Half.com, Buy.com Team On Latest Used-goods Site

LOS ANGELES -- In another linking of a retailer of new CDs and a used-goods seller, consumer electronics site buy.com is teaming with eBay's Half.com on a co-branded service for buying and selling secondhand CDs, videos, and DVDs.

Under terms of the agreement, music and videos for sale on Half.com will be featured on the buy.com site on a co-branded page called the Entertainment Marketplace. Additionally, buy.com consumers will be able to sell CDs, DVDs, and VHS tapes through the marketplace service, which is expected to launch next year.

According to Half.com VP of business development Chris Fralic, the deal reflects the increased consumer demand for used products. "Consumers are looking used as an additional option of how they like to get their entertainment products," he says.

Half.com acts as an intermediary for buyers and sellers of used goods by putting up a storefront to sell the goods, clearing transactions from the buyer, and paying the seller. The site boasts an inventory of more than 1 million CDs. Fralic says the company actively polices against the sale of pirated or other unauthorized product. He also balks at concerns that the emergence of a secondary market for CDs will undercut new-product sales.

"Ultimately it comes down to the question of, Is this going to cannibalize sales that they would have gotten directly? But our feeling is that it expands the entire marketplace," says Fralic. "It lets people more freely buy new when they know there is an outlet for them on the back end to sell it used."

What's more, Half.com argues that it's a formidable marketing partner for the likes of buy.com. Under the deal between the two companies, Half.com will promote buy.com as a featured seller of new products throughout its site.

"[Buy.com] clearly wants to keep selling new product . . . The deal is just giving users the option to look at used product without having to go elsewhere," says Fralic.

Meanwhile, other online retailers are also catching on to the potential of used product sales. Amazon.com, for instance, recently began offering its customers the option to buy either new or used CDs from its music store. Previously, used product was listed in its auction area, but now when customers search for titles, both the new and used product is listed.

"We sell new and used product, and we felt we shouldn't make a customer search for used product elsewhere on the site," says Jennifer Cast, Amazon.com VP of entertainment. Amazon also allows individual consumers to sell used product on the site. "We have 21 million visitors a month, and many of those are sellers, so this is a win for all of our customers," Cast says.

Checkout.com, which earlier this year merged with Wherehouse Entertainment, a leading used-CD brick-and-mortar retailer and Web site, says that 15% of their overall sales comes from used product. "Wherehouse had already established themselves in the used area, and when we became an equity partner with them, we really began to ramp up," says Checkout.com president Edmond Mesrobian. "We thought as part of our business partnership it was only natural to make used sales a part of the online business as well. We can offer attractive price points and get great gross margins."

Like Amazon, Checkout lists used products right alongside their new counterparts, but it doesn't allow individual consumers to sell through the site. The company's brick-and-mortar store for used product, called the Exchange in Cerritos, Calif., acts as the fulfillment center for the online sales, but Mesrobian expects that the Web site will eventually offer the chance for consumers to buy and sell their used product online.

"Right now, consumers don't come online with us to barter used product," Mesrobian says. "We want to take slow steps establishing our fulfillment systems, but we will let individuals swap online."

Checkout.com is also partnered with Alliance Corp. for fulfillment of new product. Mesrobian says that the goal is to take used fulfillment in-house using the Exchange stores.

As selling used product becomes more popular on the Internet, the risk of selling unauthorized product, such as promotional copies, becomes heightened.

"Clearly, it's a problem that we're aware of, since we're not new in this venue," says Djangos president/COO Steve Furst. "But every piece of product we ship on the Web goes through a cleansing process that ensures it's not a bootleg or promotional copy."

Djangos, which operates 20 brick-and-mortar stores in five states, sources its used product mainly from consumers. The company also buys product from postal auctions and overstock sales.

Because of the speed of the Internet, product trade-in at a brick-and-mortar store can be listed on the store's corresponding Web site within a matter of hours. In many cases, some product shows up on Web sites the same day as the title's street date.

"When the title is scanned at the store, we can have them up on the Web site within two hours," Furst says. "And it will probably be sold and shipped out by the end of the day."

Checkout's Mesrobian says all of its used product is also carefully checked to weed out any unauthorized product. Checkout and Wherehouse, as well as Djangos, do not accept promotional or bootleg product for resale.

But Amazon does not physically check used product exchanged between individuals. Instead, it lists lengthy disclosures on its site to warn consumers about selling unauthorized product.

"Any product that's listed on our site is reviewed by our team, and we have lists of rules on the site," says Amazon's Cast. "It's not a huge problem."

Amazon also encourages its customers to rate the quality and service of individual sellers. Through the ratings systems and their own internal review process, less reputable sellers can be banned from the site, Cast says.

While retailers remain confident their internal filters are shifting out unauthorized product, the Recording Industry Assn. of America (RIAA) is policing Web sites as well.

Using such keywords as "bootleg," "live," "used," and "MP3," a team of RIAA Internet detectives crawls the Web for sites selling illegal product.

On the whole, once unauthorized product is identified, RIAA senior VP director of anti-piracy Frank Creighton says, online retailers remove it. The RIAA also helps train Web sites about identifying CD-R products.

"If notified, the sites have been cooperative [in removing the items]," he says, "but we would hope they would be more pro-active."

Within the past three months, Creighton says that between 2,000-3,000 illegal items identified by the RIAA have been taken down from eBay.

On average the RIAA's team identifies 20-30 auction sites a day selling unauthorized product ranging from live concert bootlegs and promos to CD-Rs.

Creighton says the RIAA has often identified sites selling promotional copies and is advising its members to "revisit their promotions and marketing" policies regarding the distribution of promotional copies.

But labels say placing tracing systems on promo copies is too costly. "We've tried different things, but once you put a single into the marketplace it's going to go up on the Web; there's just no way around it," says one label executive who prefers not to be identified.

In general, labels oppose retailers selling legitimate used product at the store level or on the Internet.

"We're not thrilled with the used-records market, period," says the label executive. "It devalues our content."

But Web retailers are more concerned with keeping their business legitimate so that customers keep coming back.

"One thing we see on the Internet is that anyone can offer anything, and the buyer has to beware," says Djangos' Furst. "It's not a criticism; it's just a fact. But we're a valid merchant with so much more to offer."