Welcome to Lala Land

When you think of the music industry and its many challenges (and opportunities), some big names may come to mind, but probably not Lala.com. However, the private start-up is wagering that it can carve itself a niche in the changing landscape for digital music (as well as ride on Apple's (Nasdaq: AAPL) coattails).

Lala.com plans to let computer users listen to albums on its Internet service for free (from any computer), but if they'd like to actually own the albums and load them onto their iPods, they'll have to pay up. (Tagline: "Play albums on demand, buy the ones you love.") It's an interesting idea, given that most digital services either let you sample snippets of songs before buying (like iTunes and Amazon.com (Nasdaq: AMZN)) or provide all-you-can-eat subscription models that focus on streaming music (like Napster (Nasdaq: NAPS) and RealNetworks (Nasdaq: RNWK)). And of course, the specter of piracy has long loomed over the entire industry, and many people still use file-sharing services to feed their musical libraries for free.

This looks like it could be an expensive undertaking for Lala.com. According to BusinessWeek, Lala.com could spend about $140 million to buy the rights to songs across the universe of major and indie labels. (So far, only one major label is interested, and that's Warner Music (NYSE: WMG)). Should the idea take off, it could be a huge chunk of change -- and Lala.com only has $9 million in its coffers. Of course, it also hinges on the idea that the labels will sign on for it at all, which would signal quite a change of heart on their part.

Some of Lala.com's ideas are pretty innovative, and music industry companies should take note. For example, it envisions offering other content to music lovers, such as concert footage and music source code that could help users make mash-ups. (That reminds me of some of indie label Nettwerk's ideas of the types of ancillary content diehard fans would probably be willing to pay for.)

It seems that Lala is trying to take advantage of two key truisms. First, people like to know whether they'll like something before they buy it. Second, major audiophiles will likely want to port and display their music on their iPods, since music collections are a way of defining one's taste (for anybody beyond the passive listener).  

Lala.com's success or failure will be interesting on an academic level (and the widely spread idea of it taking on iTunes might be overblown, really). Perhaps the most important thing to remember is that these plans underline the idea that there are opportunities in the music industry for companies that can think outside the box. Major music companies often veered off course in their obsession with piracy by confusing their biggest potential fans with the enemy, and I'm not entirely convinced that Apple's new DRM-free premium service won't backfire with iTunes' customers, who were paying anyway. However, listeners' appetite for music seems to be more vibrant than ever; opportunities abound for the companies that will continue to move forward and find innovative new ways to engage fans.

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Alyce Lomax does not own shares of any of the companies mentioned. The Fool's disclosure policy looks just like Buddy Holly.