A new digital music start-up has morphed from a CD-swapping site into an ambitious project which aims to deliver free online music to iPod owners.  Lala.com has teamed up with Warner Music Group and it will sell songs and albums without DRM protection.

Lala.com, a Palo Alto-based company, has an agreement to sell nearly 200,000 songs for 99 cents each, starting Tuesday.

In order to prevent illegal distribution, downloads will only be possible to an iPod. The LaLa.com members must download a 3-megabyte plug-in that runs on all major browsers and the songs aren’t stored on the hard drive.

The company intends to enter in agreements with the other major companies such as EMI, Sony BMG and Universal. Members will also be able to play the Warner songs for free, and the company will pay Warner a penny each time someone listens to a song.

"We believe over the next two years we might lose $40 million," founder Bill Nguyen said in an interview with Reuters. "We expect up to 70 percent of people will be freeloaders just listening to the music but around 30 percent will be buying music," Nguyen said.

Lala is backed by Bain Capital and Ignition Corp., which so far have invested $14 million. Few days ago EMI was the first music company that started to sell songs without DRM-protection through iTunes store.