The encyclopedia · Product & Design · Product decision · 2001–2012
Kazaa: the file-sharing giant that paid $100M and died anyway
Kazaa's owners paid $100M+ to the music industry in 2006, went legal, and the subscription venture failed — the website was gone by August 2012.
Sharman Networks · 2006-07-27
What happened
Kazaa — launched in March 2001 by the Dutch company Consumer Empowerment, then owned by Australia-based, Vanuatu-incorporated Sharman Networks — became the world's most popular file-sharing service, the default way millions of people got music and movies for free.
The legal walls closed in: in September 2005, Australia's Federal Court ruled Sharman had authorized users to illegally swap copyrighted songs, and a year later — July 27, 2006 — Sharman agreed to pay the four major music companies more than $100 million in damages and promised to 'go legal' immediately, building filters to frustrate piracy.
The legal Kazaa never worked: Sharman converted it into a licensed download service and then a monthly subscription, but the audience that had used Kazaa for free did not come back to pay, and the venture failed. By August 2012 the Kazaa website was no longer active — the company paid the industry's price and still lost everything it had built.
Why it happened
- The business model was the liability: Kazaa's entire value was traffic built on copyright infringement, so the $100M+ settlement bought a legal service with no users.
- The owners fought the inevitable for five years: Australia's 2005 ruling made the outcome clear, but Sharman gambled on appeals and delay.
- The legal transition had no product: converting a free-swapping pirate network into a paid subscription service ignored why the users were there.
The lesson
When the product is the infringement, the settlement is the end: Kazaa paid $100M+ to go legal and discovered its users had no reason to stay.
Sources
spotted an error? The club wants to know.
More like this
The Watchers: Ishana Night Shyamalan's debut lost money on a $30M budget
The Northman: a $70M Viking epic that needed ~$200M to break even
Orkut was Google's first social network — then Facebook outgrew it and Google killed it
Somewhere, someone solved the problem this company failed at. 2nd Opinion →
Comments · 0
Sign in to join the comments.