IBM, the world's biggest computer company, has reached agreement with Sony, Warner, EMI, Universal and other US record companies to participate in a digital music distribution system, known as the Madison Project.
The agreement is a watershed for the music industry, which regards the prospect of delivering digital recordings directly to consumers' computers via the Internet and other digital networks as both a threat and a commercial opportunity.
Consumers can already download unauthorised digital recordings from thousands of pirate Internet sites. Record companies are anxious to start legal digital distribution, which will enable them to increase profits by bypassing retailers and cutting manufacturing costs. However, they have been wary of doing so until they were convinced that technical and legal safeguards were in place.
IBM, like other computer companies, is anxious to exploit the market for digital music distribution technology. It has invested $20 million (£13.5 million) in developing the Madison Project which, it says, is a secure system for record companies to deliver digital recordings to consumers. It will also monitor any Internet music sales, whether by digital distribution or conventional mail order purchases.
For months, IBM has been locked in secret negotiations with US record companies to secure their involvement in a Madison Project test, scheduled to start next year. IBM declined to comment, but it is understood that last week it signed an agreement with all the big US record labels not only to participate in the trial but to make a financial contribution to it.
Details of the test have yet to be agreed. However, the Madison Project will be by far the most ambitious digital music distribution experiment conducted so far. Other trials, notably one run by Deutsche Telekom, the German telecommunications company, have been far smaller in scale.
The negotiations with IBM have caused some discord within the music industry. Sony and Warner are believed to have been enthusiastic from the start. Other companies, notably Bertelsmann and Universal, were initially sceptical.
Universal, part of Seagram, the Canadian group that is in the process of expanding its music interests with a $11 billion bid for PolyGram of the Netherlands, is understood to have discussed developing its own technology with AT&T, the US telecommunications company. AT&T is marketing its A2B music distribution system in competition with IBM's.
Recent research suggests that the internet could account for a third of all US record sales - worth $12 billion last year - in 10 years' time.