Lala Leverages Internet Radio for CD Swapping, Sales

In a bizarre amalgamation of virtual and physical business, the dying independent terrestrial turned internet radio station WOXY is being revived by online CD swapping service Lala. Lala is tangible evidence that online music doesn’t have to kill the CD industry. At first I was skeptical, but after spending more time on the site I think this radio strategy is very smart. See also our previous coverage of the company here.

Lala users identify CDs they want mailed to them for $1 plus 75 cents shipping. Other users who have those CDs available for swapping are notified and put them in the mail. Lala keeps the dollar and donates a portion of it (as much as $50k in a month so far) to a Foundation that supports artists. Users can also chose to purchase CDs for immediate delivery.

Now the company is taking over WOXY to allow users to create streaming radio stations that will in turn inspire CD swapping and purchases. Station listeners can click to request a swapped or purchased CD that a streaming track originates from. The music available for creating the radio stations is licensed from a third party. Lala plans to invest between $5 and $10 million into the station. The company received $9 million in funding from Bain and Ignition last year.

It appears that Lala is quickly gaining traction with users. The company reports about 10,000 CD swapping transactions per day. Comments left on the site appear in numbers that many publishers would be envious of. The company says CD sales have been doubling monthly and hit gross margin profitability last month. Only 2% of CD swapping transactions result in complaint reports and users are rated in a karma system.

Perhaps the strangest thing about Lala is a delusional, yet legally required, request that participants delete digital copies of music from the CDs they mail away in swaps. I’d be curious to see how often that happens.

Internet radio licenses open a number of interesting, if legally tricky, possibilities like this. See also, (our coverage) an Australia based social network that combines user playlists, online music sales and an internet radio license. (Disclosure: Faces is a TechCrunch sponsor.) See also our coverage of Swaptree if trading physical objects is your thing.

I think I like Lala, though the integration of CD swapping, music purchase, internet radio and DRM compliance is taking a while for me to wrap my brain around. Apparently that’s not the case with Lala’s growing user base though. This is definitely a company to watch.