When you purchase a digital music track, e-book, digital movie or other type of downloaded content, you aren’t actually buying it, as you would a printed book or CD.  Instead, you’re licensing it, in the same way that you license software.  This means that you get rights to that content that the publisher defines in a license agreement, instead of those granted to you by copyright law.

Digital content licenses typically give users the right to play or read the content.  But what if you want to sell, lend, or give away your digital files?  Under U.S. copyright law, you’re allowed to do this for physical media products, thanks to a concept called the First Sale doctrine.  First Sale says that the publisher has no control over what you do with a media product once you buy it.  Used bookstores, video rental stores, and libraries all owe their existence to First Sale.

Yet current U.S. legal convention dictates that in most cases, First Sale doesn’t apply to digital files.  Very few publishers or retailers give you the right to transfer your files to others.  As a practical matter, “Digital First Sale” would mean that you could transfer ownership of your files to others legally as long as you delete your own copies – including backups, copies in cloud storage, and so on.  This implies one of two things: either you are trusted to delete their copies, or there must be a robust, legally mandated mechanism that does it automatically.

Digital First Sale: Not Now, Maybe Later

The U.S. Copyright Office wrote a report on Digital First Sale in 2001 that described an automatic “forward-and-delete” mechanism, but it determined that it would not be practical to require this by law, nor should people be trusted to delete all of their copies; therefore it recommended maintaining the status quo.

Why is this issue becoming a big deal now?  One reason, ironically, is that most downloaded music files and some e-books are now DRM-free.  If a digital file is encrypted with DRM, then First Sale is usually a moot point: you send copies of the file to friends, but they can’t use in on their devices.  With DRM-free files, you can send your files to other users, who can play or read them; but the licensing agreements under which you bought them probably forbid this.

Amazon in particular is quite explicit about this.  The Amazon Kindle Store Terms of Use, for example, give you rights to e-books “solely for your personal, non-commercial use” and state that “Kindle Content is licensed, not sold, to you by the Content Provider.”

First Battlefield: Record Labels and Retailers vs. ReDigi

A startup called ReDigi is testing this law by offering a service that allows people to resell “used” digital music files.  Its software includes the type of forward-and-delete function that the Copyright Office contemplated, though it only works with music purchased from iTunes and Amazon.

ReDigi was (unsurprisingly) sued by one of the major record companies, though it has sought to mollify others by offering them a slice of revenue from each transaction.  Yet this puts the company in a strange place: on the one hand, they claim to be enabling a form of First Sale, but on the other hand, they’re undermining the core idea of First Sale by seeking permission from record labels and giving them a piece of the action.

The forces arrayed against ReDigi are formidable.  Digital files are perfect copies: they don’t have scratches, dog-eared pages, or cracked jewel cases.  Retailers don’t want to be undercut by resellers that will force prices down: imagine iTunes’s reaction if “used” files could be sold on eBay.  Publishers don’t want to lose revenue to secondary markets either.  In other words, both the media and content retail industries are dead set against Digital First Sale.

Second Battlefield: Libraries vs. Publishers

The other growing storm over Digital First Sale is library lending of e-books.  Public libraries currently “lend” e-books by distributing them with DRM so that they expire after the libraries’ lending periods.  Yet while First Sale enables libraries to acquire whatever printed titles they want to lend, publishers get to decide which of their titles they will license for e-book lending and on what terms.

One problem with this is that publishers have divergent e-book lending policies.  Macmillan and Simon & Schuster don’t allow e-book lending of their titles at all. HarperCollins provoked outrage from the library community by putting a limit of 26 “lends” on each title, apparently to mimic the shelf life of hardcopy books before they wear out.

The law gives libraries no leverage against publishers in this situation.  Furthermore, libraries are now facing competition from the private sector: for example, Amazon’s Kindle Owners Lending Library (KOLL) allows Amazon Prime members to “borrow” one e-book at a time at no charge.  Availability of e-books through public libraries is likely to deteriorate further into both chaos and irrelevance if nothing is done.

