Let everyone share copyrighted digital content files over a peer-to-peer file sharing network. But create incentives and disincentives to prevent large scale piracy.
The technology: standard P2P file sharing, modified with central payment servers where copyrighted content is registered. Someone
wanting the content sees a link to it on a web page or search engine and clicks on the link. Their P2P software automatically scans their "friends and favorites" P2P server systems for the content, but there's a pointer to a server embedded in the link in case they don't find it anywhere else.
Whatever system has the file encrypts it with a one-time key, sends the file to the person who wants it, and sends the key to the payment system. The buyer gets a message asking them to authorize a payment, and once they do, they get the key. When their "tab" hits $20, they get billed. So far, pretty straightforward stuff, except for the use of P2P and web links instead of massive central content servers.
Now the incentives. First, digital content distributed this way can be a lot cheaper than buying it in a store - I would estimate that an hour of music might cost around $5 - about 50 cents a song - and once you buy it, you can store it and play it as many times as you like, on whatever players you have.
When someone "buys" a file from you, you get a share of the payment as a credit on the payment system. You can use your credits to buy other content - or if it accumulates to, say, $50, you can have them send you a check. So you have an incentive to get your friends to use the legal network and put you on their Friends list. And having done that, you'd look like a jerk not to use it yourself.
That may not seem like a huge incentive - but what is your incentive to give the content away for free to strangers? Zero! Even a small incentive easily outweighs zero incentive.
Other incentives - web sites get a new source of income - anyone who can't find the file on a friend's system will probably automatically download from the website that gave them the link to the file. So they should quickly adopt the system, and encourage visitors to their site to use it.
You get professionally produced, high quality digital content - and it is un-protected once you've paid for it, unlike the many digital rights management systems coming down the pike. By signing up for the legal P2P system, you help discourage those restrictive systems, and secure your own "Fair use" rights. And once you've downloaded it, you can "sell" it to as many people as want to buy from you.
Then add disincentives. Announce that after a short grace period, hired bounty hunters will be cruising the P2P nets, looking for anyone willing to give them a pirated/free copy of any file on the "legal" P2P network. Anyone signing up for the legal P2P network within that time and using it exclusively thereafter will not be prosecuted.
Catch some ordinary joe/jane average types and drag them through long and very public trials. Cruel - but they were breaking the law. Beyond those unfortunate few "examples", most users merely risk being banned from selling on the legal P2P system, which will quickly become the only P2P file sharing system with a critical mass of users.
Will this stop all illegal copying? No - but it works on roughly the same principle that keeps a record store owner from creating illegal copies - he wants to make some money, he doesn't want to get in legal trouble, wants to keep a good reputation, and he knows if he makes illegal copies no record company will let him get or sell their music. Most people won't even be tempted to go outside the legal P2P network.