HITS Daily Double
“This is the first time the industry has built a product for where they think things are going, and not reacting to what people have already done.”
—-Bill Nguyen, Lala founder


Digital Music Service Goes for 10-Cents a Stream, 89 Cents a Download
Lala, a digital music service which counts the four major labels among its investors, has relaunched this week, letting users stream full songs for a dime, with the intention of enticing them to buy full songs and albums.

Rather than a free experience supported by advertising, like MySpace or Imeem, Lala is trying something new.

For the first time, the labels have licensed their music as a virtual product, which doesn’t involve a file transfer or usage-based stream. Users are buying permanent rights to the song rather than purchasing an actual file.

The company allows users to stream any song they already own in their digital music

library for free from any Web-enabled device. They can also buy a permanent, Web-only virtual copy of any song they don’t already own for just 10 cents. And finally, they can buy and download the actual MP3 file for 89 cents (or 79 cents if they had previously bought the Websong version).

In other words, Lala has created a new category of ownership between sampling a stream and buying a download.

Lala founder Bill Nguyen said: “If the goal is to get consumers to buy more music, then

the existing model of how it’s priced and sold doesn’t work. Look at subscription music. They pay for every single song that’s streamed, but they get a fixed revenue from the customer. So if you’re a big music listener, you actually may cost the service more money that it makes. Instead of a streaming access product, think of it as if it were a real product. It’s just virtual. It doesn’t have the bits, but behaves in the same functional way.”

The fear, of course, is that 10-cent Websongs may cannibalize more profitable MP3 sales. Lala splits the cost of both the 10-cent Websong and the full MP3 with the labels, and makes a greater percentage on the Websong.

Since it began testing the system in May with some 300,000 existing Lala users, between 30% and 40% of Websong buyers ended up buying the full MP3.

Users will be attracted to the service first for the ability to stream their music collection from anywhere. Lala will then analyze their music collection and recommend new songs, which users can play once for free before they’re prompted to buy either the Websong or the full MP3.

Will users who can get on-demand songs free from advertising-supported sites like MySpace or Imeem pay a dime to Lala? Will they feel Lala’s robust music recommendation feature is worth their 10 cents?

With six million tracks now available from both the majors and more than 170,000 independent labels and aggregators, the service has more industry support than ever before.

Nguyen is confident this new approach, with the backing of the Big Four, will make a dent.

“This is the first time the industry has built a product for where they think things are going, and not reacting to what people have already done.”