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Can ReDigi, new marketplace for 'used' digital music, avoid lawsuits and prosper?

Posted by Scott Kirsner  October 5, 2011 11:05 AM

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Update: The answer, at least on the lawsuits part of that question, is no. Capitol Records sued ReDigi in 2012, and in April 2013, a federal judge in New York ruled that the company was infringing on Capitol's copyrights by reselling "used" digital music files. ReDigi says it will appeal.

In music's all-digital era, will there be an analogue to the used record and CD shop?

The founders of Cambridge-based ReDigi believe they're building it: an online marketplace that would allow consumers to buy and sell "used" digital songs (IE, songs they don't want to keep in their personal collections any more.) They're planning to open the site to the public next week. But its still unclear how record labels and music publishers will respond.

ReDigi users will first download a piece of client software, initially available for Mac and PC, and later for mobile phones and the Linux operating system. You tell ReDigi which songs you'd like to sell, and when you upload them, ReDigi deletes the files from your machine. The company says its Verification Engine ensures that only legally downloaded files — not, for instance, MP3s ripped from a compact disc — get uploaded. (And even if you make a copy of a song and change the name of the file, the company says its omniscient software will detect that.)

For every song that you upload, you get a coupon that entitles you to purchase someone else's "used" song for 57 cents (without the coupon, ReDigi downloads cost 77 cents.) But that twenty cent discount is just the incentive to get you started uploading to the service. When a song you uploaded sells, you get a "significant" portion of the sale price, according to the company, but it varies based on how hot that given song is. On the buying side, if a song you want isn't available through the service, you can "order" it, and get notified when another users uploads that song. (The service will also sell you a "new" copy of the song right away, but at full price of between 99 cents and $1.29.)

ReDigi was founded last year by Larry Rudolph, an MIT professor who has taken a leave of absence to work on the company. He asserts that "if you buy something legally, then you own it and it has value. If you can't sell it, then it doesn't have value." (The purchase button on iTunes, Rudolph adds, is labeled "Buy," not "Rent" or "License.")

The terms of use at Amazon.com's music service, for instance, specify that purchasers may not redistribute or sell the content they're buying. But in the physical world, a DVD or CD that you purchase is covered by the "first-sale doctrine," which allows you to sell, lend, or give the disc to a friend without having to pay anymore money to the copyright holder. Whether the first-sale doctrine covers digital goods like songs or movies is still an open legal question.

The company calls it "the world's first recycled digital music marketplace." But entrepreneur Alex Meshkin tried it three years ago, with a service called Bopaboo. It's now defunct. Meshkin told me that Bopaboo wasn't litigated out of business, but rather it couldn't make the economics of a used music exchange add up. To get record labels and music publishers to allow you to re-sell songs, Meshkin said, you need to cut them in on the revenue. "It's hard to make that work," he says, and the labels worry about cannibalizing sales of their 99 cent and $1.29 tracks on iTunes.

Like Bopaboo before it, ReDigi says it plans to cut recording artists and labels in on a portion of every sale — something they don't get from used CD or record sales, notes CEO John Ossenmacher. "We're working with big artist management agencies, and we've talked to all the major record labels," he says. "Everybody in this industry is looking for new sources of revenue, and they see music sold at lower prices as an opportunity to help reduce piracy." Ossenmacher says he's not too concerned about lawsuits, believing that the company's business is covered by the first-sale doctrine.

I called the Recording Industry Association of America yesterday, which represents the major record labels, but they declined to comment on ReDigi's resale concept. So did Sony Music. A Warner Music spokesperson with whom I spoke yesterday wasn't familiar with the service, but didn't have an immediate comment on it.

And the company not only has to worry about proving that the resale of digital goods will benefit artists, labels, and music publishers, but ReDigi also has to attract consumers. Will the inventory of songs that people no longer want be appealing? Will it lack most recent hits? How will ReDigi attract music lovers and convince them to fork over their credit cards, without much of a marketing budget or track record?

ReDigi raised $535,000 earlier this year, and Ossenmacher says they've since added funds that have taken them past the $1 million mark. The company has about a dozen employees, and is based at the Cambridge Innovation Center. Ossenmacher was previously CEO of Conserving America Corp., an energy efficiency business in Newport Beach, California.

Here's a video overview of how the service works (Ossenmacher says they've updated the pricing since this video was made):

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Scott Kirsner was part of the team that launched Boston.com in 1995, and has been writing a column for the Globe since 2000. His work has also appeared in Wired, Fast Company, The New York Times, BusinessWeek, Newsweek, and Variety. Scott is also the author of the books "Fans, Friends & Followers" and "Inventing the Movies," was the editor of "The Convergence Guide: Life Sciences in New England," and was a contributor to "The Good City: Writers Explore 21st Century Boston." Scott also helps organize several local events on entrepreneurship, including the Nantucket Conference and Future Forward. Here's some background on how Scott decides what to cover, and how to pitch him a story idea.

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