Amazon AutoRip – sell your CD collection and get a free digital music library?

At a time when digital rights owners are trying to use the courts to restrict the application of the first sale/exhaustion doctrine to digital rights, Amazon’s announcement today about its new AutoRip service might cause some surprise.

As part of its launch of AutoRip, which gives customers that purchase a CD from Amazon a free MP3 version that can be streamed or downloaded from Amazon’s Cloud Player, Amazon has said that any CD that a customer has bought from Amazon since 1998 will automatically be made available to that customer in MP3 format. At no additional cost.

Why is this interesting? Well the customer may sold that CD on many years ago. Indeed, he may have bought the CD as a present for someone else. Yet even though the customer has transferred on his ownership of the physical CD (and, therefore, the accompanying licence to listen to the music on that CD), Amazon appears to be giving that customer a digital copy for free (it has no way of knowing otherwise). Over a 15 year period, that could add up to a considerable amount.

Resale and exhaustion of rights
Under the principle of exhaustion (or “first sale doctrine” in the US), once a manufacturer has sold something, he cannot control onwards sale or transfer by the purchaser. This has led to lots of litigation trying to restrict the application of this principle to downloaded software and music. Digital copies do not suffer degradation, therefore a second hand digital copy is no different to a “new” purchase. If a bouyant resale market is established, this is likely impact on the sales of “new” copies of media.

However, it stands to reason, that once you’ve sold something on, you no longer have any rights to use it. Indeed, in a European Court of Justice ruling last year, the court stated that in order for a licensee to legitimately resell a software licence the original copy had to be removed from the computer in question. In other words, the licensee had to cease using it.

Applying that principle to AutoRip, once an Amazon customer has sold a CD he has purchased from Amazon, he no longer has a right to listen to it (or to have a ripped copy on his computer under the US fair use doctrine). AutoRip essentially brings those rights back to life.

If/when the courts ever confirm that restrictions on reselling digital media content are unlawful (as the European courts have done in relation to downloaded software), that raises the possiblity that consumers could separately sell their physical and digital copies. Again, its difficult to see how rights holders could police this seperate divestment of rights.

Is this just smart marketing?
I think AutoRip is a clever marketing step by Amazon.

When negotiating licences for AutoRip and the Cloud Player with the major record labels, the cost of enabling AutoRip to be applied to historic purchases is likely to have been pretty low to Amazon. Yes, some people will have sold their old CDs, but many people will have not. And those that did will likely have kept a(n illegal) digital copy before they did so (and therefore could “cleanse” their digital copy using iTunes Match). I doubt that the the record labels view this as losing them any revenue (unless resales of digital media are eventually permitted).

But from Amazon’s point of view it gives long time customers a ready made cloud music library for free (remember, there’s no annual fee for content acquired through AutoRip). What better way to build a customer base for your cloud based music service and boost your future sales of physical CDs at the same time? It may also allow Amazon to charge a greater premium for CDs over the cost of digital only sales.

Whether this makes a dent on Apple/iTunes’s dominance remains to be seen. But once again it shows a another shift away from a music industry driven by enforcing intellectual property rights through siloed rights allocation, to one where a wider commercial view is taken to music distribution.

Martin Sloan

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