To break the impasse, libraries are pushing for Digital First Sale rights in the law.  Libraries recently joined together with other, better-heeled entities in a lobbying group called the Owners’ Rights Initiative (ORI).  The ORI, which launched back in October, is a “strange bedfellows” coalition of library trade associations, companies such as Chegg (used textbooks) and Redbox (DVD/Blu-ray kiosks) that could expand into resale of digital content, several companies that sell used IT equipment, and last but not least, eBay.  The ORI’s slogan is “You bought it, you own it.”

Digital music resale and library e-book lending are just two of what will undoubtedly be many digital content distribution models that will touch on the issue of Digital First Sale – a law that, like other aspects of copyright, seems increasingly irrelevant as content moves from physical products to formless bits.  As the controversies and lawsuits grow, the inadequacy of the status quo will be increasingly clear.

Bill Rosenblatt is an authority on digital rights management and President of GiantSteps Media Technology Strategies

That plan would, for example, harmonise the currently fractured entertainment licensing regimes to ensure online services can offer music, TV and more across national borders.

But do Europeans really want to get digital content from other member states? Research conducted for the EC and released this week is instructive for services thinking of benefitting from the single market, showing:

• Nineteen percent of Europeans are interested in receiving content from another EU country.
• That is only two percent more than the 17 percent of consumers who already do so, primarily by TV.
• Only three percent of citizens polled by TNS Opinion & Social said they were interested in receiving VOD from across European borders.

These figures do not suggest massive pent-up cross-border demand for online content services that want to upturn traditional licensing structures and smash through national boundaries. But, as is often the case, perhaps potential consumers don’t know what they really want until it is truly on offer.

Photo: Shutterstock / Silver Tiger

The prospect of a single market is nevertheless great news for Europe’s content production powerhouses. The UK is the country from which most interested citizens (42 percent) want foreign content, followed by Germany and France.

And, of those who are interested in getting content from outside their home nation, 31 percent say they are prepared to pay for it — 14 percent by subscription and 17 percent by pay-per-view or per-listen.

But the numbers of Europeans who want to consume content from elsewhere in Europe is broadly similar to the proportion who want it from outside Europe, too. Sixteen percent said they wanted to do so (12 percent for TV programmes, three percent for VOD and one percent for other), with U.S. content by far the most desirable.

And people are more prepared to pay for this non-EU content than for that from elsewhere in Europe – 19 percent via subscription, 21 percent via pay-per-view or per-listen.

The biggest reason for the findings is linguistic. Citizens may not desire TV shows or music from neighbouring countries since they are in different languages, but many are attracted to English-language content.

One positive outlook is that younger, more up-market consumers are more inclined to want cross-border content.

Today, NewsCred took a further step toward the media big leagues with the acquisition of Daylife, a cloud service that offers publishing tools like image galleries, polls and timelines.

The deal creates a potent new platform for non-publishing brands to create content. The combined entity will be able, for instance, to offer a car or beer maker the ability to create an elegant news information site filled with timely content from professional news agencies. It also means NewsCred and its hundreds of partner news outlets have an opportunity to tap into Daylife’s client base which includes brands like the History Channel, GE, ESPN and Thomson Reuters.

Financial terms were not disclosed but NewsCred CEO Shafqat Islam said by phone that the acquisition would double the company’s customer and revenue base and that NewsCred would retain all Daylife staff.  He added that Daylife’s partnerships with image owners like Getty was a key part of the deal.

“Images drive websites, they’re what fuels the social web these days,” said Islam, noting that user-generated services like Instagram are typically insufficient for professional publishing.

The acquisition caps a remarkable year for NewsCred, which had to reinvent itself for the third time last November, after failing to find success as a consumer service. Since its relaunch as a digital newswire, the company appears to have hit on a niche — removing the technology and licensing friction between publishers and brands that want their content.

