Threatened by the growing success of competing audio formats like Microsoft’s Windows Media, Thomson Multimedia will debut MP3Pro on June 14 and detail its long-awaited plan to charge royalties for streaming MP3.

MP3 is a system of audio encoding and decoding that has become a de facto standard for music transmission on the Internet. MP3Pro is an enhanced version promising greater efficiency and higher performance that will “position MP3 much better for the streaming market,” says Henri Linde, who manages MP3 licensing for Thomson.

This could mean better sound quality for users constrained by the relatively slow speeds of dial-up modems, as well as the ability to pack more music into limited-storage portable MP3 players.

Music That Stays High

MP3Pro enables audio encoding at “half the [present] bit rate while maintaining the same quality,” says Linde. This means that music encoded at 128 kilobits per second-the MP3 bit rate widely considered to produce “near CD” quality-could be encoded at 64 kilobits per second, significantly reducing the transmission speed required for continuous streaming over the Internet. File sizes should be reduced by half.

At the same time, MP3Pro will bring “a clear quality improvement at the upper end,” says Linde. In a direct comparison between music encoded at 80 kilobits per second and the uncompressed digital recording of the same music, “no one so far has had the ‘golden ears’ to be able to hear a difference,” he says.

The claimed improvement in sound quality is due to a new encoding tool called spectral band replication, which allows the compressed audio signal to include high-frequency sounds that had formerly been discarded by audio encoders working at a low bit rate. At 64 kilobits per second, for example, normal MP3 encoding tosses out sounds above 10 kilohertz, whereas human hearing usually extends up to 18 or 20 kilohertz. Enough of these high frequencies are retained in MP3Pro to make the decoded signal sound brighter, as well as more accurate and natural.

In addition, the new format was designed to be backwards compatible with MP3, so that music encoded in MP3Pro will play on existing MP3 players. However, an updated decoder is needed to get the full benefit of the enhanced sound, says Linde.

MP3Pro was developed by Coding Technologies, a company headquarted in Stockholm, and is being licensed by Thomson Multimedia. The development team at Coding Technologies includes 12 former employees of the Fraunhofer Institute for Integrated Circuits, the German research institute that created the MP3 format.

A demo version of the new codec (encoder/decoder) will be available for download at the RCA Web site on June 14, says Linde. The first hardware players for MP3Pro are expected this fall.

License to Share

Last year, Thomson notified MP3 users that royalties for MP3 streaming, or MP3 broadcasting, would not be charged “until the end of the year 2000,” while it gauged “where this new market is going.”

This left users in the uncomfortable position of not knowing what the licensing cost of streaming MP3 would be, or when payments would fall due. In contrast, the licenses for software and hardware MP3 decoders had been set at $0.50 per unit with a minimum fee of $15,000 per year.

This week, Linde revealed Thomson’s licensing policy for streaming or broadcasting “pure MP3.” The royalty rate is two percent of revenues related to streaming, with a minimum fee of $2,000 per year.

This licensing model aims to find “the right middle ground between consumer acceptance and profitability for content providers,” Linde says.

“If MP3 is used for free distribution on the Internet, we will not charge royalties,” he says. But “if people monetize, the inventors should have their fair share,” he adds.

For MP3Pro, Thomson will also offer a license based on “revenues related to streaming,” such as advertising, Linde says. The royalty rate for MP3Pro will be three percent of revenue, with a minimum fee of $3,000 per year.

Linde estimates that 80 to 90 percent of the market for streaming MP3Pro would only be required to pay the minimum fee. “Not that many will be earning $100,000 from streaming,” he says, “so it will amount to a $3,000 flat fee for most of the people.”

Internet Audio Goes Commercial

Since last year, directions for Internet audio have become clearer, as content owners scramble to establish online revenue streams.

Major labels, spurred by the explosion of online music trading that brought the MP3 format to instant notoriety, have been intent on buying the infrastructure and assets of formerly free music channels-most notably Napster-so as to launch online music subscription schemes that will start this summer.

Bertelsmann has bought myplay.com and CDNow, as well as a majority share in Napster. In addition, Bertelsmann’s BMG has partnered with Warner Music, EMI and RealNetworks to form MusicNet, a system for online music services that could tap Napster’s more than 70 million users.

Meanwhile, Vivendi Universal, owner of the Decca, Deutsche Grammophon, MCA and Philips labels, has formed a rival music service with Sony, called Duet, and has bought MP3.com and EMusic.

In this climate, a key factor determining a company’s choice of format for online music distribution is security-the ability to prevent, or at least deter, unlawful copying of digital music.

To combat the perception that other audio-compression formats may be better suited for copyright protection, Thomson will announce “a secure MP3 product in June,” says Linde.

“We are working on a security scheme around MP3 and MP3Pro with one of the established security-solution providers,” he adds.