£2bn deal creates showcase for new bands on the Net up new Internet music showcase

Unsigned rock bands are being wooed over the Internet by big businesses, as the increasing popularity of the "MP3" digital music format threatens to break record companies' conventional stranglehold on power.

Unsigned rock bands are being wooed over the Internet by big businesses, as the increasing popularity of the "MP3" digital music format threatens to break record companies' conventional stranglehold on power.

Yesterday Seagram's Universal record label announced a multi-million dollar deal with AOL, the world's biggest Internet service provider, in which it will set up a website where aspiring groups can send their music - in the form of MP3 files - for public audition, as well as evaluation by record company staff who might snap them up.

The site - Farmclub.com - is seen as a direct response to the huge success of sites such as MP3.com, a publicly-listed Internet company that sells songs in MP3 format over the Net. Sites such as garageband.com and musicunsigned.com already offer musicians a chance to get noticed by record labels. Last month, the Nottingham band Smoker's Blend 3000 became the first band to be signed over the Internet after the record company Pinnacle took a liking to the band's tracks on the musicunsigned.com site.

The difference with Farmclub is the size of investment in it: AOL is spending $100m for a 3 per cent stake in the new company, potentially valuing it at $3.3bn.

Universal Music said that Farmclub will be "a star-maker for the people, by the people" because Web visitors will be able to vote on which tracks they prefer. "It will provide young artists with a ticket from obscurity," said Edgar Bronfman, Universal's president, who predicted that it would unearth the next U2 or Shania Twain.

But industry observers said that it was a "me-too" reaction to the success of sites such as MP3.com and tunes.com, which also has a "self-publishing" section where bands can put their songs. "I think people are annoyed at MP3.com's market capitalisation," said one music executive of the Farmclub initiative. "Everybody thinks, 'We could do better than that'."

The MP3 format is an internationally agreed standard that allows near-CD quality reproduction of music, but typically requires only one-tenth as much data as a CD. That makes it ideal for transmitting music over the Internet.

But conventional record companies are worried over the prospect of music moving entirely to the Web and MP3, because there is no copyright protection over the files. That cuts record companies out of the music-making loop and reduces their revenues.

When the rap group Public Enemy put out an album in MP3 format, making it available for anyone to download over the Net, its record company stepped in and forced the band to take down the website.

Record companies are working on a "secure digital music initiative" (SDMI) that would produce an MP3-like file format which could not be copied and would have to be paid for. But the vast number of MP3 files now flying around the Net suggests that the longer the SDMI takes to appear, the more likely it is to fail as people become used to having freely copied music files.

Meanwhile bands and record companies are still deeply reluctant to use MP3 files as a marketing tool. Yesterday Massive Attack, the Bristol trip-hop band, launched a new website backed by Virgin Records and Levi's. However, there were no music tracks on the site, and a Virgin spokesman said that the company has no plans to offer MP3 versions of songs, or samples of songs, on the site.