Recording Industry Trying to Thwart CD-Ripping Firm From Selling Pre-Loaded iPods

Norwalk, Conn.-based Terra-San, a CD-ripping supplier that also sells pre-loaded iPods to consumers, has received cease-and-desist orders from Warner Music Group and the RIAA, owner Joel DeGray told Consumer Electronics Daily.

In a letter to Terra-San, Warner Music said Terra-San’s business of selling music on pre-loaded iPods might well be “illegal,” DeGray said. Warner Music ordered Terra-San to suspend that business and turn over all accounting and financial information so the label “can determine royalties,” DeGray said. “The implications are far and wide,” he said. Terra-San is working with consumer advocacy groups, he said, urging us to check back with him for updates in the weeks to come. RIAA through a spokeswoman declined comment. Warner Music representatives didn’t immediately respond to queries.

Terra-San supplies CD ripping services for custom installation dealers as well as end users. If the recording industry “is trying to say that ripping is illegal, or that we don’t have the right to perform this service for the customer, I think it reaches pretty deep into what you're allowed to do with digital music and beyond,” DeGray said. When a content provider “can tell you whether someone else can provide a service for you or not, they're really reaching more than a little too far,” DeGray said.

Terra-San’s website shows a variety of pre-loaded music collections, which the company sells as “fully loaded” music collections ripped to USB thumb drive or iPod using MP3 or FLAC encoding. DeGray posed the question to us, “If we, as a service, don’t have the right to do it for the end user,” he said of ripping music from a CD to a computer and then transferring it to an iPod or USB drive, “does the end user have the right to do it?” A consumer’s right to rip music for personal use “has already been established,” he said, citing “your right to make a backup copy.” He also said the service falls under fair use.

Apple has given its iTunes customers the option of making a CD backup copy of albums bought through the iTunes store. In fact, it used to encourage users to do so to protect their investment. Posts on Apple support boards, though, indicate the “backup to disc” option was removed from iTunes as long ago as 2011. A section entitled “How to burn an audio CD in iTunes” has been archived on the Apple website and is no longer being updated, the website said. The page has a copyright warning that reads: “This software may be used to reproduce materials. It is licensed to you only for reproduction of non-copyrighted materials, materials in which you own the copyright, or materials you are authorized or legally permitted to reproduce. If you are uncertain about your right to copy any material, you should contact your legal advisor.”

The letter Warner sent to Terra-San was on the behalf of the Grateful Dead, DeGray said. Terra-San sells a Grateful Dead collection of 21 albums on an 8GB iPod Touch for $799 and for $549 on an 8GB thumb drive. That includes the album CDs in their original packaging and a backup DVD-R with music stored in Apple Lossless (ALAC) and MP3. “All we're talking about is a right to offer a legal service for the customer,” DeGray said.

Terra-San buys the original CDs through distribution, rips the content from the CD and loads it to a “brand-new iPod,” DeGray said. “Being that they're physical CDs bought through distribution, all the royalties are paid there,” he said. “Apple gets paid when we buy [the iPod] through their distribution,” he said, and “the Grateful Dead gets paid” from the CD sale, he said. DeGray compared the situation to having to “call Reese’s every time you want to dip your chocolate in your peanut butter,” DeGray said. “If the Grateful Dead say they have the right to tell you whether you can put it on an iPod or on a USB drive, they're overstepping their copyright."

The irony, DeGray said, is that “we're selling more CDs at a time when selling CDs isn’t that easy” for the record industry. “Each customer gets a fresh set of CDs and a fresh iPod. They just don’t have to do the work of loading it,” he said. For some people, Terra-San’s service is a convenience. For others, getting music on an iPod “even now is a technical challenge,” he said. He said the situation is like “Mobil telling you what kind of car you can put the gas in,” he said. “We're just the person at the filling station, transferring the content to the tank."

On why this issue is coming up now, DeGray said Terra-San has seen more activity on its pre-loaded iPod because it offers a way to get music that isn’t available as downloads. “Downloads are great, but you can’t get all the music you want,” he said, “and you certainly can’t download 300-500 songs easily.” He said the quality Terra-San provides is CD-quality, better than most digital downloads. “It’s not a compressed download,” and that’s a “big value-add,” he said. Another benefit to users is that Apple Lossless is part of the MPEG-4 standard, DeGray said. “Ten years from now when there’s a new format, if you're a Dead fan, you can change it to MPEG-5 or whatever,” he said, which users will be able to do from the original lossless recording. Providing the CDs ensures the copyright is maintained and the studios get their royalties while giving customers a way to protect their investment. If they lose their iPod, they'll still have their original CDs, he said.

Pre-loaded iPods start at about $300 and go up to $8,900 for the Rolling Stones iPod with 7,500 tracks, DeGray said. With Apple charging $1.29 per track on iTunes, the price is comparable, he said. “Try downloading 7,500 tracks,” he said. “And there’s just some stuff on these CDs that isn’t on iTunes,” he said. He declined to provide company volume. “I don’t think the issue is about volume,” he said. “I think the issue is about, as their letter puts it, ‘This might be illegal and we own the rights to tell you whether you can put it on an iPod or a USB.'”

Terra-San’s position is, “We're not saying no to any of that,” DeGray said. “We're simply saying that because it’s legal for an end user to do [copy a CD to an iPod or USB drive], it’s legal for us to perform this as a service for them.” DeGray’s concern is that the music industry is “trying to set a precedent here and just going way, way too far.” He added, “I thought we were done with these issues in the early ‘90s.” The recording industry is “out there bullying around and seeing how much ground they can grab back up,” he said.