A year or two ago, listening to downloaded music on your computer was pretty simple, but often illegal. If you knew a thing or two about digital music, you were aware of MP3 files and you'd heard of the Winamp program; by poking around on the Internet, you could find and download just about any song you wanted to.

Problem was, you hadn't paid for the song. Nor had any of the dozens or hundreds of folks who downloaded the same song or went on to post the song on their own Web sites. The record companies eventually caught on to how many people were doing this, figured out how much money they could be losing to piracy, and started placing legal demands on anybody running Web sites that offered MP3 copies of copyrighted music. For months, the recording industry's big plan for dealing with downloadable music was to try to keep the technology away from the coveted hit songs. But that didn't work.

So the recording industry had to come up with Plan B. Knowing that there is no way to "fix" the MP3 file format to make piracy impossible, tech types and deep thinkers associated with the recording industry have instead spent most of the year coming up with something else.

This is how a consortium called the SDMI--the Secure Digital Music Initiative--came to be. An organization of record executives, software developers, hardware manufacturers and lawyers, representing 120 companies and organizations, SDMI has been meeting in closed sessions since February to develop a protocol, or set of rules, that could be applied to any of the digital music formats out there.

Here's how it will work, the consortium's representatives say: Starting sometime in the coming months, when you buy a CD, every track will have a "watermark" embedded in it, a thread of non-audio data that identifies it. Don't worry--you'll still be able to play watermarked CDs on your stereo without any problems, the SDMI folks assure. Pop that CD into a computer, though, and that watermark will be noticed by SDMI-compliant software. Instead of being able to make as many copies of a track as you like, for example, you'll be restricted to making four copies at a time. You'll also be able to transfer that digital copy onto a portable music player, along the lines of Diamond's Rio series and Creative Labs' Nomad. But if that digital music file didn't come from your own CD or an authorized Web site, neither the SDMI music player nor the SDMI software will let you play it. (This can't, however, stop you from using your pre-SDMI Diamond Rio player or Winamp software.)

With digital music therefore safe from piracy, major record labels--which have so far left the online-music business to independent labels and unsigned bands--will be able to jump in and start marketing. The business models have yet to be mapped out, but a current offer from Capitol Records is an early draft of the kind of online promotions that the industry may be cueing up. Fans of the band Marcy Playground who pre-order a copy of the band's upcoming album from online retailers like Tower Records or CDNow will be able to download two tracks, in Microsoft's Windows Media Audio format, from the new album each week until the record arrives in stores--at which point those digital songs will no longer be playable.

Although SDMI was essentially formed to bring the MP3 format under control, the MP3 format has its own momentum; some major players have opted to recognize the prevalence of MP3 in the interest of getting a product on sale. Sony announced last week that in January it plans to start selling a $400 Walkman-style device that will play digitally downloadable music. This "Memory Stick" Walkman will come bundled with software to convert MP3 files to Sony's own format, ATRAC3. (Later versions will work with other formats.)

To complicate matters further, as the SDMI standard moves toward becoming a label you can look for in a computer store or on a CD, the software industry is moving ahead with a variety of proprietary digital music formats. It's something of a binary land grab; each of these contenders hopes to get a major piece of the action:

* A2b {lt}http://www.a2bmusic.com{gt}. This format, developed by an AT&T subsidiary, allows record companies to add lyrics, production credits and cover art to a song, but its player doesn't handle any other file formats. Software is available for Win 95, 98, NT and Power Mac.

* Liquid Audio {lt}http://www.liquidaudio.com{gt}. Redwood City, Calif.-based Liquid Audio's file format offers window-dressing capabilities similar to a2b; it's available for Win 95, 98, NT and Power Mac.

* RealAudio {lt}http://www.real.com{gt}. Though Real Networks' RealAudio is best known as a streaming format used to beam music across the Internet "live," some RealAudio files can also be saved for later playback. Many portable listening devices do not support RealAudio now, but RCA's upcoming Lyra will. RealJukebox is available or Win 95, 98 and NT; older RealAudio software is available for the Mac OS and many variations of Unix.

* Windows Media Audio {lt}http://windowsmedia.microsoft.com{gt}. The most recent format, Microsoft's Windows Media Audio allows music files to be compressed tighter than the MP3 standard allows. It's available for Win 95, 98 and NT.

It's confusing. Fortunately, unlike a Beta VCR or a Divx DVD player, there are free versions of all of this software, so there's no financial risk attached to downloading one or another program. And there are moves afoot to clarify the format chaos. The software players are starting to handle different formats--RealJukebox covers almost all of the formats out there, and both the Liquid Audio and Windows Media players speak fluent MP3. And new hardware should handle the different formats without the consumer needing to bother with translation software. "As downloading becomes more mainstream," said Lucas Graves, an analyst covering Web technologies and digital music for Jupiter Communications, "any company that wants to make money has to quarantee that the consumer doesn't have to worry about three-letter extensions."

For now, though, the only thing that's clear is that MP3 works, is widely used and seems to be here to stay--even if it makes lots of music-industry executives uneasy. "MP3 has become the de facto standard," said Graves. "None of the other formats are in a position to dethrone MP3 today."