Giving away music to sell more CDS

Can free music sell more CDs? Lala.com is betting its future that the answer is yes.

By Michael V. Copeland, Business 2.0 Magazine senior writer

(Business 2.0 Magazine) -- Even in the fast-shrinking music business, it would be hard to find a riskier bet than the one Bill Nguyen plans to make. The online service he launched in the summer of 2006, Lala.com, was built on a heretical notion: CDs are not dead, and music lovers still want to trade and buy them.

But Nguyen is going one heresy further: By giving his users access to free tunes, he thinks he can drive up his CD revenue even faster.

Lala already lets its 300,000 users list their CD collections and automates trades between them. When swaps are successfully arranged, the traders each pay $1.75 per CD to receive the discs they want in the mail, and Lala keeps 70 cents. (It will also sell a new disc for $10 if no one has the CD to trade.)

Now the company is attempting to license millions of songs from the big music labels -- a business model that could burn through Nguyen's $9 million in venture cash in four months. "We'll know pretty quickly if we're right or wrong," he says. If he can sell just one CD per user per month, analysts say, he'll be right. Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.