But rather than fretting about the "end of the music industry," I suggest we instead take a proven formula for artists to "get paid" for their work, and apply it to the Internet: the performance rights model used by ASCAP, BMI and others.
For those who aren't familiar with the way ASCAP works, here's a quick and dirty primer. Music creators (songwriters) join a performing rights organization like ASCAP, and register their creative works (songs) with them when the songs are released to the public. At the same time, entities like radio and TV stations, bars, clubs, etc., that "perform" these registered works, are required to pay fees to ASCAP, which are pooled and distributed to the copyright owners, in an amount commensurate to the amount of performances their music receives. Hits, by definition, have more performances, and get a larger piece of the pie, than non-hits, but the point is, everyone gets paid, assuming their work gets some play.
The logical extension of this model to the Internet would treat digital downloads as "performances" of a given copyrighted work. The number of digital downloads (i.e. "hits") of various songs/videos/movies/etc. could be tracked using existing technologies, and the registered owners of these works would be compensated from the pooled fees, commensurate with the amount of downloads over a given period.
The obvious question raised here is, who pays the fees that go into the pool? The obvious answer is EVERYONE. And here's how. With few exceptions, everyone pays to get access to the Internet, that is to say, we pay a monthly fee to our Internet Service Provider. I propose that a portion of this fee be set aside for content creators on the Internet, and be pooled and distributed to copyright owners fairly, along the lines of the ASCAP model described above.
Now, I admit this does raise certain questions, and I'm not saying I have all the answers. For example, since ISPs would undoubtedly seek to pass these fees onto the consumers, some folks might rightfully balk at paying any fees because they don't download music for free. What's more, paid download sites like Apple iTunes, etc. would no doubt resist the new concept, because it basically establishes an alternative business model for monetizing creative content on the Internet, and could potentially render them obsolete.
Nevertheless, I believe the "ASCAP for the Internet" model should be explored and, if possible, implemented. If it is, we would create the best of all worlds for creators and consumers alike: a world were everything is FREE, and yet PAID FOR at the same time.