When U2’s longtime manager Paul McGinniss delivered a fire-and-brimstone speech at the MIDEM conference in Cannes earlier this week calling on Internet service providers to cut off subscribers who download music illegally, the delegates, representing music companies and artists, roared their approval.

Mr. McGinniss’s speech was a throwback to the early days of the music industry’s obsessive persecution of those who dared to share their music. He blamed record labels that "through lack of foresight and planning allowed a range of industries to arise that let people steal music", Silicon Valley companies that make files transfers possible but "don't think of themselves as makers of burglary kits"; and governments who "created a thieves' charter" by agreeing that ISPs had no responsibility for what they transmit.

But just as he was cranking up his audience to charge out of the fancy Cannes waterfront hotel and burn ISPs and file-sharing sites at the stake, a European court was throwing cold water on his red-hot rhetoric. In a ruling on January 29, the European Court of Justice ruled that Internet service providers cannot be obliged to release customers' personal data during civil legal claims raised by copyright owners.

The court was ruling in a case involving Promusicae, a Spanish producers’ group and Telefonica, the Spanish telecom giant. The court was hardly issuing carte blanche to stealing; it just insisted there had to be a balance between customer privacy and copyright protection. The judges said the ISPs risk violating the privacy rights of their customers by providing data on their downloading habits on demand from music companies. The court suggested governments could pass laws requiring companies to make downloading data available in civil cases as they already are in criminal proceedings.

Mr. McGinniss’s fulminations highlighted the reality, that beyond prosecuting – some would say persecuting mothers and children – the music industry has yet to come up with an attractive alternative to free downloading. More than five years ago, Doug Morris, the legendary music executive at Universal Music told me. “We can’t compete with free.”

It is clear now that is exactly what the industry must do to survive. The cumbersome copy protection method used in Apple’s iTunes and other legal downloading sites has done little more than infuriate users. Many music companies are reluctantly abandoning such techniques. What seemed to be a breakthrough at MIDEM turned out to be a false alarm. A file-sharing site called Qtrax announced a deal with the major music labels that would allow legal file sharing from its site, compensated by advertising. But the music companies denied a deal had been completed. It may not be Qtrax, which seems to have burned a lot of bridges with its premature announcement, but an-ad based solution seems to be one likely scenario.

Another approach may be the one used by British rock group Radiohead, which offered a pay-what-you-want option last fall for downloading its newest album. The group has been tight-lipped about the results, but some analyses estimate Radiohead collected an average of $2.25 or so per customer (even factoring in those who paid nothing). That may be a better payday than they would get from major labels, where it is not uncommon for groups to collect $1 or less per CD sold.

The real revolution in the music business may be the reduction of the role of the music company as middleman. With direct distribution to customers, artists could end up better paid and consumers could have broader choices than the music companies are willing to provide as long as they need mass markets to justify their high overheads. But it won’t happen without a lot of pain, a lot of heated talk like Mr. McGinniss’s and some smart decisions by the music companies and the courts.