Posted by: Peter Burrows on October 20, 2008
Tomorrow, Lala Media Inc. will announce an interesting new approach to selling digital music. It’s based on a new type of license it secured with the four major labels and 170,000 indie labels, that lets consumers pay a dime to own a song that they can listen to whenever they want so long as it’s on the Web (Actually, the first listen is free; you pay your dime if you want to listen more than that). Then, if you decide you want to download the song to your hard drive or listen to it on your iPod or any other device, you can buy it for another $.79 (or $.89 if you haven’t taken that middle step of paying the dime). That gets you a DRM-free MP3 version of the song.
What’s interesting about this is that it’s the first approach I’ve come across in a while that even attemps to make money by actually selling music.
For the last year, we've seen a parade of advertising-based sites, that give away the music to get access to your eyeballs. But while the overall advertising market is far larger than the shrinking music business, so far none of these ad-supported sites has emerged as a clear financial winner.
Lala CEO Geoff Ralston, who in a previous life created the predecessor to Yahoo Mail and later became Yahoo's chief product officer, says there's got to be enough music lovers willing to pay for music on a site focused only on their needs. "I was so tired of hearing about all the compromises you have to make in order to make money," says Ralston, such as ad-filled interfaces that are not much to look at and take extra time to load. The trick was to make buying music cheaper and more convenient than other approaches, whether it be iTunes (where you can only hear a 30-second sample before paying the slightly higher price of $.99), or subscription services like Rhapsody that cost $15 a month and don't work with all devices. "Only Lala provides a clean, uncluttered experience around music," he insists via e-mail. "Only Lala will give access to all music content all of the time."
Their goal is to turn Lala into an online platform of sorts--a place to discover, store and most important access your music, whether you are listening on Lala.com, or tapping into your Lala library while on Facebook or some other website. Once you buy a "websong"--that's what Lala is calling the $.10 version--it will show up in a few seconds in your library, so it's there on whichever browser-enabled device you pick up next.
It sounds good, but the company has announced big plans before. In June 2007, Lala launched a service that would let consumers listen to music all they wanted on the site, and only pay for the right to play it on a mobile device. That didn't work out so well. Consumers who tried the well-hyped site ran into tech glitches. And co-founder and chairman Bill Nguyen couldn't secure the support of enough labels. Within two months, they'd pulled the service down. Good thing, probably. In our story that year, Nguyen had said Lala would go out of business if it couldn't quickly win enough revenue to pay for the huge cost of licensing the music.
Nguyen began to look for a new approach. Late in 2007, by which time Ralston had come on as CEO, iMeem had convinced all the major labels to let it offer their music for free, in exchange for a cut of the ad revenues the site collected. Others have since followed suit, notably MySpace. Since the labels had okayed a new license for ad-supported sites, Ralston and Nyugen figured they could convince the labels to support a new kind of license to support their plans, as well.
Based on the demo I received, Lala is executing better this time around. The site has a clean interface, and when you click to play a song or add it to your library it happens quickly.
But will the business model work? Lala has to win back some credibility, and do it during very tough times. Nguyen says the company has $20 million in the bank, so is okay for now. And he says the company will break even if a consumer spends $4 to $6 per year on the site. Even if they don't upgrade to the full MP3, that's forty or sixty songs. That sounds within reason, though Nguyen thinks many people will spend $25 or $30 given all the new music they'll discover. Just like every other music site, Lala's leaders say the labels are excited about supporting their service. Ralston figures the label will get 1.3 cents for every play of a song, versus .3 cents when the same song is played on a free ad-supported site.
As someone who doesn't mind paying for my music, I hope Lala gets some traction. It's a long shot, since many consumers have already chosen their favorite ways to get digital music and don't need another. Case in point: I haven't found much time to play with the Lala service. But hopefully, it will at least draw some copycats willing to try an approach that's all about selling music. Not iPods, and not ads. Just music.