Digital Media

Free All Media, an Atlanta-based start-up, is the latest company to propose an ad-supported music downloading service. The company, which just announced its first seed round of funding Wednesday and expects to begin public beta testing by December, hopes to differentiate itself from flameouts like SpiralFrog with a unique advertising model that asks users to participate more directly in choosing the ads they'll see.

The company's CEO, Richard Nailling, explained how the company's Web site, Free All Music, will work. Users will select an MP3 they want to download and a sponsor they'd like to "buy" that MP3 for them. They will then watch a video advertisement, between 15 and 18 seconds in length, from that advertiser. Once the ad is completed, they'll be free to download the file, a 256kbps MP3 with no copy restrictions. No further advertisements will be served for that download.

But here's the unique part--Free All Music will then use the downloader's handle in other banner ads for that sponsor, which Free All Music will place around the Web using an (as yet undisclosed) third-party ad network, as well as through its own ad network, which will focus on music-oriented sites. In other words, you might be visiting CNET and see "MattR just downloaded 'Angry Chair' by Alice in Chains...sponsored by Converse." In this way, Free All Music will be able to sell multiple ads per download and perhaps earn enough money to cover the license fee for each song.

There's a catch, of course: users will only be able to download as many songs as Free All Music can sell sponsorships for. At launch, the company is aiming for what Nailling calls "typical iTunes behavior," which is 15 songs per month, spread over three sessions. If the site takes off and advertisers buy more space, the song allowance will increase.

The key to success will be whether the company can get all four major labels and enough indies on board to make for a competitive selection of music. So far, the company claims it's signed up one major label (unnamed), and is aiming for the "full digital catalog" from each label, giving it full parity with iTunes and sites like Amazon MP3.

Would you be willing to sit through an 18-second video ad in exchange for a perfectly legal and guaranteed legitimate MP3? Or will you stick with file-trading networks?

Correction at 7:13 a.m. PDT October 1: This post incorrectly stated the number of free songs that Free All Music aims to offer at launch. The site plans to offer 15 free downloads per month, spread over three sessions.

Michael Robertson on iTunes: "Mark my words they will go down and the rest of the world will catch them and surpass them. We've seen this before."

(Credit: James Martin/CNET)

Over the years, Michael Robertson, the man who founded pioneering digital music service MP3.com, has never hesitated to make a prediction about the sector's future.

"It's not a business," Robertson has told me often in the past about ad-supported music sites. Frankly, in the past, I didn't pay much attention. I do now.

The man who has fought more high-profile battles with the record industry than anybody in technology, and whose experience in digital music is nearly unmatched, has never appeared more prescient. He told me two years ago that ad-supported music sites would perish. The licensing fees required them to pay a penny, or some fraction of that, each time a service streamed a song to a user's computer, and that was too high to sustain a business. And now just look at the sector. It's a mess.

Ruckus closed in January. SpiralFrog imploded spectacularly in March. (Read CNET's series on SpiralFrog here and here). Imeem nearly ran out of money, and MySpace Music has performed below expectations. Nobody in the sector has reported profits. Not even Spotify, the European music service that users, including Facebook CEO Mark Zuckerberg, have gone gaga over.

The latest breathless report came this week, claiming that, in Sweden, Spotify makes more money than iTunes for Universal Music Group, the largest of the four top music labels. Sure, Sweden is a small country but the locale is insignificant. Generating revenue for the labels doesn't mean the service is profitable, which it is not, according to my music industry sources.

As for Robertson, he is certainly a lightning rod for controversy. He likely has as many enemies as friends in tech and music circles. His second major go at operating a digital music site, MP3tunes.com, has less than 500,000 users, which he acknowledges is "nothing." EMI has filed a copyright suit against him and MP3tunes.com. Still, his experience and track record at sizing up the sector make him impossible to ignore.

Question: Are you sorry you sold MP3.com (to Vivendi which later sold it to CNET, parent company of CNET News)?
Robertson: I probably go back and forth. We sold for $372 million, but it really was more than that because we got a $15 million bonus for all the employees, which is not included in that number. And there were still outstanding lawsuits, which they agreed to take over entirely. It was more than the reported price was. Listen, I grew up really poor and I owned a third of the company so that was a lot of money. That was a huge victory. At the same time, after I sold it, MP3.com just got crashed into the wall as fast as you can drive it.

