Lala.com Gives Digital Music Another Try

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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.

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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.

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