Reselling Bits

My Nuggets pick of several weeks ago was Dan Baird’s Love Songs For The Hearing Impaired.  It was an unusual pick because I had never heard the record when I picked it as a Nugget.  I had heard it recommended in several places and could not find it in any of my usual music stores; Amazon and emusic.  The record seems to be out of print and cannot be purchased through conventional channels.

Well I got it last week and have listened several times.  It is indeed a wonderful record, with Keith Richards style guitar licks and a high energy southern vocals telling classic hardluck stories like my personal favorite “Knocked Up”.  But this is not another post on Dan Baird, although he may deserve another one.

This post is about how I got the record and my thoughts about the resale market for bits.  Chris Fralic commented that I could probably find the record on half.com/ebay and sure enough a used copy of the now out of print CD was selling on eBay.  It was an auction and the opening bid was $1.99.  I put in my bid and forgot about it.  A week later I got an email from the seller via eBay alerting me to the fact that I was the winner.  He tacked on a small shipping charge and I asked him to pay via PayPal which cost me another $0.50 which was fine with me.  All in, I paid $4.28 or something like that.

I would have happily paid a lot more than that to the record label and/or Amazon, eMusic, or some other music vendor but nobody wanted to take my money.  So instead I gave it to some guy down south who didn’t have a need for the record anymore.  I am not suggesting he had already ripped the mp3s and had no need for plastic, but he surely could have done that before reselling the CD to me. Regardless of whether the guy who sold me the Dan Baird CD did this, I am sure that many people do it.

The reality is that bits don’t degrade and can be resold in perpetuity.  I could easily rip the mp3s from the Dan Baird CD and sell it again on eBay, and possibly get back all but the shipping and PayPal costs (ie the transaction costs).  I don’t plan on doing that, but frankly I think it’s a service that someone should provide for all of out of print records that the labels won’t put up for online distribution.  There is a market out there for out of print music and someone is going to fill it if the labels don’t.

A savvy serial entrepreneur named Bill Nguyen, who was involved in one of my portfolio companies, Freeloader, in the mid 90s, has started a web service called lala.com which has launched in closed beta.  I haven’t been invited (although I’d love an invite) but I’ve heard a bit about Bill’s plans and they involve facilitating this reselling of music with 20% of the proceeds going to the artists whose bits are being resold.  Lala.com is backed by Ignition and Bain Ventures with some big money so I am sure there is more to it than simply reselling CDs.  I suspect there’s a whole community and music discovery angle to it as well.  And there are a whole slew of “barter services” on the web like BarterBee, Peerflix, and a host of others who are attempting to create marketplaces of various flavors to facilitate the reselling/trading of bits.

Of course, this is not limited to music by any means.  It works just as well for tv shows, fill length movies, video games, and anything else that is sold in bits. And frankly it’s a very efficient way to distribute content, passed along from person to person.  We’ve been talking about a superdistribtion model for digital content for a long time and this is the physical container version of that.

But this reselling of bits is probably not kosher and the content owners aren’t going to like it very much. There may be lawsuits just like the ones against Napster and Grokster.  Lala has an interesting model with giving a 20% cut to the artists.  But unless I am missing something, and I may well be, they don’t seem to do anything for the label which actually owns the content.  So I am not sure what they deal is there.

We are in flux until we get to an all digital distribution world, and that is not happening any time soon, particularly with DRM wreaking havoc over the online model.  Unless I can get the mp3 free of DRM, I prefer to listen via a streaming service until I can get the CD shipped to me at which point I rip the music into mp3s.  That’s a complicated way to acquire and consume bits, but I believe more and more consumers are going to realize that they are locked into proprietary devices and marketplaces with DRM and there will be consumer backlash that will stunt the growth of the commercial online distribution channel until we rid the market of DRM.

Illegal file sharing networks and reselling bits fill this void during this state of flux and I think there is going to be a lot more of that going forward.  And I think its possible that a legitimate online model may emerge out of these grey/black market systems over time.  So they are worth watching.

Reselling and trading bits is a logical activity online.  I think we’ll see more of it over time, not less.  And I hope a model emerges which compensates the creator and owner of the content when the bits get resold.