That's why MySpace took off. One of the reasons was because bands didn't have anywhere to go to promote their music to their fans, so MySpace stepped in to fill the void. It's almost impossible to not look back and say, "What if, what if"...because MP3.com was really ahead of its time in terms of user-generated content, user-submitted content, and crowdsourcing. We had all of the users making their own fan pages with their own radio stations with their own playlists. All that stuff was something we were doing in 1998. So if I hadn't sold it, who knows where it might be. Maybe it would be the Facebook equivalent today of MySpace. Maybe not, it's hard to say. So I go back and forth.

Q: Do you love music?
No, I like music. But I'm really a technologist at heart. And that's one of the fundamental differences. That's why I did MP3.com so differently than everybody else. I wasn't a musician. I wasn't a record label guy.

I took a second mortgage out on my house to start MP3.com. Everything we did was controversial. People said the name was dumb at the time. People said, "You're going to be like Betamax.com." Naming a company after a format was so stupid. They don't say that anymore today. The domain name is part of it, but it is what you make of it. We were doing other things--allowing every artist to sign up and do free Web hosting, unlimited bandwidth and unlimited storage and online stats, using crowdsourcing to rank all the music. They said, "If you let everyone sign up, all you'll have is a pile of crap." I said, "No no, we're going to let the crowd source it, and whatever music they're clicking on the most will bubble up to the top."

Everyone at the time said, "That's never going to work." That was the day before Wikipedia when people didn't trust consumers. So, we did all these things that were so different at the time. Today, it's almost remedial. People wanted to charge the artist and host free songs. They had one complete song that they had to give away free. Remember, this was 1997 where people had 56K modem hookups if you were lucky. People said no one is going to download a whole song at 120Kbps.

Back then, RealNetworks was the king. It had had 85 percent of the market. Everything was RealAudio. They not only had the player, they had the server. Microsoft came into the mix and said, "All right, we're here with Windows Media and it has 10 times better fidelity, so everybody out of the pool. We're here to take over." I'm like, "You're both wrong. MP3 is where it's going to be." And they were like, "You don't have any media support, no record labels want you. You're going in the wrong direction." I said, "Hey, consumers are going to get what they want. And they are going to want MP3."

Q: How did Real blow it?
Where Real missed out is this counterintuitive notion where you have to give up control to get control. What I mean by that is, with MP3 anybody could write any software program you wanted to. You could go design hardware and create Web sites. You didn't have to drive up to Seattle and ask for Real's permission. So the notion of having open technology free to everybody that wasn't tightly and centrally controlled by a corporation is counterintuitive. Real was building servers and a player and standing on proprietary technology and what happened was that the rest of the world out-developed and out-innovated Real. This is what I saw with MP3. Hey, this open format allows anyone to build to it. The other guys said, "All roads have to lead back to me."

Q: That's the Sony way.
Yeah the Sony way, and you see what happens. If you're lucky and you get the mojo going, you get the Walkman, but if you're not then you fade into irrelevancy. Apple is the one big exception with their iTunes empire, but mark my words they will go down and the rest of the world will catch them and surpass them. We've seen this before. We've seen this with the original Mac, which was a superior personal computing platform. Nobody can dispute that, but it didn't win. Microsoft Windows won because Bill Gates is a genius? No, because they had all the developers.

Q: Talk to me about Microsoft. They haven't been very successful in digital music. What's their problem?
Microsoft decided we aren't going to partner with the users. We're going to partner with the studios and labels. That's where they made their bet and people who made those bets are going to lose because consumers are going to get what they want.

Q: Do you hate the music labels and film studios?
I think it was pretty despicable for EMI to sue me personally, but outside of that it's just business. They are trying to maximize the revenue and profits they get and I'm trying to do the same for my business.

Q: Did this all start with MP3?
Yes. When I was doing the road show for MP3.com, when you go around talk to investors and try to get them to buy your shares. Literally a day or two ahead of me there was another person doing a road show for Liquid Audio, a proprietary, DRM sort of strategy, and they were telling people that MP3 stood for "music piracy cubed," which was nonsense. To me MP3s are inevitable. Maybe I accelerated it a little by what I did, but it is inevitable that people will get DRM-free content. People looked at me as an advocate for MP3 or worse, that I advocated for piracy. The reality is there is a certain recognition that--thanks to the Internet--the power has shifted to the consumer and away from media companies. That's just the way it is.

