Rarely has a new technology generated the kind of interest and controversy in just a few short months that MP3 has. With just a single CE product currently in the marketplace, the concept of downloading music from the Internet has captured the attention of the press and raised questions about what MP3 means for retailers, and more importantly the question of how the industry can best take advantage of this new craze.

MP3, a computer file format for audio, allows music to be uploaded onto the Internet in a compressed form and then downloaded, stored, shared or listened to mainly from a computer. College students have known about it for years, and until recently MP3 remained largely in the domain of the young and technologically savvy. But Diamond Multimedia changed that in the fourth quarter of 1998 when it launched Rio, a portable stereo that freed the MP3 file from the computer and allowed the user to listen to MP3 music on the go. The introduction of the Rio was initially blocked by the Recording Industry Association of America (RIAA), which claimed the product violated the 1992 Audio Home Recording Act.

But Rio was released all the same, and it has landed in the middle of the spotlight that is focused on all things Internet related. Circuit City proudly showed off the product last fall at a new store opening in New York, and Best Buy reported selling through its entire product allocation in December, the first full month of Rio's availability

"We see MP3 as one of the biggest applications we've come across in a long time," said Bob Gundersen, merchandising manager for computer peripherals and accessories, Best Buy. "We're pretty excited about it."

Best Buy internally classifies MP3 as a computer peripheral, and as such it is merchandised in that department. When the Diamond Rio first came out nearly six months ago, the chain displayed it under glass next to other peripherals, but it recently moved it to a dedicated endcap. And with more product in the pipeline, Gundersen expects to have a broader assortment or at least an additional three or four skus by fall.