Wednesday, December 10, 2008

DRM's missed opportunity: Digital resales

Here's a story via Digital Music News about a new service, Bopaboo*, that lets people sell their "used" MP3s.

Artists and music labels have long hated used record and CD stores because the labels don't participate in the resale revenue. Part of the DRM strategy was keeping the first sale rights, and preventing any second sale. A few services like the defunct WeedShare and PassAlong attempted to emulate digital redistribution, but weren't true second sale enablers.

But the missed opportunity for the labels and for DRM providers was allowing a service to act as a second sale clearinghouse, where the labels could have participated in a share of the resale revenue. (Though I'm sure their margin demands would have killed any market even if labels welcomed the concept.) This provides an opportunity for the service to benefit from a captive market for second sales since the service holds the secret DRM keys that are needed to revoke the license. No other service could revoke the license.

Through license revocation, DRM can guarantee that a digital track is no longer playable for a seller. A service that made a DRM first sale could revoke the license from the seller, and grant a license to the buyer. Most labels even included a set number of burns for a first sale. The selling service could keep track of how many burns were used, and issue the new license with only the remaining burns available. If no burns were left, a non-burn license could be delivered - the buyer could play the song on his computer or a portable player, but couldn't burn it to CD.

The number of burns remaining would surely affect the market value for the second sale. Imagine a DRM service with a product page similar to Amazon's physical product pages that include a price for "new" from Amazon, or "used" from any number of sellers:

The Cinematics - Race to the City
New: $0.99 (5 burns)
Used: 4 burns left, $0.80 (4 available)
Used: 3 burns left, $0.65 (1 available)
Used: 2 burns left, $0.50 (2 available)
Used: 1 burns left, $0.35 (6 available)
Used: 0 burns left, $0.25 (12 available)

Labels could still participate at some percentage of the second sale value.

The seller could have burnt a song to CD once, then rip it back to her computer to keep. But nothing, even with DRM, is preventing her from doing that now and sharing the copy freely. Why not incent her to make a little of her investment back rather than giving the file to strangers for free? If she gives it away free, she's destroyed her own opportunity to sell it.

Of course all this so far still depends on DRM being more user friendly! And any owner who had lost her download or DRM database couldn't resell the song because revocation would be impossible. But she can't resell a CD she lost either.

Even without DRM, a second sale service could guarantee the destruction of the MP3 file on the seller's computer before delivering it to the buyer. Again, the seller could have made any number of copies elsewhere. Again, nothing's preventing that today, with no option for any second sale revenue to the labels.

* Domain name scarcity is destroying natural language!

Friday, December 5, 2008

Competing Against Free

It's not hard to understand that the most difficult problem the music industry faces today is the pervasive availability of free music. Now, when I say free, I mean stolen, but that is merely a semantic difference that is immaterial to how people are finding, playing, and acquiring music today. So I will call it "free" for the rest of this post.

Many people I talk to think free music went away when Napster went legitimate, or when the RIAA started suing their customer base. But free music is still as easy if not easier to either stream or download from the internet. Some sites only let you stream music, while others let you download. Many services are run in countries far from the music industry's influence. Other services skirt the illegal sharing problem by acting as hubs that link to music on other servers.

Here are just a few sites that let you play or download free music: - An MP3 search engine. SkreemR scans the web for MP3 links and adds them to its search index. Type a song or artist name and get a list of MP3 download links. Sure they also link to places like Amazon or ThumbPlay where you can buy MP3s or ring tones, but you can also stream and download the song for free. The finally-out-of-beta Songbird player (shown below) makes it even easier to download: it integrates a SkreemR search right in the player and converts free MP3 search results into a list complete with download buttons. You get free music to download to your PC or take with you on your portable MP3 player.

Songza - An MP3 search engine. Songza only lets you stream the results in an embedded player on their site, often in the form of a video from YouTube, but sometimes from MP3 audio source. As long as you don't mind playing music from your PC, you get all the free streams you want.

SeeqPod - An MP3 search engine that also powers other music experiences. SeeqPod only lets you stream results in an elaborate embedded playlist manager on their site. Warner filed suit against SeeqPod in January 2008. EMI filed suit in February, 2009. - An addictive Twitter-like micro-blogging service with free music streams. lets you search for songs, and play them for yourself and the site's social network. Songs are served either from a web server where the MP3 was found, or from Amazon's AWS hosting service. Blip lets its users upload music. Though they tell users to only upload original content, they serve plenty of copyrighted music from AWS. They're ripe for being shut down by Amazon.

Project Playlist - An MP3 search engine with Facebook application. Project Playlist only lets you stream results, and add songs to a playlist on the site. You can find other people's playlists and play them. The RIAA filed a lawsuit against Project Playlist in April 2008. They claim that since they don't host MP3 files, they aren't liable for theft. EMI, in what gives the appearance of blackmail, dropped its suit after Project Playlist agreed to license their catalog. - Organizes links to MP3s on other people's web sites into a streaming, locker, and mobile sideloading site. EMI filed a lawsuit in January 2009.

Note that several sites play music for free legally, either because they've negotiated on-demand playback rights from the labels (e.g. CBS,, or they play non- or minimally-interactive radio style playlists under US compulsory license laws (e.g. Pandora).

Though some of the illegal free music sites have no business model, or have a model that would collapse if any royalties were actually paid, the preponderance of these extra-legal sites is evidence that content owners would benefit from a simple, legal way to let innovative services access streams for a reasonable price. Without such a service, music will continue to be played, but no artists or labels will be paid for the usage.