It's official: the only thing more popular than MP3 is sex.

That's according to Searchterms.com, a Web site that keeps tabs on the Internet's most oft-employed search words. It is certainly a verdict that many artists, record executives and music fans have already come to on their own. Yet the explosive growth of music on the Net has split the music business into two camps: those who see an unfettered Internet as a powerful new tool for exposing their work and the others, who fear it could destroy the basic rights of composers and copyright owners.

Virtually unheard of a year ago, MP3 -- short for MPEG 1 Layer 3 -- is an audio-coding technology that allows digital music files from CDs or other sources to be compressed into a size practical for Internet transmission and PC storage. Whereas a typical digital recording of a song might take up 40 megabytes of space, an MP3 version will take up roughly 3.5 MB. Those same files can be downloaded in ten minutes instead of two hours (and even faster with the T-1 connections many universities and businesses have). As a result, music is a major Internet attraction.

These days, popular and iconoclastic artists use MP3 technology to preview and promote new material: The Beastie Boys made available live tracks and B sides to hype their latest, Hello Nasty; They Might Be Giants upload entire albums; and other bands, such as Garbage, put up rare cuts on their own sites. "It was a cool way to distribute things that otherwise may not get released," says Garbage's Steve Marker. "In the process of recording, you end up with a lot of odds and ends that may be of interest to fans but aren't necessarily something you want to put out as an official release."

This doesn't necessarily make record companies happy. Capitol, for instance, persuaded the Beastie Boys to take their tracks down for a while. The reason? Until the big record companies agree on a secure delivery system -- one that allows them to get paid for Internet downloads and that limits how those songs are used -- they don't want to encourage unsecured music on the Internet. (The group's album apparently wasn't hurt by the MP3 selections: Hello Nasty is one of the Beastie Boys' best-selling albums.)

While the major labels still shun MP3, it has already taken off as a way for little-known bands to market and promote themselves. One site, MP3.com, is littered with thousands of songs from undiscovered talent. The unsigned New York rock band Fire Ants has two of the most popular songs on MP3.com's rock site; they watched the level of interest in the band skyrocket since they uploaded their material in December. "I just got an e-mail from someone in Denmark asking, 'Where can I get the record?'" says Fire Ants' guitarist, Dave Hermann. "We've had 1,000 hits and about 250 downloads. We've been doing what record companies have been doing for years: handing out free copies of singles for promotional reasons to entice people to buy the records. The stuff works."

Rather than go with MP3, the five largest U.S. record companies will soon test a system developed by IBM for purchasing, downloading and copying music on the Web. Dubbed the Madison Project and slated for a trial run this spring in the San Diego area, the system will allow consumers to purchase albums and singles for download to their computers. With the appropriate hardware, they can then also copy the music to CD. The Madison Project is just one alternative the majors are looking at, and they aren't expected to pick a standard for at least a year. Considering the popularity MP3 already enjoys, that could be a problem. In the meantime, the Recording Industry Association of America, a record-company lobbying trade group, has tried to sue Diamond Multimedia, the maker of the first portable MP3 player. The RIAA charged that Diamond's Rio player -- which is smaller than a portable cassette player and costs $200 -- violates home-recording laws.

"The record industry needs to wake up and smell the coffee, as far as Internet delivery is concerned," says Andy Saunders of England's Creation Records. Originally one of the most bullish labels concerning MP3, Creation -- which is the home of Oasis, Primal Scream, 3 Colours Red and Teenage Fanclub -- recently found itself at the center of the technology tempest when it unveiled plans to post all new singles for thirty days on its Web site for free MP3 download. With subsequent prodding from Sony, which owns forty-nine percent of Creation, the company agreed to put the plan on hold.

