[A2k] New business model that would give a cut to musicians but nothing to record labels

[Manon Ress]

QUOTE
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.
END OF QUOTE

http://www.wired.com/news/wireservice/1,71104-0.html

By 18:20 PM Jun, 07, 2006

NEW YORK -- A new website that aims to transform music-industry
economics is set to go live Thursday, giving musicians a major cut of
the proceeds while largely freezing out record labels and other
intermediaries.

La la <http://www.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 startup said la la 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.

La la 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 to 30 cents for itself, with the remainder going for
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 startup 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.

La la 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 antipiracy 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."

La la argues that it is 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 la la's research shows that for every five CDs
exchanged on the server a new CD was bought.

Though la la 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.

La la has received up to $9 million in venture capital funding,
Nguyen said.



************************************************
Manon Anne Ress
manon.ress@cptech.org,
www.cptech.org

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