MP3 catalyzing Net music's future

MPEG 1, Audio Layer 3, or MP3, which allows users to download and listen to songs with great speed and ease, enjoys a passionate following among early adopters of online music downloading. But the lack of major label support for MP3 and its technical limitations are serious impediments to its achieving critical mass.

Fueling MP3's popularity, online music aficionados--particularly the more independent listeners who shun mainstream culture--love that the technology is nonproprietary and makes available a staggering number of selections from grassroots bands. Likewise, thousands of fledgling acts, along with a handful of top-tier names, also have embraced the format, saying it gives them more control over the distribution of their music.

Industry watchers and players debate exactly how or to what extent MP3 might shape the music business. Some say the industry will be unchanged, arguing that MP3's less-than-CD-quality sound and its large disk space requirements will make the format go the way of the eight-track tape. Others say MP3 will make dinosaurs of traditional record labels by eliminating the need to manufacture and distribute the physical product of CDs.

In-between the two extremes is another possibility: As MP3 whets music lovers' appetites for the benefits of a technology that can deliver songs online, it may pave the way for a better, more sophisticated standard to take hold.

"The take-away from MP3 is that consumers want a digital music format that allows a great deal more control of the content they choose," said Mark Hardie, a senior analyst at Forrester Research who follows the music industry. "It is inevitable that we will have a music industry that distributes its products digitally."

Hardie's prediction has not been lost on the recording industry. Last fall, the Recording Industry Association of America sued Diamond Multimedia, claiming that its Rio portable MP3 player violates copyright laws governing digital recording devices. The RIAA also has sued several Web sites that offered music downloads without the copyright holders' permission.

The suits point up one of the recording industry's chief concerns about MP3: namely, that the ease with which users can generate copies with high sound quality and distribute them over the Net makes record labels' property vulnerable to piracy on an unprecedented scale.

"Security has been an important issue to music companies, and they have not been running to make their products available online when doing so is an invitation to being stolen," RIAA general counsel Cary Sherman said in an interview. "They want some assurance that the music will be secure before going down that road."

The RIAA is spearheading the Secure Digital Music Initiative, which is designed to create a technical framework for digital music so that it cannot be distributed without the copyright holder's permission. About 110 companies are participating in the project. A specification for portable devices, such as the type targeted in the RIAA's suit against Diamond Multimedia, is expected by the end of June. A more ambitious plan for other types of devices is due by the spring of 2000.

Converts to downloaded music, however, bitterly criticize the RIAA's efforts, saying they are designed to kill off the widespread use of MP3 and any other grassroots format that may emerge.

"The RIAA is trying to make every attempt to maintain control over the distribution of music in the United States," said Bob Kohn, coauthor of Kohn on Music Licensing and the chairman of GoodNoise, a company that distributes music over the Web, currently in the MP3 format. Kohn added that the initiative "is nothing about piracy and everything about maintaining control."

Kohn and others paint an almost utopian picture of the industry they say will be fundamentally changed as formats such as MP3 gain critical mass.

"Independent labels and artists are going to have a much better channel to reach buyers," said Steve Grady, vice president of marketing at GoodNoise, noting that five companies control the vast majority of today's record sales. "This really is a shift of power from those big five companies to the consumer and the artists."

With formats like MP3, the cost of distributing music is drastically lowered because no physical good needs to be transported. Fledgling musicians, who often are ignored by record labels, easily can upload their music to Web sites for distribution to anyone. Online distribution also allows consumers to purchase only the songs they want, rather than having to buy an entire album. Songs can be easily arranged in play lists and with special software--such as that offered by a company called Beatnik, cofounded by Thomas Dolby Robertson--listeners can digitally remix the music they download. What's more, source code for MP3 is freely available, allowing programmers to offer new tools at little cost.

A glimpse of this grassroots future can be found at MP3.com, one of the more popular MP3 sites. It offers tens of thousands of rock, rap, and techno songs by independent bands from all over the world. MP3.com claims to receive 200,000 visits to its download page per day. Both MP3.com and GoodNoise provide more favorable licensing terms to musicians, allowing them to retain ownership of their songs and giving them a 50 percent share of profits.

Traditional record deals, by contrast, require bands to sign away ownership of their songs and to take a much smaller cut of profits. The mainstream record companies argue, however, that they invest heavily in promoting and marketing artists, something that is crucial to their songs being played on the radio and MTV, for example. By contrast, an artist who signs deals with companies such as MP3.com do not have comparable resources dedicated to them.

So far, only a handful of top-tier musicians--including rapper Chuck D, Billy Idol, and just this week Alanis Morissette and Tori Amos--have embraced MP3, and with mixed results. For instance, rock singer and guitarist Tom Petty was forced to pull a single from his most recent album made available on MP3.com after his label, Warner Bros., objected to the promotion.

Still, with companies such as Liquid Audio, Microsoft, AT&T Labs' a2b Music, and Sony all offering technology they hope will be the standard for Net music downloads, digital distribution is inevitable. Despite the new possibilities, however, the recording industry is not likely to be radically transformed, Forrester's Hardie said.

"To take an artist and create superstars requires sophisticated production and access to other media outlets," Hardie explained. "You don't create an artist like Madonna simply by releasing music on the Internet." Unlike the mostly college-aged adopters of MP3 so far, the mass market is not willing to sift through thousands of obscure bands to find the ones they like.  

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