LaLa is making a very big bet on its business - it will offer users something they’ve never had (legally) before: free, legal, on demand streaming music.
LaLa already runs a cd swapping service and recently started to let users listen to live concerts on the site.
Now they are going to let users listen to on demand music on the site in addition to its other services. There are a number of paid services that do this already, and a handful of flat out illegal ones as well.
This is an extremely expensive business - unlike services like Pandora that have to pay only a fraction of a cent when they play a song (and it still hurts them), on demand streaming rates are more like $0.01 per song. That works out to an average of $0.17/user/hour, and there is no way to cover those costs with advertising alone.
It’s also much more difficult to work through the legal mess to offer this kind of service. Unlike Internet radio, which is covered by the DMCA and which has rates set by regulation, there are no laws to cover on demand streaming. LaLa must negotiate directly with the big labels. The one-cent per song I mentioned above is an estimate by an industry insider of what Yahoo and others pay. Labels can charge more or less than this, and they also like to get a minimum fee per listener/month of around $6. Unless LaLa puts listening restrictions in place, heavy users will go way beyond that. Our understanding is that the labels will also only negotiate one year deals, and if they see any profit on the table at the end of the term they will grab for more.
So how will LaLa cover its costs? The company says they are going to sell CDs to users. Like a song? Click a button and get it sent to you. They say that if they can get each user to buy one CD per month on average they will break even. That may be true, but the average music buyer in the U.S. buys two CDs per year. So LaLa will have to get heavy music buyers to the site to move that average up.
The company has been working on this for some time and is reportedly still in negotiations with labels to get the rights to music. Last year they took over an Internet radio station and began selling CDs to listeners based on songs they like. Hopefully they have enough data to prove their model out.
LaLa raised $9 million in capital from Bain and Ignition Partners.
Perhaps if they explained on their FAQ their situation - the way it was detailed here, happy users just might purchase from them to keep their free services alive.
as long as piracy is hanging loose they won’t make it!
I can see this working well with a subscription model. Free users get a certain number of streams per hour or day, and the rest of the time they are offered music Pandora style.
Personally I think that relying on one CD per user per month is a little crazy. If users can listen to whatever they want on demand then why would they buy a CD?
With regards to the streaming; MySpace has obviously got themselves a good thing going. When I want to hear a particular song I just search for the bands MySpace page and stream it off there.
“If users can listen to whatever they want on demand then why would they buy a CD?”
>Not all of us are sitting in front a screen 24/7. We go places…in the car, on a bike, on foot. CD’s are good for such things, but maybe just for old people and audiophiles.
“When I want to hear a particular song I just search for the bands MySpace page and stream it off there.”
> Some of us like music from artists that, gasp, don’t have myspace pages. (Wagner, Bach, etc.)
hmmm, nice concept
but isn’t that what yahoo music is offering already?
“When I want to hear a particular song I just search for the bands MySpace page and stream it off there.”
> Some of us like music from artists that, gasp, don’t have myspace pages. (Wagner, Bach, etc.)
That`s the thing, which isn`t so great..
I’m still trying to figure out what “steaming” music is (read the headline)
=P
It’s a decent idea, especially if you do happen to spend a lot of time in front of your screen. However, I think unless they hardcap the number of streaming songs that you can have, there is going to be a lot of loss of inventory. I don’t know how many times I let Pandora stream away while I go to lunch or take a break. This is just burning money for them.
No the bright side, if they can build in the sort of incentives that you need to get each person to buy two CDs a year, then they might have something here.
- Yeah -
- I think its a good idea / but …..
- 1 CD per month per User / is not likely…..
- Can they sell commmercials like radio?
i love lala–it’s the best.
and i’ll be happy just so long as they don’t risk their core functionality with this venture.
I guess they learned free is the way to go after watching us catch up to them in the trading game by offering it for free.
I think they’ve raised two rounds by the way for something like 14 or 15 million?
We have a couple rounds of shots on Friday nights!
Did you ask them where the Z Foundation is at??? You know, the big marketing piece they had when they first launched about them supporting musicians??? Or is that not important anymore now that they got the attention they wanted with it???
cheers to lala for working on this. it is the solution that both music fans and the industry need.
so much listening is occurring that goes unmonetized. but many listeners resist paying for music.
a service is needed that is 1) free to the end user 2) generates ad revenue for the industry and 3) is compelling enough of an experience that users will tolerate the ads.
providing great discovery to go along with the music goes a long way on #3. additionally, as michael points out, $0.01 per song is a high hurdle. but overcoming it is possible. the ads need to be audio because, as many commenters have pointed out, audio apps are often minimized, so visual ads will be missed. great targeting will also be necessary to get the needed CPMs.
again, free, ad-supported, on-demand music is what both listeners and fans need. it will happen. look for more services to come out with this soon.
Big mistake here, Blogmusik (www.blogmusik.net) offers already this type of service. Blogmusik has signed few weeks ago with the French RIAA, the Sacem, contracts allowing them to stream on demand music. Users can for example upload mp3 on their blogmusik accounts. All free, all legal !
So Lala will be the second one…
Micheal,
http://www.spool.fm does the same thing and its legal by a loophole. It doesn’t have advertising at the moment either.
http://forum.spool.fm/viewforum.php?id=17
Rishi
Steaming music? Yeeowch, don’t burn your ears!
Yes, when I saw “steaming”, I just had to check it out… a steamin’ pile o’ … what? music? oh, same diff. (Another case where a simple spell-checker wouldn’t have helped)
I didn’t get through whether lala allows downloading or not?
sell CDs?!, wtf ?!?! Is LALA targeting 80 year olds or what? I have a fairly average music collection and it looks like this. CDs = x zero (I took great pleasure dusting them off and chucking them ALL IN THE TRASH) - MP3s = x 33,152. However, CDs are pretty excellent for reflecting sunlight in the rearview mirrors of asshole motorists. This sounds like a desperate startup without vision in it’s leadership. Their model belongs in the 1999 deadpool - lame
What, they saw imeem get sued and wanted some of the action?
Good News
Wow, sounds like an amazing service, but it will never work. They should attempt their own “Pandora” first, before they jump into something like this.
Great domain name!
i digg these lala folks; I’ve gotten a bunch of CDs for $1 from them
a friend of mine got on the preview of the next rel. he wouldn’t tell me much but sounded pretty excited