continue reading hover preload topbar hover preload widget hover preload

April 6 2011 Posted by: Mark Fidelman in: Miscellany

Sell Used Music on Redigi: A Threat to Apple’s iTunes?

I remember a time when the only way to buy music was to drive down to the local music store and purchase a cassette tape.  You had to buy the whole album then.  Yes, I’m serious.

When the tape got old or the music fell out of favor I threw it away, listed in the classifieds (if I had a complete collection of used music) or traded it with my friends.  Back then, music quality deteriorated with every press of the play button so selling or trading used music was rarely a viable option.       

William F. Buckley, Jr. once said, “Life can’t be all bad when for ten dollars you can buy all the Beethoven sonatas and listen to them for ten years.” He failed to anticipate that, with developments in new technology the years are actually much greater and the price negotiable.

It’s just that now the medium has changed.  Tapes are an artifact of the past – replaced by zeros and ones and delivered digitally.  The rules have changed and companies like Redigi are trying to invent new business models.      

What is Redigi?

The short answer is Redigi is to digital music as eBay is to goods.  In other words, Redigi is a marketplace to buy and sell used digital music. 

Is that legal?

According to Redigi CEO, John Ossenmacher the answer is yes.  Ossenmacher claims that while we take for granted that we can buy and sell books, CDs and DVDs, their digital cousins don’t enjoy the same rights.  “They’re just digital bits on a storage medium.  So instead of storing content on CDs/DVDs the content is stored on a users hard drive.  But it’s exactly the same digital bits,” says Ossenmacher. 

In fact, Redigi has created a method for legally transferring purchased songs from one individual to the next. This personal license transaction is handled through Redigi when the two parties agree to the sale. Redigi removes the digital goods from the seller and transfers it to the buyer. The seller no longer has access to the music.

According to Ossenmacher, Redigi is smart enough to recognize pirated content or copied content. It will not allow those digital goods into the marketplace to be resold.

So if it is legal, will be people use the service?

Imagine the ability to obtain the same music found on iTunes at less than half the price. And since digital music doesn’t fade, you are getting the same tune with the same personal use license. Moreover, you can help finance the purchase by selling the music for which you no longer have an interest.

Like any marketplace however, the challenge is two fold. First, you need to attract sellers with saleable music inventory. Even if Redigi were to quickly secure thousands of sellers, the “hot” tunes will be in limited supply due to their popularity. In contrast, iTunes has an endless supply of music it sells and can guarantee delivery.

The second challenge is making it easy enough for both buyer and seller to complete a transaction. It needs to be as easy as buying music from Amazon or iTunes. Participants do not want to involve themselves with jumping through numerous legal hoops to buy a $0.25 song. It needs to be a straightforward process for buyer and seller.

So why can not this be done? Today you could sell your computer hard drive or mp3 player with digital music on it. Isn’t that a legal transfer?

Note for a rebuttal to the legality of selling used digital goods view this article by Chris Meadows

Will the record labels go along?

According to Ossenmacher, the answer is yes. “Record labels are hurting in terms of profitability. But if things go well for Redigi, they will go well for the record labels,” he exclaimed. In fact, Redigi plans to give them a sizeable cut of the proceeds on every sale.

But why would record labels want to receive a portion of a $0.25 song when it can earn higher revenues with a new $1.29 song from Amazon or iTunes?

“Because,” says Ossenmacher, “there is a direct correlation between price and volume.  Redigi is providing a unique marketplace for digital music where users can turn in music to buy new music.  Therefore we believe the market will expand significantly thus driving higher volume and revenue for the record labels”

Why the long tail effect will increase overall digital music sales

People will pay more money and buy more goods if they believe there is a secondary market for them.  Examples include the automobile and consumer electronics marketplaces.  

But today, without a viable secondary market for digital goods, people are less likely to buy a long tail song. Because if they do not like the song they have just wasted $1.29 on a tune they will only listen to once. However, if they could quickly resell the song or collection of songs, the likelihood that the buyer will take a chance on an questionable purchase is higher.

In effect, the long tail effect will positively effect overall digital music revenue by effectively mitigating the perceived purchase risk.  I always wanted to do that to a sentence.

So is Redigi a threat to Apple’s iTunes?

Assuming Redigi clears the legal hurdles, there will be a short term negative impact on iTunes and Amazon music sales. Since the music is essentially the same whether it’s used or new, why would anyone buy new music at 3x the price if it could be found in the Redigi marketplace?

Paradoxically, in the long term, I believe Redigi will have a net positive impact on music sales because people will be more willing to buy long tail music knowing there is a marketplace to resell it.  

Personally, I hope they do succeed as I have a lot of music that has been on the virtual shelf for years. Having the ability to sell it to people that will enjoy it makes sense to me.

What do you think?

  • Leave a Reply


    Required fields are marked *