Lala Sings Yet Another Tune

from the well,-let's-see... dept

Over the years, one of the companies that we've talked about here that has been full of hyperbole, but almost no substance, has been music startup Lala. It's gone through many different incarnations, each coming with grandiose claims that weren't supported by any reality. The amazing thing is that every time it made an announcement, the mainstream media rained down praise on the company, as if it were the savior of the music industry. For example, when it first launched, it was a near exact clone of an already widely failed business model: having people pay a dollar to trade their used CDs. Yet, the mainstream press treated the company like it was a great new concept -- despite the fact that a bunch of dot coms during the bubble had tried and failed to do that, and the company PeerFlix was already trying (and failing) to do the same thing in the DVD space. The press was so bought into the concept of Lala, that the NY Times even included the heavily venture funded, for-profit company in a story on companies that didn't want to profit (seriously). Then the company got lots of press by claiming it would donate 20% of its profits to a charity for musicians. But what about the claim that it didn't want any profits? If that were true, what profits did it plan to give away (and why only 20%)?

Either way, not much came of the CD swapping business, and last year, the company totally changed its business model, instead offering up free streaming music, insisting that it was ready to spend $140 million on those streams (despite the fact that, as far as we know, the company had only raised $9 million). The business model was apparently to lose money on every stream, and then get people to buy un-DRM'd music downloads instead. Except that, once again, the company was exaggerating. The non-DRM turned out to be a different kind of DRM, and as for that non-existent $140 million the company was ready to spend? Well, apparently it never showed up because the company shut down the service just a month later.

So, forgive us for being a bit skeptical whenever the company roles out a new announcement, and the press rushes to write about it. But, here we are, with Lala's latest business model being announced. At least, this time, much of the press coverage acknowledges Lala's ever-changing business and expresses some amount of skepticism.

On the whole, though, it's new idea sounds better than previous versions, at a first glance. The idea is to set up something of an online iTunes, with a few interesting features. For example, you can listen to any song in its catalog once for free. After that, you can "buy" it for only 10 cents. The problem is that you're only buying access to a stream of the song, rather than actually buying the song. So, the song itself goes in your online music player, and can then be accessed and played from any web browser. If you then want to buy an MP3 version, it costs another $0.79. On top of all that, apparently, you can download an app that will automatically add all of the music you currently have (whether legally or illegally obtained) to the online app. I tried to download the app and received an error, so I have no idea if it actually works. Update: Got the download to work and scanned my collection. It recognized significantly less than 50% of my music, though that may say more about my musical tastes than about Lala. Also, I specifically told it not to upload my music, and it is doing so anyway. That's not very comforting.

There are a few notable things here. First, getting a bunch of record labels (both majors and indies) to agree to a 10 cent price for anything is a first. Second, getting the industry to agree to a system for "unlocking" songs that people already had (even ones they downloaded through unauthorized means) is also quite a feat. In the past, the RIAA has fought vehemently against such systems, such as when it sued the original MP3.com. If the system works, I could see it as a useful way of syncing the music I already have to an online player -- and if it actually works well, it's possible that it could make sense to then purchase other tracks that way. But there are a lot of ifs involved in that process, and initially, many people might just try to use it as a backup/virtual iTunes, meaning they won't buy anything new from it, which would quickly drain Lala's remaining bank balance, without bringing in much revenue. A Business Week article notes that the company only has $3 million left in the bank, which isn't very much unless it can raise another round.

One other point. That Business Week article concludes by suggesting that Lala's success may come from the fact that it's just trying to sell music, noting that it's about time the focus was just on selling the music: "An approach that's all about selling music. Not iPods, and not ads. Just music." I can understand why someone might think that makes more sense, but it's unlikely to succeed. Because of the lack of marginal cost on music, there will always be a downward pricing pressure. Therefore, focusing just on selling music is a dangerous business model. For instance, even if all music is free, Apple's going to make good money selling its scarce iPods. But if more and more musicians decide to offer free music, then Lala may need to find yet another business model to stay in business. It sounds great to focus on "just selling music" but the economics suggests that doing so is a bad business proposition.


Reader Comments (rss)

(Flattened / Threaded)

  1.  
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    KJ, Oct 21st, 2008 @ 2:02pm

    hmm...

    The biggest problem with this model is that once I pay for the music, I have to listen to it through that site.

