The Little Rio Is Causing A Grand Fuss

FORGET WALKMANS, Discmans or MiniDisc players. To gearheads like Xin Feng, the Rio PMP 300 that he bought two weeks ago from Diamond Multimedia is the future of music. It stores about 30 minutes of near-CD-quality music on its built-in 32-megabyte memory card, in a format called MP3 that compresses large audio files to less than a tenth of their original size. Feng, a 36-year-old California engineer, has already converted his 30 favorite CDs to MP3 files and stored them on his laptop, and he frequently downloads classical music and soft rock from the Internet. Whenever he gets tired of listening to the eight or nine tracks stored on his pager-size Rio, he connects it to his computer and puts new songs on it, and he's ready to go. ""I'll never buy any new CDs for $16 each,'' he says.

People like Feng are making the major record labels shake, rattle and roll. The compact discs we have come to know and love have no built-in encryption, so each of the 779 million CDs ($9.9 billion worth) shipped last year is a de facto gold master. Still, CDs have been safe from copying because the raw digital files on them are extremely large. Now computers are more powerful, hard drives are huge, recordable CDs are finally affordable and there are several easy-to-use MP3 encoders available for download over the Net. This has led to an explosion in the traffic in pirated music, especially on college campuses where students have access to fast Internet connections. ""You have a situation where any 13-year-old kid can become a worldwide publisher of Madonna because she bought the CD,'' says Cary Sherman, general counsel for the Recording Industry Association of America.

Now, thanks to the Rio, listeners can get that Madonna bootleg to go. Faster than a ray of light the RIAA filed suit against Diamond in early October when it learned that the Rio would be in stores for Christmas. A federal judge initially granted the RIAA a temporary restraining order. Ten days later, the judge allowed Diamond to ship the device, ruling that since files cannot be copied from the Rio to another device, the secretary of Commerce would probably find that the Rio complies with the 1992 Audio Home Recording Act. An out-of-court settlement seems unlikely. Last week, Diamond countersued the RIAA, alleging defamation and conspiracy to withhold MP3 devices from the market.

Both sides agree that the popularity of MP3 shows there is burgeoning interest in the digital distribution of music. The record labels want a system in which devices like Rio play back only encrypted audio files, such as those recorded in music formats like Liquid Audio, AT&T's a2b music and IBM's hush-hush Madison Project (which all five major record companies have agreed to test next year). ""The opportunity is to take advantage of [digital distribution] in a system that has rules,'' says Howie Singer, a2b music's chief technology officer. But that proprietary approach doesn't sit well with Net purists like MP3.com president Michael Robertson. His year-old site hypes the format, provides links to MP3 files and shareware and even manufactures and sells CDs for unsigned artists. ""Security is restriction, which lessens the value to the user,'' he says. ""It prevents them from using the music the way they want.''

The record labels' uncompromising stance on MP3 is starting to put them at odds with some of their own artists like the Beastie Boys and Less Than Jake, who are already issuing songs or albums in this format on the Web. Three weeks ago, Public Enemy posted some free songs from its long-delayed and still unreleased album ""Bring the Noise 2000''; last week, representatives from Polygram, the parent company of Public Enemy's label, forced the group to take the tracks off the Net. ""I'm glad to be a contributor to the bomb that might reverse some of [the industry's] fortunes,'' says P.E. frontman Chuck D, who's been at odds with his label for some time. ""What's the need for them if people can get what they want directly?'' For artists, record labels and fans, that's the $10 billion question.

BETH KWON

© 1998