Prediction: a One-for-One Cloud by the end of 2011

The Los Angeles Times is reporting that Apple has reached tentative agreements with all four major record labels that would allow users to listen to songs from the cloud. The last major to drop being Universal.

But Apple is not saying, nor is hardly anyone asking, what rights users will have once they purchase a song that goes straight into the Apple cloud?  Why could a user not transfer ownership of his song to another cloud user? Why could he not lend it to another user?  With cloud access, this is a simple matter. It is called a "One-for-one Cloud". If a user sells his song to another user, that song is removed from his account. If a user lends her song to another user, it is removed from her account for the loan period.

So why would not Apple make this possible? One reason is that the record labels have reportedly given Apple the go-ahead to accept illegal songs into the cloud as well as legal ones.  So if they allowed someone the right to sell or lend a song in the cloud, they would be allowing people to make money from illegal songs. 

Apple will have to tell its users, "Yeah we know you bought a song from us fair and square. But, we had to make room in our cloud for the thieves, you understand? So we cannot allow you the freedom to sell the record you paid for.  You will have to deal with having fewer rights than every record buyer since the invention of the phonograph: the right to sell your property, lend it to a friend, even the right to leave it to your spouse.  Even though the technology is easy for us, and we could do it without breaking a sweat, we won’t, just because we are Apple, and you are not.”

So if Apple is “like that”, why are you predicting a “One-for-one Cloud” by the end of 2011, Emmett?

Because users will clamor.  Because artists, who have been screwed by labels long enough and who can now register their moral rights in songs and can easily be paid a portion of the cloud transfer fee, will clamor.  And there is competition (thank heavens).  Amazon will move to a One-for-one Cloud. Then Google.  Apple will eventually have to throw in.  Voila, a One-for-one Cloud!  Or the beginnings of one anyway.  (Getting the illegal songs that were foolishly allowed in the cloud out of the cloud will take some time.  Verification of every lawful purchase, physical or digital, that a user wants placed in the One-for-one Cloud will take some time.)

The DCE is the trusted third party that can verify and clear a “One-for-one Cloud” for Amazon, Google as well as Apple. The DCE is the only third-party with the know-how (gained from decades in the securities industry) to fulfill this function. Just as the New York Stock Exchange and the American Stock Exchange both participated in the Depository Trust Company in the 1970s, Amazon, Google and Apple will one day all participate in the Digital Content Exchange.

Apple 'Scan & Match': A Record Industry Breach of Contract with Artists

Exclusive: Apple near cloud-music deals.

Apple now has the freedom to offer a range of features that rivals are prevented from rolling out because of the licensing restrictions, the sources said.

One example is that instead of requiring users to spend hours uploading their songs to the company's servers, as Google and Amazon do, Apple could just scan a user's hard drives to see what songs they own and then provide them almost-instant streaming access to master recordings. The process is sometimes referred to as  "scan and match".

(CNET, May 19, 2011)

 

ANALYSIS:

The record labels are breaking their contracts (and/or fiduciary duty) to their artists by approving anything less than a "clean cloud". Record companies will be feathering their own nests with "licensing" income from Apple that goes into an "ancillary income" category from which the artist's share is de minimis* and where accounting/auditing difficulties are legion.  Meanwhile, there are three other parties outside of the record label (the artist, the songwriter, and the publisher) who have reversionary rights (or residual rights) in the copyright that underlies. That reversionary interest is being diminished by the lack of verification in the cloud.  These parties, as early as 2013, will step into a copyright that is greatly diminished in value. 

The record labels either don’t know or don’t care to know about the DCE method of verification, registration and immobilization (a DRM-free method that keeps all pirated copies from 1996-present whenever created OUT of any cloud service).

* "at best".  This income cannot be effectively tracked back and will probably just go into a "pool".  How it gets paid out of the pool will be anyone's guess. 

[Update: The dirty deal is done, June 6, 2011] 
[ Update: Call it "Scan & Snatch", since the low-bit rate download is traded in for a high one, the users scanning of an illegal song confirms and bolsters his "snatch".]

What the Record Companies Should Say to Apple

The record industry needs to send this message loud and clear to Apple and all cloud services:

"We do not want every illegal download and rip from 1996-2011 made forward-compatible with every new service that comes down the pipe.  If you have not come up with a method to verify a clean cloud, it is because you have not been trying hard enough.  And the reason you have not been trying hard enough is that, ultimately, you don't care about content.   Heaven knows, you have invented everything else you needed to invent. 

"You see, content is simply a means to an end for you; but for us, it is our entire livelihood.  And some of you have been building empires based specifically on an 'opt-out' concept of content access.  Sitting back and waiting for takedown notices or counterfeit seller notices.  But we are the record companies and we are responsible for preserving the value of content.  So we will use every means of leverage at our disposal to get you to care about content.  On behalf of our artists.  On behalf of the long-term health of our industry.  And, no, we are not going to send takedown notices for every user that stashes unbought music in your cloud.  We will simply count on you to do the right thing."

Why We Don't 'Launch' and Why We Don't Need Money

All roads lead to the DCE.

After all the industries are done thrashing around with ideas that don't quite work because they are missing an ingredient ... they'll come to us to get that ingredient.

Therefore, we are not a "start-up" and we don't chase money.  Whether you realize it or not, you are expecting the next big breakthrough on the web to look and act like all those other "internet phenomena".   But The Digital Content Exchange is something totally different.

We have demonstrated how a DCE cloud and trading system would work at thedce.com (beta test, if you wish). We don't want money.  We don't need money.  We need understanding.  And we realize that understanding takes a frame of reference. Getting a frame of reference takes time.  Every day, the people whose jobs it is to monetize and make-safe the Internet for books, music, video, and search are gaining the frame of reference they need to understand the DCE.  Money or a "launch" would not help people gain that frame of reference.

It is not surprising that people do not have the frame of reference. The genius of the DCE comes from an entirely different industry: financial data and transactions.  For people (like me) that don't even know how to balance their own checkbooks, it is difficult.  I was personally introduced to the DCE in 2004 and it took me four years to get the proper frame of reference.  It took me four years to even understand what the problem really was (Hint: it's not piracy, it's counterfeiting. Second hint: it's not file sharing, it's non-verification. Third hint: it's not lack of DRM, it's lack of registration.). Since it took me, an entertainment lawyer, a copyright expert, four years in order to "get the hint", we are expecting for it to take quite a long time for people whose frame of reference is even less akin.

So, in the meantime, while we wait for people to gain that frame of reference, we are just going about the business of enjoying our lives.  (Which means making fun tweaks to theDCE.com and, for Jim, playing basketball and, for me, hanging out with my family, reading fiction classics and non-fiction anything, exercising and DJ'ing.)