Amazon's new unlicensed and widely written about cloud service was closely examined by the major record companies yesterday. Within each label there were debates about how to respond.
The first order of business was to determine whether Amazon violated copyright law or the terms of the company's current licensing agreements with the labels, music insiders told CNET.
Amazon spoke to some of the labels and Hollywood studios recently and informed them--some as late as March 24--that on Monday, it planned to launch Cloud Drive, a service that enables users to upload copies of their music, e-books, videos, and other digital media to Amazon's servers, the sources said. The company also rolled out the Cloud Player, which is used to listen to the uploaded music with the help of Web-connected devices. Amazon told the entertainment companies that it was prepared to unveil the Player and Drive without licenses.
CNET was first to report on Amazon's cloud plans.
The launch of Amazon's cloud service has received so much attention because storing digital media on third-party servers instead of a computer hard drive is supposed to be the next evolution of digital distribution. For more than a year, the music sector has waited for Apple and Google to unveil their own digital shelves. With all the attention on those companies, however, Amazon catapulted into the lead.
How Amazon's case is resolved could help determine the ground rules for cloud media storage. The case could also determine who has the inside track in providing digital lockers.
Amazon may soon launch film, music locker service
Amazon's cloud risks war with labels, studios
Is Google preparing to challenge iTunes in the cloud?
Amazon may have made a Jobs-esque move to help the company jump past rivals, but Amazon isn't Apple. The iTunes store has dominated digital music for nearly a decade and has the weight to push the labels' limits sometimes. In this case, there are some at the record companies that aren't impressed. They want to lawyer up, right now.
The legal issues are one thing, but some executives are steamed about the way Amazon waited until just a few days before launching the service to inform them of their plans.
Still, most of the people who spoke with CNET said they want to see what Amazon does next before deciding how to respond. Amazon said in its initial meetings with the entertainment companies that it would eventually negotiate to obtain licenses. The company, founded by CEO Jeff Bezos in 1994, has made good on the promises and managers there have begun talks with the labels.
So, Amazon negotiates while the company's cloud service is up and running. Meanwhile Apple, Google, and Spotify appear to have put themselves at a disadvantage by waiting to roll out their cloud offerings until they obtained licenses. Both companies are said to be nearly ready. Yet, if Amazon is allowed to continue to operate without a contract for too long, the labels risk proving that in digital media, it's better to ask for forgiveness than permission.
While there appears to be more doves than hawks at the labels, that didn't stop their lawyers from poring over Amazon's service in search of any potential rights violations, sources said. Here's some of what they were looking for:
Is Amazon making unauthorized copies? When a user stores music on Amazon's servers, the company must make that exact copy is available for the user to stream. The way the music industry sees it, if someone uploaded a copy of Bob Dylan's "Like A Rolling Stone," and Amazon streamed the same recording but a different copy of the recording, then Amazon would violate the label's rights.
According to Donald Bell, who reviewed Amazon's new service for CNET, Amazon did indeed stream back the same recordings he uploaded. He knows this in part because he uploaded songs from a little-known band whose recordings Amazon could not possibly have possessed.
The issue of making unauthorized recordings came up when Viacom, parent company of "MTV" and "Comedy Central" sued Google and YouTube in 2007 for copyright violations. Viacom claimed Google violated the law in part because it re-encoded the video clips users posted to the site, thus creating a new copy. Last year, a federal judge disagreed and Google won. The case is on appeal.
Has Amazon properly secured the music? If Amazon's users too easily share music with others then the company may be accused of encouraging copyright violations. Sony Music is believed to have had security concerns at least initially, sources said.
Has Amazon broken any pre-existing licensing agreements? None of the sources would discuss specifics about the terms of Amazon's current music-licensing deals, but one source did say there are still unanswered questions in this area.
Amazon said this week it doesn't need licenses for the service it launched Monday and it appears the company went to great lengths to avoid committing any obvious infractions. But that's why Amazon's Cloud Drive is more limited than similar offers.
Instead of scanning computer hard drives to determine what songs users owned--the way now shuttered Lala once did--and then making a single master copy of a song available to the users who owned it, the company must store possibly millions of copies of the exact same recording. Any digital storage expert will tell you that this is expensive and inefficient.
Since Amazon said that it doesn't need licenses for what it currently offers, the talks under way are likely about adding features.
Don't expect any quick answers from Amazon or the labels on the licensing issue. Talks can drag out months or even years. The people who I expect to respond well before that come from Apple, Google and Spotify.