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New MP3 format faces Microsoft challenge

Companies are getting a first glimpse of the new audio format, but it may be too little, too late in the face of aggressive moves from Microsoft and others.

Smaller and better is the mantra of the technology industry, but when it comes to the upgrade for the MP3 audio compression format that simple formula is not a guarantee of success.

Over the last several weeks, a few people have taken a first listen to the new version of MP3, the audio format that has kept the Net music world in a state of flux for a half-decade.

As an upgrade to an aging technology, there's no question that the MP3Pro format is overdue, but whether it catches on is in doubt.

Rivals produced by other companies and independent programmers have matched MP3's audio quality with far smaller files. And in this market, size does matter: Half the size means that twice as many songs can be stored on Walkman-like players, for example.

These rivals--particularly Microsoft's Windows Media format--are beginning to eat into MP3's dominance of the online music world, as patent holders Fraunhofer Institute and Thomson Multimedia are keenly aware.

Companies getting their first glimpses of the new MP3 format will be able to start working it into players, CD rippers and software in about a month, Thomson says. But consumers won't see the new release until late this year, when it may be too little, too late in the face of aggressive moves from Microsoft and others, analysts say.

"I'm very skeptical about the chances of it taking off," said Aram Sinnreich, an analyst with Jupiter Research who covers the online music business. The new format will be more expensive to license, and record companies have already shown their desire for formats such as Windows Media that are harder to copy, he said.

More than music
The fight over online music formats extends well beyond the bounds of online CD sales. Microsoft is vigorously trying to make its Windows Media format the standard for any audio, video or other multimedia content distributed via the Web. Music is the first beachhead for the technology, but analysts say that if the software giant establishes dominance there, it will be easier to make Windows Media the standard for distribution of movies and other entertainment.

But online music listeners have shown themselves to be a cantankerous bunch, unwilling to follow the lead of technology companies or music industry giants.

The dominance of MP3 as a format came almost as an accident, rising as a grassroots movement online. Once companies such as MP3.com and EMusic began developing business models around it, consumers helped twist the market in a new direction by swapping MP3 songs through free file-trading service Napster instead of paying for them.

The next year will test this consumer independence, however. The major music labels have begun moving toward distributing large parts of their catalogs online, and the technology decisions they make for these services will likely influence what mainstream consumers favor.

It's these dynamics that Thomson and Fraunhofer must navigate as they begin licensing their update to today's standard.

Faster, cleaner, clearer--but no more secure
The goal of MP3Pro is to create files that are near CD quality in half the size or less of those now distributed through MP3.com or Napster.

Engineers have done this by splitting audio recordings in two. One part of the new files will contain all the information in ordinary MP3 recordings and will play even on old players. But new or upgraded players supporting MP3Pro will also tap into another stream that holds high audio frequencies cut out of the old recordings, putting them together to make a higher-quality sound.

This will allow ordinary, portable MP3 players, which typically hold 30 minutes to an hour of music, to double their capacity. It also will potentially allow Webcasters using the MP3 format to cut bandwidth costs, since the same songs played in the new format will be easier to stream.

People who have heard the format say it lives up to its promises.

"It's excellent," said Musicmatch CEO Dennis Mudd. "It's a good step forward for MP3." He said his company, whose software is one of the most popular means for consumers to create, or "rip," their own MP3s from CDs, is likely to license the technology.

But will the record companies, which are gearing up to recapture control of music distribution, listen?

The labels have been skeptical of the MP3 format, which was one catalyst for the wave of unauthorized copying of music that has saturated the online world for the last few years. And like the old format, MP3Pro will not have built-in security against unauthorized copying.

Microsoft's Windows Media, by contrast, has anti-copying protections built in that record companies can use to limit the distribution of songs on Napster or its rivals. That has been a key factor in recent deals that many of the labels have struck with Microsoft.

Henri Linde, vice president of new business at Thomson, said he's talking to labels about licensing, but today's software and hardware technology companies are more likely partners.

"We are talking to some (label) people, but we're not their most frequent partner on the phone," Linde said. "The labels are not really enthusiastic about MP3."

But even if the labels aren't enthusiastic, others in the industry point out that it has always been consumers who have driven the technology decisions. Labels ultimately must bow to listeners' preferences, these optimists say.

"The experts have been predicting the demise of MP3 for a couple of years now, and we're seeing the exact opposite in the marketplace," said Michael Robertson, CEO of MP3.com. "Consumers are voting with their mouse clicks that MP3 is good enough for them."