    If there were an open standard that were developed that allowed me to play anything that I bought from any site on my phone, or wifi enabled mp3 player...now that would be interesting.

    Eliminating the physical good, and paying a nominal fee for access.

    I'm not talking about subscription either...because this would be a one time fee. so the catch is that there would need to be a central repository of all my purchases, and I want to "own" that and decide where I store it.

    just thinking conceptually here.

     

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  2.  
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    Anonymous Coward, Oct 21st, 2008 @ 2:41pm

    Popular Music is what people want

    Music players are DIRT cheap now, you can buy them for less than $10 and I suspect that those prices will continue to decline over time. Eventually it will be cheaper to buy an MP3 player than it is to buy music to load onto it. This company is focusing on the music which is ultimately what people want, people do not WANT yet another device to carry around with them, what they WANT is their favorite songs and new songs they recognize from the radio/tv. People do NOT want unrecognizable songs from obscure bands they have never heard before. And THAT is the problem with band that are offering FREE music on the internet (it's songs that no one wants from bands that no one has heard of before).

    You can write about how great that business model is when TIMBERLAKE, BEYONCE, MAROON 5, and other artists with their same level of appeal begin offering their CDs for free. And don't attack me on the basis of musical taste, personally I don't like the music produced from those artists but that is what is popular now and that is what sells. Until then it's all experimentation (Radio Head had a big following a decade ago, and the same goes for NIN).

    Don't believe me? Here's a link to Google's shopping page for MP3 players priced less than $10.00(http://www.google.com/products?q=mp3+player&lnk=pruser&price1=0&price2=10.00& btnP=Go)

     

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  3.  
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    HG, Oct 21st, 2008 @ 3:03pm

    Re: hmm...

    You can download the DRM free MP3 from Lala and move it into any device you want. You're not restricted to listening to it from Lala.

     

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  4.  
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    Mike (profile), Oct 21st, 2008 @ 4:02pm

    Re: Popular Music is what people want

    Music players are DIRT cheap now, you can buy them for less than $10 and I suspect that those prices will continue to decline over time.

    And yet the iPod is still the most dominant device in the market, by a LONG shot.

    Eventually it will be cheaper to buy an MP3 player than it is to buy music to load onto it

    Not if the music is free. That's the point: a scarce good will always cost *something*. The music may not.

    This company is focusing on the music which is ultimately what people want, people do not WANT yet another device to carry around with them, what they WANT is their favorite songs and new songs they recognize from the radio/tv.

    No one said it's about getting people to get yet another device. Just one is fine. But if you can make good margins on those devices, and you keep introducing newer and more useful devices that people can upgrade to...

    People do NOT want unrecognizable songs from obscure bands they have never heard before. And THAT is the problem with band that are offering FREE music on the internet (it's songs that no one wants from bands that no one has heard of before).

    Um. That's not actually true, but ok.

    You can write about how great that business model is when TIMBERLAKE, BEYONCE, MAROON 5, and other artists with their same level of appeal begin offering their CDs for free.

    Ah, so the business model doesn't count until these particular bands give their music for free?

    The point is that if bands can give away music for free and make more money doing so (and both Radiohead and NIN have done so, no matter how much you brush them aside), more and more bands will begin to move in that direction as well. You can deny it, and pretend it won't happen, but slowly but surely the bigger name bands will recognize the model works.

    And then where will you be if you're trying to sell music?

    Don't believe me? Here's a link to Google's shopping page for MP3 players priced less than $10.00

    I don't care about the price. I care about the market share.

     

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  5.  
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    Geo, Oct 21st, 2008 @ 4:22pm

    Deserving of the Usual Negativity?

    Ah well, that's Mike's style I suppose.

    I like the LaLa guys. They have a genuine passion for music and they're brave enough to keep reinventing the business model in an attempt to make a viable business out of recorded music. They seem determined to work with the music labels (not easy) to figure out some kind, hell, any kind of business model that's a little more inspired than Apple's in terms of helping people discover and own music they'll like, and are now pushing one that isn't completely hampered by DRM.

    They sure do overblow their offering sometimes, but I hope this new model of theirs gets some traction. I also heard that the 10c per stream can be credited towards outright mp3 purchases.

    Go LaLa.