The reason MP3tunes.com threatens the record labels is we do have that open strategy. We have an open API that anyone in the world can build an interface for on any device, and the record labels see that as a loss of control. If you get the crowd developing you up, you're going to win. it's just a matter of time. You can out-engineer any company out there.

Q: What's the endgame for you? When people talk about the music sites, forgive me, but they aren't talking about MP3tunes. What's going to happen to your company?
It's not there yet because the value of the crowd is proportional to the number of devices that connect to it. We've built a nice interface, and it will sync with iTunes and that's great, but if this is the only place you can listen to your collection it's not of value you to. You say that I already have iTunes, but when I start adding devices, now the cloud becomes valuable, we only have 250,000 users. That's nothing. But when you're building an API-driven business, it takes awhile to get all those developers building your apps. It's not a mystery that cloud music is still a new concept, primarily because of the record labels' resistance to technology. There's some huge blockades and those blockades are the record labels. Right now when you start a digital music company, you come to a big fork in the road and you have to decide if you are going to partner with record labels and take on all that legacy and restrictions and onerous royalty payments, or are you going to partner with the consumers.

There's no middle ground. If you choose the consumer path, the record labels have shown they will use the courts against you. It's not just us. There is Project Playlist, SeeqPod, Imeem, and MySpace, they were all sued by the record labels. But the challenge is that if you do what Lala did, which is sign with the labels, you have all of these restrictions and rules and regional restrictions. Our locker system is available to anybody in the world, but Lala is only available to U.S. and Canada. How can you build a scalable business when you're restricted to two countries?

Q: You are down on penny-per-stream rates and ad-supported music?
It doesn't work. People say look at Pandora. They said they have 25 million registered users. They used to be a pay site, $3 a month and nobody used them and they removed the monthly requirement and they got the huge numbers. So people have shown a real reluctance to pay a monthly fee for radio and the only companies that have gained any traction are the ones who do it for free. If you don't charge a fee then what is left is advertising as a revenue source. And it's just simple math that you can't make enough with ad banners and click-through keywords to pay a penny per song. Simple math, ask anybody who knows Internet advertising. Somebody sits there, listens to 20 songs, the royalties pile up with each tick of the clock. Those songs may or may not have ads at any given time and even if they do you can't charge enough for those ads to cover the royalty payments, much less all the other engineering fees and bandwidth, sales and all of the other costs. There's no question that today Webcasting is not a business.

What about Pandora?
Not a business. There's only two possibilities here. They go bankrupt or the royalties are changed. And I don't see the royalties being changed. Even if Pandora pays less the fees are still unsustainable. So, the rules have to change or Pandora goes out of business.

Q: Won't all these challenges push the legitimate services out and leave only the pirate sites? Why would the music industry want to do this? It doesn't make sense.
The last 10 years shows that there are always more dummies who get out their checkbooks and sign insane deals and do large prepays for the privilege and public recognition of partnering with the labels.

Over the last decade, name a company that has made money with digital music online. Apple is one, but they did it primarily with hardware. You mean to tell me that every company that tried it was inept? Come on now. There had to be some good CEOs out there.

Q: Why do you pick fights with Imeem and Lala and other digital music companies?
So much of the record business is done in secrecy. It usually means someone is getting screwed. That's usually why it's done in secrecy. Hey, if everybody is making money it should be out in the open. I have nothing against Imeem or Lala. I wish them success. They are digital music companies just like me. But I think the only way things change is if people realize that the current way does not work. You asked me isn't there a risk that the record labels could push out the legitimate guys and then only the black market guys are left.

Well, look at the last 10 years; Liquid Audio went away and here comes the new guy. There's constantly new companies coming up. And listen, it's sexy to work with music. It's sexy to partner with the labels and get invited to clubs and release parties. That's sexy and fun and high-profile. So over the last decade there's always more suckers that line up, so even if the current ones go out of business it's no big deal because there's a future generation to tap into and the industry doesn't have a lot to show for it over the last decade.

Rhapsody's iPhone app will allow users to stream ad-free music and add selections to their playlist queue.