Asked about the future of NewsCred, Islam said further acquisitions or an IPO were far from his mind and that he is focusing instead on building the company. For now, NewsCred will focus on enterprise but Islam said down the road the company may consider offering slices of its portfolio to consumers or small businesses.

… Wahwah.fm collapsed.

Earlier this week, the company said it was going offline for the summer for a technical overhaul and licensing rethink. As CEO Philipp Eibach put it to me, Wahwah.fm is “making a step to the side”.

The reality is, the model didn’t work – and the reason for that failure is instructive to anyone trying to make the whole music-tech thing viable in the current climate.

After all, this is a company that tried to create a new music business model, and to do it legally.

Unsurprisingly, it all came down to licensing. At the heart of Wahwah.fm was the streaming service of UK firm 7digital. Armed with 7digital’s catalogue, Wahwah.fm still had to get the rights to play the songs in the U.S. and Germany, where it operated.

The company’s clever idea was to adopt a radio licensing model. Effectively, it said that, since it did not provide interactive or on-demand streaming, it should be able to pay lower royalties.

“We licensed the whole thing as non-interactive streaming – a radio license – but it was not enough to provide the user experience we envisioned,” CEO Philipp Eibach told me. “People could only tune in to listen to something live but they couldn’t listen to the song afterwards, or skip tracks. People really liked it being a radio station and the possibility of broadcasting your own music to friends around you, though.”

It wasn’t just a problem with user experience, though. As Eibach painfully discovered, the radio model meant constant renegotiation with the labels and collection societies – few of whom are well-disposed towards new business models in the first place.

“Once you have a license, it’s valid for a few months and you have to negotiate again and again. We realized it’s a huge overhead, the whole licensing and legal thing,” he said. “There’s so much grey zone. You talk to them and they don’t have a clue about new models, and are suspicious of new things.”

“There should be more competition, so there is a need for them to look into new models. Maybe more collecting societies would increase the pressure.”

So now what? Eibach says he and the six staff that are still “more or less loosely connected” intend to make a comeback later this year. The plan is to “hook up” with an existing on-demand service of the liked of Spotify or Simfy, so Wahwah.fm can “effectively outsource the whole licensing thing”.

Apart from that change of base, the company still wants to continue with its live web radio idea. “We still believe in the basic concept of Wahwah.fm,” Eibach said. “We didn’t find our way in the first step, but we’re still on it.”

One of the really intriguing possibilities with the service has always been its potential for letting people broadcast their own content – both recordings and live, radio-station-style talking – alongside or over the licensed songs. Is that still going to happen?

“It’s under discussion, but then again you stumble into this licensing thing. The big labels are really suspicious about user generated content.”

Any advice for other startups wanting to get into the music biz? “Overall, don’t do music,” Eibach laughed bitterly.

“Really have a closer look if it’s worth going into this legal struggle. Sometimes you have more freedom if you do the legal stuff on your own, but it means more hassles.”

“We tried to do it legally from day one, but maybe this means it takes longer.”

In a partnership announced on Tuesday, AP said it will offers its customers a “curated collection of premium, culturally relevant music” via its AP Images service. The offering amounts to an online jukebox of sorts for ad agencies, publishers or even individual consumers who are looking for licensed music to accompany pictures, movies or slide shows.

The music is supplied by indie musicians who have licensed their songs to Audiosocket in the hopes of gaining new revenue and exposure. Blake Sell, product director of AP Images, says the service fills a middle ground by offering high quality audio files without the trouble or expense of licensing famous names.

The partnership is another in a series of deals that make AP look less like a traditional news service and more like a general content broker. The organization has recently signed deals with creative photography outfit Corbis and with celebrity image shop Invision. Meanwhile, the AP is also offering its content to more non-news organizations like ad agencies and sports leagues.

