In most countries, the music industry is taking song-swappers to court. But the sheer demand for downloading is forcing record labels, and now movie companies, to work with online retailers to offer legitimate alternatives.
While illegally sharing copyrighted music on peer-to-peer (P2P) networks is still popular, these new sites are attracting buyers who want a safer, legal way to download songs for less than a pound or a dollar.
Not just music: Video downloads are growing
With the advent of faster broadband speeds, the illegal swappers are not just after music.
The editor of UK magazine Rip 'n' Burn, Tom Dunmore, says the film studios today are in the same situation record labels were four years ago.
"It's absolutely crucial that the movie industry embraces downloading and provides legal services now, before the number of people using P2P for movies goes through the roof and people get used to getting movies for free."
Hollywood's response has been to go after the lawbreakers at a time when there are just a handful of alternative sites sanctioned by the industry.
John Malcolm, vice president of Motion Picture Association of America, says: "We are suing people who have as much as one file on their system, and that has to do with the viral nature of the internet."
But he holds out great hope that the burgeoning industry for legitimate download sites will develop.
One such site is C-flix, a college network not available to the general public. Another, Movieflix, seems to offer many little-known movies.
But CinemaNow and Movie Link do offer American audiences famous Hollywood titles about three to six months after their cinema release date, for approximately $4 each.
Time-based encryption means you have a set period in which to watch your download before it will not play anymore, and it will not allow you to copy high-profile movies to a DVD.
At least two US companies are planning to offer A-list Hollywood movies to the European market, but not until next year.
For now, it is possible to download all the latest movies, sometimes ahead of their cinema release dates, via a rapidly expanding number of file-sharing sites.
It is no wonder that films are the fastest growing type of file being illegally swapped on P2P networks.
Back in the music world, Matt Phillips, of the British Phonographic Industry, says: "It's not necessarily the artists of today that are going to feel the pinch.
"It's going to be the guy who's just done his demo and goes to the record company and tries to get a deal and they say: 'sorry, we can't actually afford to sign you right now'.
3 Miles From want you to share their music for free
"It's that kind of thing that we desperately want to avoid."
Carlo, Paul, Terry and Michael, of 3 Miles From, one of the hottest unsigned bands in the UK, do not want to sit around waiting for a record label to tell them they are good.
They want you to download and share their music for free.
Paul Chamberlain, the group's guitarist, says: "We recognise the internet is going to be one of the ways forward, but it's just a short cut for us really.
"It's a way we can reach a phenomenal amount of people straight away. We just want more and more people to hear our stuff."
Next year they will start selling their songs through Tune Tribe, a new company intended as a shop window for new talent.
Unlike the contracts offered by the labels, the artists own the copyright to their songs and set the price for a download.
Tune Tribe's John Strickland says: "With the advent and acceptance of broadband in the internet space, we're seeing that this is the way consumers are going to download and consume music.
"A major label would offer 16% of the net proceeds. We're providing up to 80% of the gross proceeds back to the artist and label. It's a complete showstopper."
Direct to fans
It is not just new bands who are using the internet to break away from the record labels.
After a string of hits in the 1980s with EMI, rock band Marillion went their own way in the 1990s, asking their fans to pay the costs of recording each album in advance.
They got the cash, and $60,000 to go on tour.
Mark Kelly, Marillion's keyboard player, says: "That was the point when we felt really empowered and we felt that we really didn't need a record label any more.
"We could sell our music directly to the fans."
Back in the 1990s, of course, it was all done with e-mail, but now the band says less established groups can find fame through downloading and sharing, and the record labels know it.
Steve Hogarth, Marillion's vocalist, says: "One of the disturbing things I'm seeing happening with labels already is that they're approaching new talent and saying they will sign them up on condition that they can own that artist's website.
"For an artist, the website is their future. If you've signed the rights to sell your music online to a record label you've stuffed up your own future."
Try then buy
Another shop window for upcoming artists could be the new streaming music websites.
Services like Rhapsody and Napster operate as online jukeboxes, allowing the downloader to try before they buy.
This, according to Ed Averdieck, of the digital music distributor OD2, is the real benefit of streaming.
Marillion's Mark Kelly adds: "All their fans then start streaming the music. They notice that this band have got a little bit of a following here.
"Then it starts getting recommended here, there and everywhere and suddenly there's millions of people downloading it or streaming it, playing it in their living rooms.
"Suddenly this band are a huge act. And all with no record company involved."
You sometimes get the feeling when talking to music lovers about downloading that people-power may be on the rise.
Why should not every track on a CD or MP3 player be a favourite, regardless of how many other people like it?
Music of all types is now easier to find.
But what about the technology that started it all? Could there be a more legitimate role for P2P technology?
Just a few years ago the entertainment industry despised file-sharing as piracy.
But now some big content providers, including the BBC, are looking to harness the power of our PCs.
The BBC is aiming to offer most of its programmes for download next year and it wants to use our computers to deliver them.
BBC director of new media Ashley Highfield, says file-sharing is a great way to control the cost of delivering large files like TV programmes quickly.
He explains: "Every person who comes to us to get a video file of a programme to watch it costs us to distribute it over the internet to them.
"P2P will help us substantially reduce our distribution costs. We send it out once and then people share the programmes among themselves."
An encryption system would lock any files after seven days, making rights management easier to negotiate and control.
For the audience outside the UK a commercial subscription service, again using the power of file-sharing, could follow.
And it is not the only example of a re-evaluation going on when it comes to swapping files.
Shawn Fanning, the founder of the original version of Napster, has just brokered a deal with Universal, the world's largest record label.
Fanning's new company Snocap will allow music lovers to trade, while his software identifies what is being swapped and who owes what in royalty payments.
He hopes swappers will upload their own new bands, or rare grooves for registration too, so that he can tap in to the vast quantities of music available on people's PCs.
Ironically, if he succeeds, we might end up being encouraged to swap and copy our music for the first time.
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