How ReDigi Lets You Resell Digital Music (and Why It’s a Big Deal)

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ReDigi

Yesterday I wrote about ReDigi, the digital music storefront where you can sell digital songs you’ve purchased through iTunes (or ReDigi) in trade for credits that let you buy new (or someone else’s used) digital tunes.

The company claims that ReDigi is simply the cyber-version of a used record store and that everything it does is perfectly lawful because its technology first validates, then transfers your music to its servers without copying. ReDigi’s argument is that it’s not like Limewire or Napster because what it does is analogous to a used goods merchant handing a seller cash for a CD or LP, not distributing the same song to anyone gratis.

I asked ReDigi CEO John Ossenmacher to explain how ReDigi’s validation process actually works, and he obliged in considerable detail, at one point calling the storefront’s technology “far superior to eBay and Amazon.”

Better than Amazon or eBay?

“When someone sells something to someone else on eBay or Amazon, that’s a marketplace transaction,” says Ossenmacher. “ReDigi is also a marketplace, it just happens to be an all-digital marketplace. So when someone posts something for sale on ReDigi, before it can even get into the ReDigi cloud, we verify its authenticity. The beauty of the digital world is, there’s lots of things you can do that you can’t in traditional storefronts. We do this whole forensic analysis, for instance, designed by a bunch of really smart computer programmers.”

(MORE: Coming Soon: A Softer Approach to Online Piracy)

Ossenmacher is referring to ReDigi’s team of developers and mathematicians — the company currently has around 15 employees and it’s led on the technical side by MIT professor and “principal research scientist” Larry Rudolph, who doubles as ReDigi’s CTO. In Rudolph’s online bio, he describes one of his current projects as “Doing my own start-up company (www.redigi.com)” since April 2010.

“With this team we built a really cool forensic engine that basically dissects an MP3 or Mp4 [song] or whatever it happens to be,” continues Ossenmacher. “It determines where the song came from, whether you’re the lawful owner, whether it was moved from one computer to another and so on. I mean there’s all kinds of stuff it can find out.”

When someone decides they want to sell something, unlike other resale marketplaces that have to grapple with authenticity issues like counterfeit goods (take jewelry, for example), Ossenmacher claims that ReDigi’s validation tools allow the service to know, beyond the shadow of a doubt, that what it’s allowing a user to upload is an authentic good.

“We verify it, then we actually move that original file from their computer — and this is pretty cool because of the technology — we actually move the original file up into their cloud locker,” explains Ossenmacher. “And we build at the same time a digital fingerprint for that. So think of something like Norton Anti-Virus or whatever antivirus software you might have. We put that fingerprint on our ReDigi server, then we basically monitor your computer for you.”

Wait a second: monitor your computer? Another cyber-eye-in-the-sky, keeping tabs on your digital comings and goings? If your klaxons and red flashers are going off, so were mine.

(MORE: Digital Music Sales Finally Surpassed Physical Sales in 2011)

“It’s not to catch people at things,” says Ossenmacher, clarifying what the service does and doesn’t check. “ReDigi was meant to help people maintain compliance with copyright law, not come after them. So now whenever you connect something that wasn’t connected before, we scan it quickly and if we find that same fingerprint, we say ‘Hey Matt, we found a copy of that song you sold before on the iPod you just connected, please delete it.'”

Hands-Off (Mostly)

Ossenmacher is quick to point out that the ReDigi service itself will delete nothing, nor will it report anything it finds (legit or no) to a third party — that’s not what it does. He says ReDigi’s only purpose is to help you maintain compliance with copyright law.

“It’s not Amazon’s responsibility and it’s not ours, either,” says Ossenmacher. “We just want people to be lawful, we want people to understand that violating copyright law hurts people, because there are people whose livelihoods depend on their work. So we’ll say ‘Hey Matt, we found this copy, please delete it’, and you can elect to delete it or not delete it.”

There is a catch, of course: If you opt not to delete infringing files, ReDigi will eventually throw down a penalty flag and pull you out of the game.

“On the third time we find anything, we suspend your account,” says Ossenmacher. “We say look, until you clear up what you’re doing, we’re not going to allow you to use the service because you’re taking advantage of it. And so then your account’s frozen and any songs you have listed on the marketplace are removed from sale.”

MORE: What ‘Ownership’ Means for Digital Media (Hint: Not Much)

An interesting sidebar: For all the criticism leveled at ReDigi from music publishers, what Ossenmacher is describing goes well beyond the sort of safeguarding that transpires in brick and mortar shops or online sites like Amazon and eBay.

Imagine all the people who — unlawfully — make copies of either physical or digital copies of music CDs or video games before turning them in for cash or credit through brick and mortar or online storefronts. In Ossenmacher’s view, while ReDigi is already no less legitimate an exchange for used digital goods, it’s also doing considerably more than any other service to help users maintain compliance with existing copyright law.