(Credit: Rhapsody)

Subscription music service Rhapsody, a division of Real Networks, has announced plans to port its service to Apple's iPhone and iPod Touch. In a blog post Sunday, the company said it will submit the application (demonstrated on the video below) this week to Apple for review.

Historically, Apple has steered clear of subscription music, making it impossible for services such as Napster or Rhapsody to work with the iPod, fearing competition with its own iTunes music service. But the success of iPhone music applications such as Pandora, Last.fm, and Slacker, may have opened the door for subscription services as well. (Last.fm is a part of CBS Interactive, which also publishes CNET News.)

Rhapsody's mobile app will require that users hold a Rhapsody-to-Go account, which currently runs $14.95 per month. (Non-subscribers will apparently be offered a limited time free-trial period.) The Rhapsody app allows subscribers to explore and stream Rhapsody's entire online music catalog over EDGE, 3G, or Wi-Fi, as well as create and store playlist queues of their favorite content. The app does not, however, allow users to download and store Rhapsody songs directly on the device, or cache content temporarily to hear offline.

If Rhapsody's application is approved by Apple, it won't likely be alone. Competing services such as Spotify have shown off similar applications, and Napster will surely want to get in on the action as well. The real question is whether people will find subscription music capabilities valuable. With free, ad-supported services such as Pandora already dominating the spotlight, it remains to be seen whether Rhapsody can convince new customers to spend close to $15 a month for unlimited on-demand music streaming.

In the blog post, Rhapsody also revealed plans to develop an Android application. It's not known whether that version would offer greater flexibility (local storage, over-the-air downloads) than the version for the iPhone.

Rhapsody on iPhone from Jamie on Vimeo.

(Via PC World)

Correction at 11:10 a.m. PDT: Lala's patent filing is an application. And Lala says it has made no promises to music labels regarding piracy in order to offer 10-cent "Web Songs."

Michael Robertson, the gadfly of digital music, is once again pestering rivals about their business practices.

Robertson--the controversial founder of MP3.com, Linspire, and MP3tunes.com--has accused Lala of attempting to transfer control of its users' music to the recording labels.

Robertson claimed last month on his personal blog that Lala had developed an "insidious new plot" to entice its users to upload music to the company's servers and then trap the music there by embedding digital rights management into the servers. This would enable Lala and the big music labels to exercise greater control over the tunes. He compared Lala's plan with a "roach motel," where songs check in but they can't check out.

Robertson's accusations generated little attention, possibly because he operates a competing site, MP3tunes.com. Both companies enable customers to access music from the cloud, and one competitor badmouthing another won't stop the presses. But in regards to Robertson's accusations about Lala and DRM, the best support for the claims comes from Lala itself.

Robertson directed CNET News to a Lala patent application filed last year and titled "Network Based Digital Rights Management System." In the filing, Lala describes what it is hoping to patent.

"A network-based DRM system manages digital media assets stored in the network," Lala, which has been praised by music labels and has financial backing from Warner Music Group, states in the document. "The system provides consumers with access to the digital media from any device connected to an electronic network such as the Internet, while enforcing the intended uses by the copyright owners."

"The Web restricted nature of the offering," Lala writes elsewhere in the filing, "means that the digital assets are at all times controlled by the system and thus result in minimal piracy."

The patent application proves Lala is trying to develop a new type of DRM, according to Robertson. Instead of wrapping individual songs in DRM, Lala's plan calls for a network to act as a fortress that surrounds an entire music ecosystem.

Lala CEO Geoff Ralston confirmed that Lala filed for the patent but denied the company is trying to wrest control away from users.

"It's a patent around Web Songs," Ralston said.

Web Songs are one of the cornerstones of the company's latest business model. Lala, which has switched focus from two prior models, now offers three main features. In the first, MP3s unprotected by DRM can be purchased and download for rates comparable to iTunes'. A second option offers users unlimited, ad-free streaming access to music they already own. The way this works is that users allow Lala to scan their hard drives and preserve a list of the songs the person owns. Lala's system will then stream its own copies of the songs to the user. This way users don't have to worry about losing their music to hard-drive meltdowns or misplaced music players.

Lala's last feature allows people to listen to streaming music--that they don't already own--for 10 cents per song. Lala calls these "Web Songs." One of the ways Web Songs are different from MP3s is that they can't be downloaded to a portable device.

