil and criminal copyright infringement lawsuits.  Napster, Grokster, MegaUpload and Hotfile were all brought down this way.  This, however, is not easy.  Civil litigation is very expensive.  It’s fair to assume plaintiffs will need a minimum $100,000 to just walk into federal court.   Criminal prosecutions are even more expensive, extremely rare and seem to be a low priority for federal prosecutors. Regardless both of these last resort strategies rely on plaintiffs and prosecutors being able to find the individuals  behind the infringing websites.  Naturally pirate operations go to great lengths to obscure identities of operators and owners. Plaintiffs and prosecutors often have to go “upstream” to the hosting company, or domain registrar and force them to divulge information on the pirates.  Given enough time and money plaintiffs and prosecutors can often identify and shut down these websites.  It costs a fortune but it is possible.

However sites are increasingly hosted on “black hat” hosts in countries that tolerate massive infringement, have dysfunctional governments or strict privacy laws. The operators of these black hat hosts are often anonymous and difficult to track.  Even when the operators of these servers can be found they often don’t respond to legal notices.  Thus it is impossible to shut down these websites.  On the other hand these black hat hosts are often in remote locations and have low capacity.  It is thus difficult for these pirate sites to scale as their services rapidly degrade with popularity.  In the past this has acted as a kind of brake on the amount of infringing activity that these websites enable. At least until these sketchy website operators found a friend in Cloudflare. Now the game has totally changed.

How Cloudflare Enables Piracy

Cloudflare is a San Francisco company that provides various web traffic services to other websites. They do two key things that are very helpful to operators of websites, (legitimate or not.)

First they provide “reverse proxy” services that allow websites to keep their true IP addresses private. Among other things Cloudflare allows legitimate websites to ward off various kinds of cyberattacks.  On the other hand they allow copyright infringing sites like ThePirateBay.se to hide their true location and associated webhosts. Thus Cloudflare effectively makes it impossible to track down the operators and hosts of infringing websites.

Cloudflare also provides a “content delivery network.”   From Wikipedia:

“Cloudflare’s network has the highest number of connections to Internet exchange points of any network worldwide. Cloudflare caches content to its edge locations to act as a content delivery network (CDN), all requests are then reverse proxied through Cloudflare with cached content served directly from Cloudflare.” (italics added).

Now this is where it gets interesting.  It’s difficult to run a robust traffic intensive pirate site on a sketchy black hat webhost operated out of the back of used tire shop in Pridnestrovian Moldavian Republic.  That’s where Cloudflare’s content delivery network comes in handy.  You see Cloudflare will cache “your” content on their servers.  Cloudflare’s servers are much closer to population centers and can handle enormous amounts of web traffic. So essentially a pirate operator can set up a shop in a remote failed state somewhere with a dial-up modem for internet access (I exaggerate only slightly), but still sling infringing content like it is a high quality site hosted in San Francisco or New York.  That’s because the infringing content is hosted and served from lightening fast high quality servers in San Francisco, New York and other population centers.  That’s the point of a content delivery service. Since Cloudflare is actually making a copy of this infringing content that they know is infringing, this would seem to make Cloudflare liable for mass copyright infringement. But I’m not a lawyer. I’m just a simple country rocker.

The fact Cloudflare is willing to provide its content delivery services to anyone has made the company the top choice for pirates, terror groups, counterfeiters and other scumbags.  According to sources that monitor torrenting and cyberlocker sites the top ten sites for infringing activity now use Cloudflare.  Including a resurrected Pirate Bay! (PirateBay.org)  This does not bode well for rights holders.

Now Cloudflare is planning to go public.  Goldman Sachs is rumored to be the lead bank on the IPO.  Yes the deeply amoral Cloudflare + “The Vampire Squid of Wall Street.”  Buyer beware!

Ladies and gentlemen 2019 Artist Enemy #1 is Cloudflare!!  And good luck with that IPO Goldman Sachs!  Just remember to disclose to investors the legal risks associated with all that “cached content served directly from Cloudflare.” Not a lawyer but I read somewhere copyright infringement is a RICO predicate. You don’t want to run afoul of the SEC or get caught up in shareholder lawsuits a few years down the road.

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*Not really free, as free streaming is really about building a extensive data profile of each of it’s listeners which is then sold to advertisers.