Lala, lala, I can't hear you...

Too bad I didn't post my lecture I gave at The Conversation this weekend about license-based distribution, because the article below about Lala.com only reinforces it.

Lala.com is now offering licence-based ownership of music... a model that directly competes with the iTunes. In fact, if you own an Mp3 on iTunes, you can upload your library to Lala.com and stream it from their site if you log into Lala from any computer. That model blows iTunes out of the water where you own Mp3s locally and can't stream anything. Hell, even I'm tempted to use Lala.

This is probably related in some way to the new DECE (Digital Entertainment Content Ecosystem) that the big movie studios recently rolled out, but Lala.com distributes music, not movies. Apple's dominant iTunes model is severely in jeopardy if they don't act fast to sell all their MP3s without any DRM, and offer users the option to stream their music from anywhere. Unfortunately, Apple is only a content distributor and not a content producer like Sony, so Apple still needs permission from content producers to offer non-DRM Mp3s (Apple used to offer non-DRM Mp3s for $1.29, but caved in April 2007 when they realized consumers would rather purchase a CDs to snag those non-DRM Mp3s. Now Lala.com is offering non-DRM Mp3s, too.)... and the producers have realized they can cut the distributor out of the equation and sell straight to the consumer.

Lala.com Gives Digital Music Another Try
By RYAN NAKASHIMA
Tuesday, Oct. 21, 2008

(LOS ANGELES) — First a CD-trading site, then a free Web-based music browser, lala.com is being born again. The site is relaunching Tuesday as a hybrid, offering the digital download functionality of iTunes and the free music streaming of MySpace Music without the ads.

The Palo Alto, Calif.-based private company, backed by $35 million in venture capital from Bain Capital LLC, Ignition Partners and Warner Music Group Corp., first launched in July 2006.

Its first version lacked scale and the second was met by numerous me-too players from MySpace and iMeem to Last.FM, said co-founder Bill Nguyen.

This time around, listening to any of the 6 million tracks at lala.com will be free. It will cost 10 cents to put a song in a Web locker for unending access on any computer where the user logs in.

Another 79 or 89 cents allows the user to download an MP3 track, with no digital rights management coding.

Because the site is ad-free, the business relies on selling Web tracks and MP3s.

"Where we get into trouble is if we do a lot of streaming and we don't sell music," Nguyen said.

Users of lala.com's test site — who number nearly 300,000 — are buying enough music to put the site on the path to profitability.

In the testing period, for every 1,000 free streams, the site sold about 60 Web songs and 60 MP3s. It needs to sell 15 to 20 of each per thousand free streams to be profitable, said spokesman John Kuch.

Users can upload their own music from CDs and iTunes into their digital locker for free. This gives lala.com enough knowledge of an individual's tastes to be able to market similar songs to him or her, a technique that boosts the sell-through rate about fivefold, Nguyen said.

The site has the participation of all four major record labels — Universal, Sony, Warner and EMI — and 170,000 independents.

Thomas Hesse, president of global digital business for Sony Music Entertainment Inc., said a key reason for licensing music to lala.com and other sites like it was the ability to sell music downloads.

"We do streaming deals that also have an upsell opportunity," Hesse said. "To us, that is an important side-by-side concept."

Sony's digital music sales represent more than a third of its U.S. revenue and are on pace to exceed revenue from physical CDs "fairly soon," Hesse said.