It's watermarking, which uses a set of techniques to hide a message in a signal. Usually what you do is place a message in part of a signal that makes it inaudible but very hard to remove. There's an assortment of tricks for doing that. That's the essence of watermarking.

And the message can say anything you want it to. Usually they're short messages that say one of two things. The SDMI phase one message says either we're in phase one or phase two has started. If it says phase two has started, then a trigger piece of software tells the user that they need an upgrade. This upgrade implements the phase two screening technology, which looks for misappropriated content and then blocks it from being transferred, or just decides the content isn't misappropriated and lets it through.

Phase two technology hasn't been chosen yet. So all we have in place is the technology for the trigger. And music companies -- all of the majors have made noise about it -- are saying that they'll be shipping content with trigger capacity in it over the next month or two.

But this watermarking won't do anything for the millions of songs that are already available online as MP3s ...

Nope.

Are there any plans to try and put these under the SDMI umbrella?

No. I would be amazed to see technology that could do that. That's sort of like calling the missiles back.

Then how could the music industry counter something like Gnutella, which can offer access to songs without watermarking -- and for free?

Well, there are two ways to do it. One is you create value; the other is you go after the pirates and try and shut them down. They're doing both. The RIAA is doing a great job in court -- going after people who, under the law are actually pilfering music, and shutting them down. The Napster ruling is yet another step in that direction.

But at the end of the day, the way the music industry is going, you do this by creating a user experience that's very compelling. That user experience will revolve around things like sound quality. It will revolve around things like concert tickets, different kinds of distribution. And don't be surprised if a lot of it comes from Napster. There are a lot of good things about Napster, the user experience per se, of being able to download stuff quickly and use it. That won't be lost.

Do I think that Gnutella will move in where Napster stopped? I personally don't, the reason being that Gnutella requires you to set up a direct connection with an individual you've never met. So where the dangers surrounding Napster, regarding viruses and child molesters, were moderately nebulous, they're going to be very severe with Gnutella.

I don't think that's the way people build communities on the Internet. People build communities through a sense of space. Napster very much defines a locus that you go to in electronic space and in that sense it's very potent -- either positively or negatively. If Napster went out and got some digital rights management systems, I think they could rehabilitate themselves.

Of course, since you happen to work for a company that sells digital rights management systems, InterTrust. It sounds like you're offering to help. Has Napster spoken to you about this?

I can't comment on open business developments, but we've spoken to just about everyone who's touched a music signal, so ...

OK, then why don't you tell me what InterTrust could do for Napster.

InterTrust provides a digital rights management platform for protection and management of information. It's being used very heavily by certain parties in the music industry. The idea is that we're a trusted platform that gives people one-stop shopping for protecting and managing content. The way it works is, you take music for example, and associate it with rules that spell out things like business models, usage information, privacy information and so on, and you send it out with the music.

Our platform talks to players that are written by partner companies like RealNetworks through Universal Music Group and now Winamp through America Online, which serves up music to consumers. So we sell platform technology for electronic commerce.

How much leeway is there with InterTrust? Can labels give music away if they want to?

The Intertrust platform is fully programmable. It's really up to, say, AOL and the record labels how they want to configure it. I can't comment specifically on how the specific partners have decided to build it up but it's very, very flexible.

You can do things like super-distribution, for example, where you can e-mail the song and say, "If you get 10 of your best friends to buy it, I'll give you free tickets to the Britney Spears concert next month." So you get on AOL and you e-mail the thing to 50 of your best friends and so on. And with InterTrust you can go down as many levels as you want, so they can e-mail it to 50 of their best friends, turning the consumer into a distributor of sorts. We think offers like that are going to be very compelling.

In the long run, where do you see the music market going? How will the next generation get its music?

SDMI will establish the ground rules, the common denominator that people will build to. Beyond that I think the music companies are going to start teaming with codec manufacturers, teaming with rights management providers and ultimately delivering electronic music distribution to the consumer. Then, there's basically going to be a fight where the marketplace will decide what the best value proposition is. Remember, this is a very standards-oriented business. There is one CD out there and it works in one very predictable and deterministic way, and I think at the end of the day, something like that will prevail.

Now, there's a lot of twiddles there because computers allow you to do a lot more stuff than consumer electronics devices, but that's basically where we'll stand. CDs are what they are, people will be putting them out for a while. There will also be new music available in protected formats, some of which will be available only in protected format, and what I think you'll see is a behavior shift among consumers, more than anything else.

No one has suffered phenomenal losses from any of what's gone on so far. We're still in a very nascent part of the space. I think what will happen is that there will be a period where protected music will cohabit with CDs. People will rip CDs for a while. But if people [in the music industry] do their job right, the incentive to rip CDs en masse will go away. Then the industry will adopt a common encrypted format and CDs will go away the way LPs went away.

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