Win-Win?

“You know, some of these lawsuits, like EMI… We do a phenomenal job of helping these corporations protect their copyright with our software. For these guys it should be a really, really cool thing,” says Ossenmacher, referring to another suit filed against ReDigi for alleged copyright infringement by the British multinational music company in January 2012.

(MORE: How the Business of Streaming Music Will Change Culture…For the Better)

“The other thing we do, is we let people scan their computers with ReDigi,” says Ossenmacher, talking up ReDigi-as-wayward-file-cataloguer. “So mom or whoever can figure out what’s what. Most people don’t know, and it’s really a funny thing — we did studies on this — most people don’t know where they got their music. People get stuff from iTunes, they get it from jewel-case CDs, they get it from ripped CDs that people gave them, they get it from different sites, maybe some file sharing sites, so when it goes to their iTunes library or whatever library they’re using, most people have no idea where it came from.”

Imagine you’re a parent with kids who might be downloading anything, sight unseen, jumbling that stuff up with your music. Ossenmacher touts ReDigi as the answer, taking copyright protection “to a whole new level” and “well beyond what was ever expected in the non-digital world.” Of course part of that you’d expect, given the convenience of digital files alongside the Internet and an almost-always-connected user base, it’s just that ReDigi may be the first company out of the gate to take this big a stab at squaring the circle.

But as we know, behemoth-sized publishers are impossible to satisfy, especially when an upstart’s threatening to open up a secondary market and translate offline paradigms into online ones.

“As you probably know, they did that in the old days,” says Ossenmacher. “You know, they sued Tower Records, they sued companies that were reselling music CDs and stuff, and 100% of the time they sued someone, they lost. We’re the first digital case out there, and I think the good news for us is we really spent a lot of time and effort thinking through every angle and aspect. We did the things we need to do to make it better than anything that’s happening in copyright protection today.”

That about sums up ReDigi’s legal attitude: i’s dotted, t’s crossed and confidence it’ll prevail when litigative push comes to shove. But what about potential competitors? At the moment, ReDigi only works with iTunes. Assuming ReDigi’s technology prevails and the floodgates for used digital interaction open, what’s to stop a company like Apple or Google from simply offering their own version of the service and knocking ReDigi out?

(MORE: The Day the Music Died: Why Labels Are Abandoning Streaming Music Services)

“Remember when we first started talking about the million bucks we spent on patents?” says Ossenmacher (see part one). “I think anyone who wants to get involved in doing digital retailing for used goods is going to be absolutely on our patents, our intellectual property.” And Ossenmacher admits it’s already in dialogue with several interested companies. “There aren’t many ways to do this without copying — we know, and they know, they’d be using our technology to do it.”

Owner of a Lonely Subscription

Assuming Ossenmacher’s right, that’s the intellectual property base covered. So what about the other elephant in the room: subscription-based music services, like Spotify?

Will people use a service like ReDigi if they can access a broader spectrum of music — tens of millions of songs in Spotify’s case? What happens to the used digital marketplace if, down the road, you can access all the music in the world, say lossless quality and streaming anywhere on 5G or 6G, for a flat monthly fee?

“We believe there’s a large portion of music lovers who like to actually collect their music, who like to own it,” says Ossenmacher. “Steve Jobs was big on that. Part of the reason he made sure you could buy music or books or whatever through iTunes was, he believed some people want to own their stuff, that they don’t want to rent it. And what ReDigi now changes in that, is that your cost of ownership drops, because you can resell stuff you’ve purchased.”

Ossenmacher highlights ReDigi’s own research into the subject, which he says indicates that some people eventually tire of subscription-based services — of what he describes as “paying that $10 a month” — and that there’s a value question that comes up based on how much the service is actually used.

“A typical Spotify user in three years time has spent $360 on something they maybe decide on month 37 they don’t want anymore,” says Ossenmacher. “They now no longer have a music library, they’re starting at ground zero. A ReDigi user who’s spent $360 on used music that goes for $0.59 to $0.79 a song, by comparison, has a core library and can still resell that music for the same price. They still have $360 in music at the end of the third year, in other words.”

That’s all well and good, but confident or no, ReDigi’s biggest challenges still look to be its legal ones. And they’ll likely hinge on whether courts subscribe to the “licensed but not sold” concept, which stipulates that a company can “license but not sell” you something, be it software or digital music. It’s a shrewd attempt by companies to circumvent the “First Sale Doctrine,” eliminate ownership and knock out the market for used digital goods before it has a chance to establish itself.

With so much at stake for us as consumers — ownership versus licensing — you’ll want to keep your eyes peeled this October, when the ReDigi vs. Capitol case finally goes to court.

MORE: ReDigi Lets You Resell Used Digital Music, but Is It Legal?

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