So the RIAA is starting to sue individual Kazaa users. And right they are, these people (okay, I'm one of these people) are breaking the law, so they should be stopped. Information wants to be free, sure, but society has to maintain its laws. If you don't like the law, get it changed, you cannot just ignore it.
That doesn't mean it's smart what the RIAA is doing. They are alienating their best customers (screwing, some would say), the people that love music. They're drawing a lot of attention to the fact that they operate as a cartel, stiffling innovation. But most importantly, they're missing business opportunities.
People love playing music and they love playing with music. Creating mixed tapes has been a favourite pass-time for many a geek in love. Playlists for parties is fun. We recently had a dinner party where we would try to gather songs in different languages and compare them. Things like that work great if you have access to music in a free and open way. Like all the mp3s through file sharing.
Internet radio is something that springs to mind. People operating an Internet radio station are like bloggers. They create something (playlists) for everybody to enjoy and are satisfied with a few hundred people dropping by everyday. The RIAA should applaud this. To me, they are a great source for new music (and I had been stuck in the eighties for most of my music).
There is of course Rhapsody, a service from Listen.com, which is nice, though not available in Europe, with 50 radio channels, but it misses the personal touch. If the music industry could come up with a system where you'd pay a fixed amount per month as a consumer and anybody could start a radio-station.
I think you'd have a million music bloggers in no time, inspring people with their choice of music all over the place. Add a 80ct per track for burning to CD and you have a model.