BY JIM DeROGATIS POP/ROCK CRITIC

Drawing some 6,000 journalists and business types and more than 1,200 bands from around the world for four busy days of panel discussions and showcase performances in the scenic Texas capital, SXSW remains the music industry's largest annual gathering, its version of the Sundance or Cannes film festivals.

But while the conference has always been a joy for hard-core music lovers (including hundreds of Chicago fans who travel south for their version of spring break), more than ever the focus is on the music rather than the music business.

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After an opening night of performances on Wednesday (with at least six bands on each bill at an astounding 52 clubs scattered across the city), the conference kicked off in earnest Thursday morning with a pre-keynote set of Mississippi blues by veteran guitarist and Fat Possum recording artist CeDell Davis.

As Davis sat playing his turquoise Gretsch, using a table knife as a slide, surprise guests Peter Buck and Scott McCaughey of R.E.M. dropped by to sit in on bass and rhythm guitar (something that could be expected to happen with these veteran party-crashers about three dozen times over the next few days).

Setting the tone for the conference with his keynote address was Daniel Lanois, the ambient art-rocker and self-described "record maker" best known for recording the likes of Bob Dylan, U2, the Neville Brothers and Emmylou Harris.

Casually dressed in a black T-shirt, baseball cap and jeans, Lanois traced the key points of his career in a sort of a third-person, free-verse Beat poem, taking the audience of several hundred from his pre-teen days playing with his mother's two-track tape recorder in a basement outside Toronto through his current status as a producer celebrated for what he called "soul mining," capturing the emotion and spirit of the moment.

"Master your simple tools and make your music," Lanois said, paraphrasing his friend and frequent collaborator Brian Eno to describe his working methodology. "Low baggage, high mileage, passion before commerce, intelligence before waste."

Lanois punctuated his speech by playing a moving instrumental called "Transmitter" on pedal steel guitar, then he took a handheld mike into the audience to take questions from artists and fans. He stopped to praise the head of his new record company, Anti, which will release his new solo album, "Shine," on April 22.

"There are people out there who are absolutely dedicated to music in the business world, and they need to be celebrated and encouraged," Lanois said to spirited applause.

It was a statement likely to be echoed throughout the festival, and it was voiced in a different way on Wednesday night by Pete Wertz, the bassist-vocalist of the Chicago quartet Fall Out Boy, which scheduled a coveted gig showcasing at SXSW as part of a national D.I.Y. van tour. (The group has only recorded one demo to date, but it is already building a national following for its spirited and melodic punk rock.)

"Don't get me wrong--I'll take a free dinner any time," Wertz said. "But we have no interest in being a 'buzz band.' We'd much rather play to a crowd of 400 kids than a bunch of industry types."

As always, Chicago artists have a significant presence at the festival. Among the others performing here are Kelly Kessler and the Wichita Shut-Ins, Cameron Mc-Gill, We Ragazzi, Hay-market Riot, Slitheryn, Lisa Lauren, Seen, Bosco & Jorge, 90 Day Men, the Webb Brothers, Palaxy Tracks, Nicholas Tremulis, Boas, Sin Ropas, Yakuza, Tub Ring, Diverse, Break the Silence, the Reputation, the Drapes, Kelly Hogan & Sally Timms, the Waco Brothers, the Fruit Bats, David Singer & the Sweet Science, Local H, Smog, AZITA, the Children's Hour and Entrance.

For a full report on my highlights and lowlights of South By Southwest 2003, see Monday's Showcase.