Challenging iTunes' pay-per-song model, Lala.com is looking to revolutionize the digital music business by offering unlimited songs for free. The company is looking to transform its CD-swapping site into a music portal where members can download songs directly to their iPods, bypassing the computer hard drives where most music is stored, according to the AP. The company says it has an agreement with Warner Music Group to sell its catalog of nearly 200,000 songs for $0.99 cents, but that it also allow members to play the songs for free. Lala.com, however, will pay Warner a penny each time someone listens to a song. While most other streaming music sites charge a monthly subscription fee (e.g., Napster) or offer advertising, the Palo Alto-based company will do neither; instead it will rely on revenue from members who buy new CDs or swap used CDs with each other for a fee of $1 per disc. The company also said it would use DRM-free music, much like Apple's recent launch of higher quality, DRM-free music.

The licensing fees are expected to be around $140 million over the first two years (based on current growth projections), according to the founder, but the company will weather the storm and pay those fees as well as allow users to copy music to their iPod (without storing it on their PC).

"To download songs to an iPod, members must download a 3-megabyte plug-in that runs on all major browsers on Windows and Macintosh computers," the AP wrote. "Because the songs aren't stored on the PC hard drive, the primary source for files pirated on peer-to-peer networks, Lala will dispense with traditional digital rights management, which controls which devices can play a song."

The new service could cut into sales from Apple's iTunes, which current sells 5 millions per day, but may actually increase sales of the iPod, according to one IDC analyst.

"ITunes has historically been about driving hardware sales," one IDC analyst told the AP. "If there's another compelling source of music for the iPod, it makes the experience of owning an iPod that much more compelling."