"A Web Song by definition has a limited set of rights associated with it," Ralston said. "One right you don't have is the right to take it with you. It's not a portable song. Another right you don't have is to copy it. Everything has limited rights, even an MP3. You're not allowed to take an MP3, copy it, and sell it."

Lala said Web Songs offer people a chance to obtain streaming access to a song for the price of a grocery store gum drop. If customers later want to upgrade and buy an MP3 version of the tune, the dime is counted against the price of the download.

Michael Robertson found Lala's DRM patent filing and says it proves the company is taking orders from record labels.

(Credit: Michael Robertson)

While Ralston said the filing only deals with Web Songs, the patent document itself, under a section titled "Overview of Present Invention," lists the many applications of its invention.

The patent filing indicates that Lala's DRM invention is designed to lock down music that its users already own. Lala's system doesn't allow people to listen to their own music via anything but a Web browser and the songs cannot be downloaded. Ralston argues that people can do all these things with the original music files they own.

But if Lala's users own the music the company stores, why does Lala restrict it this way? Are these restrictions rooted in some technology limitation or do the major labels require them?

"We're trying to provide a way so that users can have more access to their music than they had in the past," Ralston said. "Look at the iPhone. I can't easily throw brand-new graphic cards into it. It's all closed up. But it's a much better consumer proposition. We're not acting as an agent of the record companies in any way except that we resell their goods. There's nothing nefarious there at all. We repackaged some stuff that we think provides a better consumer proposition."

Music sales have been falling for years, and piracy is at least one of the main causes. Nonetheless, the four top record labels over the past year have appeared to give up on DRM as a piracy-busting strategy. This trend culminated in January when Apple announced it would strip DRM from the entire iTunes library. So, why then is Lala attempting to come up with a new DRM strategy?

In the patent application, the company offers some clues.

Lala notes that DRM produced by Microsoft and Apple "suffered from lack of interoperability caused by competitive and licensing issues." Most DRM, Lala points out, can also be cracked or broken. Lala says in the patent filing that its DRM approach avoids these issues.

"A network-based approach protects against rampant piracy," Lala writes. "By delivering the product directly from the network, only authorized users and devices can access the media. Access by users and devices is controlled on the Web and can be constantly adapted to changing technologies and market pressures."

Robertson claims that network DRM is simply the latest attempt by the recording industry to jerk control of music away from consumers. He said what may be most alarming about Lala's system is its potential to snatch away someone's songs.

"The system also allows for the 'revoking' of ownership of digital media," Lala writes in the patent filing. "For example, if a user is known to have illegally shared a file, the copyright owner may choose to revoke their ownership of the digital media in the system, limiting the rights of such user to the media."

When asked about this, Lala's CEO was unapologetic.

"Is it controversial that a store has the right to terminate someone that steals from them?" Ralston asked.

A copy of Lala's patent, titled Networks Based Digital Rights Management System.

(Credit: Faqs.org)

I'll readily admit that I'm not in the target audience for the new SlotRadio MP3 player from SanDisk, which became available last week.

The $99 device comes with a microSD card containing 1,000 songs, selected by Billboard editors from top-charting radio hits of the last 40 years or so, arranged in seven playlists--rock, country, hip-hop, and four others.

You can't edit or rearrange the playlists, you can't move the songs to your computer or any other device, and the only way to get new songs is by buying new 1,000-song cards for $39.99 apiece.

For a music control freak like me--I used to be the jerk at parties who'd secretly rifle through the host's CD collection looking for something I liked more than what was playing--turning my audio programming over to somebody else isn't easy.

There's a wee tiny rock band in there, and they're playing my favorite Steely Dan song.

(Credit: CBS Interactive)

But I got a chance to play with the SlotRadio today, and there's something refreshing about its simplicity. I took it out of the box while sitting on the bus and was listening to music in less than 30 seconds.

There's no software to install, no USB cable to plug in, no CDs to rip, and no need for the instruction booklet. It's an MP3 player for people who don't know what MP3s are--and don't really care--but just want to rock out to some good tunes without carrying their entire CD collection around in their car.

While I agree with CNET's Jasmine France that the sound quality is only mediocre, the bigger problem is the mainstream, middle-of-the-road selections chosen by Billboard.

