Pirate Bay's Weird New Business Plan

(page 2 of 2)

That, in turn, could make it hard to build a peer-to-peer community large enough to generate excess bandwidth to sell to ISPs.

Banking On Lucrative Ads

"This doesn't appear financially viable," Mulligan cautions, noting that ISPs already are active in trading bandwidth among themselves and may not want to embrace an upstart with a shady past. What's more, many may balk at what amounts to buying back network capacity from their own customers.

Even the legality of Pirate Bay's new concept isn't entirely clear. Users who have paid for broadband from an ISP could profit by selling some of it back to Pirate Bay. That might violate the terms of service laid down by some providers, says Tony Ballard, a London partner at media law firm Harbottle & Lewis, although in principle, he says, "there's no obvious reason why network operators could object."

Aside from the peer-to-peer bandwidth strategy, Pirate Bay also hopes to make as much as €40 million ($56 million) per month from running ads on its legal content portal. Yet Forrester's Mulligan reckons the plan also embodies significant risk—and thinks the €40 million figure is "crazy."

Why? With 16.1 million unique visitors in May—the latest figures available from researcher comScore (SCOR)—the old Pirate Bay had enough scale to attract major advertisers. But blue chip companies like Wal-Mart (WMT) or Coca-Cola (KO) wouldn't go anywhere near a site associated with illegal downloads. Now, if Pirate Bay goes legit, those concerns should ease, but the site also risks losing millions of users and becoming less desirable for advertisers. "There's a fundamental flaw in [Pandeya's] belief in transforming it into an advertising business model," Mulligan concludes. Indeed, to date no illegal music downloading sites—including such pioneers as Napster and KaZaA—have successfully made the transition to a paid service.

Global Gaming Factory expects to complete its Pirate Bay acquisition by the end of August, so it has a couple of months to iron out the details. But Pandeya is convinced he has a great opportunity in hand. "Content is just one revenue source," he says. "Data transport, that's where the money is."

Scott is a reporter in BusinessWeek's London bureau .

Business Exchange

Track and share business topics across the Web.