What Would You Pay for Used Digital Access Rights?

The United States Supreme Court has ruled 6-3 to uphold your right to resell legally-purchased physical goods contaning copyrighted elements, even if the copyright holder objects. Meanwhile, a U.S. District Court judge ruled to block your right to resell legally-purchased digital downloads containing copyrighted elements. Where does this lead?

If companies cannot limit consumer ownership rights to physical goods, that may just hasten their transition to all-digital delivery. But courts are fickle, and future rulings could extend re-sale rights to digital downloads. Better for companies to keep digital goods in the cloud and sell access to them.

The major players are taking steps to make non-exclusive rights to access cloud-based digital goods feel like ownership. Since the November 2012 announcement in that the Supreme Court would hear the Kirtsaeng v. John Wiley & Sons case, both Apple and Amazon have received patents indicating they are working on technology to permit buyers of e-books and cloud-based music files to resell these products. Don't be fooled into thinking this will give you full ownership rights.

Physical media — books, LPs and the like — are scarce objects. No matter how many are made, the number is finite, the individual objects are unique, and are subject to wear, damage and loss over time. The ones that survive retain value according to their condition. And you are free to re-sell them to a willing buyer.

Digital media files — information stored in bits-only form — are infinite objects. There is no limit on the number of people who can simultaneous possess the information, each copy is identical, and does not degrade over time. The value of infinite objects is in the information transfer; the objects themselves have no retained value. But you should be free to re-sell them as long as you actually transfer possession to a buyer; the value of the transaction is based on its convenience.

Cloud-based digital media files are shared objects. Only one copy need exist because possession is retained by the owner (Apple, Amazon) who can sell an infinite number of individual rights to access the file. Amazon's rumored system for selling your "used" Kindle titles merely turns off your access to the book(s) and enables access for someone else. There is no transfer, making it impossible to place a value on the transaction. Why are "used" digital access rights worth any more or less than the original rights?

Furthermore, Amazon has announced Coins, a virtual currency obtained via credit card which will be used by Kindle Fire owners to purchase games, apps, content, and in-app purchases on their tablets. Expect any transaction in the virtual secondary market to be denominated in virtual currency, which amounts to "store credit" issued to the seller. (We all know how coupons convince us to spend more money.) Hard currency enters these walled-off digital ecosystems, but it never comes out.

Ownership of music still trumps access in the cloud when audio fidelity and freedom of choice are considered. All my weightless digital library files play identically, whether the material was originally sourced on vinyl, CD, or legally-purchased download. That same homogeneity should extend to selling any or all of the files, or donating the library after I'm gone. Stand up for First Sale protection everywhere.


             Vinyl-to-Digital Restoration #55            

Title: The Big Band Sessions

Artist: Anita O'Day
Genre: Jazz
Year: 1979

The Big Band Sessions (2-LP, Verve VE-2-2534) is a re-packaging of five Anita O'Day titles: Anita O-Day Swings Cole Porter with Billy May (V-2118), Anita O'Day and Billy May Swing Cole Porter (V-2141), Trav'lin' Light (V2157), Cool Heat (V-8312) and All the Sad Young Men (V-8442). I recently purchased it at an estate sale for $2 and made a high-res digital transfer with tracks organized according to original title and album sequence. (Yes, you can do that.) If First Sale Doctrine is not universally applied, how many copyright holders' permissions (euphemism for payments) would be necessary to sell this digital re-packaging — one, five, six? Any number greater than zero is too many.

© 2013 Thomas G. Dennehy. All rights reserved.

Would Pandora Survive Russian Winter?

If the world was fair, a new rival entering your market would have to compete head-to-head on features. Innovation would rule. But the world is not fair, and new rivals often enter your market specifically because they can win with inherent advantages that make head-to-head comparisons irrelevant. The software industry coined a term for this—Russian Winter. (Why?) And Pandora may be about to experience it.

Russian Winter has been a factor in the rise and fall of many products. Two examples:

• Mosaic, the first inernet browser, was invented at NCSA. Netscape commercialized Mosaic in 1994, and Netscape Navigator commanded 80% market share at its peak in 1996. Microsoft countered by introducing Internet Explorer. Whether or not it was a better browser than Netscape Navigator was irrelevant. As a stand-alone product, you can't compete with "pre-installed with Windows." Microsoft achieved 80% market share by 2000, 95% at its peak in 2002, completely defeating the invasion of its Desktop.

• Similarly, the market for simple chart-drawing software was once dominated by Visio and Autodesk Actrix. Feature-for-feature, you could make the case for either one. But when Microsoft bought Visio (the company) in 1999, the climate became much chillier. As a stand-alone product, you can't compete with "bundled in Office." Autodesk cancelled Actrix almost the same day, ceding the market to Microsoft.

In both cases, the victory virtually shut down disruptive innovation in these technology areas.

Pandora invented user-customized radio. You select a song and it will program a stream of more like this music based on its musical "genome." It now streams more than a billion user hours per month. Consumer awareness of Pandora is 50% among internet users, double that of its nearest competitors.

But a new competitor may be entering the market. The Wall Street Journal and New York Times reported that Apple is preparing an audio streaming service to compete with Pandora. How does Apple bring Russian Winter to the streaming audio market? Five things are immediately apparent:

1. Installed Base. You can't compete with "pre-installed on 365 million iOS devices."
2. Halo Effect. There is no brand loyalty like Apple brand loyalty. Not only will an Apple streaming service trigger an exodus of Pandora users who were there merely because there was no equivalent Apple service, the cool factor of Apple will bring many new users into the sector who were sitting on the sidelines. Pandora desperately needs these subscribers.
3. Lack of Transparency. Pandora is having trouble turning a profit, and has to say so every fiscal quarter in SEC filings, incurring negative brand image. Apple will bundle its streaming service with iTunes, burying the costs inside the rosy financials of the world's largest music retailer.
4. Leverage. The New York Post reported that Apple is negotiating directly with music labels for content, rather than adopt Pandora's disadvantageous statutory licensing model. Apple doesn't need Congressional support to make its business work.
5. Game-Changing Ability. Pandora's service defines user-customized radio. But, with more that $100B in cash and securities available, Apple could raise the stakes by introducing new capabilities requiring capital investment that Pandora couldn't match in its current financial condition. Or, taking another cue from the software industry, Apple could offer its service free to listeners. In August 2012, UK retailer Tesco announced that it was closing its MP3 store, citing the rising capital costs of trying to stay competitive with the big players, Apple and Amazon.

Could it be that the real target of Apple's ambitions is Amazon? By adding a streaming music service to iTunes, Apple would force Amazon to roll out a similar service to stay competitive. Being acquired by Amazon could be Pandora's way out of the cold.

            Vinyl-to-Digital Restoration #43             

Artist: Paul Winter Consort
Title: Earthdance
Genre: New Age
Year: 1977



I'll admit, I chose this library title for this piece because of the artist name. But The Paul Winter Consort is a foundation group in my collection, with metadata tentacles radiating through many other titles. Among the descendent links: the groups Oregon and Gallery, and the musicians Glen Moore, Paul McCandless, Collin Walcott (1945-1984), David Darling and Ralph Towner.

© 2012 Thomas G. Dennehy. All rights reserved.