From...

March 25, 1999
Web posted at: 5:15 p.m. EST (2215 GMT)

by Marc Ferranti and Rob Guth

(IDG) -- MP3, the popular audio-compression format rankling recording companies, will soon share the stage with a growing and competitive crowd of compression and security technologies for downloading music over the Internet.

Late last month, Sony detailed technologies for distributing online music securely, while Nippon Telegraph & Telephone announced a compression technology called VQF.

Meanwhile, a Lucent Technologies specification competes with AT&T and Liquid Audio, which already ship MP3 rivals. Microsoft is apparently preparing its own audio-compression technology, according to recent remarks by CEO Bill Gates.

"It would be foolish to say these will be the last (companies) we will hear from in the next few weeks," said Richard Doherty, director of The Envisioneering Group, a consulting organization.

The explosion of consumer interest in music on the Internet is spawning the new technologies. The early favorite is MP3 (Moving Picture Experts Group, Audio Layer 3), which compresses audio files for easy download and storage. Many technology vendors are eyeing the potentially huge market for downloadable music and related technologies. Record companies, meanwhile, shun the format because MP3 does not offer copy protection.

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High notes, high stakes

At stake is a growing slice of the $40 billion global music market, as hundreds of thousands of copies of MP3-encoded songs -- many of them pirated -- are being downloaded daily, according to industry insiders.

Adding fuel to the fire are palm-size hardware devices capable of playing downloaded music, mainly in MP3 format. The leader is Diamond Multimedia's Rio player. Record companies tried and failed to legally block its release. And rivals are in development.

"I definitely see this as a fast-growing industry," Microsoft's Gates said at a press event this month. "We're working on new audio codecs (compression/decompression technologies) we'll bring out in the next few months that will make the quality of music samples much better."

Some reports call the product "Microsoft Audio 4.0" and report it will produce copy-protected files smaller than those in MP3 format. Microsoft officials will not comment, but are clearly interested in secure Internet content distribution. The company invested $15 million in Reciprocal, which develops copy-protection technology for Internet content, including music.

Squeeze and protect

Internet audio distribution technologies generally come in two forms: compression and security. Compression technologies squeeze audio data into file formats for easy downloading and storage. Security technologies prevent the data from being illegally copied or changed.

The emerging technologies face not only a battle over standards, but also a growing power struggle between the established record-industry business model and the freewheeling Internet.

The record industry wants copy protection on music distributed over the Internet. MP3 supporters argue the grass-roots spread of technology can't be stopped. They insist the rise of MP3 will force the record industry to profit from music in new ways, such as advertising or subscription sites.

"The music industry has difficulty crossing the chasm made by technology," says Hassan Miah, president and chief executive officer of Xing Technology, a compression-technology provider.

Losing control

Major record labels are simply afraid of losing control of music distribution, say some. They've long held the reins in contracts, because traditional distribution is too expensive for individual musicians.

"The debate isn't about piracy, it's about market share," says Ken Hertz, an entertainment lawyer. Record companies want "a business model that allows them to own the pipe," Hertz says.

In fact, the Internet could bypass record companies. Lesser-known artists can obtain wide exposure by posting their tunes online.

"New technology and present-day contracts are an oxymoron," said Chuck D, leader of U.S. rap group Public Enemy and a keynote speaker at the Music and Internet Expo in New York. "Major labels will not be obsolete, but they will have to learn how to share."

But even Internet proponents share the record companies' concerns about piracy.

The management team representing the artist formerly known as Prince recently sued nine Web sites, alleging they allow Web surfers to download of unauthorized copies of the musician's songs.

Secure Digital Music Initiative, formed last December by the Recording Industry Association of America and computer vendors, is developing standards for secure downloads.

The organization hopes to recommend a specification for a secure standard for portable devices by June 30. It will then tackle a broader framework for music content protection. Individual vendors are also working on solutions. The deadline is intended to provide the security technology in products for release in December.

But considering the hundred of thousands of downloads already happening daily, the battle for the booming Web music scene is bound to heat up -- even if the rules are not agreed upon.