By Samuel Greengard

Five Grammy Awards and nearly 30 years in the music business haven't prepared Robert Cray for the chaos that has descended upon the recording industry. Over the past few years, he's watched CD sales sink and illegal downloading skyrocket. He's seen the Web evolve into an important marketing tool, and the link to his fans grow ever more crucial-and tenuous. "Technology has changed everything," says the 50-year-old blues artist. "It's not the same business it was only a few years ago."

Like many performers, Cray is eyeing the change with both resignation and skepticism. On one hand, the ability to load one's favorite tunes onto a portable music player or custom CD and listen on the go is downright appealing. "Computers and the Internet have created new ways to enjoy music," he says. On the other hand, "Technology has made it too easy to steal music. It has become a boon to bootleggers."

The Digital Revolution

Greetings from the epicenter of the digital revolution. These days, music companies and recording artists are trying desperately to cope with the fallout from digital technology. File-sharing services with names like Kaaza, Morpheus and Grokster make it painlessly simple to swap songs over the Internet. And the advent of CD and DVD writers on computers allows just about anyone to create custom compilations.

All of which is causing plenty of static. According to the Recording Industry Association of America (RIAA), shipments of CD albums, singles and other recorded music plummeted by 15.8 percent during the first half of 2003. In September, the music industry responded by filing copyright infringement lawsuits against the most serious violators. If convicted, each defendant could wind up paying as much as $150,000 per song. Even U.S. Sen. Orrin Hatch has entered the fray. He has proposed destroying the computers of file-sharing fans.

"We are witnessing a profound change in the way music is distributed, managed and consumed," says Mike McGuire, a research director at market research and consulting firm GartnerG2. "Computers, the Internet, broadband connections and file-sharing networks have disrupted a business model that is almost 100 years old." And while services such as Apple's iTunes and Real Networks' Rhapsody have shown that a viable market -exists for legal downloadable music services, the future of music itself is about as murky as a Louisiana bayou.

Not the Same Old Song and Dance

Just as Thomas Edison's invention of the phonograph brought music from concert halls and taverns into the living room, this new generation of technology is stirring a not-so-quiet upheaval. CDs, which shoved aside the venerable LP in the early 1980s, may soon fall into the dust bin of history. MP3s and other digital music file formats are burgeoning. And Internet and satellite radio is redefining the way people listen to music.

Today, consumers have more options than ever. Whether your taste runs toward Beethoven or the Beatles, Enya or Eminem, it's clear that the ability to manage and manipulate digital music on an assortment of devices is quickly gaining mainstream appeal. Most new PCs now come with drives capable of creating audio CDs. Portable digital audio -players costing $100 to $300 are among the hottest -consumer electronics devices, and the newest models hold hundreds of hours of music in a pocket-sized unit.

Putting so much power in the hands of consumers-including the ability to "rip" (copy) a CD onto a computer's hard drive, has enormous repercussions. As the music industry has discovered firsthand, it's next to impossible to compete against "free." While the file-sharing program Napster may have unleashed the widespread illegal copying of songs in 1999, it certainly didn't create the demand. "The music industry has viewed digital music as a threat rather than an opportunity. They have been too slow to adapt their business model," McGuire notes.

Performers such as Marcia Ball, an Austin, Texas-based blues artist who has recorded 10 -albums over a 30-year span, believe that the high price of CDs and a perception of greedy music labels have further stoked the fire. "When CDs hit the market, the thinking was that it should have lowered the price of music because they are less expensive to produce than vinyl. Since then, prices have jumped dramatically, and consumers are angry," she says. Likewise, many services selling legal downloads have attempted to command full list price for albums-despite a far less costly online distribution model.

When a wave of file-sharing programs appeared a couple of years ago, they hit like a tsunami. Suddenly, entire catalogs were available to anyone with a PC, an Internet connection and the right software. And individuals of all ages and demographics began logging on-even though many knew what they were doing was illegal. "File-sharing programs proved that there was a huge demand for digital music available through online channels," says James DeLong, a senior fellow at The Progress & Freedom Foundation, a Washington, D.C., think tank that tracks technology and digital copyright issues.

