Lala’s Big Gamble

Lala, an enabler of CD swapping and provider of Internet radio, is announcing tonight it will soon be offering a large catalog of music for streaming directly from its website, including the catalog of Warner Music Group.

This is a big move, improving on existing Internet radio and subscription music services, because users will have unlimited and free access to complete albums. In other scenarios, listeners are constricted by radio restrictions or monthly charges.

Lala has agreed to pay record labels an estimated $140 million over the next two years in licensing fees — a penny per each play of a song — if it hits its targets. The company is making the bet — a “grand experiment,” as CEO Bill Nguyen calls it, that trying music will entice users to buy music. “For music fans, either you get to see the future of the music business, or you get to watch a really wonderful plane crash,” he said.

Nguyen (see our profile) has taken the unusual step, for a technology company, of getting record labels to agree to his plan upfront rather than operating without a formal relationship, a la Napster, YouTube, and IMEEM, he said. “I think the day of do it and ask for forgiveness later is done.”

While streaming will be free, lala will charge users to download files to their iPods. We weren’t able to get the downloads feature working today, but when they go live users will be able to buy unencrypted AACS files, another major step forward. The download setup looks quite nice in demos, though, and is formatted specifically to the iPod. Improving upon Apple’s own iTunes offering, lala will auto-detect an iPod plugged into a computer, display its contents within the browser, and automatically sync downloads to it (rather than pushing them to the computer’s harddrive first).

The web player is also pretty smooth, keeping music playing even as you navigate between pages and create playlists. (Sorry, the site went down for the transition right as we were about to take screenshots.) There is also a locker function that lets you download (from lala, not your own computer) any song you have stored on a harddrive associated with your account to another computer (this requires a downloaded app).

Nguyen promises other labels are in negotiations to provide their music as well, and independent artists will be able to sign up for the platform themselves. Lala may have bit off more than it can chew, but it’s good to see a web startup being ambitious.