How Media Companies Could Cooperate To Solve the 'Piracy' Problem: And Why They Don't Do It

[Update 8/10/11: Wal-Mart Shuttering Its MP3 Download Store.  Guess what? Retailers need to exchange info of who's bought what. Apple should not be allowed to thwart other retailers by throwing up impediments to "iPod and iPhone integration". ~ Ed]

It is impossible for Web companies to tell whether a song was bought legally or downloaded illegally.

                                       --"Amazon Introduces a Digital Locker," New York Times, 3/29/11

This is true.  No web company can do that.

But it is possible for Web companies to tell whether a user bought a song legally.  (And that is not a play on words.  Read the two sentences carefully)

The method that allows for “red sentence No. 2” is called a Digital Content Exchange.

Every user who bought a song legally should have the right to download or stream that song from whatsoever Web company is willing to store it for him.  But that ownership has to be verified by the DCE.

Prove to the DCE that you bought a song legally and you will have that ability.  iTunes purchases, Amazon purchases, CDs, vinyls … the lot.  And no record company has the right to charge that Web company for the privilege of streaming back to a user something he proved he owns.  And that he hasn’t sold.

This method involves verification, registration and immobilization.  These three techniques are utilized a million times a day in worldwide digital stock transactions. The method will work for media too (which, after all, is just another kind of digitized fungible commodity). 

The Exchange only needs to be scaled up.  But media companies would have to cooperate to make that happen.  The definition of an exchange is a network of cooperative interactions that allows competitors to compete efficiently. 

Any Web company in the world could join the Exchange right now (in beta test).  As soon as they joined, they would begin seeing the profitability.  Their users would profit immensely (an exchange always profits all parties). 
 
Right now, there is no Web company with a sufficient dog in the hunt to make it worth it to them to cooperate.  Not Sony Music, Not Google, not Amazon, not Apple, not Netflix, not Hollywood. Right now they have a competitive advantage.  Short-term thinking says, “Don’t surrender that competitive advantage.  You may upset the apple cart.” 

But no cooperation means no exchange.  No exchange means no solution.  No solution means continued chaos.