That was the good news. The bad news was that freely exchanging copies of songs began to hit the music labels and many in the industry-from high-profile rock bands to rank-and-file staff-directly in the pocketbook. In fact, it wasn't until Apple Computer introduced its iTunes service in April 2003 that a successful online model finally emerged. In its first week alone, subscribers downloaded 1 million tracks at 99 cents each. And when the company launched iTunes for Windows in October 2003, eager music fans downloaded more than 1 million files within three days. The iTunes catalog has swelled to beyond 200,000 tracks.

With royalties, usage rights and legal issues clouding the picture, putting a digital distribution system in place is no simple task. Yet, as Apple has proven with iTunes, it is possible to build a viable business model. And now, a slew of other services is hoping to cash in. BuyMusic.com offers more than 300,000 songs online, including leading acts like the Rolling Stones, Neil Young, Elvis Presley, Aretha Franklin and Sting. It's possible to download the music by track or by album, burn it to CD and transfer it to a portable player.

Other services, such as Rhapsody, MusicNet at AOL, MusicNow, PressPlay and a relaunched, pay-per-tune version of Napster, all offer variations on the theme. For example, Rhapsody offers unlimited CD-quality listening privileges to more than 20,000 albums for $9.95 per month. It features the Stones, U2, Elton John, Bruce Springsteen, Simon & Garfunkel and R.E.M., as well as extensive selections of jazz, country and classical music. Subscribers can also download tracks for 79 cents and burn them onto a CD. At present, subscribers listen to more than 16 million audiostreams each month.

A major turning point for Rhapsody took place last summer, when the Rolling Stones opted to make their catalog available through the music service. The legendary rock band's appearance online is both symbolic of the changing climate and music to industry executives' ears. Without major bands such as the Stones and the Beatles, many consumers aren't motivated to venture to legitimate services and spend their money.

Nevertheless, as Bob Dylan once sang, the times they are a-changin'. "The inevitable trend is that within five to 10 years, all music will be distributed digitally, and physical media, such as CDs, will no longer exist," says Sean Ryan, vice president of music services at Real Networks' RealOne Music division. In fact, some have gone so far as to question whether the traditional music album format will survive at all. Without physical media-such as a LP record or a compact disc-there's no intrinsic reason to produce a collection of songs. Of course, an even bigger question is whether these legit services can become profitable and rejuvenate the music industry. "The genie is clearly out of the bottle," Ryan observes.

Spin Control

And the beat goes on. Digital music is dredging up a confusing mélange of legal and ethical issues. Consider: In November 2002, the U.S. Naval Academy seized 100 computers from students whom it suspected of swapping unauthorized music files over the Internet. Several universities have also cracked down, including Stanford and Penn State. Meanwhile, the RIAA has begun chasing after the most egregious violators of copyright law. In September, it slapped 261 individuals with lawsuits that could run well into the millions of dollars. RIAA President Carey Sherman vowed to file new claims "on a regular basis until people get the message." That was before the American Civil Liberties Union filed a suit against the RIAA accusing the trade association of illegally using subpoenas to identify alleged "copylefters," violating due process and constitutional rights in the process.

Meanwhile, new file-sharing services that can hide a user's identity have popped up. They make it next to impossible to track down violators and have spawned additional lawsuits from the music industry. "Illegal copying and bootlegging have always occurred and always will," says GartnerG2's McGuire. "Ultimately, it's up to the music industry to come up with compelling, legal alternatives."

Although services such as iTunes, BuyMusic.com, Napster and Rhapsody offer a glimmer of hope, McGuire believes that the music industry must make further strides. For now, the biggest challenge is digital rights management. Different services offer wildly different rules and restrictions about how an individual can use a downloaded track. Some let customers burn to a CD; others do not. Some allow a person to put the music on a portable player; others block such usage. "Ultimately, any type of confusion creates an obstacle to acceptance. Consumers want simplicity and flexibility," McGuire says.

Some, like DeLong, believe that the problems of the music industry could spill over into movies and e-books-particularly as faster broadband connections emerge. All of which could unleash even more pain, anguish and uncertainty, along with new capabilities and opportunities. Says DeLong: "Today's technology is both exciting and unsettling. It's forever altering the way people buy and listen to music."