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Court To Record Labels: Your "Rules" About Reselling Promotional CDs Are Bogus

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A federal district court has decided against Universal Music Group, which had sued Troy Augusto last year for selling its promotional CDs on eBay. The court stated that promo CDs fall under protection of the first sale doctrine. In this case, that means no matter how many stamps and stickers the record company puts on a promo CD saying it's not for resale, they're essentially giving it away to the recipient, who can then do whatever he or she wants with it -- including selling it.

This wasn't the first time record companies have tried to crack down on the resale of promo records and CDs. In 1997, the now-deceased record store I owned got a cease-and-desist letter from the Warner Music Group, then known as WEA. Not only were we to stop selling promos from Warner Brothers and all its subsidiaries, but we were to pack up every promo CD from the labels in question and mail them back to Warners, along with a letter promising never to sell another promo CD.

A couple of heart attacks, one phone call to a lawyer and one letter mentioning the first sale doctrine later, the problem went away. We never had another legal problem with promo CDs

We knew back then that the record labels' legal departments were stupid at best and hypocritical at worst, since a lot of the people who sold us promos in the first place were major label execs and, in many cases, the artists themselves. They all knew that while people might not experiment with a CD by a new or unknown band for $14.99 or $16.99, they might give a used or sale copy a shot at $8.99 or $9.99 -- and that could result in sales of future CDs, concert tickets and merchandise down the line.

Why didn't the labels simply lower the prices of new CDs by emerging artists? You'd think it was simply greed, but I found out firsthand that a lot of customers didn't trust the quality of a CD if it was priced too low: "Why is that only $9.99 brand new? They must be desperate to unload it."

The vast majority of people who sell promos are reviewers, radio station employees, label interns and others who find themselves lucky enough to get on record company mailing lists. If record companies really expect these people to not sell their freebies online or to used record stores, then they're even stupider than they seem. When the editor of a guitar magazine inexplicably gets the new Mariah Carey CD, or a hip-hop blogger is sent five copies of the new Busta Rhymes, what do you think they're going to do? Send them back?

Today, the whole game has changed. More indie stores are dying by the day. CD prices are finally coming down, to the point where it often hardly makes sense to sell promos. And rather than putting a bunch of promo CDs in indie stores, labels and artists can now stream full albums online, while word-of-mouth can be gleaned from the blogosphere.

The court's decision is a good one, but the point will soon be moot. Record companies are rapidly switching over from promo CDs to promo downloads, where the recipient enters his or her name on a label-run website to gain access to the music. And you can't exactly resell that. So while it's nice that the rules have been laid down, the game's about to become obsolete.