-- They will need to overcome the spotify issue, presumably [1]
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[1] The underlying issue is the model appears to be leveraging in-copyright source material. The rights holders will argue its a for-profit platform for re-publication, rather than a permitted use in a limited capacity. That is the issue at hand for the market and/or courts to decide.
viz:
17 U.S.C. § 107
Notwithstanding the provisions of sections 17 U.S.C. § 106 and 17 U.S.C. § 106A, the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include:
1 the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
2 the nature of the copyrighted work;
3 the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
4 the effect of the use upon the potential market for or value of the copyrighted work.**
However, there is reason to think a deal could be structured that benefits all parties. The business has potential to add real value, as it is a new channel for adding new life into legacy content libraries (for example).
> "The use to which the works in the HDL are put is transformative because the copies serve an entirely different purpose than the original works: the purpose is superior search capabilities rather than actual access to copyrighted material," wrote Judge Baer. "The search capabilities of the HDL have already given rise to new methods of academic inquiry such as text mining."
This might set precedent for a showdown over annotations that quote extensively from the source text, since online annotation systems also "[give] rise to new methods of academic inquiry."
The main point here is that laws about fair use are pretty vague, and new technologies always shake things up. We don't know what is legal and what isn't until it's put before a judge. In the case of Google's book scanning, the court case took seven years, which shows just how tricky this area of law can be.
[1] http://arstechnica.com/tech-policy/2007/05/google-v-perfect-...
[2] http://arstechnica.com/tech-policy/2012/10/court-rules-book-...