The new sound of music.

MP3 lets you download your favorite songs from the Net

Record companies are always looking for clearer and more efficient ways to distribute music. The evolution from analog formats such as vinyl, 8-tracks and cassettes to the digital clarity of compact discs and mini-discs has benefited both record labels and consumers. However, MP3, the latest format for compressing digital audio, could shake up the entire record industry and switch the balance of power away from traditional record companies.

MP3, short for MPEG Audio Layer 3, lets you shrink songs into small digital packages that can be downloaded from the Net or sent via email and played on a PC. Unlike analog transmissions these digital signals can be copied and transferred innumerable times with virtually no loss of sound quality. In the past year, MP3 has caught on with Internet surfers and spawned thousands of Websites offering free downloadable music. Lycos (www.lycos.com), a leading Internet search engine, recently introduced a mammoth Web database of over 500,000 free MP3 files.

The format is so popular that Diamond Multimedia recently introduced the Diamond Rio ($200), a portable Walkman-like device that lets you download MP3 files from your PC. Concerned about uncollected royalty fees, the Record Industry Association of America, which represents thousands of record labels, tried unsuccessfully to get a court order to block shipment of the units.

In response to the demand for downloadable audio files, the Big Five record companies (BMG Entertainment, Sony Music, Warner Music Group, EMI Recorded Music and Universal Music Group) have formed the Secure Digital Music Initiative (SDMI). The group has teamed up with IBM to develop a more secure system for distributing music on the Internet. SDMI's goal is to use digital music for promotion and profit while limiting unauthorized copying.

Not everyone in the music industry sees MP3 audio files as a threat. Chuck D, founder of rap group Public Enemy, believes the new format will be empowering. "Right now, artists receive about 15% of the profits on an album. With MP3 an artist can act as the label, distributor and retailer and keep a higher percentage," says the rapper. Last year, Public Enemy posted a downloadable MP3 single from its greatest hits collection on its Website as a promotional tool. Def Jam, the group's label, quickly pulled the song from the site. Public Enemy has since ended its relationship with Def Jam and now plans to self-distribute its next album solely on the Internet.

"The MP3 format presents an interesting challenge to the music industry because it could be the best promotion device ever. But it could also be the best way for pirates to move music around," says John Lee, lead investigator for MP3 Impact, a New York-based newsletter about the future of digital music. While the larger record companies are nervous, some smaller labels are warming up to MP3.

"We do use singles to increase album sales, so we might use MP3 for promotions," says Randy Weiner, executive producer of new media at New York-based Loud Records. The label, which is half-owned by BMG, plans to team with Audio Explosion (www.audioexplosion.com), a San Jose, California-based MP3 Website, to develop promotions for its artists. "This format can definitely replace retail," says Weiner. "It's going to change the whole face of the industry."

Rykodisc, a Salem, Massachusetts-based record label, will sell MP3 files of select artists for 99 cents per download through the GoodNoise Website (www.goodnoise.com).

Although Rykodisc is the first major independent label to embrace MP3, the format continues to gain in popularity. With more MP3-ready devices in the works, including home and auto players, the SDMI will be forced to play catch-up. Unless the courts intervene, like VHS vs. Beta, the consumer will probably decide whether MP3 or the forthcoming SDMI alternative really is the new sound of music.