Ownership versus licensing of digital content: An impact assessment

of shifting industry trends

Saad Khan
Durrani
689149
ISYS90051
sdurrani@student.unim
elb.edu.au

Tushar Gadhok

Divya Gupta

734812
ISYS90051
tgadhok@student.unim
elb.edu.au

724894
ISYS90051
guptad1@student.unim
elb.edu.au

Chaitanya
Nampalli
Single Space, 0pt
before/after
ISYS90051
same@student.unimel
b.edu.au

Abstract

Keywords

1. Introduction

Write this
2. Traditional characteristics of
ownership

In order to better understand the transition from

ownership to licensing, some aspects of
ownership, based on their relevance to this paper
will be explained. Ownership of physical
material such as music, books or video games
has traditionally been protected under the first
sale doctrine, which allows for the owner of the
material to sell, gift or dispose of the material as
they see fit, without the subsequent owner losing
any of the rights of the original owner (U.S.C,
2006).
A further addition of this concept entails
tangibility, whereby the owner has a physical
copy of said material as a proof of their
purchase, from which they can derive use for as
long as the copy is in functional form.
Furthermore, concurrent usage is prohibited,
whereby transfer of ownership will, in most
cases, deprive each previous owner of use of the
material.

As will be explained in the subsequent pages,

while the intellectual property content has
successfully managed to make the jump from
the physical to digital medium, these traditional
characteristics find themselves left behind in this
era of high bandwidth internet connections and
cloud hosted content.

3. Emerging characteristics of licensing

A landmark decision by a US court in 2010

specified that the resale of software is
prohibited, if the software producer has stated
that the user was granted a license, whether the
copyright owner limits the transfer of ownership
and imposes usage restrictions (Vernor Vs.
Autodesk Inc., 2010). While this decision
greatly hampered user rights, it also spurned a
transition in business models, allowing content
producers complete ownership. [Expand on the
case]
Presently, most models of digital content
provision, be it eBooks, music or video games
allow for content to be leased to the user, rather
than the user owning a copy of said content.
Depending on the business model, this lease
could be either in the form of ongoing rent, one-

time payments or free access. This model of

licensing out a product allows the content
producer to retain all rights of ownership,
allowing them to charge at will for continual
access and change the terms of use as they see
fit (Downes, 2010).

4. Advantages of shifting to a licensing

model for businesses

The transition to digital is more than from one

platform to the other, as it opens the gates for
businesses to tap into hitherto undiscovered
revenue streams, thereby providing a wider
variety of business models with which to attract
newer consumer segments. Netflixs subscription
based business model allows viewers to access
its large library of television shows and movies,
as long as they keep paying the monthly
subscription granting Netflix a guaranteed
continual source of revenue (Warrillow, 2014).
On the other hand, Amazons e-books and
Steams video game models persist in a more
traditional sense, with users paying a one-time
fee to be able to add the content to their personal
libraries, and to access and use them, in most
cases, at will. A third perspective is provided by
Spotify, which provides a combination of a free
ad-based service, coupled with a premium
subscription based service to generate revenue
from users (Spotify, 2013). All these models also
leverage metadata generated by user activity to
either sell it to a third party, or to leverage it to
better focus their product offerings to user
habits.
A second advantage for businesses is lower costs
of distribution of content. Since the cost of
production and transportation of physical books,
CDs or DVDs is no longer a concern, the profit
margins of businesses are growing considerably
larger. Harper Collins profits on e-books stand
at 75%, as compared to 41.4% for traditional
hardcover books, while being able to price an ebook at 53% of the cost of a hardcover book
(Howey, 2014).

Finally, licensing allows businesses to

discourage any activity that they perceive to be
unsavory, by policing user accounts. With Steam
all content is tied to a specific account, and
Steam can limit a users access to their own
account and libraries if they believe that the user
has engaged in acts of piracy, hacking, payment
fraud or trading accounts with other users,
among other criteria (Steam, 2015).

