Here’s a dilemma music fans faced recently: Should they have waited until the Sept. 22 release to buy the new Kiss CD Psycho Circus, or should they have downloaded the album for free off the Net right away? It may not have bothered some that the online file is thoroughly illegal — but it’s giving music executives bleeding ulcers.

While a sonic underground swap mart has been thriving in cyberspace for years, one music-file format is exacerbating the situation more than ever. Ironically, it’s the same standard that the industry has begun to legitimize. It’s called MP3, short for MPEG layer 3, and it’s essentially a method of scrunching music into small digital packages that retain impressive audio fidelity. ”MP3 is really just a compression technology,” explains Hilary Rosen, president and CEO of the Recording Industry Association of America (RIAA). ”It’s a way to get music into a file format that’s easily transferable online.”

It’s so easy that millions of music lovers listen to, collect, and trade songs in the MP3 format. And now MP3 fans can carry around and play songs with them using the currently available Walkman-like MPMan (from Saehan Information Systems) or Diamond Multimedia’s upcoming Rio player, which holds an hour of music and costs less than $200. The easiest way to hear MP3 music is to download a free player and search the Web for songs. You can start at (, a hugely popular destination that offers software, tools, news, and thousands of legal — albeit mostly unknown — tunes. If you want the Beatles, Madonna, or the Spice Girls, though, expect to be disappointed, since the RIAA’s Soundbyting Campaign is working hard to deter the more obvious sites from posting illegally duped versions of popular songs. The underground traders are still out there — but they’ve fled to the Net’s darker corners.

For instance, John Peabody, an MP3 music fan and trader, hosts his own pirate MP3 website out of the U.K., offering various 10-hour MP3 CD-ROMs with songs by Madonna, Depeche Mode, Blondie, Pulp, and New Order, among others. Ironically, many MP3 traders and webmasters seem to view MP3 piracy as a form of artist promotion, according to Peabody. ”I’ve exchanged CDs with a number of people [and then] bought original copies of several of the audio CDs that I like,” Peabody explains.

Record companies, obviously, do not endorse Peabody’s methods. They do, however, endorse other competing audio formats — such as RealPlayer, Liquid Audio, and a2b music, none of which offer the copying and distribution ease of MP3 but do feature controls (like digital watermarking) that limit the number of songs you can download and copy. Recently, though, the industry has begun to realize that MP3 is too big to ignore. The Beastie Boys recently began offering a few songs in the format on their website, Frank Black is selling his new CD on the site, and two major labels (Hollywood and DreamWorks) are finally posting MP3 songs. ”This is a quick, cheap, effective way to reach a targeted consumer that is definitely into music,” says Mark DiDia, Hollywood Records’ senior vice president and general manager. DiDia spearheaded the effort to get Alien Fashion Show online by offering their swing single ”Detroit Swing City” (yes, a remake of the Kiss song) on the website (highly trafficked with 80,000 daily unique visitors). The single chalked up more than 40,000 downloads in its first week on the site. That’s far more ears than a new band can usually hope to reach.