The industry stance may have stopped Creation but not other small record companies. MP3.com lists 1,400 tracks for free download from approximately 350 labels, with new ones added every day. Another site, Musicmaker.com, offers both MP3s and a burn-and-mail CD-compilation service that claims to stock almost 200,000 songs. But the scarcity on both sites of any artist who currently enjoys a thriving chart career could lead some to conclude that you get what you pay for. Yet Michael Robertson, the founder of MP3.com and a leading advocate of unrestricted Internet music systems, says that is a large part of the point."I had three medium-size labels come in today and say, 'We need better marketing for our bands,'" says Robertson. "Like any revolution, this will be from the bottom up. The majors and superstars are doing fine -- there's no compelling reason for them to change. It's the smaller guys who are looking for a different way to get their music in front of the listener. Ninety percent of the artists out there are not in the major-label system. There could be an incredible business just on that."

One artist no longer in the major-label system who says he will cast his lot with the Internet is Chuck D of Public Enemy. Having split with Def Jam Records, Chuck -- who has already posted tracks on the group's own Web site -- is considering selling PE's music directly through the new Atomicpop.com site. "Digital distribution levels the playing field," he told Rolling Stone, citing the facts that artists can keep a far greater share of the sale price via the Net than through a standard recording contract and that artists can maintain greater control over getting their work into the hands of listeners.

One of the services that MP3.com offers labels and artists is the chance to use MP3 as a come-on to sell CDs. Songs can be downloaded for free, and then, if consumers like what they hear, they are encouraged to buy custom-made CDs. Whatever price is charged, the artist gets fifty percent -- far more than major-label artists receive from record companies. But the figures for the service, dubbed DAM (digital automatic music), wouldn't encourage anyone to quit his day job. Although Robertson claims that MP3.com's sales are doubling monthly, it reportedly hasn't yet sold more than 100 CDs a day.

Still, in a world where all but a handful of performers are denied access to radio and MTV, and even fewer get a meaningful marketing budget, MP3 exposure is one of the few new tools artists can seize to build an audience. And little by little, major labels may find MP3 and the Internet irresistible for raising the profile of new performers. Both V2 and DreamWorks Records recently defied industry policy by posting free MP3s, and several promotions, featuring such artists as Hole, Garbage and Alanis Morissette, have included exclusive online tracks. In each of those cases, however, the downloads came with expiration dates: Unless users later purchased a CD, they would lose the track on their computer. The British dance act Underworld recently put up "Kittens," a song from their upcoming album, Beaucoup Fish, allowing users to download it for one day only. "It was the best possible way to let people in America hear a track -- radio won't play us yet," says frontman Karl Hyde. "We had almost 20,000 hits. We wouldn't be opposed to doing something like that again. We're not a traditional gig-your-ass-off band, so we look at ways of getting what we do across without having to spend so much time on the road."

If major labels aren't as motivated as smaller labels to take advantage of the Internet's potential as a marketing tool, they are aghast at the implication of MP3 regarding unrestricted downloading of music. New illegitimate and pirate sites are appearing all the time. Because MP3 allows compression of files from commercial CDs, thousands of previously released tracks are posted and traded. The RIAA has taken an aggressive stance against such postings, including threats of legal action.

Still, surfing the Web for unauthorized MP3 links can be an exasperating experience; sites close down and disappear without warning. Siddiq Bello, publisher of the weekly music-industry newsletter The MP3 Impact, has estimated that the most efficient MP3 search engine, on Lycos, has just a twenty-eight percent hit rate on the sites it turns up. Other search engines, such as Musicseek, Audiogalaxy and MediaFind, don't even produce that well. "It's a frustrating thing for people who are not used to it," says Bello, whose publication lists tracks by the Beastie Boys, the Goo Goo Dolls, Barenaked Ladies, Eagle-Eye Cherry, the Offspring and Lauryn Hill as among MP3's Top Ten pirated songs.