SanDisk had to start somewhere, and Billboard is one of the biggest names in the biz, but each playlist sounded like a heavily audience-tested radio station programmed by some anonymous machine in a building in New York. That is fine...but if I wanted the risk-averse sensation of radio, I'd just turn on the player's built-in radio. I ended up using the skip button quite a bit.

As I said when I first heard about SanDisk's SlotMusic strategy, the format will succeed only if SanDisk quickly signs up some more eclectic curators. I'd gladly pay $40 for 1,000 blues songs curated by Buddy Guy, or 1,000 reggae and dub tunes collected by KEXP's Kid Hops, or the top 1,000 songs of the year as chosen by the editors of Pitchfork.

Better yet, what if SanDisk teamed up with Pandora? The target audiences seem almost identical: music lovers who can't find a radio station that matches their taste, and don't have the time or motivation to hunt down and buy (or steal) a lot of music themselves.

Users could order customized cards based on their musical profiles or Pandora stations. They'd have to be created on demand, which would be more costly than mass-producing the same card thousands of times, but Pandora already has the algorithms and infrastructure to create customized radio stations on the fly, so how much more expensive could it be to rip 1,000 songs onto a microSD card?

Anyway, SlotRadio is an odd but interesting little device, and I hope that SanDisk gives it the chance it deserves by branching out into the niche markets in which music lives today.

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Consumers are increasingly willing to pay for songs they acquire over the Internet, but declining interest in CDs is dragging down overall music consumption among Internet users.

During the third quarter, there was an increase both in the number of people buying digital downloads and in the number of tracks sold, according to market researcher NPD Group. Legal music downloads were up 29 percent from the same period last year, and sites such as iTunes and Amazon MP3 chalked up an additional 2.8 million music buyers, to a total of 15 percent of Internet users.

That jibes with reports from Warner Music Group and Universal Music Group. Both labels have recently seen vigorous growth in sales of digital music. Warner, for instance, said last month that in the third quarter, digital music sales rose 27 percent to $167 million.

Peer-to-peer sites, meanwhile, saw an increase in the overall volume of song files being shared, up 23 percent for the same quarter last year, though some of that increase was attributed to a greater number of downloads per user, according to NPD. The number of P2P sharers among Internet users, NPD reported, stayed flat at 14 percent.

Not surprisingly, teenagers were a big factor in the gains--they accounted for 34 percent more paid downloads than in the third quarter of 2007, and P2P downloading spiked 46 percent among 13- to 17-year-olds.

Also, credit popular video games such as Rock Band and Guitar Hero with spurring consumers to make a music purchase of some sort. In many cases, "gaming can help remind customers of the music they grew up with...and to re-engage with the artist," said Russ Crupnick, entertainment industry analyst for NPD.

But the music labels, knocked off their stride by the advent of the digital music era, still face challenges.

Among Internet users, according to NPD, overall music demand was down 2 percent year over year in the third quarter of 2008. That figure takes into account purchased CDs, purchased digital music downloads, files obtained via P2P sites, and music files borrowed to rip to a computer or burn to a CD.

Largely, that slippage is a result of the continuing drop in sales of CDs (down 19 percent in the third quarter), most notably among teens and young adults, but also including adults over the age of 36.

"The value of each music customer is declining," Crupnick said. But, he added, "anytime you can add 2 (million) to 3 million buyers year over year, that's very encouraging."

A new digital music service is getting lots of attention for proposing to help consumers sell their used MP3s in much the same way people once unloaded second-hand albums.

Bopaboo has generated splashy headlines recently for coming up with what on the surface seems like a good idea. Music fans have always exercised their first-sale rights, which under copyright law, allows them to sell their unwanted CDs, tapes, and albums without permission from the copyright owner. Why can't they do the same with digital music?

But there are dramatic differences between physical and digital music. For this reason, Washington, D.C.-based Bopaboo appears to be careening toward a head-on collision with the recording industry. According to Bopaboo CEO Alex Meshkin, he will soon meet with executives from the major labels and execs there will no doubt ask why they shouldn't set their attorneys loose on the service. They may also inquire about the controversy that dogged a then 23-year-old Meshkin when he was owner of Toyota's NASCAR team.

As for the legal questions involved with MP3 resales, Meshkin, 28, argues that the law allows consumers to sell digital media files in the same way they do physical media. That's not all together accurate. Fred von Lohmann, senior staff attorney for the Electronic Frontier Foundation, an advocacy group that supports Internet-user rights, says to the best of his knowledge, the issue has never been addressed in court.

