With all of the Big Four record labels now jettisoning digital rights management, music fans have every reason to rejoice. But consumer advocates are singing a note of caution, as the music industry experiments with digital-watermarking technology as a DRM substitute.

Watermarking offers copyright protection by letting a company track music that finds its way to illegal peer-to-peer networks. At its most precise, a watermark could encode a unique serial number that a music company could match to the original purchaser. So far, though, labels say they won't do that: Warner and EMI have not embraced watermarking at all, while Sony's and Universal's DRM-free lineups contain "anonymous" watermarks that won't trace to an individual.

Still, privacy advocates were quick to point out that the watermarking is likely to produce fresh, empirical data that copyright material is ping-ponging across peer-to-peer sites – data the industry would use in its ongoing bid to tighten copyright controls, and to browbeat internet service providers to implement large-scale copyright-filtering operations.

"It gives them the ability to put pressure on policy makers and ISPs to do filtering," said Fred Von Lohmann, an Electronic Frontier Foundation attorney.

Eric Garland, the chief executive officer of research group BigChampagne, said analyses of watermarked traffic can be done with "forensic precision," and that the results could give the music industry hard evidence of copyright music transiting specific internet providers' networks.

"Any empirical evidence that harm is being done to their legitimate business is a huge asset when it comes to their bargaining power with ISPs and third-party partners," said Garland.

Sony BMG on Thursday became the final of the Big Four music concerns to announce it would sell its downloads free of DRM. The others, Universal Music Group, Warner Music Group and EMI, made similar announcements last year – all in a bid to compete with Apple's iTunes music store, which controls about 80 percent of the digital-download market with mostly DRM-laden songs.

Watermarking codes are digitally woven into the fabric of a download and do not restrict listeners from making backup copies or sharing music with friends, as does DRM coding.

Microsoft is betting on watermarking's future, winning a patent for a "stealthy audio watermarking" scheme called El Dorado in September.

According to the patent, El Dorado is, among other things, "designed to survive all typical kinds of processing, including compression, equalization, D/A and A/D conversion, recording on analog tape and so forth. It is also designed to survive malicious attacks that attempt to remove or modify the watermark from the signal, including changes in time and frequency scales, pitch shifting and cut/paste editing."

Universal and Sony declined to discuss who developed their watermarks and what they would do with the information they cull from their analyses.

Art Brodsky, of Public Knowledge, was quick to provide an answer.

"They'll do anything they can to get ammunition, including submitting the information to Congress, publishing research and whatever, so long as they can blame everything on piracy," Brodsky said.

EFF's Von Lohmann speculated that watermarks could even enable ISPs to filter out peer-to-peer traffic when they detect a copyright work in transit.

It's no secret that the Motion Picture Association of America and the Recording Industry Association of America are working with ISPs toward the goal of network-wide piracy filters. Representatives from AT&T discussed that at the Consumer Electronics Show in Las Vegas on Tuesday.

But Von Lohmann added it's too soon to conclude that watermarks will be put to that kind of Orwellian use.