Having failed to stop piracy by suing internet users, the music industry is for the first time seriously considering a file sharing surcharge that internet service providers would collect from users.

In recent months, some of the major labels have warmed to a pitch by Jim Griffin, one of the idea's chief proponents, to seek an extra fee on broadband connections and to use the money to compensate rights holders for music that's shared online. Griffin, who consults on digital strategy for three of the four majors, will argue his case at what promises to be a heated discussion Friday at South by Southwest.

"It's monetizing the anarchy," says Peter Jenner, head of the International Music Manager's Forum, who plans to join Griffin on the panel.

Griffin's idea is to collect a fee from internet service providers – something like $5 per user per month – and put it into a pool that would be used to compensate songwriters, performers, publishers and music labels. A collecting agency would divvy up the money according to artists' popularity on P2P sites, just as ASCAP and BMI pay songwriters for broadcasts and live performances of their work.

The idea is controversial but – as Griffin and Jenner point out – hardly without precedent. The concept of collecting a fee for unauthorized use of music was developed in France in 1851 as a way of reimbursing composers whose work was being performed without their permission in cafes and the like.

The practice spread to the United States in 1914 and currently applies to radio airplay and webcasts in addition to live performances. In a 2004 white paper, the Electronic Frontier Foundation called for it to be applied to file sharing, but the Recording Industry Association of America immediately dismissed the proposal.

Things are different now. "The labels are beginning to like the idea of an access-to-music charge," says Jenner, who once managed Pink Floyd and the Clash, "because they're increasingly aware that their current model is broken." U.S. music sales, which peaked in 1999 at nearly $15 billion, dropped to $11.5 billion in 2006. Last year's figures are still being tallied, but with CD sales cratering and online sales overwhelmingly dominated by singles, the only question is how far they'll fall.

Meanwhile, the industry's antipiracy efforts appear more and more futile. Digital rights management, long touted as a solution, has been all but abandoned. And though the RIAA is said to have threatened or taken action against some 20,000 suspected file sharers, the market-research firm NPD Group reports that nearly 20 percent of U.S. internet users downloaded music illegally last year. The score to date: 0.02 million alleged P2P users down, 40.98 million to go.

At the music industry trade show MIDEM last year, John Kennedy, the head of IFPI – the RIAA's international affiliate organization – offered modest support for the kind of licensing fee Griffin and Jenner propose. "It's a model worth looking at," he said at a press conference. "If the ISPs want to come to us and look for a blanket license for an amount per month, let's engage in that discussion."

The tone at the January 2008 MIDEM in Cannes, France, was more combative. Longtime U2 manager Paul McGuinness said in a widely reported speech that it was time to hold ISPs responsible for the file sharing deluge. McGuinness wants network operators to cut off those the industry deems offenders – an approach France's Sarkozy government is already pushing in that country. "If ISPs do not cooperate voluntarily," McGuinness declared, "there will need to be legislation to force them to cooperate," McGuinness said.

Behind closed doors, however, MIDEM attendees discussed the prospect of collecting money from ISPs instead. An invitation-only meeting on the subject drew about 50 people, including representatives of IFPI, Sony BMG, T-Mobile, the giant European ISP and mobile-carrier Orange, and performing-rights organizations like BMI. The response, according to Jenner, "ranged from 'What do we do now?' to 'It sounds good, but can it possibly work?' A lot of people are like rabbits in the headlights: They're terrified they're going to lose their jobs. No one dares to feel that this might be the solution."

Even so, notes Shira Perlmutter, IFPI’s head of legal policy, “none of our members are ruling anything out. These companies are all very open to creative new ideas that would allow customers to do things they want – including using file sharing technologies.”

Not everyone sees the two approaches as an either-or situation. "I love Paul McGuinness' idea," says another scheduled SXSW panelist, Dina LaPolt, a Los Angeles attorney who represents Mötley Crüe and the estate of Tupac Shakur. "And I love the idea of trying to make ISPs pay artists and make up for all the free crap that's going on. I support both, so long as artists are getting paid for their work."

Whether ISPs will be willing to ante up remains far from clear, especially since many users can be expected to protest the extra charge. One option would be to introduce different service tiers and impose the surcharge only on customers who buy enough bandwidth to make file sharing feasible. But for ISPs, other music-industry demands could be far more onerous.

In the weeks since MIDEM, antipiracy zealots have been using McGuinness's speech as a rallying cry. Last month the British media reported that a government white paper was about to call for legislation to force ISPs to move against suspected file sharers. As it turned out, the white paper merely included a vague call for "voluntary, preferably commercial solutions" by April 2009.

Just Monday, the four majors sued the largest ISP in Ireland in an attempt to force it to block illicit downloads. Attorneys for Eircom retorted that it was not legally obligated to monitor its network traffic.

AT&T has been looking into content-sniffing technology that could turn it into a spy agency for music labels and film studios, but most ISPs seem distinctly unenthusiastic about the idea. They have good reason to be.

Technology experts say it would be impossible to reliably inspect trillions of packets for pirated material, especially if file sharing networks resort to encryption mechanisms. Legal experts point out that any attempt by an ISP to monitor its traffic in this way would jeopardize its status as a common carrier. It could also leave the ISP open to lawsuits from subscribers who get cut off without good reason. And financial experts say it would cost a bundle to implement.

But the bottom line is, it simply won’t work. “Ultimately there is no real hope of eradicating copyright-infringing technology,” says another SXSW panelist, Eric Garland, CEO of BigChampagne, which tracks the popularity of music online. “You can push piracy around, discourage people from doing it in this or that venue, but I don’t think in even the most Orwellian scenario you could reduce massive infringement in a comprehensive way.”

So, which will it be: A last-gasp assault on piracy, or a truce that would bring in money and benefit everyone except the lawyers?

At this point, the music industry seems too dazed to decide – and several nights in Austin probably won't help. Though Jenner and McGuinness are on opposite sides of the debate, their good cop-bad cop routine could ultimately prove synergistic. Pay up, the music people are telling internet providers, or we'll sic Washington on you – and London and Paris and anybody else we can find.