Digital Music: You’ll Be Hearing a Lot of It in the New Year

If 1999 was the year of MP3, the new millennium is going to be all about digital music--in every format.

MP3 compresses music files at near-CD quality for easy transmission over the Internet. Big record labels have been crying “piracy” since the first label realized that college kids weren’t paying to listen to that new Backstreet Boys CD. Their cries have turned to shrieks, as analysts predict that 15% of all music will be acquired digitally--but not necessarily legally--by 2003.

The Recording Industry Assn. of America continues to work with computer, software and consumer electronics companies to spur development of a technology that would prevent music files from being copied illegally. But while such technology is still being developed, artists are starting to roll out their own work online.

Tom Petty, Alanis Morissette, Chuck D and the Beastie Boys are just a few of the artists who have made songs available for downloading at no charge as ways to build buzz, sign up fans on an e-mail database or draw traffic to a Web site.

With the musicians comes credibility. And no one knows that better than Michael Roberts, the founder of San Diego-based MP3.com Inc. The company went public in July, and immediately became a multibillion-dollar force in the industry. Since then, however, the stock price has jumped all over the place--hitting a high of $105 a share, but closing out the year at $31.69.

The days of a slim selection of players are long gone. The next wave of MP3 players do more than just spit out tunes. They’re smaller, smarter and connect with your home hi-fi, e-mail account and car stereo.

Creative Labs’ Nomad product grabbed attention this holiday season, as the portable playback device--about the size of a big matchbook--packs a bit more than an hour’s worth of high-quality digital music on its 64 megabytes of flash memory. I2Go’s eGo offers text-to-speech software that allows users to hear their e-mail messages. And Vertical Horizon, a Garden Grove start-up that promises to make the cheapest MP3 toys in the industry, sells a stereo-component device that plays both regular audio CDs and CDs burned with MP3 files.

Despite the dominance of the MP3 format, Microsoft’s Windows Media format is poised to become a challenger this year. In November, the software giant announced an aggressive push of partnerships with top music technology and content firms designed to make the Windows Media player as pervasive as MP3.

Sony has agreed to make devices that download digital music compatible with the Windows Media format. And Microsoft and three record labels--TVT Records, BMG and EMI--agreed to partner on Windows Media-related projects.

While the music industry struggles to deal with digital distribution, an equally traumatic shift is happening to radio. Thanks to streaming technology, Internet radio is grabbing listeners and generating a lot of excitement and business deals.

America Online picked up Spinner Networks and digital audio software company Nullsoft in a $400-million, all-stock deal, creating an audio powerhouse by combining AOL’s more than 17 million subscribers with Nullsoft’s 15 million WinAmp users and Spinner’s 1.5 million monthly listeners. Lycos and Yahoo also have claimed a piece of the field that includes Viacom’s Imagine Radio and Rolling Stone Radio, which grabbed David Bowie to deejay an online channel.

Analysts, who predict that the merger trend will continue, insist that the digital radio wars will be won by companies with strong software.

Dozens of applications are available today, but two programs have showed early support among Internet denizens: Sonicbox’s imBand Tuner software, which helps listeners tune into hundreds of Net stations; and GameSpy Industries’ RadioSpy, which links people to thousands of stations streaming in Real Audio, Shoutcast and Windows Media Player formats.