Free At Home, But Pay to Carry: Lala

June 10, 2007

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Perhaps you have heard about the music service Lala before. It’s like a subscription music service, but without the monthly fee. Read an interesting article at WSJ.com about it today.
Lala is giving free access to music at home and hopes to earn money from listeners who will pay to buy the songs they want to take with them on iPods and other music players.  (Where is at home? In the livingroom? In the office? …)
At the moment Lala sells music only by album ($6.50 to $13.50) rather than song by song.
According to the WSJ Lala pays major labels $6 to $8 a user each month, about the same wholesale rate paid by online music-subscription services like RealNetworks Inc.’s Rhapsody. But Rhapsody charge users $12 a month for the subscription service and Lala.com charges nothing.
Lala will work through a normal Web browser (no download software needed) and users can create and save playlists, send them to friends and browse the virtual collections of other users etc. — for free. The most important feature: The service will work with the iPod, even without using iTunes software — something no iTunes competitor featuring major-label content has been able to do. (But according to the recent DRM discussions this will be soon not be the only one.)
So to do the math: Lala has to sell every user one or two albums per month to make the same money than Rhapsody. Is this possible?
Where do most of the people hear music?
Is this “mobile market” big enough to earn money? Or will you use this service just on the laptop where you have WiFi access and get your music from other sources on your mobile player?

WSJ.com writes:
“The company believes its business model will succeed because the ubiquity of mobile phones and other gadgets that can play music provides such a growth market.”
“Mr. Nguyen — the company doesn’t use titles but he is effectively chief executive — says he aims to be as big as the iTunes store in 18 months to two years. He hopes to do so not by poaching Apple’s customers but by recruiting new ones. “Lala is about moving the 90% of the market that’s [still buying CDs] over to digital,” Mr. Nguyen says. “Getting iTunes customers onto Lala would be pointless.””

I am not sure if this will work.  I doubt it.
In the wsj.com article Alex Zubillaga, executive vice president for digital strategy at Warner Music, is cited: “If you give consumers a great and very flexible sampling experience, that generates a tremendous amount of commerce”.
I agree, but I doubt that that the commerce comes from paid content for mobile devices. Anyway the labels get paid for the “free”content on Lala.com so they are happy.
Actually what I like at the Lala concept is the variable Pricing System.

WSJ.com:
“Prices will be “dynamic,” or based on demand for a particular title and other factors, including the existing content of a user’s personal music library. Typically, labels use low prices to drive music discovery, often subsidizing big discounts for brand-new albums on the theory that generating word-of-mouth interest will provide momentum in the future. They also sometimes cut prices on blocks of older titles during special promotions. But for most older albums, they often charge a premium, figuring that people buying older music are less likely to be doing so on a whim after, for example, hearing the song on the radio.
Lala, by contrast, plans to use its variable pricing system as more of a customer-loyalty program. Low prices will be used as “a reward, not an enticement,” Mr. Nguyen says. “It’s like the Las Vegas comp system: The more you buy, the better deals you get.””

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