Once again, the music industry has demonstrated that it regards the Internet the same way a villager feels about a wild elephant trampling the vegetable garden.

On the one hand, the major labels and publishers look at the Net as a scourge that could destroy their livelihood. On the other hand, the industry can't help thinking, "Gosh, if we can just tame this beast, it could do a lot for us."

So the let's-go-hunting attitude the industry has taken toward file sharing is an unfortunate one, say some marketers who are trying to harness the abilities of the Internet for music promotion. And with the industry unable to come to any consensus on how to pursue the Internet opportunity, it appears unlikely any of the big players soon will be able to claim digital music as a success for shareholders.

"I think the Internet is one of the greatest opportunities to happen to the music industry ever," says Ken Krasner, executive vice president, media and entertainment, at the marketing firm

MKTG Services

(MKTG)

. "They just don't realize it. They just don't know how to harness it or leverage it."

Back and Forth

Certainly, the major players in the record business --

AOL Time Warner's

(AOL)

Warner Music Group,

Vivendi Universal's

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Universal Music Group,

Sony's

(SNE) - Get Report

Sony Music Entertainment, EMI Group and Bertelsmann's BMG Entertainment -- could use all the help they could get.

If the weak advertising market isn't enough of a challenge for media conglomerates, they've also got to contend with a music industry that for one reason or another -- piracy, a creative dry spell, the overreliance on creaky acts such as Jethro Tull, Chicago and the Rolling Stones -- is going nowhere in particular. In 2001, according to the Recording Industry Association of America, the U.S. record industry shipped $12.9 billion worth of CDs, down 2.3% from 2000. Unit shipments for CDs fell 6.4%.

The latest incarnations of the music business' ambivalence toward the Internet came over the past two weeks. In mid-May, Bertelsmann -- parent of the major label BMG Entertainment -- ponied up $8 million to resuscitate Napster.

Bertelsmann's investment, on top of the tens of millions of dollars the conglomerate already has poured into Napster, indicates how music execs hope to harness the grass-roots file-sharing phenomenon that Napster incubated -- incubated, that is, until Bertelsmann and other music industry majors took Napster to court for copyright infringement, seeking billions of dollars in damages and effectively shutting it down.

But in the wake of Bertelsmann's latest effort to help create a Napster acceptable to it and the industry, music industry trade associations -- the RIAA and the National Music Publishers Association -- have gone after a son of Napster, filing suit on Friday against the Audiogalaxy file-sharing service.

Meanwhile, the music industry is waiting for the Librarian of Congress to decide on a formula for what royalties Internet broadcasters will have to pay for the right to operate Internet radio stations.

Circular File?

In theory, say some industry participants, file sharing and Internet radio amount to a godsend for the music industry's attempts to publicize new music and new artists. Rather than rely on gatekeepers at radio station groups or music video channels to publicize new releases, they can piggyback on the efforts of devoted fans to spread the word about an artist's music.

"File sharing could be one of the greatest things in the world for the music business. There's no better marketer than a kid who loves a band," Krasner says. "You need to reward these people for being fans and viral marketers, not penalize them."

Krasner paints a world in which a fan who owns a digitized version of an album can send it to 100 friends, enabling each of them to listen to it for a limited number of plays or finite time period. If any of them want to "own" the music beyond that, they can impulse-purchase the recording from their computers. In such a system, the recommending fan would be compensated for the purchases made by people to whom he or she sent the song.

The only problem, says Krasner, is the music industry is perhaps years away from developing the back end to such a system. In the meantime, he says, "It's not

fans' fault that the technology's not there and the business model's not there and the legal model's not there."

But that scenario is only one of several that might develop, says Krasner. Another one might be that companies -- say, Britney Spears backer

PepsiCo

(PEP) - Get Report

-- would sponsor perhaps 1 million free downloads of a particular single to consumers who visited pepsi.com and registered there. Consumers would get the free music, Pepsi would get the brand exposure, and the artist would get money for the downloads from Pepsi.

Radio Head

Marc Schiller, CEO of online marketing firm Electric Artists (formerly co-headed by Krasner), cautions that as promising it might appear to promote musicians through the Internet, the music industry is paying mostly lip service to the idea. "In the boardroom, it's still all about radio," he says.

Simply put, he says, it's because radio works. "You can make a very clear case," he said. "If you get radio airplay, you generate sales."

Unfortunately, that clear cause-and-effect relationship hasn't been proven yet for online promotion, despite his company's success in using the Internet to identify and reach out to music fans.

Radio rules, he says, in spite of its bottleneck role among artists: 95% percent of artists trying to get on the radio won't get airplay, he says. The music industry, Schiller says, is "willing to give up that 95% to get that 5% on the radio."

Labels, still trying to figure out how to market directly to consumers, do understand the value of peer recommendations on the Internet as a marketing tool, Schiller says. "They understand the consumer, and they want to embrace the consumer," he says. "But they also want to control the consumer. And they want to control what the consumer does, and that sends mixed messages."

Whatever marketers and other pundits might say about the promotional value of file sharing, the record industry, for the most part, continues to regard the practice as just plain stealing. In a statement accompanying the suit against Audiogalaxy, RIAA business and legal affairs executive Matt Oppenheim said, "Audiogalaxy and Napster are cut from the same cloth. Audiogalaxy is profiting by providing its users a library of pirated music, including today's most popular hits."

The RIAA also blasted a recent report from a Jupiter Media Metrix study concluding that file-sharing services encourage music purchases. The RIAA says that file-sharing services cause people to spend less on music, not more. The big labels didn't immediately return calls seeking comment.

So what will change the music industry's attitudes toward the Internet as a promotional tool? "That's the $24,000 question," Schiller says. "I don't know that I have the answer."