The Secure Digital Music Initiative (SDMI) -- a consortium of major music labels and technology companies looking to protect digital music -- have backed off plans to block MP3 music copied from CDs, according to analysts and music insiders. On Monday, the Big-5 record companies -- backed by technology firms interested in getting in on the ground floor of the new millennium of music -- announced that they had tentatively agreed on a specification for portable music players that can securely play music and dissuade piracy. "There are things that are doable and things that are not doable, said Leonardo Chiariglione, executive director of SDMI, acknowledging that the compromise had not fulfilled all the recording industry's initial demands. The so-called "Big 5" major record labels -- Sony Music Entertainment, EMI Recorded Music, Universal Music Group, BMG Entertainment and Warner Music Group -- had initially advocated making SDMI-compliant players incompatible with MP3 files. The new spec, which will accept all music whether it is protected with a digital "watermark" or not, puts an end to those plans. Still, Chiariglione applauded what he sees as a solid compromise between the music industry and other member companies, including Microsoft Corp. and Diamond Multimedia Systems Inc. "It was one of the great examples of the role that SDMI played in bringing together the various companies," he said. Observers say the agreement marks a significant departure from the recording industry's demands. "They are completely abandoning the notion of protecting legacy content," said Lucas Graves, analyst with multimedia watcher Jupiter Communications Inc. SDMI-compliant players will begin hitting store shelves later this year in time for Christmas. Phase 1 players will accept all current musical formats -- which is exactly why Graves believes record companies have compromised. Phase 1 SDMI-compliant players will accept all music whether it is protected or not. Starting around the same time, record companies are expected to start imprinting CD content with a so-called digital "watermark" which will secure music against illegal copying. While Graves believes the record companies have ceded this round by compromising with MP3 companies, he says the battle is far from over. "It remains to be seen if non-SDMI compliant players will be legal in the future," he said. "Once SDMI is available, the companies could argue that consumers must use it." Phase 2 may offer record companies hope for the future. Scheduled for some time late in 2000, Phase 2 calls for updated protection that will defeat indiscriminate copying of digital music. Older players will have to be upgraded to the new Phase-2 format as well. Confused? So it seems are many others, and that's a problem, said Ken Wirt, CEO and founder of e-music startup Riffage.com. The new way of packaging music "bits" may turn off the consumer, he warned. "If you are a consumer and you buy a device today and tomorrow it performs less in some way, you are going to be pissed," he said, warning that formats with copy protection will lose functionality. Wirt said Riffage.com will support SDMI only if it helps his customers -- independent musicians. Other critics are also suspicious of the new plan. "The announcement is only half of one part of what SDMI will produce," said Jupiter's Graves. "It didn't even specify security technology. They have just agreed on some details." So why would consumers buy such inhibiting, ill-formed technology? Because that's where the content will be, said the SDMI's Chiariglione. With music secured against casual pirating, music companies may finally be ready to put their music libraries online. It's about time. Digital music downloads are set to take off, according to a new Jupiter Communications study which states that the digital-music industry will grow 200 percent by 2003. Take me to the MP3 Special