EMI Group PLC, the world's third-largest record label, yesterday announced it is teaming up with Musicmaker.com of Reston to take its music business onto the Internet.

EMI said it will use technology developed by Musicmaker.com to allow customers to create customized compact discs by choosing songs from thousands of albums recorded by EMI artists and, in the future, to download digital albums to home computers.

In return for use of its vast catalogue of music, EMI will acquire a 50 percent stake in Musicmaker.com, which has announced plans to sell stock to the public later this year. Neither company would provide financial details of the swap.

The agreement with EMI makes Musicmaker.com a serious competitor in the recording-industry race to use computers and high-speed communications to reinvent the way music is sold.

The plan announced by the companies goes beyond one announced a day earlier by Sony Music Entertainment, which unveiled a "music on demand" system to equip stores with automated CD-making machines linked to a central computer. When a customer wants a Sony label album not in stock, the system will pluck the music out of the computer and produce the CD on the spot.

Musicmaker.com uses the same basic technology with a twist: Instead of picking the album they want, shoppers choose individual songs to create "custom compilations."

And while Sony stressed that it does not plan to download music directly to home computers, Musicmaker.com Chairman Robert Bernardi said EMI will offer digital downloads once the music industry agrees on a technology to protect Internet recordings from piracy.

Founded by Bernardi, who has worked for two other high-tech start-ups, and a pair of veteran recording industry executives, Musicmaker.com has signed up about 100 independent record companies for its service. The company filed for an initial public offering of stock earlier this year, but delayed the IPO in late April. Securities industry sources said Musicmaker.com had little chance of a successful offering until it signed up a big record company.

"This puts us in a different league in terms of having a major music company behind us," Bernardi said yesterday. He said the company plans to file a revised stock sale proposal soon and, as a result of the EMI deal, will seek to raise substantially more than the $30 million initially planned.

Investors' appetite for Internet IPOs has cooled considerably since February, when Musicmaker.com first proposed going public. At that time, any company with ".com" in its name could count on its stock to soar. Almost all those stocks have fallen significantly and most of the recent IPOs by Internet companies in the Washington area are selling below their offering prices.

The Reston company has 150,000 songs stored on its computers and catalogued on its Internet Web site. Customers browse through the collection and click on the songs they want. Automated manufacturing equipment records the selections on a single CD, prints a customized label, slaps the CD into a box and packages it for mailing.

Bernardi said his company also plans to offer custom CDs through music stores and is negotiating with Digital On-Demand, the company supplying in-store CD kiosks and a high-speed communications network to Sony.

He said the next step -- delivering music directly over the Internet -- will come after the recording industry's Secure Digital Music Initiative, agrees on a technology to protect downloaded music from piracy.

MAKING MUSIC TOGETHER

EMI will acquire a 50 percent stake in Reston-based Musicmaker.com, in exchange for EMI's catalogue of music.

EMI

Business: World's third-largest record label, with artists including the Rolling Stones and Janet Jackson.

Based: London

Established: 1898

Chairman: Colin Southgate

Employees: Not available

Web site address: www.emigroup.com

Musicmaker.com

Business: Internet company that makes custom CDs, letting the customer choose

the songs.

Based: Reston

Established: 1996

Chairman: Robert Bernardi

Employees: 23

Web site address: www.musicmaker.com

SOURCES: The companies, Bloomberg News