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Report: La La a threat, but labels should hold tongue

Analyst says that despite piracy threat, record labels should develop CD-swapping site as a channel for new discs.

An analyst report calls La La a savvy new music site for helping people swap CDs via the U.S. Postal Service. But, the report notes, the company is also a highly effective way to pirate music.

La La allows music lovers to find used CDs on the company's Web site and then order them from their owners, other La La members. The discs are then mailed from one party to the other. What may alarm some music-label executives is that many CDs lack copy protections, and there's nothing to prevent songs from being converted to MP3 files and spread across the Web, according to a report issued by IDC analyst Susan Kevorkian.

The same is true in the case of brick-and-mortar used-CD stores, but "those stores lack the potential scope of La La," Kevorkian said in her report. "This perceived threat will only grow as La La's community does."

Calls to La La were not returned.

After years of combating piracy, executives from music labels are likely to be wary of any service that promotes sharing, regardless of whether the music is on MP3 or pressed to a CD. People have swapped albums and CDs with friends for decades, but the difference now is that the Internet and PCs make it easy for a and trade with people who have similar musical tastes.

At La La, those ordering a CD pay $1.75 ($1 goes to La La for brokering the swap, and 75 cents covers postage). Once users ship a CD, they're entitled to order one for themselves, and similar to Netflix, La La provides packing materials. La La's foundation is the company's search and recommendation engine, designed to connect members with similar interests in music, Kevorkian wrote.

"La La seeks to re-create online the experience of shopping in a local music store," said the report, "where casual music-information sharing with other music buffs and knowledgeable salespeople drove sales for the retailer."

During the dot-com boom days, several companies, including Swaprat and attempted to launch bartering services but most didn't survive the Internet meltdown.

When it comes to mitigating the illegal copying of music, La La is approaching the problem in a new way. First, the company is offering to pay artists 20 percent of the company's CD-trading revenue through the La La's Z Foundation. This means that La La will be among the first to cut artists in on profits from the sale of used CDs. And La La also sells new music, which could go a long way toward appeasing record companies.

Finally, with all the illegal distribution of music on the Web, the threat La La poses is insignificant, Kevorkian said. Kevorkian warns record companies to expect some La La users to make unauthorized copies. But the smart play, she says, is to embrace the service.

"The music industry would do better to develop La La as a distribution and marketing channel for new CDs and digital downloads," Kevorkian wrote.