More on Lala

The New York Times is picking up on the Lala.com on demand streaming story, revealing a little more about the dynamics of the deal with respect to licensing. Unsurprisingly, it's shaping up pretty much how I figured it would. In other words, the labels (just Warner at this point) get paid no matter what, and it's incumbent on Lala to pull a gigantic rabbit out of a Lego man's hat (my bolding):

For Warner, the deal with Lala.com has limited risk, because the label will make money from streaming royalties. But its priority is increasing sales of music, which have declined further this year. “The evidence we’ve seen is that a lot of people want to own music,” said Alex Zubillaga, Warner’s executive vice president for digital strategy and business development. “And their mandate is to sell music.”

Mr. Zubillaga added that Lala.com was giving Warner Music a good deal of flexibility in determining how to price and bundle music. Apple, the dominant player in the market with its iTunes music store, does not give music labels those options, much to their chagrin. Unlike iTunes, Lala.com will concentrate on selling albums, which it will offer for a variety of prices based on the behavior of individual consumers.

Another interesting note is that this service is not, as I previously thought, simply going to drive Lala's aftermarket CD trades. This is meant to drive direct-to-iPod downloads, without the use of iTunes software, and direct CD sales. Lala wants a piece of the retail pie (again, my bolding):

Lala.com, which is now a site where music fans can trade used CDs for a fee, is hoping to make money by selling music, both in CD format and as digital files that it will send to iPods without using Apple’s iTunes software.

Of course it's too early to predict how all of this will play out, but that's never stopped me before. Mr. Nguyen and Lala are going to take a bath on this. Even if they see initial success selling discs and files (doubtful), drowning labels like Warner will get greedy. Lala will be charged more and more for the streaming rights, and the unfixed prices will rise until sales flatten.