By Yinka Adegoke
A new Web site that aims to transform music industry economics is set
to go live on Thursday, giving musicians a major cut of the proceeds
while largely freezing out record labels and other intermediaries.
Lala.com, which allows fans to trade music discs for just $1, plus
shipping, pledges to give a fifth of its sales to all the musicians,
including lesser known session studio players, involved in the making
of CDs exchanged on its site.
In a move that is certain to stoke controversy with music promoters,
the founder of the Silicon Valley start-up said Lala will circumvent
traditional copyright and royalty payment systems to compensate
identifiable working musicians.
The site works something like an eBay auction exchange as it
encourages consumers who sign up for the service to list all the CDs
they may want to exchange as well as ones they would be interested in
receiving.
Once an exchange is arranged, the recipient pays $1.49, of which 49
cents pays for shipping the disc, leaving $1 for the company for
musicians, administrative costs and its own cut.
Lala said 20 cents of each $1 will go into a charitable fund for the
musicians. It is looking to pay the musicians via a charitable
organization it has set up called the Z Foundation. It plans on
keeping 20-30 cents for itself, with the remainder going on
administration.
"We all have this music that sits in our homes -- wouldn't it be
great if people can exchange those CDs," said founder Bill Nguyen, a
serial Silicon Valley entrepreneur.
He's a veteran of start-up companies including Seven, a mobile e-mail
rival to Blackberry maker Research in Motion and OneBox, which was
sold to Phone.com, which is now known as Openwave.
Lala has been testing the service for several months with nearly
100,000 people and claims to already have another 200,000 people
waiting to join the service when it goes live.
The service is bound to raise eyebrows at record companies which have
stepped up their anti-piracy drives in the last few years to combat
both CD and digital music piracy.
But a spokeswoman for the Recording Industry Association of America
said that, "To date we have declined comment on Lala.com -- and will
hold to that here as well."
Nguyen admits his company has had a mixed reaction from the record
companies, with some viewing his plan as a threat along the lines of
the pioneering peer-to-peer music file sharing service Napster.
"One label thought it would help them to know their customers for the
first time," Nguyen said. "But others' view of us is as the devil,
more like peer-to-peer services."
Lala argues that it offering a vibrant new way for consumers to
discover new music and that if successful, it will encourage robust
sales of new music, unlike the culture of pirated CDs and downloading
that followed in Napster's wake.
Nguyen claims that Lala's research shows that for every five CDs
exchanged on the server a new CD was bought.
Though Lala is a for-profit business, Nguyen envisages a community of
fans and musicians running many key elements of the site with a
relatively skeletal paid staff that he plans to keep under 30
employees.
For instance, fans and artists will jointly decide whether a musician
who applies for compensation will get paid under the system. Nguyen
described the site as having a business model inspired by Wikipedia,
the online encyclopedia built from editorial contributions by its
users.
Lala has received up to $9 million in venture capital funding, Nguyen
said.
(Additional reporting by Eric Auchard in San Francisco)
Copyright 2006 Reuters Limited.
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