More details: Facebook, Lala turn music tracks into virtual gifts

Perhaps there’s hope for record labels yet. While album sales tumble,  virtual goods are on track to become a $1 billion industry.

Then what better way to solve the ailing music industry’s problems than by turning songs into virtual goods?

Well, there’s one initial problem, virtual goods in games can only be consumed in one place — inside the gaming environment. By contrast, songs can be copied at virtually zero cost and be consumed anywhere.

So Facebook and Lala’s solution is to make songs gifts, which can come in a specially designed environment with birthday graphics and e-cards. It’s 1 Facebook credit or 10 cents for a song that you can play inside Facebook and 90 cents (or 10 cents less than iTunes) to get a track you can download.

“It’s totally different and integrated,” said Lala’s co-founder Bill Nguyen. “There are cards around it and it’s really packaged. When someone knows that you’ve paid for it and it’s packaged properly, it has much more emotional value.”

Lala was coy on its revenue share but said that it was similar to other app-platform pricing models. I asked if it was 70-30 Lala-to-Facebook and Nguyen said that was close.

The deal actually took quite a long time — we reported that Lala was in talks about a potential partnership as far back as a year ago.

“I always joke that this has taken longer than the aging of some of my children,” Nguyen said. And the talks took on a more serious tone even before MySpace bought music sharing startup iLike for $20 million in August.

Nguyen said it took such a long time because “Facebook had a very ambitious vision for music — they never wanted to just sell music. They wanted to make it social and tie it into events and the Facebook platform.”

I asked Nguyen about what he thought of other music startups trying to move the paradigm away from ownership and toward all-you-can-eat streaming access like Spotify.

“Spotify is like Yahoo Music five years ago,” he said. “The economics of subscription are really weird — the more successful you are in getting people to use your service, the more expensive it becomes. And a lot more expensive. We’ve been there, done that, seen it before. We wish them the best of luck.”

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