Keep to your terms of service, otherwise it makes customers mad when they see others using the same company using their shared hosting for illegal activities. If a huge music label tries to sue a website, the first thing that will happen is that YOU, the web host, will get fined for allowing the content stay on the site. It doesn’t matter who did it, but you didn’t take the appropriate actions, that you said you would, stated in your usage policy.
It is important that you don’t let things get out of hand, always check on your customer’s site every week. When you kick out the people that are hosting the illegal content, you’ll see that your server will work more healthier anyway. You don’t want something like that ruining your reputation on the internet.
t’s not even just music, it’s the images being stored that you have to keep an eye on too. Copyright owners and people who want justice for their privacy being invaded will also go through you first before contacting the offender. Bottom line is, KNOW your customers, KNOW their content, and KNOW their web history. Otherwise, you can lose it all and there goes all your hard work.