     

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  6.  
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    Mike (profile), Oct 21st, 2008 @ 4:52pm

    Music Recognition

    Playing around with the Lala music recognition system, and, uh, it's not that good. It seems to be "unlocking" songs for me that aren't the songs I have. In one case, rather than a cover version of a song, it gave me the original.

    In others, they seem to have no connection to the actual song. For example, on a 30 second "intro" to a live album I have, Lala has given me some totally other band with a song that appears to be over 3 minutes long. Not sure how they connected the two.

    But, really, I'd prefer to just have access to my own music, rather than the random stuff Lala seems to have decided are in my collection.

     

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  7.  
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    No Six Pack, Oct 21st, 2008 @ 4:59pm

    unsustainable

    Got a question. It appears that this venture and failures in the past are funded primarily from venture capitol. How much of this venture capitol is paid out in salary and compensation to the owner/CEO ? I doubt that business model is sustainable.

     

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  8.  
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    Mike (profile), Oct 21st, 2008 @ 5:01pm

    Re: Deserving of the Usual Negativity?

    Deserving of the Usual Negativity?

    If there hadn't been so much bogus hype originally, I'd give them the benefit of the doubt. But they made their own bed.

    Ah well, that's Mike's style I suppose.

    Weird. Just a couple weeks ago, someone was calling me the eternal optimist. Now my style is negative?

    Maybe I just call it how I see it?

    I like the LaLa guys.

    They do seem nice. But that's not really the point, is it?

    They have a genuine passion for music and they're brave enough to keep reinventing the business model in an attempt to make a viable business out of recorded music.

    And I applaud them for that. I just wish they'd stop insisting that they had invented THE MOST REVOLUTIONARY IDEA EVER.

    They seem determined to work with the music labels (not easy) to figure out some kind, hell, any kind of business model that's a little more inspired than Apple's in terms of helping people discover and own music they'll like, and are now pushing one that isn't completely hampered by DRM.

    Are now pushing one... after insisting their old one was DRM free when it wasn't? This is why I have to be skeptical. They've brought it upon themselves.

    They sure do overblow their offering sometimes, but I hope this new model of theirs gets some traction. I also heard that the 10c per stream can be credited towards outright mp3 purchases.

    Sure it would be great to get some traction. I'm testing it out as we speak. But, a business model based on selling stuff that others are giving away for free... that's always dangerous.

     

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  9.  
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    PaulT (profile), Oct 21st, 2008 @ 5:12pm

    Re: Popular Music is what people want

    OK, Mike's torn your argument apart already, but let's go for a few more...

    First of all, your argument that music palyers are cheap is pretty much crap. iPods are the best-selling devices on the market. Can you find an iPod for $10? No. Therefore, there's a lot of people thinking differently to you.

    So,then we're on to your argument about the music offered. What on Earth did you read? I read an article describing how a website was offering *major label* artists along with independents. So, the artists you mentioned are actually available.

    But, if you want to look at the different music models, so be it. There are many popular artists available for free, or very cheap (such as through eMusic or the free MP3 sections of download.com). OK, it seems like older bands like Radiohead and NIN are pushing this model, but that's only because they just managed to get out of the major label treadmill. What about other, recently successful artists like Arctic Monkeys or McFly?

    Finally, I'll pose the question I never seem to get a decent answer to: why do you assume that "not famous" = "not good"? Every single band you have ever loved started as a band nobody in the world had ever heard of. Why do you believe that newer bands are less able to be popular, simply because they don't sign up with a major corporation?

     

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  10.  
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    Anonymous Coward, Oct 22nd, 2008 @ 2:58am

    You write lala has only 3 million.
    In the article it says differently:
    "Nguyen says the company has $20 million in the bank, so is okay for now."

    Huge difference.

    http://www.businessweek.com/the_thread/techbeat/archives/2008/10/la_la_plays_a_n.html ?campaign_id=rss_blog_techbeat

     

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  11.  
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    Mike (profile), Oct 22nd, 2008 @ 3:35am

    Re:

    You write lala has only 3 million.
    In the article it says differently:
    "Nguyen says the company has $20 million in the bank, so is okay for now."

    Huge difference.


    They changed the article. Yesterday it said $3 million.

    Makes me wonder what happened.

