Despite popular misconsception mp3s aren’t illegal!
MP3 is simply a medium in which to store music. It can be used to store or distribute music in a legal (eg: mp3.com), or an illegal way. Compare it to any other medium: a blank piece of paper can be used to take some notes, as can it be used to make illegal copies of a copyrighted work.
mp3s for consumers:
You are allowed to make a copy of any original piece of music which you have bought in order to store to it in any form. It’s perfectly legal for you to buy an album, encode it in mp3, write this mp3 to a cd and listen to it on your computer mp3 player. Allowing others access to the music you bought the rights to listen to is not allowed, nor is lending or trading your mp3s.
mp3s and artists:
You are allowed to record your a piece of original music, encode it into mp3 files and put it on a website for the download. When your music clips are available for free, you do not have to pay any royalties to Thomson*. If you charge for mp3s, you are obliged the Thomson mp3 royalties. (1%, $15k minimum)
mp3s and music broadcasting (eg. Internet Radio):
You are allowed to broadcast mp3 streams and so long as you don’t charge for them you wont have to pay any royalties to Thomson. If you charge an the mp3 stream, you will have to comply to the Thomson mp3 broadcasting royalties (2%, $2k minimum, since 2001).