The arrival of the MP3 format is sending shock waves through the music industry. We'll look at why the development of such a powerful format is causing so many changes in the distribution of media and what the results of these changes could be. But first, let's take a look at the history of this troublesome little format.

The Moving Pictures Expert Group (MPEG) was formed in 1988 to settle on a single codec (compression/decompression) scheme for digital audio. The hope was to avoid an internecine standards war. By 1992, the International Standards Organization (ISO) and the International Electrotechnical Commission (IEC) had created a standard for audio and video coding called MPEG1 (ISO/IEC 11172). This enabled the industry to agree on a single format to handle all the various types of audio/visual media that were emerging in the brave new digital age.

The results of this research can now be deemed an unqualified success. But what MPEG didn't foresee was the bootlegging threat now facing the recording industry. Its members weren't necessarily thinking about the legal ramifications but instead focused on creating an effective technology. These highly adept software developers were like the scientists that worked on the Manhattan Project: Each saw only a part of the whole.

An informal poll of audio mailing lists revealed that the worst fears of the Recording Industry Association of America (RIAA) have already materialized: After downloading and sequencing the MP3s, gearheads are burning that material right back onto new, high-capacity CDs, with almost no loss of quality because it's all digital. This "roundtrip" type of bootleg used to be pretty hard to do because vinyl is expensive to press and cassette tapes are extremely lossy (although this inferior quality doesn't stop New York's and LA's hip-hop compilations from selling like hotcakes). But now geeks with cheap hardware can burn non-lossy CDs of MP3s or whatever else with no generational loss - and they can acquire a lot of this audio over the Internet.

The playback method is also quite flexible. Some members of an international synthesizer mailing list mentioned the ease of loading up office hard drives with MP3s and plugging them into stereos. Others went further. "You could reburn the data, use your regular CD player and avoid the whole computer loop," observed one electronic engineer. "A conservative estimate is that an MP3 takes one-tenth the space of an uncompressed audio track. That would give you about 740 minutes, which is a little more than 12 hours, per CD. If you consider storing them on 5.4-GB DVD-RAM discs, you get [roughly] eight times as much storage, which if filled with MP3 files, gives you something like four days of music, nonstop. On one disc. Or in other words, your 500-album collection would fit on eight DVDs in MP3 format."

That kind of puts things into perspective, doesn't it?

Here's a typical scenario from late 1998: Full of adoration for Nirvana as well as ignorance of the law, a fan named Marylou posts the entirety of Nevermind onto her personal Web site in the MP3 format. Geffen Records sends her a cease-and-desist letter, threatening to take action if the files aren't removed. She deletes the files, but they've already been downloaded by a bunch of people, including a raving Cobain freak in Hoboken, New Jersey, named Montel. Montel reposts the entire album on a different Web server in New Jersey ... and the cycle begins anew. People who access Montel's server can download their own copies, burn CDs, and add to the pool of hard-copy Nirvana bootlegs.

Marylou, Montel, and a whole lot of other people get Nevermind for free. So what's wrong with a little anarchy? This is a fair question to ask. Free, high-quality music is a great thing for consumers. Or is it?

Well, think about it. Marylou and Montel are technically thieves. An entire industry has risen around Nirvana's music, and in the above scenario, nobody gets paid. Because of the money at stake, the record industry has been forced to take legal action against sites that carry MP3s, so the situation sucks for pretty much everyone. Neither Marylou nor Montel can keep the files online long enough to impress the world, let alone their peer groups. The casual fans have trouble finding those elusive Cobain bootlegs online because the sites keep moving (dead links are a perennial Web problem, but cease-and-desist letters have brought it to a ridiculous level). Meanwhile, the record company is hemorrhaging legal fees, attempting to shut these sites down, all to little effect. Like the Hydra, each severed site spawns two new ones. Only by systematic, consistent, massive legal action can the record company possibly hope to win this war.

There will be continued legal pressure from the RIAA and record companies on any site that houses illegal MP3s. They hope to scare the world into just paying for the damn things at sites such as MP3.com while they work on implementing Serial Copy Management Standards (SCMS) across the board.

A number of companies are developing solutions that adhere to SCMS. Both A2B and Liquid Audio are backed by interests sympathetic to the recording industry (AT&T and Hummer Winblad Venture Partners, respectively) and have announced their support for the RIAA's Secure Digital Music Initiative (SDMI). The SDMI is a coalition of about 15 companies in the technology and music industries who are working to develop an end-to-end SCMS system that will prevent illegal distribution of copyrighted music over the Internet.

The RIAA launched the SDMI fairly late, but it's a step in the right direction. Along with the RIAA and the Big Five (Sony, BMG, EMI, Universal/Polygram, and Warner-Electra-Atlantic), certain musicians are going to be hurt badly by the proliferation of the MP3 unless copyrighted material can be protected by a digital watermark. If you can download the new Beck album in MP3 format, you'll be less likely to go to a store and buy it. (It's worth noting that I personally know a few people that have done exactly that.) Now, Beck is pretty well-off and he's not going to be hit too hard, but unless SDMI is a success, someone like Debbie Gibson is going to see her meager royalty check dwindle to nothing in the next five years, because no one is going to buy her entire record anymore just to get that one hit.

The freshly-formed Genuine Music Coalition, which includes Liquid Audio and 48 record labels, wants to watermark every MP3 that's downloaded legally so that if and when technical solutions are implemented into playback devices, SCMS will have something to look for.

As of this writing, about 16,000 songs are available for Internet purchase at 99 cents per song. That's a competitive price, considering there's no packaging and hardly any production costs. This is the direction that the recording moguls want to steer things. A single file can be doled out to thousands of people, and those dollars are going to add up, augmenting rather than hurting the market. If the SDMI is successful, MP3s will be reined in as just another distribution source. CDNow, who has just swallowed N2K, plans to distribute digital music over the Web directly to consumers within the next 10 months. Public Enemy, Billy Idol, and Pete Stefano have all released MP3-only singles.