     

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  12.  
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    Anonymous Coward, Oct 22nd, 2008 @ 7:10am

    Re: #9

    PaulT, So you are saying that if it isn't an iPod it isn't a music player? Thats completely ridiculous. There are hundreds of music players (thousands if you count the number of phones, CD Players, GPS units, DVD players and other devices that include the capability to play MP3s). My point on the hardware aspects was that hardware prices face downward pressure on prices because of competition. If there are $10 music players that are as capable as an iPod (and most are not) there will be pressure on Apple to reduce the price of its offering.

    As I stated in my post, I never said I like the artists I mentioned, but those are the artists who get RADIO PLAY, those are the artists who are making boatloads of money from their music, those are the artists who are selling out at every stop on their tours.

    You can pretend that your musical prefereneces reflect the tastes of the general population, but radio stations play songs that are requested. They are in the business of attracting and keeping listeners, seek out the information in the form of station ratings and see which genre of stations in your area have the highest percentage of listeners. You will find that Top 40 is still king, and while what they play may not appeal to me, I still have to respect the fact that the general population prefers those artist.

    So to answer your qestion, No, I don't think only those specific artist have to be available but POPULAR artists who receive generous amounts of airplay will have to adopt the model before it becomes mainstream.

    And how will a new band who does not sign with a record label get a sustainable fan base? And don't even think about saying "concerts" because then you are now giving away free concerts to give away free music. Where is the business end of this supposed "business model".

    Bands need the record labels as much as the record labels need the bands. Otherwise the band's music get lost in the sea of other muic offered by other bands. It's really a love-hate relationship, the artists love the labels for promoting them but hate them for asking to be paid for that service.

    I love the idea of that business model, it would provide me with music, but the reality is that unknown artists would remain unknown and unsuccessful. Name me ONE artist who started out giving away free music and continues to do so that is now recieving play on TOP 40 stations. All you have to come up with is ONE. Come on you can do it, can't you? Oh, I guess not!

     

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  13.  
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    Mike (profile), Oct 22nd, 2008 @ 11:35am

    Re: Re: #9

    If there are $10 music players that are as capable as an iPod (and most are not) there will be pressure on Apple to reduce the price of its offering.

    Just as if there are musicians doing just fine giving away free music, other musicians will have pressure to price there's at $0.

    Even worse, Apple has the ability to seriously differentiate their product (which is why they've remained the market leader while charging a premium). That's much harder with music,

    So we're back where we started: you can make money off of the scarce goods. The infinite ones? Not so much.

    So to answer your qestion, No, I don't think only those specific artist have to be available but POPULAR artists who receive generous amounts of airplay will have to adopt the model before it becomes mainstream.

    Radiohead, NIN and McFly are all popular artists who get plenty of airplay. Oasis has talked about adopting a similar model as well.

    And how will a new band who does not sign with a record label get a sustainable fan base? And don't even think about saying "concerts" because then you are now giving away free concerts to give away free music. Where is the business end of this supposed "business model".

    Um. There's this thing called "the internet." Check it out!

    Bands need the record labels as much as the record labels need the bands. Otherwise the band's music get lost in the sea of other muic offered by other bands. It's really a love-hate relationship, the artists love the labels for promoting them but hate them for asking to be paid for that service.

    Indeed. In fact, I've written exactly that. There's still plenty of room for record labels. But that doesn't mean the business is in selling music.

    Name me ONE artist who started out giving away free music and continues to do so that is now recieving play on TOP 40 stations. All you have to come up with is ONE. Come on you can do it, can't you? Oh, I guess not!

    Ah, so because no artist has adopted the model yet it doesn't work? Sorry, but the world doesn't work that way.

     

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  14.  
    identicon
    Anonymous Coward, Oct 22nd, 2008 @ 1:12pm

    jeeeze, did someone forward this link to the lala corporate headquarters or something? Personally, I'm not uploading my songs to anyone. All I need is the RIAA to come knocking on my door and say, "hey we just subpoenaed lala's files. We notice you uploaded 4000 separate songs to them. Please provide proof that you purchased these songs legally, otherwise you owe us $2000 per song. Cashier's check will be fine, have a nice day!".

    I'll stick with Pandora, thanks. I actually like discovering new bands I've never heard before, and I can listen to it from my ipod touch. If I hear another freakin' Maroon 5 song I'm going to go friggin' crazy.

     

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