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The industry could boost the legitimate services by opening up its catalogue beyond the roughly 700,000 titles it makes available to them now. Consider that eDonkey has about 100 million unique titles available at any given time, according to Yagan. But the best way the labels could help these legitimate sites gain traction, and lure users away from the Kazaas and Groksters, is with a sizable copyright-payment discount. Currently, about 65 to 70 cents from each song download go to the copyright holder, usually a record company. That sets a floor for how low prices among music-download services can go; at present, rates fall between 79 and 99 cents a song. A dramatic discount from the recording companies would allow those prices to drop, and could make a huge impact on the business. When RealNetworks offered a half-price promotion last month, it sold five times its usual weekly number of songs. Of course, 25-cent song downloads would make downloading an album considerably cheaper than buying the $16 CD, so the industry isn’t ready to make that plunge.

But the labels are missing the fact that store-bought CDs, while probably retaining a place in the consumer’s world, cannot provide what today’s users want: total portability of their music. If users can connect electronically to every song or album they have ever paid for, wherever they may roam, well, the CD just can’t match that. "Culturally, people in the recording business are still slow in recognizing the change that is happening," says Fischer.

And the industry’s blind hatred of P2P has it dragging its feet on another opportunity: the illegal services themselves. Companies such as Sharman Networks, which produces Kazaa, aren’t hackers seeking the thrill of thumbing their nose at Sony; they have a viable business model, driven primarily through advertising. The record companies could be getting a piece of that action. MetaMachine’s Yagan admits that he has been waiting — practically begging — to make a deal with the record companies. "There is no reason the music industry can’t make money through peer-to-peer distribution and through direct purchase," he says. Yagan has had discussions with "senior people," but no deal to date.

IT’S PROBABLY no coincidence that those discussions began after the Grokster decision in August, which left the recording industry scrambling for solid ground. Just as makers of videocassette recorders are not liable for the use of those products to record illegally, Grokster and other P2P software companies are off the hook for users’ behavior.

The RIAA issued a terse two-paragraph press release after the decision, calling on P2P companies to step up to their "responsibility as corporate citizens to address the rampant illegal use of their networks." Sure they will — right after VCR makers do, or the makers of TiVo and other digital recording devices, for that matter.

The RIAA is considering appealing to the Supreme Court, Lamy says. But first it’s trying to get Congress to undo the decision via the pending Inducing Infringements of Copyright Act, or Induce Act for short. Sponsored by Senate Judiciary Committee chairs Orrin Hatch (R-Utah) and Patrick Leahy (D-Vermont), this bill would make it illegal to "lure consumers into breaking the law," as the RIAA says, by distributing P2P software.

The bill was originally introduced back in June, but gained urgency after the Grokster ruling. Unfortunately for its proponents, the Induce Act has run into trouble. The bill’s initial wording brought a panicked response from technology-industry groups, who feared that it would unintentionally outlaw recording devices as varied as iPods and TiVo.

Hatch and Leahy issued a new draft in late September. But the Center for Democracy and Technology, in Washington, DC, quickly released a letter warning that the bill would potentially affect makers of iTunes, instant-messaging systems, and e-mail software, among others. Groups as varied as the civil-liberties-minded Electronic Frontier Foundation and the conservative Heritage Foundation have joined forces to oppose the act. "The parties are still talking and working on it," says Tracy Schmaler, Leahy’s press secretary.

The Induce Act is not the only legislation the RIAA wants to push through before the congressional hiatus. The Artists’ Rights and Theft Prevention (ART) Act, which seeks to make the use of camcorders in movie theaters a federal offense, also includes provisions outlawing the distribution of pre-release materials, specifically over P2P networks. Versions of the bill passed the Senate in June and the House last week. But there is no time for a formal conference committee to iron out the differences between the two, according to Don Stewart, spokesman for Senator John Cornyn (R-Texas), a co-sponsor of the bill. Cornyn and others are trying to work something out quickly in private meetings.

Similarly endangered is another Hatch-Leahy bill, the Protecting Intellectual Rights Against Theft and Expropriation (PIRATE) Act. This one would give the Justice Department authority to bring civil cases against copyright infringers. Currently, Attorney General John Ashcroft can bring only criminal cases, which he has been loath to do. Maybe the RIAA doesn’t mind the PR fallout of dragging 12-year-old girls into court for listening to Nelly, but the Justice Department has shown little inclination for that kind of grief. Legislation is moving forward at the state level too; California just put restrictions on file-swapping into law, and others are working on similar bills. Whether they will have any practical effect remains to be seen.

That’s been true of all the recording industry’s flailing actions since it first recognized a threat from P2P networks. As Fischer points out, investors aren’t betting heavily on the industry’s top players to win this war. That might change if the RIAA starts spending more time on developing the future rather than fighting it.

David S. Bernstein can be reached at dbernstein[a]phx.com