SAN FRANCISCO--Nettwerk Music Group CEO Terry McBride says he has the antidote for the woes of the record industry: stop suing users of illegal file-sharing services.

Nettwerk Music Group CEO Terry McBride.

In a provocative keynote conversation at the first-ever Bandwidth music and technology conference, McBride urged his cohorts at the major music companies to cease their litigation-driven antipiracy efforts and embrace a world of micropayments and alternative revenue streams that target the new music-consumption habits of digital music fans.

The label boss, who launched the Canadian label in 1984 and whose roster includes Avril Lavigne, Barenaked Ladies, Dido, Sum 41, and Sarah McLachlan, so vehemently opposes the thousands of lawsuits launched by the Recording Industry Association of America (RIAA) that he has promised to pay the legal fees for one defendant. Elisa Greubel, a 15-year-old girl whose family was being sued by the RIAA for downloading 600 songs onto their computer, contacted Nettwerk artist MC Lars who, in turn, solicited McBride's help.

"[The major labels] are using fear as a tactic [to] push these kids away from these P2P systems," McBride told a crowd of 200 music and technology industry insiders. "You can't use fear to change these behaviors--it just isn't effective. These lawsuits have hurt my artists. We need to stop these lawsuits."

An RIAA spokesperson declined to comment on McBride's statements.

Some of the songs Greubel was alleged to have illegally downloaded were from Lavigne.

"Avril or any of my artists would never sue a fan," McBride said. "I want those fans to share that music. When [the original] Napster hit, we had the same knee-jerk reaction that everyone else did: 'Who are these kids, let's get them and sue them.' But after a while we realized that they were no different than I was when I was as a teenager, just looking to consume as much music as possible."

There are already plenty of ways to monetize that new behavior, McBride said, but they require more of a change in perspective than the industry has made thus far. One such way was unveiled last month by Snocap, the digital download infrastructure firm founded by original Napster creator Shawn Fanning.

Snocap is currently beta-testing its Linx service, which provides the payment infrastructure for artists to sell their songs directly from their MySpace pages and other similar community sites. Nettwerk band The Format is currently using Linx to sell songs on its MySpace page.

Such a system will help the music business embrace the P2P world that it has tried to hard to eradicate, said McBride, who named Nettwerk as a play off of German electro pioneers Kraftwerk.

"In 18 months the biggest music retailer in North America and maybe the world will be the consumer," McBride said. "P2P is going to arrive in a way that nobody saw. Fans will be selling to each other and getting micropayments into their Paypal account."

The per-song digital price point needs to come down, however, for such a system to prosper, he said. When the price of digital music comes down to between 25 and 49 cents a song, it will become cost prohibitive for the user of illegal P2P networks to keep doing so, given the headaches that come with using such services, like virus-laden files, incomplete or misnamed songs, and sound quality.

"If the price comes down, the P2P marketplace will begin to go away," he said.

The bottom line, according to McBride, is that there are loads of opportunities for the major music companies to improve their own bottom lines by making music available in more places and in more creative ways.

"Music is more popular than it ever has been, yet for some strange reason the business has gone down," he said. "They haven't figured out how to monetize this new behavior [and] monetize it in a fair way. Every piece of new technology is supposed to be the death knell for the music industry. But you should never tell the consumer how to consume your music. You should make it available wherever they want. I don't want to dictate how people buy our music."