Somebody needs to split this thread.
I just got a great idea to reduce piracy simply and efficiently. Make optical media expensive. Right now, you can get cds for less than a dollar. When the only cost involved in music piracy is that low, there's almost no reason to not do it. Make the discs $5 each. The only thing a cd is good for is music anyway - if you need to back up files, get a portable hard drive. Of course we all know that the reason cds are so cheap in the first place is that the costs were driven down in order to sell cd burners. Anyway, the whole music/film industry is truly fucked up as it is, and I doubt that raising the price of optical disks would unfuck it.
Calum, you mentioned the possible loss of paid music due to hard drive failure. I feel I should point out that iTunes has a way around this. With a single click, you it will check your drive for a song you purchased. If it doesn't find it, it will redownload it for you, at no cost. This system also protects you from interrupted or corrupt downloads - simply delete the busted file and get another one.
The problem I have with iTunes is that it tends to reset itself whenever you do any kind of firmware install. When my graphics logic board was replaced, iTunes treated it as if I had a new computer. I had to reauthorize that computer to play my purchased songs. You can only do this 5 times, and I have now used up 3, all with the same computer. So there's that to deal with.
I still think that per-item licensing is not the way to go with this sort of thing. A bulk license would be better. Like royalty-free images. I was thinking about a bulk license payment that would be made up front by the content distributor, and then amortized by the consumer. So I pay 10,000 to distribute a program, and then charge people $1 to buy it, or $10 to register for free downloads. Eventually, my licensing costs would be covered, and the people who downloaded the stuff could do whatever the hell they wanted with it.
These are the kind of questions that have to be answered. There is a ton of independent and foreign tv, movies, games, and music that is just waiting for an audience. Whoever gets a hold of it can answer these questions in a way that is more equitable and makes more sense than the current paradigm.