More and more, entertainment industry insiders are seeking alternatives to lawsuits and legal threats, realizing it’s time to finally work with, instead of against, P2P network operators and their users.  Some of these initiatives are still in stealth mode, while others are emerging to establish entirely new ways to compensate rights holders. Here’s a look at three approaches I described in a recent article for GigaOM Pro (sub req’d):

Flat-fee Licensing:

This approach to monetizing music sharing is as simple as it is disruptive: Instead of regulating file sharing, the music industry wants to monetize it through small monthly fees paid by users. Two years ago, Warner Music Group CEO Edgar Bronfman hired digital music distribution pioneer Jim Griffin (who was a sharp critic of the industry when it started to go after P2P networks) to explore the idea of licensing P2P downloads through a flat fee that would let users legally download as many MP3s as desired. Griffin and his company, Choruss, approached universities early on to act as a test bed for flat-fee licensing and say they are looking at broader deployments later this fall. Though no school has publicly declared to be a Choruss partner, Griffin recently stated in an interview (subscription required) that half a dozen schools have signed on for field tests. The Isle of Man proposed a similar licensing scheme in early 2009, and Noank Media has been building tools to legalize music and video sharing in P2P environments as well. However to date, none of these projects has gone beyond the planning stages.

Ad-supported P2P:
LimeWire, one of the most established file-sharing clients, proposed a different type of monetization scheme two years ago: The company would show contextual text ads, similar to the ones popularized by Google, next to search results within its file-sharing client and split any revenue from those ads with rights holders. The system might, for example, display an ad for Gwen Stefani’s perfume next to search results for No Doubt tracks. Advertisers would pay only if a user clicked on the ad, and rights holders would receive around 40 percent of the revenue generated by that click. LimeWire is the first company to tackle advertising in a P2P context by using Adsense-like ads within a file-sharing client. Others have claimed to deliver ads over P2P networks before, but most of those efforts were little more than thinly disguised spam, and no other company has so far proposed to give rights holders a cut of its P2P ad revenue.

User Donations:

Swedish BitTorrent site The Pirate Bay has been known to make fun of rights holders in response to take-down requests, but one of the Bay’s founders recently launched a startup that explores yet another way for rights holders to monetize sharing of their works. Flattr, which launched in private beta earlier this year, offers users the ability to donate money to writers, musicians, filmmakers and other creatives. Rights holders list their works with Flattr and, in turn, receive a badge that looks very much like the button used by social news site Digg. They can then embed this badge onto their own sites and ask users to contribute with a click, just like they would vote on a post with a Digg button.

Choruss, Lime Engine and Flattr aren’t the only companies and projects looking to monetize file sharing, but are among those closest to deployment. The very fact that more than one solution exists represents a huge opportunity: Smaller and bigger rights holders alike can figure out which solutions work best for them, experiment with various approaches and possibly even combine multiple models to receive new revenue streams through a mix of donations, advertising and flat-fee licensing.

Entertainment industry executives have lost the war on file sharing, and it’s time to start to building a peace-time business. The tools are there.

Take Lasttube for example. It’s a great web-based video player combining Last.fm and Youtube, glued together with Yahoo Pipes and Adobe Flex 2. It’s been whipped up by one lone programmer in Colombia of all places, who by his own account only needed one day to complete this project, including coding, testing, googling and lunch time.”

If mashup programmers can do stuff like this in no time – what does that mean for start-ups like Last.fm? For one thing, they really have to try harder.

Lasttube isn’t the only mashup that combines Last.fm and Youtube. Last.tv compiles a video playlist based on your or someone else’s music profile in a dedicated web player, and Tim Bormans has done the same thing with a very minimalistic interface.

Granted, all of these mashups have their shortcomings. They are based on Youtube music videos which tend to get removed every now and then and usually don’t feature the best audio or video quality. Last.fm has announced to stream videos with audio encoded at 128 kbps, twice the bitrate of Youtube. Still, these mashups have upped the bar for Last.fm.

The same goes for many Web 2.0 start-ups that have popped up during the last few months. People have been questioning the commercial viability of mashups for quite some time now. Is it possible to make money, build businesses with someone else’s data feeds?

Maybe that question was wrong from the beginning. Instead, we should have used mashups as a kind of litmus test for commercial web offerings and asked: Is there really a business model for a start-up if someone else could achieve the same thing with a quick mashup?

We’ve seen tons of startups lately that essentially aren’t anything but glorified mashups. Social network aggregators, video and web annotation tools, media conversion platforms: They’re all based on remixing data feeds. Some of these might actually be quite useful – but are they really worth business plans, VC money and acquisition talks? Or are they just tools that someone in some remote place of the world could develop in a day out of boredom?

I talked about this with Pasha Sadri of Yahoo Pipes a couple of weeks ago, asking him whether Pipes will make some startups obsolete by offering DIY mashup tools to end users. He argued that Pipes doesn’t interfere with the current models of monetization. After all, you can just as well build your own web platform based on Pipes and then find a way to make money off of it.

That’s true, but so could the next guy. And he’ll most likely be quicker than you.

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