The Downside to Digital: Controlling Content

by Brad Moon | March 14, 2013 8:35 am

The Downside to Digital: Controlling Content

The digital revolution has shifted our world in countless ways, many of which have been good for consumers and producers alike.

There are countless benefits of having music, books, software, movies and TV shows in a digital format as opposed to a physical one. Digital copies are pristine, with no rips, scratches, fingerprints or other damage issues to worry about. They also save space, cost less, eliminate transportation and inventory management issues, are portable and can be bought and delivered on a whim — no shopping trip or delivery required.

On the other side of things, digital content has also driven much of the growth of the consumer electronics industry, spurring sales in Apple (NASDAQ:AAPL[1]) iPods, Amazon (NASDAQ:AMZN[2]) Kindles and a myriad of other devices. This transition has had huge effects across multiple industries, impacting everything from how music is sold[3] to IKEA’s ability to sell flat-pack book cases[4].

But the fly in the digital ointment — for consumers, content creators, content sellers and device manufacturers alike — has been ownership of digital media. And in this realm, there’s nothing more contentious than the right to resell digital media.

Beyond the obvious legal hurdles of copyright, ownership and patent laws, reselling digital media is vastly more complex than with the physical process. When I sell a paperback book, it’s gone. It would cost me a fortune and take hours to photocopy it … and who would want a photocopied novel? There’s no real worry about piracy in that case, but digital content comes with the ability to make exact, perfect copies.

So, in order to resell a digital file, Apple or Amazon would have to confirm that a customer’s computer only has one copy of a digital file … and that the file is deleted after being re-sold. That’s an extremely complicated — and possibly invasive — task. And the apparent solution — relegating users exclusively to streamed content, which would make it easier to track that original and switch ownership — would risk alienating customers who want a library of content that doesn’t require an Internet connection to access.

There are format issues to deal with, too. If I buy a paperback book, my potential market for reselling it is anyone who can read English and doesn’t require large-type print. If I buy an e-book, that potential market is fragmented due to compatibility issues and proprietary formats. Digital rights management aside, an Amazon Kindle can’t physically display an e-book bought from Barnes & Noble (NYSE:BKS[5]) or Apple.

With tablets, this is less of an issue since apps allow users to read e-books in different formats … but that’s a bit clunky and there are still a lot of dedicated e-readers being sold. To really do things right, buying a used e-book should include transfer to a format of the buyer’s choice.

Still, the reselling of content — going back to the glory days of picking up old paperbacks or game cartridges at a flea market — has lots of potential, despite these challenges. With that in mind, failing to overcome these hurdles could be a huge loss for companies.

If video game console makers mess with the used game market[6], for example, they risk pushing their users to upcoming competing platforms like Nvidia’s (NASDAQ:NVDA[7]) Project Shield[8] or to more casual gaming on smartphones and tablets.

And for other content, any approach that’s too heavy-handed, restrictive or aggressively loaded on the sides of the middlemen like Apple or Amazon could result in a consumer backlash that slows digital media adoption and even costs companies existing converts.

Some are already working to make digital resale a business, though. One name in the space is ReDigi[9], a company that sells $1.29 iTunes tracks for 69 cents on behalf of the original owner. ReDigi keeps a cut and, to keep musicians on its side, gives 20% of each sale to the recording artist.

Already, many lawyers are being kept busy[10] as the RIAA, record labels and ReDigi fight through the maze of copyright, ownership and patent laws involved. But a managed selling of “used” digital goods, like ReDigi is attempting, could be good for consumers …  while still providing benefits for content creators, publishers and distributors.

All in all, while there are countless details to consider, the bottom line is that what was once a revolution — the digital format — is becoming the norm. Now, companies just need to iron out the second part of the revolution: the best way for consumers to properly and legally adopt that content … even (and especially) if it’s used.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

Endnotes:
  1. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  2. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  3. how music is sold: http://www.apple.com/pr/library/2008/04/03iTunes-Store-Top-Music-Retailer-in-the-US.html
  4. ability to sell flat-pack book cases: http://www.economist.com/node/21528611
  5. BKS: http://studio-5.financialcontent.com/investplace/quote?Symbol=BKS
  6. mess with the used game market: http://www.forbes.com/sites/insertcoin/2013/02/07/why-microsoft-cannot-kill-used-games-on-the-next-xbox/
  7. NVDA: http://studio-5.financialcontent.com/investplace/quote?Symbol=NVDA
  8. Project Shield: http://shield.nvidia.com
  9. ReDigi: https://www.redigi.com
  10. many lawyers are being kept busy: http://www.technologyreview.com/news/428792/a-startup-asks-why-cant-you-resell-old-digital-songs/

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