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Nearly all of the music traded on the Internet comes from CDs, which can be easily copied, or "ripped," as MP3 digital audio files. Analysts point to CDs as the biggest hole in the music industry's strategy for thwarting online piracy.
Efforts to plug the hole, which have been in the works for years, came a step closer last month when a multi-industry forum known as the Secure Digital Music Initiative (SDMI) accepted the final proposals for the second phase of an audition of anti-copying technologies.
CDs are "a vast source of unprotected content over which nobody has control, and if society at large wants to become pirates, then there's nothing on a technical side that can stop them," said Phil Leigh, a music industry analyst for Raymond James Financial.
The recording industry wants to make it harder for consumers to directly copy CDs, but it faces enormous hurdles. First, any barriers to copying must be "backwards compatible"--meaning the new technologies would have to work on old CD players that don't screen for pirated material, and vice versa.
In addition, the industry must tackle considerable nontechnical issues, including potential consumer backlash and legal uncertainties over curtailing copying for personal use.
Some analysts said the group may already be too late, as individual labels including EMI Recorded Music and Sony Music Group are moving forward with their own copy-protection plans.
SDMI "had an opportunity to set important standards, but?the time is too far gone now," said Eric Scheirer, an analyst with Forrester Research.
But SDMI participants said the group is on track to complete the second phase of recommendations before the end of the year--a major advance for a group that has been dogged by delays.
"The goal is to create a levee, a virtual impediment, that will basically allow music companies to create a value system that consumers should feel good about participating in and lure them away from the sort of open ripping experience that exists," said Talal Shamoon, senior vice president for media at Intertrust and chairman of the perimeter technologies working group at SDMI. "So in that sense, SDMI is very much moving forward."
So far, SDMI's efforts have focused on installing digital "watermarks" on CD tracks that would enable copyright holders to trace illegal copies and to create devices that would refuse to play clones. In its first phase, SDMI selected a watermark system created by Verance Technologies as the global standard.
The "Big Five" record labels--EMI, Sony Music, Bertelsmann's BMG Entertainment, Seagram's Universal Music Group and Warner Music Group--have already licensed Verance's watermarking system, which is again being considered in SDMI's second phase.
A key trial of the technology came earlier this month when a test group, organized by the International Federation of the Phonographic Industry in London, listened to watermarked tracks for audio quality. Results of the test will be announced later this year.
Verance competes with 10 other companies that submitted proposals for the second phase, including EMI, Samsung/MarkAny, Nielsen Media Research and Philips Electronics.
Going solo
In the meantime, some record companies are moving ahead independently with
copy-protection plans.
EMI recently struck an agreement with 
Microsoft to provide more than 100 albums and more than 40 singles for download in the Windows Media audio format during a trial offer.
"We're working very hard to make buying music as easy as stealing music," said Jay Samit, EMI's senior vice president. "And we're also working hard to make stealing a hell of a lot harder."
EMI is testing digital rights management (DRM) technology by using Preview Systems and Liquid Audio, according to Samit, which could eventually be used with CDs.
DRM technology allows a content provider to set permissions on the use of material, such as the number of copies customers are allowed to make and the number of CDs they can "burn"--the process of copying songs from a computer onto a recordable CD.
"Part of what we're testing is what is reasonable for consumers," Samit said. "Does the consumer need to burn a hundred (identical) CDs? I don't think so. Should they be allowed to burn more than one? Probably."
Samit added that EMI is active in the standards process, and its experiment is not a way to work around SDMI; rather, it is a way for the record label to give consumers a viable alternative while SDMI finishes the second phase of its watermark solution.
Warner Music also plans to introduce two encrypted formats for music by the end of the year. One will cover digital downloads; the other uses a new CD standard, DVD audio, which is expected to offer significantly higher audio quality than do current CDs.
Those formats could be the industry's best chances at introducing security, according to Warner executive vice president Paul Vidich, as consumers move from older, unprotected CDs to new, secure formats.
"I would see the CD over a long period of time--five or 10 years--evolving and declining gradually with the new digital download format and the new DVD audio format coming in and taking more of a dominant position," Vidich said.
Although record companies are experimenting, a workable solution to selling copy-protected CDs is clearly a long way off.
That situation was underscored earlier this year in a failed attempt by BMG Germany to push secure CDs using technology from Israeli security firm Midbar.
After shipping 130,000 copy-protected CDs, BMG was forced to abandon the project in January as complaints piled up from customers, who said the discs wouldn't work on their players.
"We had some compatibility problems with 2 to 3 percent of all CD and DVD players," Matthias Immel, head of product coordination and new media at BMG Germany, said in an email. "Some of the CD and DVD players, such as Philips, behaved like ROM drives and were not able to play the CD."
Bertelsmann had used Midbar's Cactus Data Shield copy-protection software. Midbar declined to provide specific technological information on the software, but a company spokeswoman said incompatibility with commercial systems is a generic problem for CD copy protection.
Midbar said it plans to deliver a new version of the Cactus Data Shield that will be compatible with all CD and DVD players.
While BMG Germany waits for the update, other experiments are under way.
Securing giveaways
U.K.-based media and entertainment company The Sanctuary Group and London-based digital commerce service Magex began distributing free, secure CDs last month at concerts given by heavy metal band Iron Maiden, which kicked off its "Brave New World" tour at London's Earls Court.
The CDs, which are playable only on CD-ROM drives, include a compilation of heavy metal songs encrypted by InterTrust Technologies' DRM technology, MetaTrust Utility.
Magex introduced two other CDs this summer. One of the CDs, "Summer Daze," features 12 tracks by various artists and is being distributed for free in conjunction with I-gig.com. The other CD, which also features a range of artists, is being sold over the Internet to raise funds for War Child--a charity organization designed to alleviate the suffering of children in war zones.
These experiments have yet to prove they are viable alternatives for a mass audience, where even minor technical glitches can lead to consumer frustration.
Leoni Zacks, who attended London's Iron Maiden concert and received one of the free CDs, complained of just such a problem: Her computer did not run the hardware to download the music.
"I was a bit upset that it didn't work," Zacks said in an email. "I was looking forward to listening to the music and looking forward to the interview with Iron Maiden, as I love them to bits."
Predicting the future
Problems such as these lead some analysts to question the entire future of DRM technologies.
"I think what the record industry is going to find is that if they are really going to try to send out the police to chase after copyright holders, they are going to get a public backlash against it," Forrester's Scheirer said. "It's going to cause a lot of public relations problems for them."
Nevertheless, the music industry is clearly not ready to give up, and record labels are preparing for further experiments.
"Copyright-protected CDs are in the first stages of trying to evolve into a standard and methodology that everyone can use," said P.J. McNealy, a senior analyst at Gartner. "It's still in the evolution process."
