Originally created 07/25/99

Digital music revolution is on its way



NEW YORK -- It's been called a major revolution in the history of the music business, liberating artists to deliver their music directly to listeners and terrifying record company executives.

But questions are arising over whether digital distribution of music over the Internet will live up to all its hype.

Some experts warn it may take several years before fundamental hurdles are overcome, many of them technological, delaying the day when consumers can download any song they want off the Internet and hear it on a portable player.

What's more, despite an initially defensive response from the recording industry to digital downloading, record companies don't appear to be in any real danger of losing their position at the top of the heap in the music business.

In the meantime, enthusiasm about downloading music has been overwhelming. This past week the shares of MP3.com, a company that provides free downloads of music, went as high as three times their initial offering price, making its 32-year-old CEO Michael Robertson a billionaire on paper.

Also this past week, a two-day conference in New York dealing with online music issues drew hundreds of music industry professionals, who packed meeting rooms to hear experts discuss the latest trends in this emerging arena.

The interest is understandable. Thanks to the spreading use of MP3, a compression technology that squeezes music data into files of a manageable size, for the first time PC users can easily download music to their hard drives and play it back whenever they want, instead of hearing it just once over the Web with "streaming" technology.

An even bigger breakthrough came with the introduction of the Rio, a portable device that allows users to transfer MP3 files from a personal computer, store them and play them back on the Walkman-like device. The Rio and other devices like it can hold the equivalent of one hour of music, the length of one CD.

Here's the catch: since MP3 was an open standard, it allowed anyone to take music from a CD and post it on the Internet, allowing an infinite number of perfect copies of the music to be made. Unlike analog technology like cassette tapes, where making more copies means poorer sound quality, a copy of a digital file is identical to the original.

The initial reaction from the recording industry was hostile. Seeing MP3 as a powerful new tool for pirating music, the Recording Industry Association of America sued last year to halt the distribution of the Rio but lost.

Since then, however, the industry has undergone a major shift in attitudes, no longer focusing primarily on the threat of piracy posed by the Internet but rather on possibilities for delivering music to consumers on their own terms.

"We've seen a shift in the overall attitude toward the piracy threat and the opportunities on the Internet. The opportunities clearly outweigh the threats now," Hilary Rosen, president and CEO of the RIAA, said in an interview.

"It's a small population of people who use MP3, but they signaled a much more aggressive desire for music online than the industry realized. But I think that we've caught up," Rosen said.

It might be fairer to say they are catching up. Sure, the industry has made moves to crack down on illegal bootleg sites, but the only music that's available on legal sites is mostly from obscure bands since major record labels are still leery to release music in the unsecure MP3 format.

Eager to offer a better alternative, the record labels last year launched the Secure Digital Music Initiative, an effort to produce uniform technical standards to allow secure, non-copiable versions of music to be downloaded and played. But many details have yet to be worked out, and it may be a few years before all the pieces are in place.

In the meantime, several labels are hedging their bets by making separate deals with technology companies like IBM and Microsoft to offer downloaded music in a secure format. Warner Music Group has just begun offering downloads of singles from major artists at popular retail sites like CDNow, and Sony plans to make similar offerings later this summer.

For now there are several secure formats for downloads, but they're all different. What's more, current versions of the Rio player only play files in the MP3 format.

Electronics makers are hoping to get the next generation of playback devices in stores by Christmas, but it is likely to take more time for the industry to agree on one secure format.

"What we're seeing here is the very, very first stage of something that will take a few years," says Paul Vidich, executive vice president of Warner Music Group. "Within about two years, the consumer will be able to go to any online music store, get and play any music they want, and it should all be transparent."

Some are predicting that digital downloading could take even longer to become commonplace. Mark Hardie, a senior analyst at Forrester Research, says that downloaded music could build up to some $1 billion by 2003, still a fraction of the overall $40 billion worldwide market.

"Right now, I think the industry is aware that digital delivery is definitely in their future," Hardie said. "Unfortunately, we have a ways to go before it's a reality."