Online sites aren't the only issue when it comes to piracy, however. Musician Thomas Dolby Robertson -- whose California Web audio company, Headspace, is about to introduce what he says is the first interactive version of MP3, dubbed Beatnik 2.0 -- points out that compressed files also enable the creation of massive collections on a single CD: "I have a nineteen-year-old nephew who says a guy with a briefcase sits in the corner of his school cafeteria every week and you can buy the complete recordings of R.E.M. from him for four dollars. If he doesn't have what you want, he'll burn it for you the next week." Adding that bootlegging and unauthorized recording are nothing new, Dolby -- who would like to see a working Internet-delivery system that supports copyrights -- says, "What MP3 has done for the music industry is give the devil a name." He adds, "People say kids have no concept of copyright, but I think there's a real sense of moral obligation to artists. If we can find a fair way to protect copyright, I don't think the public is going to resist."

That is a sentiment shared by the independent label Rykodisc. Lars Murray, director of new media, says Rykodisc has just made a deal with Goodnoise.com to sell MP3 versions of singles by Frank Zappa, Kristin Hersh, Morphine and others for ninety-nine cents. "We want to get people used to paying a fair price for music over the Internet," says Murray. The label also has a unique policy when it comes to dealing with unauthorized sites: Rather than prosecute, Rykodisc encourages them to become legitimate links. "We'd rather build affiliates," he says.

Kristin Hersh, one of Rykodisc's featured online artists, already operates her own subscription MP3 plan. For $14.95, subscribers at Throwingmusic.com receive one track a month for a year. Billy O'Connell, manager for Hersh and her former band Throwing Muses, says the offerings are culled from rarities, demos and works-in-progress. "We feel it's very, very important to start employing MP3 to effectively market Kristin's music," he says. "The best model we could come up with is a subscription system." As for the Rykodisc site, O'Connell is "happy to see a company we work with lose its fear of MP3. In my mind, the [taping] issues are bothersome. But they've been there all along with cassettes. We all know better. I'm not speaking against copyright -- we all make our money from song publishing. But it's also not the monster we think it is."

Aside from getting paid, large record companies are seeking ways to place limits on further copying after a song is downloaded. The industry, which has long fought home taping, is particularly adamant when it comes to digital and near-CD-quality formats like MP3, noting that digital copies of CDs are indistinguishable from the originals. Among the companies pushing alternate delivery systems that they hope will replace MP3 are A2b Music and Liquid Audio, which use a different compression algorithm than MP3 does and require consumers to download their players. Both also allow artists and record companies to build a variety of controls into their files, including features that prevent rerecording and forwarding.

Reactions to these plans vary widely. Michael Robertson of MP3.com has been unstinting in his criticism of any security-based system aimed at supplanting MP3. "They're going to frustrate the consumer," he says of formats that continue to control what can be done with a song after it is purchased. "You know what you can do with a CD and have a certain expectation. If you don't meet that, consumers won't adopt it. I don't see any middle ground. The consumer will have the last word. The real wild card is the Internet, because it empowers consumers. It will be fascinating to see what happens over the next year, because, at the moment, we have two schools: One says, 'We're the industry, we're the big-five record companies, and we own the catalog. We set the agenda.' The other says, 'No, the consumer sets the agenda, and this technology is so compelling that people will get it one way or another.'"

Larry Miller, chief operating officer of A2b Music, disagrees with the latter opinion. "The curve is driven by the availability of repertoire that people care about," he says. "You turn this into a multibillion-dollar business by working with the artists people care about. The major record companies are frequently accused of being too old and too late. [But] those companies have a fiduciary responsibility to promote and protect all those master recordings. To jump at the first technology that comes along is an absurd argument."

Still, with the widespread use of MP3 established at least a year before the major labels adapt their own response, the battle over music downloads is sure to be a long, emotional tug of war -- even for those whose loyalties should seem obvious. "We'd still love to put our singles up on MP3," says Creation's Andy Saunders. "Obviously we survive on our copyrights. But we also love the subversive morality of the open Internet."

FRED GOODMAN (Additional reporting by Matt Hendrickson)
(March 9, 1999)