How AnywhereCD Went Nowhere Fast

Last week, we wrote about the curious case of AnywhereCD, which quietly started selling DRM-free music from the Warner Music Group–only to be quickly hit with a cease and desist order from the MP3-hostile label. Wired‘s Listening Post posted an interview with AnywhereCD’s founder, Michael Robertson, in which he explained what went down, and why his company decided to go the MP3 route without, apparently, letting WMG know about its plans:

Let me explain what happened. We launched a store and gave consumers two options. In both options we are selling a CD and digital files to consumers. But with the cheaper option the consumer is electing to not get delivery of the CD only the digital file. If they want to pay more then they get delivery of the physical CD. In both instances a physical CD is being purchased. Royalties are paid for the CD plus we offered to compensate participating labels for the digital files. The monies are better than traditional album sales. Let me repeat – every transaction involves the sale of a physical CD plus additional royalties. No exceptions. Those CDs not elected for delivery are kept for an audit period and then destroyed.

… Not everyone was excited though. Specifically, buying an album and then electing not to pay for the delivery of the CD raised some eyebrows. I immediately turned that feature off. I don’t want to fight on day one with people who I consider the open minded music people. I’m just trying to selling albums.

Now the irony of this situation is that it’s better for the industry if the user doesn’t take delivery. This is because the used CD market place has exploded. You have Amazon – the biggest used CD facilitator in the world. You have new sites like LaLa (“Trade any CD for $1). And most music retailers have a rapidly growing used CD section in their stores. Many people buy used, rip it and then sell it back. (The Forbes reporter I talked to yesterday says he never buys new CDs anymore – just used ones.)

If the consumer doesn’t take possession of the physical CD, then it can’t end up in the used CD channel where it can poach a new CD purchase.

Quick math on new/used CDs. If 15% of news CDs end up in the used CD channel and each gets sold once then the industry loses $1.50 per CD sale in lost future sales. Ouch!

This was the first we heard of the “we destroy the CD that we sold” angle, and it actually makes the MP3-selling enterprise a whole lot more sensical to us; after all, most CDs sold these days come with free MP3s anyway, as long as the purchasers know how to use iTunes. If Robertson is being honest about this CD-destruction angle, the majors should at least be somewhat assured that he’s acting in good faith–weren’t used CDs the boogeyman haunting the music industry 10 years ago, after the whole “home taping is killing music” sloganeering died down? Or is it just that WMG was so unnerved by the prospect of money changing hands for MP3s, without any physical product being traded, that they moved too quickly to quash what could have been a pretty decent way to move digital product?

Michael Robertson on Why Labels Killed AnywhereCD’s MP3-Only Albums [Listening Post]

  • Feh Am Legend

    Indeed a novel take on the practice of selling MP3s – Hey, there not MP3s but a digital copy of the CD you just bought! Of course, he’s completely right. But how naive is he to think this would escape the RIAA’s scorched earth policy? They don’t seem overly concerned with the vagaries of law if it doesn’t directly benefit them in the short-term.

    And, yeah, the used CD market is like the elephant in the room that the Big 3 are conveniently leaving out their equation as to why they’re snorting with 10-spots rather than crisp 100s. There was a while before Napster hit their radar when they were going to start taking on the retail chains that also sold used CDs. I think
    Garth Brooks was going to boycott some chain because they sold used CDs and he wasn’t making money from them.

  • JasonBob7

    “If 15% of new CDs end up in the used CD channel and each gets sold once then the industry loses $1.50 per CD sale in lost future sales. Ouch!”

    If 15% of AnywhereCD’s unrestricted MP3s end up in the P2P channel and each gets downloaded once (or more likely, dozens of times), the industry loses a lot more than $1.50 per CD in lost future sales.

    Not that I’m pro-DRM. I just think Robertson makes a shitty argument. Not to mention his third-grade spelling and grammar mistakes.

  • coolfer

    i don’t think it’s a stretch to say such a strategy was going to violate the spirit of anywherecd’s licensing agreement with warner music group.

    here’s what i’d like to know: does anywherecd actually take possession of the ordered cds? robertson said the company would hold on to cds that were not sent to the purchaser of the digital album, and then the cds would be destroyed? i am curious to see anywherecd’s warehouse that stores all that product.

    a more likely scenario is anywherecd contracted with a wholesale distributor to fulfill its orders. i would be surprised if that distributor actually sat on idle (and purchased) inventory until the grace period expired, then destroyed the product on behalf of anywherecd. i suppose that’s possible, but it seems really far fetched. i’d guess that anywherecd was never going to take possession or legal title to any physical cd — it would go from distributor to customer when the cd was purchased, and there would be no transaction related to physical product when the buyer opted out of the cd. i’d love to be proven wrong, by the way, but robertson’s story is a bit too corny for me.

    i get what robertson was trying to do. he was looking for a loophole. “buy a cd, we’ll rip the mp3s for you! and you don’t even need to receive the cd!” again, i’m sure it goes against the spirit of whatever licensing agreement the company had with warner, and *everybody* should have expected warner’s reaction. it was just too predictable.

  • ghostmedia

    But let’s take a step back from the implicit ridiculousness of this whole idea. Assume for a second Robertson IS telling the truth, and they are destroying thousands of CD’s that everyone knew wouldn’t be used. That is the silliest thing on earth, but necessary to avoid the “used market” problem. OK….so wouldn’t the obvious solution be that AnywhereCD pay royalties on the sale of a physical CD sale PLUS on the mp3 files, but eliminate creating a physical CD in the first place? It’s certainly not a perfect solution, but it would qualify as one of the more interesting ideas that I’ve seen.