The business of selling used MP3s

Carting a crate of used CDs to your local record store so you can make rent is a rite of passage as ancient as it can be tearful. But what about those MP3s and iTunes songs you're ready to unload? Is there a way to sell those off, too, when you get tired of them or just need some extra scratch?

A new crop of consumer-facing music stores is focused on helping fans resell “used” digital music the way they do CDs. But the big conundrum with digital music is that there's no way to prove sellers legally own the songs on their computers. There's also nothing to stop them from keeping the songs they're hawking. Unlike CDs — physical products you hand over to a record store clerk — digital files can be replicated ad infinitum with negligible expense.

A physical piece of music is simple — sell it to someone, and you no longer have it. The digital marketplace is strikingly different from one where sellers exchange objects for dollars. The common analogy is that the digital file works like a candle: When you light someone else's candle, your own flame isn't extinguished. Figuring out a fair bartering system is one of many issues facing the new retail world of pre-owned digital media. But with traditional revenue streams drying up in the music business, enterprising companies are nonetheless banking on this uncharted industry.

Even though they're much dicier propositions than heading to Amoeba, several options are available for selling digital music to fellow fans. These range from the fully licensed to the probably illegal, and they offer benefits in both store credit and cash.

Bopaboo, a Washington, D.C.–based used digital music store set to launch later this year (possibly with a name change), is attempting to solve the online riddle without upsetting record labels. Its expected public debut comes after a somewhat aborted attempt to launch late last year using a different model, which asked sellers to delete music after they sold it.

Instead, Bopaboo — still in private beta — now allows you to keep the music files after someone else has purchased them, although you can sell each song only once. First, the service's spider figures out what music you have on your computer, and uploads the songs into an account. From there, you can sell your collection to the Bopaboo community at large, at prices determined by a demand-based algorithm, generally lower than what the same music costs on Amazon or iTunes.

The site pays out in credit on a one-to-one ratio. That means if someone buys a song from you for 43 cents, you'll get the same amount in credit to spend on Bopaboo's catalog of new music, which the company expects to be larger than its catalog of “used” songs. You can download purchased MP3s and do with them what you please. In order for other costumers to buy from your pre-owned collection, however, they'll have to pay in dollars, which go to Bopaboo and the label and/or artist who owns the rights to the recording.

“We're providing consumers with the first marketplace where they can receive some monetary benefits for their previous [digital music] purchases,” Bopaboo founder Alex Meshkin says.

He sees a vacuum in the digital music marketplace that's ignored by eBay, which dominates the market for used vinyl and CDs. “There's been a lot of talk about treating consumers like retailers. But at the end of the day, unless consumers receive more flexibility in reselling their digital media, you're not going to be able to effectively leverage them through a new distribution channel.”

However, many remain unconvinced that the model will work — especially because it requires such strong industry support. Without some sort of proof of purchase from Amazon or iTunes, Bopaboo's formula could falter. “It's hard to imagine that the major labels would sign a deal with a company, [even] to get resale revenue from any type of digital music file, without some sort of verification of where it came from first,” says Susan Kevorkian of the technology market intelligence firm IDC.

Record labels don't want people who have downloaded music illegally to be able to turn around and sell their holdings. And the establishment's buy-in is crucial, because it controls so much of the music people want to hear. In order for Bopaboo to launch with all four majors (EMI, Sony Music Entertainment, Universal Music Group, and Warner Music Group), it will need each to agree to allow primary sales (where users redeem credits) as well as secondary sales (where users sell music to each other). In return, the labels would get a large chunk of the revenue generated by both types of transactions.

Meshkin believes the major labels are supportive of Bopaboo's plan, even though it will earn them less money per song than iTunes does, and the music will not be restricted by digital rights management (DRM) technology.

The labels might be willing to bet that Bopaboo users, by collating individual stores and promoting them via Facebook and other avenues, will be able to add to sales in ways that corporate stores like iTunes cannot. Bopaboo also hopes the major labels will see its service as a way to enter the secondary music market with an alternative to free, unlicensed P2P sites.

But unless lots of labels — and users — sign up, the service will be hamstrung to the point of near-uselessness.

The short history of enabling consumers to sell digital music is marred by one disastrous example: a pyramid scheme–like operation called Burnlounge. Starting in 2004, that group raised the hackles of the online community by encouraging franchisees to use annoying marketing tactics like street teams to sell new music from a centralized catalog. Bopaboo's system differs in that it pays out in music, not money, while courting users interested in displaying their painstakingly curated collections rather than picking what they want to sell from a central list.

People's Music Store, which lets anyone become a Web retailer, has also been making waves by helping fans sell music. Unlike Bopaboo, it doesn't price tracks based on demand, and lets you sell music even if you don't own it. In addition, the site gives you only 10 percent of the purchase price to spend on new music. The selection of music you can put in a U.S.-based People's Music Store is fairly limited, although respected indie labels Warp, Ninja Tune, Rough Trade, Beggars Banquet, 4AD, and kranky are included, as well as such luminary artists as Boards of Canada, Fischerspooner, Grizzly Bear, Jarvis Cocker, and Yeah Yeah Yeahs. People's Music Store has one big advantage over Bopaboo in that it has already launched.

What if you just want to leverage your encyclopedic MP3 collection into some cold, hard cash? Services exist where you can upload gigabytes of music (or seamier video content), and get paid when people access the files. Hong Kong–based MegaUpload, for instance, offers $1,500 for each million downloads your files generate throughout its network — even if you don't own any of the rights to the music you uploaded. You won't get rich this way, and of course the whole system is unscrupulous in that it doesn't compensate artists or labels. It instead requires the copyright holders to police the network to get their recordings removed.

Hawking digital music online is more complicated than it was to haul a pile of discs down to Streetlight. But in an industry where CD sales are tanking as their digital counterparts fail to make up the gap, selling used MP3s might not be as crazy a business plan as it sounds.

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