Wednesday, July 04, 2012

Digital Files Aren't Just For Christmas, But For Life

We talk about DRM as if it is the only issue to be addressed in the digital market. However some would suggest the most onerous digital issue that persists today is the fact that digital downloads can’t be resold. Like it or not you have it for life. With music you may be tired of the song, or even the artist, with software you may have moved onto other software, with books you may have simply read the book. In all cases if the product was physical it’s yours to resell, if digital there are no options it’s yours for life – or is it?

The first piece of news is from the European Court of Justice this week where they ruled that individuals or companies may resell used software licenses. The case was between  UsedSoft a German and US software giant Oracle ruled it permissible to resell of software bought over the internet and downloaded. By allowing the resale used packages with often legally obtained license keys a new owner is able to download the latest version of a given program directly from a company's Internet site and obtain all new updates and patches in the process. The European court ruled that the so-called principle of exhaustion applied whenever software was originally sold to a customer for an unlimited time span and effectively prevented the producer of the software the right to prevent the resale of that software.

The court did state that whoever resold pieces of original software and their accompanying licenses must also erase every copy on their own computers in advance and that they are not allowed to keep a copy after resale.

The second and more interesting piece comes from, which is a US start-up launched last year aimed at facilitating the resale of digital music. ReDigi lets users load old, unwanted tracks into an online music locker, where others can purchase them for around 70 cents. To ensure it is not flooded with pirate copies, ReDigi's special software forensically analyses the tracks to verify that the files were purchased legally, deletes the songs off the seller's hard-drive, as well as any other devices that sync with it and holds them in a cloud based locker.  As  Apple’s contract with its users  doesn't prohibit customers from reselling iTunes bought files,ReDigi  only allows customers to trade tracks bought off iTunes.

 Despite the logical and moral process adopted by ReDigi to protect copyright, Capitol Records is suing ReDigi  and accuses them of infringement, arguing that the transferring tracks amounts to illegally duplicating files and running a business “built on widespread, unauthorized copying of sound recordings.”

As if they had not learnt from the Naspter days and the RIAA’s pursuit of individuals the music business appears to be making yet another public relations blunder. You can understand them worrying about declining revenues, the emergence of the Spotify model. But restricting resale only on digital is just going to fuel piracy and drive more ridicule on an industry that is weighed down with bad decisions and PR.
If the case rules in favour of ReDigi it will have a significant impact on all digital media download sales and it will be interesting to see if the door is left wide open or caveats are stipulated on the measures that must be in place to permit it.  The whole thing could blow open if Apple where to change their contracts. 
However what is most interesting would be the impact of a used sales market on the migration to subscription and on demand streaming service rentals such as Spotify. The digital remains 100% pristine and never gets worn out and there is no packaging to get lost and the digital file will retain a high residual value that they don’t today. This may even raise the original cost of files and give the owner value in their ownership that they don’t have today. If addressed properly there could be secondary revenues on resale to the creator in the form of royalty.
Merely allowing resales without some changes would open up a flood gate of secondary sales with little benefit to the industry.  

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