After months of beta testing, the album-swapping site La La went live to the public Thursday (June 8), offering nearly two million used CDs for $1 each.

But that wasn't the site's biggest news of the day.

The real headline was that La La's co-founder, Bill Nguyen, says he's finally figured out a way to pay musicians for used-CD sales through his Z Foundation. Nguyen says his foundation will do two things: hand out tens of millions of dollars to artists who normally don't get a cent from second-time-around sales, and help provide artists with much-needed access to health care and dental services.

The plan works by diverting 20 percent of the proceeds of every album sale to the foundation. Artists who want to get paid for a used CD that is sold on the site have to register, and then La La users and other musicians will vote on whether the artists' claim is legitimate. If 60 percent agree that the person is a working musician who contributed to the album, the musician can search La La's catalog and identify what percentage he or she is entitled to based on the royalties from the original sale.

Complicated? A bit. Worth the trouble? Definitely, according to Nguyen.

"The basic foundation is based on trusting people," he said. "And if people agree that the person deserves to get paid, they will get money based on the trading of their music. For the first time in history, people who consume music will directly compensate musicians for their work."

Nguyen predicts that by next year the Z Foundation — which is currently setting aside $10,000 to $50,000 a week — will be disbursing between $10 million to $20 million to musicians in used-album royalties.

While charitable, the move could cause some anger in the music business because it circumvents traditional copyright and royalty payment systems, according to a Reuters report. Nguyen said record companies have had a mixed reaction to the idea, with some seeing it as a kind of Napster in the making and others viewing it as an opportunity for music fans to discover new music. Spokespeople for the Recording Industry Association of America (RIAA) and the major label EMI Music declined to comment on the La La service or the Z Foundation.

According to Nguyen, the site already has a catalog twice the size of Amazon.com's and five times bigger than eBay's music listings, with thousands more releases being added every day. La La works thanks to what Nguyen calls a kind of internal "karma" — the more CDs you offer for sale, the more CDs that you're interested in are offered to you (see "Want To Swap That Chumbawamba CD For 50 Cent's Last One? This Site Can Help"). The site is free to join and each album costs $1 plus 49 cents shipping, and comes in a plastic sleeve inside a prepaid envelope, without the jewel case or artwork. If an album isn't immediately available for trade, users can buy it new or as a digital download at retail prices.

Of the $1 the site collects from each sale, 20 cents will go to the Z Foundation, 20 to 30 cents to La La and the rest is allocated for administration of the site. While the RIAA has spent the past few years suing users who have illegally traded files online, Nguyen points out that the resale or trade of legally purchased albums is safeguarded by the "first sale doctrine" of the U.S. Copyright Act, which protects a consumer's right to sell or trade a CD in any way they wish.

In addition to paying musicians, Nguyen said the Z Foundation has an even more radical scheme in the works. The proceeds from sales of records by deceased musicians such as Elvis Presley or Tupac (whose families or estates might not bother to sign up), or by mega-artists like U2 and Madonna (who have significant sales but might not be bothered to do the paperwork), will go into a general fund. If bands cannot agree on percentages after a mediation process, that money will go into the general fund, too.

Through the general fund, the Z Foundation will offer to help pay some of the health care costs for musicians, who typically don't have access to group health plans, or often have no health insurance at all. The goal is to get enough musicians to sign up for the plan that they can establish a more affordable group plan for working musicians.

"It ties the customers back to music," Nguyen said. "What musicians do is such a big part of our culture and the problem is so many have to give it up and get regular jobs so they have health care. This says, 'Continue being a musician and this record store will make sure you can keep performing music.' "

For complete digital music coverage, check out the Digital Music Reports.