AUSTIN, TX—The local South by Southwest festival is more than just a celebration of obscure bands and filmmakers. Increasingly, it's a showcase for technology-fueled ways to sell, market and experience music and video. A good example at last week's show was Slacker, a San Diego-based company showing how radio might evolve when listeners are always connected to the Internet. The Slacker service illustrates how digital rights management technology—a much maligned type of software used to limit copying—can enable new ways to consume, rather than just handcuffing consumers.

The company's initial offering is a website with personalized radio stations. Nothing dramatic there—like many online radio outlets, Slacker lets listeners tailor stations to their tastes by rating artists and songs as they're played. The stations are free, but include a handful of commercials each hour. (A commercial-free version is available for $7.50 a month.) Things will get more interesting later this year, when Slacker starts selling what amounts to a transistor radio for the iPod generation. The company's line of portable music players enable people to listen to their individualized stations without using a computer—ever. It's a pioneering effort to bring customized radio programming to the car, the gym, or anywhere else you might go.

To see why this is significant, you first have to understand how personalized radio works. Local radio stations and the average Web-based radio outlet broadcast a single playlist of songs per station. Everyone gets the same tunes, usually at the same time. Personalized stations on the Web—also known as user-influenced radio—typically are sent on-demand to a much smaller group of listeners. To qualify for a statutory license, these webcasters may not create a station just for you. Instead, they'll create hundreds of channels around specialized niches. For example, some personalized webcasters invite users to build stations around their favorite artists. Anyone who types in, say, "The Broken West" gets sent the same mix of melodic indie rock music that would go to anyone who volunteered a band from that subgenre.

This type of "narrowcasting" works only on the Internet, where the transmission costs are so low. But that means a portable device can't play a personalized station unless it can hook into the Web. That's fine in a Starbucks or on a college campus that's blanketed by WiFi, but not so great in a car or a YMCA. Slacker, though, has used digital rights management (DRM) technology to eliminate the need for a persistent Internet connection. When you buy a Slacker portable MP3 player, it comes loaded with two things: songs and a virtual DJ that arranges them into playlists that mirror the stations you've already set up through the Slacker Web site. The songs are hidden and locked to the device; you can't browse through or play them on demand. What you can do is tell the software which songs you like, hate or are indifferent about. That input adjusts the playlists that the software creates. It also tells the device which songs to add to the hidden cache the next time it connects to Slacker's computers. It can do that through built-in WiFi or, in a novel twist, an optional car-mounted mini satellite receiver. The latter sorts through the songs that Slacker's computers beam through the atmosphere every few seconds, saving the ones that fit into the user's personalized stations.

The Slacker proposition will be hard for some consumers to swallow. The company has made some stark trade-offs in order to keep its basic service free, and some consumers probably won't appreciate having songs on their player that they can't see, play or transfer to any other device. Nor can the songs be mixed with any of the MP3s that users load onto the device from their personal collection. The restrictions, though, reflect the royalty demands made by major record companies and music publishers. If the tracks could be copied and moved, Slacker would have to pay upwards of 60 cents for every song downloaded by each player (i.e., the going rate for songs sold at iTunes). The rate drops significantly if the songs can't be copied, but it still amounts to several dollars per user per month for tunes that can be played on demand. So by locking and hiding the songs on the player, Slacker has been able to negotiate licensing deals with royalties closer to the level paid by the typical webcaster—about a penny per user per hour, an amount high enough to give small webcasters fits—although the company pays a bit extra for the right to customize to the extent that it does.

For people who like radio, Slacker could be a leap forward, depending on how well its DJ software works. It's more controllable (users can skip ahead until they reach a song they want to hear) and more closely attuned to a listener's musical whims. Even the commercials will be more personalized—Slacker users tell the service what their interests are, and that input helps determine which ads their virtual DJ inserts into the playlist. Those who expect more have the option of buying the premium version, which lets them save songs and play them on demand later, mixed with their personal MP3s. The songs are still locked to the player, however, and the rest of the Slacker song cache remains hidden until it's played. Those trade-offs may be too severe for consumers, but again, the restrictions are part and parcel of the service's availability. They're the basis for the business model.

That's how DRM should be evaluated: not on the basis of some quasi-religious objection to freedom-limiting technologies, but on the specific value proposition enabled. There's no question that without DRM, there would be no Slacker. That begs the question, are music fans better off with the Slacker option? Is the Slacker experience better than other portable sources of music? The answers depend on the quality of Slacker's products and the ingenuity of its engineers. If Slacker's done well, users don't notice the DRM. If not, it's likely to be the first thing they complain about.

Jon Healey is a Times editorial writer.