(Image by Radoman Durkovic via Shutterstock)

The company launched in 2008 and was supposed to help consumers find quality content but it stumbled, and only found success after it decided last year to target businesses instead. In practice, this means it has become a pure middleman, rounding up buckets of content and selling it not only to publishers but also to non-media brands like Orange or Johnson & Johnson.  Another client is entertainment app Fanhattan which uses NewsCred to offer a stream of movie and music related stories.

“All these companies have PR teams but they don’t have editors or journalists,” explains NewsCred CEO Shafqat Islam. “PR content loses authenticity.”

The game changer in NewsCred’s approach is technology. The company provides API’s that make it easy for any site to bake in its own newsfeed, but it also offers tools that help firms control the fire hose of content they purchase. This means sites can get a stream of automated, customized content; in the case of brands, the fire hose can also be tweaked to ensure damaging stories don’t appear in the mix. The other advantage to the middleman, of course, is easy licensing. Sites like NewsCred don’t just provide content but also offer a one-stop shop for copyright clearance.

News agencies themselves are also embracing the middleman approach, launching a licensing service called NewsRight. The outfit represents 27 major players, including the AP and the New York Times, and is targeted at clipping services that monitor and collect news for businesses or governments.

Unlike NewsCred, the news agencies’ operation has a coercive edge (NewsRight says it’s not a “litigation shop” but one of its lead members, the AP, is suing one aggregator that won’t buy a license). But at the same time, it’s offering a similar product — big buckets of cleared content and technology to track, manage and customize it.

The rise of these middlemen also coincides with the end of a misguided experiment in which some newspapers used a law firm to sue businesses and bloggers that pasted their articles. That experiment, involving a copyright troll called Righthaven, engendered deep bitterness among readers and landed the lawyers in hot water.

It remains to be seen whether the new middlemen will be able to tailor their product to a small business or consumer level (wouldn’t it be great if a local restaurant or hair salon could pay $10 a month to dress up its website with a smattering of Bloomberg or Guardian articles?). But for now it seems the rise of frictionless, customized news streams are a step in the right direction.

The settlement will result in AT&T paying TiVo $51 million upfront as well as a series of quarterly payments, totaling $164 million, through 2018 when the patents expire. The $215 total figure could be augmented by additional top-offs if AT&T’s subscriber base exceeds a given number in coming years.

TiVo first sued AT&T in the summer of 2009 after the phone and cable giant began a offering a competing version of the set-top box that lets viewers record and fast-forward TV shows. After more than two years of procedural wrangling, the case was on the verge of going to trial in East Texas before today’s settlement was announced.

“We are extremely pleased to reach an agreement with AT&T, which acknowledges the value of our intellectual property,” said Tom Rogers, CEO and President of TiVo in a statement.

The settlements could also increase TiVo’s leverage against Verizon which it claims is infringing the same patents through its FiOS TV service. A Texas judge agreed to stay that case in November until early January, citing the related litigation.

TiVo is also tangled in a major suit with Motorola (NYSE: MMI) Mobility which sued the set-top box maker for infringing its patents. TiVo says Motorola filed the suit merely as a retaliatory tactic after TiVo sued its customer, Verizon. A judge agreed to stay the proceedings pending the outcome of the Verizon case.

Both unresolved lawsuits are now in a position to go forward though no trial dates have been set.

Today’s statement also announced that AT&T and TiVo have entered an agreement to cross-license their patent portfolios related to TV technology. The exact terms of the agreement will likely remain confidential and the parties will instead simply file a notice with the court saying they have resolved the litigation.

The upshot of today’s event is that TiVo now has another massive cash infusion following a patent deal last May in which it obtained $500 million from Dish Network (NSDQ: DISH) and EchoStar (NSDQ: SATS). TiVo has slumped in recent years but it reportedly broke a four-year decline in subscriber numbers last November. The extra cash and additional six years of patent protection means it has lots of times to figure out a long-term growth strategy.

TiVo’s shares were up over 10 percent afterhours. More details about today’s announcement can be found here.