Company pledges to donate 20% to artists.

Warner Music Group financial backer Bain Capital and Ignition Partners have invested $9 million in lala.com, a used CD and e-commerce business that is applying a Netflix-meets-MySpace concept to trading second-hand albums.

Users of the site, currently in beta, can list CDs they own and create a wishlist of titles they want. They then exchange CDs through the mail in pre-paid envelopes that the company supplies to all registered users. The company does not support trading of burned CDs. Any user reported to be distributing burned discs will be banned from the site.

Members pay a shipping charge of $1 for every disc they receive. There is no charge to users shipping discs.

The prospect of a social networking site that allows music fans to swap their CDs among each other free of charge is raising eyebrows in music industry circles. However, executives at Palo Alto-based Lala claim that the venture is legit.

Company co-founders, Billy Alvarado and Anselm Baird Smith maintain that the business model is covered by the first-sale doctrine -- an exception to the U.S. Copyright Act that allows consumers to sell or give away CDs they have purchased. They also believe the site will expand legitimate sales.

If an album is not immediately available for trade, members can buy the CD new or as a digital download through Lala.

"Trading CDs is an affordable way to experiment and try new music," says Nguyen, "but when you find that album you can't wait to enjoy, we offer it as a new CD or as a download and often, with additional bonus material at retail price." In an effort to curry favor with the music industry, the company is pledging to give 20% of its revenues to artists. It has been not been determined which collection societies Lala will work with.