5. Advantages of licensing for users

The newer models of licensing provide new

advantages for users as well. In some instances,
users can get access to content for far cheaper
under a subscription based licensing model than
a traditional model, as well as larger libraries of
content. Spotify offers over 30 Million songs
(Spotify, 2015) to its users, which can be
accessed for free. By comparison, iTunes
charges users $1.69 per song, however they also
allow users to access to their personal song
library offline.
Additionally, due to the ubiquitous nature of the
internet, and lack of tangibility of digital
content, users are allowed significantly greater
ease of access of digital content. Music can be
downloaded without having to wait for the
specific album to be shipped to the nearest store,
and played on multiple types of devices.
Similarly, Steam allowed users to pre-download
the PC release of Grand Theft Auto V, so that
they could play it as soon as the game was
released, saving enthusiasts time standing in line
for a physical copy. Users also gain the
advantage of having access to constantly
improved content via patches, often times at no
additional cost.

Pitfalls of licensing for users

The lack of caveats for businesses to pursue
licensing as the standard for disseminating
digital content is well understood. Unfortunately,
while it has a number of advantages for users, a
shift to licensing, from the ownership model has

turned into a scenario where the users rights are

being constantly eroded without their
knowledge. There are cases where businesses
are not entirely honest as to informing the user
that the item that they are paying for is licensed
rather than bought. iTunes uses the word buy to
describe any music transaction on its store, but a
review of the EULA reveals that content is
actually licensed, not bought (Bott, 2011).
With licensing, the biggest pitfall for the user is
the fact that the user does not own the product.
This mean that the First Sale Doctrine does not
extend for any licensing transaction. The Xbox
One allows users to purchase and install
hardcopy games on its hard drive. While the user
will pay the same price as a previous generation
Xbox 360 game, they will not be allowed to
resell or transfer ownership of the game once
they have already used it, causing a severe blow
to user rights. Furthermore, content is tied to a
specific users account, which means that the
content only exists for the user in his lifetime,
and cannot be passed on to anybody else upon
the original purchasers demise. In the
ownership model, an individual could create a
large library of books as tangible proof of all the
money spent on them, and pass them on to their
heirs as they saw fit, something that will not be
possible with the licensing model. Insert Case
Likewise, a user may sometimes find that they
cannot access to their legally purchased content
if certain conditions are not met. Assassins
Creed 4, Need for Speed and Far Cry 3 are all
examples of games that require a permanently
active internet connection in order to play
(Crecente, 2013). This means that the user will
not be able to play the game, even if it is
downloaded and installed, unless they have
constant internet access, and will be booted from
the game if access is disrupted. Furthermore, if
Ubisoft or EA, the owners of the above
mentioned franchises were to pull the plug on
the servers in the future, users would not be able
to continue playing the games. They could also
get their accounts banned, effectively limiting
access. Blizzard, the owners of World of

Warcraft, has issued more than 100,000 and

have clarified their action with a statement that
they will continue with similar actions and
restrict users to cheat as they believe in
providing fair field to all. (Wilson, 2015)
Compare this to decade-old games like
Westwood Studios Red Alert, which can still be
played without restriction.
Finally, while owners of a purchase are well
secured by extensive consumer protection laws,
those same laws do not, as extensively, cover
licensing of digital content, leaving a gap in the
protective umbrella of the law. This can
potentially open the gateway for consumer
exploitation at the hands of businesses.

6. Conclusion

While the global shift from ownership to

licensing models of digital content is something
that is very recent, it is also proving to be an
extremely effective model for businesses, and
has led to the emergence of large, multi-million
dollar businesses within the last 5 years.
Unfortunately, this comes at a cost to users, as
they find themselves at a double disadvantage.
Firstly, businesses mostly own the copyrights to
the content, with legal precedent negating the
First Sale Doctrine from extending to digital
content, severely limiting what paying users can
do with it. Secondly, there is a severe lack of
transparency, with most users still not aware that
they do not own the product that they have paid
money for, and are in fact only allowed to access
it in under a specific set of conditions
(UNESCO, 2013).
One possible outcome to balance the footing
between the user and the business is to consider
the addition of the First Sale Doctrine to digital
content as well. While there are certain
challenges to this, such as lack of tangibility and
lack of scarcity,

[Creative Commons]

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