Real-world music stores and the current giants of the music industry will find themselves in the line of fire as the Internet squeezes out the middleman, stated a report from online artist promoter Internet Underground Music Association (IUMA) released on Monday. While the music industry's Big Five -- Sony, BMG, EMI, Universal/Polygram and Warner-Electra-Atlantic -- will gain advantages from one-to-one marketing, those pluses will be offset by increased competition in the market, said Andrew Atherton, IUMA vice president and principal author of the "Music's Online Future" report. "Major labels will concentrate on volume marketing and promotion of an artist -- their core competency," Atherton said. "Our [the Internet's] role will be discovering the artist." Atherton interviewed over 45 industry executives for the 70-page report, which was sponsored by communications technology giant Lucent Technologies. His conclusion: Artists, fans and independent labels have the most to gain from the Internet, while the current incumbents have the most to lose. While currently in the limelight, the digital music format, MP3, will kick the industry into motion, but have little other effect, predicted Atherton. "MP3 is like dumping gas on the fire -- it's an accelerant -- but not the solution," he said. "It is going to speed up the adoption of distribution and e-commerce." MP3, also known by its full name MPEG-1 Layer 3, is a way of compressing music to 10 percent of the size it takes up on a compact disk, or about 1MB of data per minute. Because songs become small enough to send over the Internet, proponents believe the format will kick-start fully digital distribution of music. "I think (MP3) opens up a whole new channel for the independents," said Gene Hoffman, president and CEO of online music seller GoodNoise last week. "They are going to adopt it sooner." GoodNoise has repeatedly voiced its support for PC hardware maker Diamond Multimedia Systems and it Rio PMP300 MP3 player. The player lets users download music from the Internet or digitise the music from CDs and then play it on a portable device smaller than a pack of cigarettes. Diamond has been sued by the music industry for not taking enough steps to protect copyrighted content. All in all, Atherton expects an association to form up in 1999 and a pan-media compression and protection format to evolve in 2000. "You are seeing a convergence of a lot of factors," he said. "Compression technology is better, memory chips are cheaper, and the Internet is on everyone's mind." Unsurprisingly, the leader of the initiative will be software giant Microsoft, predicted Atherton. He expects the Redmond, Wash., company to draw up specs for an integrated format -- with text, audio, video and graphics. "All media will be protected in the same way," he said.