The Internet is changing the way we buy and listen to music - and the British record industry is meeting to discuss what to do about it.

Stories of pop stars releasing music over the Internet are now commonplace, and the medium is a well-established way of promoting acts and selling music by mail order.

Only this week US rappers Public Enemy announced they would be selling their new album There's A Poison Goin' On exclusively over the Internet for six weeks before its official release date in June, while Alanis Morrisette is reported to be about to post MP3 files of her live shows on the Web.

Now the British Phonographic Industry is holding a special conference on Thursday to debate what the Internet can do for the industry - and what it could do to the industry.

The BPI's anti-piracy operations executive, Jolyon Benn, says: "It's a fantastic opportunity, and a real window on the world. I'm looking forward to the day music can be distributed over the Internet and copyrights can be protected."

Internet free-for-all

Public Enemy are offering their new album exclusively over the Internet

The trouble is for the record industry is that distributing music over the Internet is something of a free-for-all - and record companies, songwriters and performers often aren't picking up the copyright payments that they do when their music is sold in the shops.

The biggest bugbear for the music industry is the controversial MP3 format. All you need to do is download the MP3 player - similar to the RealPlayer BBC News Online uses - from the Internet, then go to a site such as MP3.com, download a track, and play it.

More controversially, it is also possible to download an MP3 track into a portable player. US electronics group Diamond Multimedia's Rio player is available for around £200, and can play 74 minutes of the music you've downloaded from the Web.

But MP3 has turned into a legal minefield. Some High Street stores have decided not to sell the Rio players for fear of legal action from the record industry, and the MP3 sites themselves appear and disappear frequently.

Can the industry adapt?

Alanis Morrisette: Reported to be about to offer MP3s

Even the artists who have backed MP3 come unstuck - last month Tom Petty posted his new single on MP3.com, but it suddenly vanished within 48 hours. Public Enemy and the Beastie Boys have had public rows with record companies who believe backing MP3 is backing piracy.

But will the advent of MP3s mean the death of the record industry as we know it? Joylon Benn thinks not, and the BPI conference will be discussing ways the industry can adapt to the Internet age.

He believes the fashion for distributing music by MP3 will ultimately have no future because there is no money in free music - giving the established industry a chance to take over trade on the Web.

"I can't see the MP3 trend lasting - it's fine for streaming or for downloading 30 second clips. But although you can get some tracks for 99 cents, there's no trade in it."

Microsoft recently announced its own audio format - Windows Media 4. But the industry has its own ideas, including the Secure Digital Music Initiative (SDMI), which aims to develop a secure format for online distribution by the end of the year.

New ways of selling music online

The Rio: A portable MP3 player

Benn says: "The MP3 sites have helped spawn a culture of music-for-free, which is unhealthy, particularly if you are a copyright holder.

"The SDMI is being developed to create a platform where all users can download music, and copyrights are protected.

"I'd be surprised if any major record companies put their artists' music on the Web before all this is sorted out."

Although piracy will undoubtedly remain a problem, Benn insists the music industry is prepared for it, with long-established teams at several record companies assessing the challenges and the opportunities of the Internet.

As soon as record companies and governments can agree on a format, the music industry is set to be transformed. Already, the UK retailing chains Virgin and HMV are gearing up to open online stores to compliment their High Street shops.

The days of popping down to the local record shop to leaf through racks of vinyl LPs are long gone. And although the days of leafing through racks of CDs may not be numbered just yet, Joylon Benn says the music industry knows it will have to adapt quickly to keep up with the World Wide Web.