A new music service offering, called ReDigi (www.redigi.com), is now coming under scrutiny from the music industry and its watchdog arm, the Recording Industry Association of America (RIAA). According to a piece in the New York Times (http://www.nytimes.com/2011/11/15/business/media/reselling-of-music-files-is-contested.html?ref=business), the First Sale Doctrine is coming under fire for interpretation by both sides.
This battle is similar to several battles seen over the past 12+ years, as the music industry struggles to make the leap into the digital age. After creating an industry saving format called the compact disc (CD), which helped revive flagging analog-based cassette music sales, the CD provided a boon for the music industry in the late 1990’s. The “problem” for the music industry then quickly became apparent: the CD was a perfect digital master copy of an album, and computer-based software solutions could enable consumers to make perfect digital copies of those albums to be stored on a hard drive or copied to another CD. The dream technology had become a nightmare.
The music industry couldn’t come to a solution on how to change the CD, to copy protect the CD (see the SDMI entry on wikipedia, http://bit.ly/uLhk0T), and put the proverbial “digital masters back in the barn.” So while technology advanced, enabling new potential business models, the music industry lawsuits started piling up (see the Administrative Office of the Courts annual report. http://1.usa.gov/t4rTKO for the spike in copyright lawsuits). The new mantra seems to be: if you can’t catch technology, at least sue and slow it down to buy more time.
To the credit of the music industry, it has won copyright infringement cases in court (see: A&M Records, Inc. v Napster, Inc., and Sony BMG Music Entertainment et al. v. Tenebaum), fair and square. The process has been proven in the U.S. where a law is established (The Digital Millennium Copyright Act of 1998, http://www.copyright.gov/legislation/dmca.pdf), and it is then fleshed out via case law.
So this brings us to ReDigi. ReDigi acts as essentially a virtual exchange marketplace for digital music files.
This company is worth following because it is tackling the topic of using technology to re-sell digital copies, and it says it can do so under the First Sale Doctrine (http://1.usa.gov/rqD6dU). The RIAA allegedly contends that in order for a user to buy a “used” copy of a digital file, that an actual “copy” of the file must be made and transferred, which then means an illegal copy of the file has been made and no transaction can take place.
According to the U.S. Attorney web site (see link above), “Since the first sale doctrine never protects a defendant who makes unauthorized reproductions of a copyrighted work, the first sale doctrine cannot be a successful defense in cases that allege infringing reproduction.”
So what does this mean from a strategy standpoint for companies in the music industry? ReDigi could become the “guinea pig” for business model experimentation, first in the music industry, and merits following by anyone involved in digital media distribution strategy. With ReDigi, after the notify-and-takedown notice from the RIAA, a lawsuit could follow. It is too early to tell if this situation becomes a watershed moment to help formulate an online music file/rights market, but it certainly raises big eyebrows in our opinion.
The second strategic takeaway for this is simple: this likely means more companies trying to create “virtual exchanges” for swapping/selling “rights” to digital goods, such as e-books, music files, movie files, games, etc. Look for another piece on this topic from DWR this week, entitled “Perfectly Portable Content–the Promise Still Exists.”