Finally, fair use?

It's been just over seven years since Shawn Fanning introduced the world to the Napster file sharing protocol, signaling the beginning of the end for the music industry's traditional brick-and-mortar business model.

Now, after 18,000 lawsuits (?!) and undisclosed millions paid to lawyers, the record labels may finally be coming around to the realization that they have only two choices: join us or die.

Ironically, this may also cause heartburn for the company that has been most successful in pioneering on-line music sales. Remember, the fundamental enabling technology for digital music sharing was not P2P networking, but MP3 encoding, which enables the compression of music files to about one tenth of their original size with no appreciable loss in sound quality. Apple's iTunes currently uses a proprietary AAC encoding format with built-in digital rights management (don't get me started).

For the record, I love iTunes and I buy music on a regular basis. As I type this, I'm listening to Radio Paradise. Whenever I hear a song I like I just look it up in the iTunes Store and drag it into a new playlist. The only thing missing is the ability to do whatever I want with that downloaded song, provided it constitutes fair use. Get on it.

Seven reasons why MP3 is the future of the music industry:

1. The labels don't have a choice

When CD sales finally tank completely, record labels will be faced with a tough decision: distributing music nearly exclusively through Apple's iTunes store or rethinking their approach to digital-rights management, or DRM, from the ground up.

2. Apple might be forced into interoperability

A class-action lawsuit accuses Apple of antitrust behavior due to the fact that songs bought from iTunes can only be played by iPods or iTunes (as well as cell phones made in partnership with Apple).

3. Thomson has endorsed selling watermarked MP3s

The labels' switch to the MP3 format wouldn't necessarily mean losing the ability to track unprotected files sold by online music stores. The Digital Watermarking Alliance (including Thomson Multimedia, which owns the right to license the MP3 codec), recently made a statement in support of the idea of major labels selling watermarked MP3s. This would let labels sell non-DRMed music without losing the ability to track the files.

Ideally, these serial, unique watermarks would be used not to sue people who release a purchased MP3 into file sharing networks (sophisticated users would probably figure out a way to strip the watermark before doing this anyway). Instead, the watermarks could be used to monitor playback in order to determine how to pay artists out of a shared revenue pool, tracking not only what was bought, but how much it was played.

Such a shift would automate accounting in the recording industry to an unprecedented degree -- another bitter pill it may have to swallow. They're suspected of using dodgy accounting to rip off artists (many of whom can't pay for prohibitively expensive accounting audits) for a long time.

4. Amazon is rumored to start selling MP3s by April

5. Sony: "DRMs are going to become less important"

6. People love AllofMP3.com

There's already a case study of what an MP3 store could look like: the Russian site AllofMP3.com, which people are still reporting access to, despite attempts to starve it of U.S. credit cards. Its popularity also indicates that digital music pricing should drop (a 10-cent to 25-cent per unprotected MP3 sounds about right to me).

Since increased sales of a digital good can't affect inventory, the labels would more than make up for the price drop by selling far more songs -- especially considering the endless targeting capabilities online music stores could eventually offer. (For instance, what if something like Pandora were used as a front end to an AllofMP3-type service?)

7. MP3 has future options

Although it's an aging technology, the MP3 format has been made over a couple of times. Coding Technologies has been working hard to give the MP3 format a future in terms of sound quality (MP3PRO) and surround sound (MP3 Surround).

Although they haven't taken off yet, these formats are reverse-compatible with MP3, unlike other advanced formats. This allows them to play on devices that support MP3s but not MP3PRO or MP3 Surround. And from what I understand, existing devices could add support for those with a simple firmware upgrade.

But the labels could also differentiate their MP3s from the versions available on file-sharing sites by offering a 320-Kbps bit rate and completely maxed-out, accurate ID3v2 tags.

I know I'd pay a quarter for better sound, lyrics that are synced to the music, BPM-based play lists and other things that such deep, accurate tagging would enable.