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]