Even von Lohmann, a well-known champion of the technology sector, sees potential problems with Bopaboo's legal argument. He says while its true that under the first-sale law people are allowed to sell CDs and other physical goods, it hasn't been established whether the law covers digital media. The good news says von Lohmann is that Bopaboo could raise the public's awareness about what may one day be an important issue for digital music.

"We shouldn't lose our first-sale rights just because the second-hand stores involved are online," von Lohmann said. "Up to now, there hasn't been a huge opportunity for people to spend large amounts of money on digital music, but as time goes on some music fans will have thousands of dollars invested in their digital libraries or audio-book collections. It would be a big change if you weren't allowed to sell them."

For Bopaboo to survive, the company will likely have to avoid a legal fight with the top four recording companies. For other digital-music services that have devised new ways to exploit music, the choices have always come down to partnering with the labels or getting sued. Meshkin said he will soon meet with music-industry representatives in New York and has already met with other important players in the sector. "The talks so far have been positive," Meshkin told CNET News on Wednesday.

One label executive I spoke with disputed Meshkin's version of the negotiations. "There haven't been any talks," said the executive. "They have asked to meet and we responded. That's it." A spokesman for the Recording Industry Association of America (RIAA) declined to comment.

To say that Meshkin has a tough job selling his idea to label honchos is an understatement. Bopaboo's service works this way: sellers register and are given an MP3 store where they upload the music they wish to sell. Music protected by digital rights management software isn't allowed. Bopaboo makes money by taking a percentage of sales.

The main difference between selling physical goods, such as a CD and selling a download is that a seller of physical goods loses possession of the merchandise after it's sold. That is not the case with digital files.

Controversy followed Alex Meshkin, far left, as a 23-year-old NASCAR team owner and now as the owner of Bopaboo, a digital marketplace where users operate their own download stores.

(Credit: Alex Meshkin)

A person could transfer numerous copies of the same song file as long as it was free of DRM. But Meshkin says his company can prevent repeat sales of the same song. Bopaboo has developed song-identification technology that prevents individuals from uploading more than one copy of the same song to the site regardless of how the file might be altered, Meshkin said. A copy is always produced when MP3s are transferred and that is retained on a computer's hard drive.

Meshkin didn't have any technological solution for that. He said that in such harsh economic times the music industry must accept a few risks. After all it was they who allowed their music to be sold without DRM in the first place.

"Obviously, MP3s are very easy to duplicate," Meshkin said. "It's very difficult to tell the difference between a so-called new copy and a so-called old copy."

The label guys are unlikely to just shrug their shoulders at this kind of set up, said von Lohmann.

"If you buy a song from iTunes' (DRM-free) store you can immediately go and sell a copy of the song on Bopaboo," von Lohmann points out. "You would be assured of getting a discount on your iTunes purchase. There is no doubt that the first-sale law was drafted with physical objects in mind. There's no question that you are allowed to sell books or CDs. But when it comes to selling MP3s, it's an untested legal question."

Another problem for Bopaboo, says von Lohmann is that some digital music stores specifically forbid the resale of songs. At Amazon.com for example, the terms of use agreement says customers must agree to "copy, store, transfer and burn" digital music for personal-use only. Customers also agree that they won't "redistribute, transmit, assign, sell, broadcast, rent, share, lend, modify, adapt, edit, sub-license or otherwise transfer" the music.

I spoke with two label representatives who declined to comment for the record but told me they thought the resale of DRM-free songs could be the music industry's next big legal battleground.

Patrick Ross, executive director of the Copyright Alliance, a watchdog group made up of artists, producers and other content creators, chuckled when I explained Bopaboo's business model.

"Clearly a first-sale defense won't apply here," Ross said. "In the case of a book or any other creative work, you no longer possess the work once you sell it...It's also hard for me to imagine the model succeeding because if somebody wants to pay for works they will pay for it at a legal site and see that creators are compensated. If they are willing to break the rules, they would just go on (P2P service) Lime Wire and get it for free. I hope (Bopaboo) crashes and burns before it gets sued. It seems like a flawed business model as well as an illegal business model."

If the business model isn't a hard enough pitch to make to the music industry, Meshkin has the added burden of trying to explain his past.

