This file sharing issue has obviously gotten a lot of attention, so I'll skip what seems to be well-covered territory (prices too high, no try-before-you-buy, low quality and homogeneity of major label releases, etc.) and stick to points that I haven't seen get much coverage.
Which business is the music industry in?
The music industry as a whole seems to be confused about which business it's in. They're either in the manufacturing business or the licensing business.
If they're manufacturers, they make and sell a product and a customer is free to do what they want with it. The manufacturer of my toilet brush has no say in how I use it, even though it may contain or be the product of legally protected intellectual property: the product design or manufacturing process may be patented, and it may display a trademarked logo.
If they're license brokers, they should by all means be able to dictate what customers can and cannot do with the material—but along with that comes replacement media and format upgrades at a reasonable price, just like software. Scratch or break your CD or record? Tape get eaten? Spill coffee on your album cover? You should be able to get replacements for close to cost. I'm still waiting for CD upgrades of everything I paid full (highway robbery) price for on vinyl, 8-track, and cassette, and I look forward to my upgrades to DVD-A and SACD as soon as anything I care about comes out in those formats.
The recording industry has had it both ways for too long, and it's time for them to pick one and behave accordingly.
File-sharing networks have legitimate uses
Apparently the RIAA doesn't care that there are actually plenty of files traded on peer-to-peer file-sharing networks that do not violate copyright laws (read: legitimate, legal uses) and thinks that they should all be shut down because they can be used to violate copyright law. A pen can be used to violate copyright law, as can a photocopy machine—maybe we should go after those manufacturers, too. Bic, Xerox! Up against the wall!
Even putting aside the exchange of non-copyrighted material, there are legitimate reasons for the exchange of copyrighted material:
You have legally purchased albums that are damaged to the point of unplayability (which is likely, as CDs damage easily). You have the legal right to listen to that music whenever you want. Downloading an album you paid for is legitimate.
You have albums on vinyl and cassette. You want to listen to them on your computer or portable MP3 player. Downloading an album you paid for is legitimate and easier than converting the material yourself. The RIAA and record labels should thank you for doing this, because you're doing the work for a service that the industry should be providing.
You have a copy-protected CD that you can't back up to protect your investment, can't play on your computer, can't save on your computer, and can't play in your MP3 player. Maybe someone is sharing a copy that was created from an unprotected CD. Downloading an album you paid for is legitimate.
Copy-protected CDs are unacceptable
As Janis Ian pointed out, there are many legitimate reasons to copy CDs. Copy protection is simply unacceptable, particularly as it has the potential to damage customers' equipment and violate fair use laws.
Example: my aunt gave me Lars H.U.G.'s new album, "Save Me From This Rock And Roll". This is a $25 album (CDs are expensive in Denmark) by a Danish artist that's damn near impossible to get outside of Scandinavia—an album that will be difficult and expensive to replace should anything happen to it. Because it's copy-protected, even though I legally own the disc, I can't listen to it on my computer and some normal audio CD players, or encode it and listen to it on my iPod or computer (read: protect my investment), all of which are legal rights.
If you want to avoid buying copy-protected CDs, there's a database of them at Fat Chuck's.
Many people are already paying for copying rights when they purchase blank media and digital recording equipment
People in many countries are paying levies on blank recording media and digital recording equipment, regardless of whether it's actually used to make illegal copies. This extra money goes to the recording industry to compensate for the losses suffered from illegal copying.
If a customer pays a copying levy, doesn't that buy them the right to copy? They paid for it! (and had no choice in the matter)... what am I missing?
Either they take their losses and copying is restricted, or they get paid and it's not. Again, the recording industry can't have it both ways.
If they care so much about the artists, maybe they should stop ripping them off
The fact that the industry is on a legal and PR crusade in the name of artists getting their fair share while robbing them blind is completely offensive and should not be tolerated. It's at the same level of hipocracy as the US killing people in the name of democracy in the rest of the world while passing legislation like the Patriot Act at home.
Steve Albini (who played in Big Black and engineered Bush, Nirvana, Page & Plant, PJ Harvey, the Breeders, the Pixies, Helmet, Cheap Trick, and Jesus Lizard, among others) wrote an excellent article called "The Problem With Music" that spells out standard major label contract tactics and provides an enlightening financial summary.
According to this article's breakdown of current industry figures, you have a 1/234 chance of earning as much as a Sanitation Worker's salary if you go Gold.
Quality exemptions for radio but not MP3?
In the US, we are legally allowed to record music from the radio, because the quality of the audio is lower than on an album.
Guess what? MP3, Ogg Vorbis, and the other popular audio compression formats generally sound worse than FM radio. They're what's called "lossy" compression, which means that in order to make the files smaller, they throw out part of the music and provide no way to get it back. They trade audio quality for file size. Regardless of what your MP3 player might say about 160k MP3 being "CD quality", it's not. Listen for yourself. MP3s are fine for train, buss, car, and street listening, but quality-wise, they're no substitute for CDs and aren't even worth comparing to DVD-A and SACD.
By the industry's own logic, MP3 and the other lossy audio compression formats should be exempt from copying restrictions for the same reason that radio is.
The Bottom Line
The music industry has gotten more than its fair share for a very long time, and as much as it might want to stop time, it's not going to happen. It had a good ride, perhaps better than it deserved, but it's over now and nothing they do can change that.
(The reason it's over has nothing to do with piracy: the labels used to control both the production and distribution of recorded music. This is no longer the case as the quality and affordability of recording exquipment has gotten to the point where artists no longer need major labels to produce quality recordings, and the Internet has given artists the means to do their own distribution. This and the unwillingness or inability to accept and adapt to change and to take risks on or develop artists are the industry's real problems—file sharing is a red herring.)
Hopefully they will realize that like all businesses, they're going to adapt or they're going to die. To my eyes, the future of music without the RIAA and major labels looks different but better. Small, indie labels do a better job of giving customers what they want (and aren't getting from the majors) and still manage to make money, generally take better care of their artists, and often charge less. More of that can only be good.
Thanks to Justin Peone for editing help.