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Switched On: La la, legality, and the long tail

Ryan Block, @ryan
03.29.06
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Each week Ross Rubin contributes Switched On, a weekly column about the future of technology, multimedia, and digital entertainment. Today's Switched On is the second part of a two week column on la la:

When I wrote about Peerflix last July, I speculated that creating the same kind of service for compact discs would create a "slow-man's KaZaa," One of the most interesting debates I've had with la la's management team regards whether the company "induces" piracy, an offense that convinced the Supreme Court to vote unanimously against Grokster. Certainly, on the surface, la la is doing everything by the book. While one could argue that the company will benefit from piracy, at least as it gains scale, it actively discourages piracy and is putting in place some precautions to help prevent against it.

For example, there is a "cooling off" period between when one acquires a CD and when one can offer it for trading, and la la will act against anyone who sells a burned copy of a CD. Together, these measures won't do much to stop even casual infringers; and it is naïve to think that traded CDs won't be ripped. The only question is to what extent. Regardless, la la says it has more in store to steer people down the right path.

In addition, la la is different than Grokster in two important ways. First, unlike with digital media, selling CDs – somewhat to the chagrin of the labels -- is still protected under the first-sale doctrine that enables consumers to part with their shiny discs at the local used record shop. La la is simply enabling the same kinds of transactions that have been going on at eBay and its subsidiary half.com for years. It just accelerates the process by making it ridiculously simple to offer a CD for trade.



Second, unlike on Grokster, where the illegal trading was done "in band", any piracy done "via" la la takes place after la la is out of the picture. It's outside the service's scope. In other words, if la la is liable for inducing piracy, so is any music store that accepts returns.

But the most convincing argument that la la will help the music industry is not a legal one. La la claims that it is not only working with the labels but partnering with them. While the allure of long tail music selection will be the service's bait, it will also offer new CDs attractively priced because of target marketing; labels will have great insight into what consumers already have so they are not pitching the latest hip-hop release to an unlikely buyer who owns only classical music. La la ultimately sees much more of its revenue coming from new CD sales than traded ones.

Consumers interested in recent releases will be more likely to buy them new instead of trading for them simply because of supply and demand. For labels, la la is essentially a new direct marketing channel. Finally, la la is attempting to send 20 percent of each transaction fee to them. So, even if a CD is ripped and traded multiple times, the artist benefits from each trade.

With such impressive forethought, la la could be unprecedented win-win-win for artists, labels and consumers, but there are risks. If piracy overwhelms the service or if consumers cherry-pick singles off of new releases at digital stores (or, worse, download them illegally), the value for labels would wane quickly.

Trading CDs through the mail seems pretty low-tech and will slow the practical music acquisition bandwidth of la la users, but the venerable miniature Frisbees still have quality and flexibility advantages over much online music and, having witnessed the rise of eBay in spite of that service's poor user experience in its formative years, I will never again underestimate people's tolerance for gently used items.

If la la can get all the parts of its economic experiment working well together, it will not only move a lot of music; it will move mountains.

(La la has offered invitations to try out the beta service to the first 500 readers who fill out the form at http://www.lala.com/invite/engadget. Neither Ross Rubin nor Engadget have any financial interest in la la nor do we endorse or make any guarantees regarding la la's service.)


Ross Rubin is director of industry analysis for consumer technology at market research and analysis firm The NPD Group and a contributing editor for LAPTOP. Views expressed in Switched On are his own. Feedback is welcome at fliptheswitch@gmail.com.

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