In a February 2005 story, BusinessWeek questioned some of the claims Meshkin has made about his background and highlighted the controversy surrounding his oversight of a NASCAR racing team for Toyota at the age of 23.

According to the story, Meshkin was sued by one former executive with Bang Racing, his NASCAR team, and accused by some investors of misleading them about his personal wealth and ability to operate a racing team. Meshkin is quoted in the magazine denying the accusations. Toyota eventually pulled its support.

This blog was updated first at 12:30 p.m. PST with some reader feedback and then at 1:40 p.m. PST to include an interview with Bopaboo's CEO.

"Stop illegally sharing, and start legally selling" is the tagline for a start-up that wants to enable music owners to sell their unwanted MP3s.

Ernesto at the blog TorrentFreak has a story about Bopaboo, which has created a digital marketplace where users operate mini download stores.

Bopaboo buyers can search for music in all the usual ways, and the site offers a seller rating to help shoppers learn a merchant's reputation. Sellers register and then are given an MP3 store, where they can upload the music they want to sell. No DRM-wrapped music is allowed, so iTunes owners like me are blocked from selling.

According to TorrentFreak, there is no limit on the number of songs that can be offered. Sellers select their own prices but, of course, must cut Bopaboo a percentage of sales.

This was an idea bound to emerge out of the craze over songs stripped of digital rights management software. People have traded DVDs, mixed tapes, and albums for decades.

Bopaboo says the site is legal, and it sounds like it should be. Don't people own their MP3s? We'll see.

UPDATE: 12:30 p.m. PT: Several of you readers have pointed out that it's going to be tough, if not impossible, to prevent people from reselling songs over and over. This sounds like a fight in the making with the music industry. I've got a few calls in, so I'll further update this post with any objections from the Recording Industry Association of America.

UPDATE: 1:40 p.m. PT: Okay, here's the juice from Bopaboo CEO Alex Meshkin, a 28-year-old who didn't go to college, doesn't know programming but once ran Toyota's Nascar team. Yes, Nascar team. He added that Bopaboo is a Washington D.C.-based company founded a year ago.

I put the most important question to him first.

Q: Why don't you think the recording industry is going to sue you into oblivion?
Meshkin: Obviously, MP3s are very easy to duplicate...It's very difficult to tell the difference between a so-called new copy and a so-called old copy...I can buy a CD and I can rip it and that behavior has basically been endorsed by the music industry. I can resell that CD on Amazon. The industry doesn't have a way to monetize physical goods being traded on the secondary market. The first-sale doctrine protects that right. In the physical world consumers have the right to resell their property and copyright owners can't do anything about that."

Okay, but there's no way that the four largest music labels are going to sit back and let you enable people to sell multiple copies of the same song. Isn't that what people will be able to do using your digital marketplace?
Meshkin: We have the technology in place to prevent you from selling a song more than one time...We take a digital fingerprint through every upload that prevents a user from uploading to our service a track more than one time. Actually we've come up with an algorithm, which is beyond what even (digital filtering company) Gracenote does with song identification.

Have you spoken to the big recording companies or the RIAA?
Talks have sped up...I will be in New York later this week for meetings. The talks so far have been positive and the labels are inclined to look at alternative business models to monetize.

In a bid to help novice downloaders jump-start their digital-music collections, Universal Music Group is offering "curated" playlists to Dell PC buyers.

The Dell Inspiron now comes with music.

(Credit: CNET)

Starting at $25, selected bundles 50 or 100 DRM-free songs can be added while building a custom PC on Dell's Web site. The songs will come preloaded on the computer, ready to play as soon as it's booted up.

The music option is available only on the Inspiron 1525, Studio 15, and XPS 1535 laptops and Inspiron 530, 530s, Studio Desktop, and XPS 420 desktops. The XPS One and Dell Mini 9 netbook are excluded from the offering.

The songs, all by Universal artists, are then playable on any device. You can see what bundles are available on Dell.com/musicandmovies. Track bundles include thematic playlists such as "Rock Titans," "The Classics," "Blues Masters," and so on. The lists will be "refreshed" on a regular basis in the future, and available for purchase on Dell's site.

Dell already does this with downloaded movies, but it's the first time a major label has struck a similar distribution deal with a PC company. Universal's tracks are already offered through a similar service on phones with Nokia and its Comes with Music program.