Music and film industries in the United States could lose billions of dollars of revenues if they cannot prevent internet websites from offering their copyrighted content for free across the world.
An online entrepreneur and former internet hacker, 38-year-old German-born Kim Dotcom, born Kim Schmitz, is aiming to relaunch a new version of his Megaupload site before the end of this year.
The previous site was closed down by US prosecutors in January. Mr Dotcom is currently resisting pressure from the US authorities to have him extradited from New Zealand on the grounds that he has already facilitated copyright theft via his website on a massive scale, so far costing film and music makers about US$500 million (Dh1.8 billion) in lost revenues.
But the new version of the controversial website, which goes under the working title of "Megabox", is to give 90 per cent of the revenue it makes from advertisers on its site to artists. In the process, Mr Dotcom will effectively be cutting out what he refers to as "middlemen", the companies who own the copyright to much of the content that will be freely available over the internet. He is understood to be planning to locate the computers running the new website outside America to avoid their being shut down by authorities.
But the threat posed by Mr Dotcom's expected new service is only the tip of a huge iceberg that threatens to wreck the entertainment industry's traditional business model. For years, many in the information technology (IT) industry have predicted that it will eventually be impossible for the film and music industries to protect their copyright globally in the way they wish.
National jurisdictions increasingly see themselves independent of US interference, as the problems the American authorities are experiencing trying to extradite Mr Dotcom from New Zealand show. Under US legislation, breaching copyright via the internet can carry as heavy a prison sentence as manslaughter.
However, many other countries do not share this draconian view, and are reluctant to prosecute the organisers of free download websites or their users. Attempts to shut down other illicit download sites outside the US, such as the Swedish website The Pirate Bay, have also failed.
The Pirate Bay is reported to be switching all its data management to remote computing centres scattered around the world, a technology referred to as "the cloud". The website's organisers believe that this simple manoeuvre will protect them from police raids aimed at shutting down their website.
The ease with which such websites are now appearing to flout US copyright laws raises the question of whether the music and film industries should consider adopting new business models that have more in common with the "free" philosophy of websites such as The Pirate Bay and Megaupload.
"The US really lost its stature as a worldwide enforcement agency. It doesn't have the clout it once had and many of the practices surrounding media, movies or music, haven't been working that well," said Rob Enderle, the principal analyst at the Enderle Group. "It is probably time for both industries to start thinking more creatively."
The major record labels and Hollywood film studios have been slow to adapt to the advertising-driven business models powering internet services such as Google. By relying purely on the sales revenues of music albums and films, they are in danger of failing to appeal to a younger generation of consumers who are used to watching and listening to online content for free.
But US entertainment does have some strong allies in the IT industry. These include the world's largest company, Apple. The US computing giant's internet-based iTunes service effectively locks its users into a legitimate download service where they must pay for the copyright-protected content.
However, the growing popularity of less legitimate music and film download sites may eventually force Apple to change its business model to one which is more cost-effective for users. This could mean offering a subscription service where users pay a flat fee to download all the content they want for a limited period, or even a legitimate advertising-supported model where consumers receive content for free but are subjected to paid-for advertising on the site, which is used to pay for copyright.
"Apple has a lock-in service and it is so integrated that it is difficult to get around on Apple products," said Mr Enderle. "However, people like to have a value product free. Subscription services are, therefore, increasingly popular and are putting iTunes under some pressure to evolve."
With even Apple, a company well-known for trying to control user behaviour, in danger of moving away from the entertainment industry's traditional business model, the US music and movie businesses' attempts to police the globe could start to look increasingly far-fetched.
Ever since the digitalisation of music and film, there has been a slow but inexorable consumer shift away from physically retailed products such as CDs and DVDs towards internet-based content. Perhaps it is, therefore, time the entertainment industry updated its model accordingly.
