Wired on Friday:  Britain's music industry is a giant; nowhere but the US and Japan does revenue from music copyright sales have such a disproportionate effect on the nation's coffers, and its heart. More than 30,000 albums were recorded in Britain in 2005 - with 250 of those albums selling more than 100,000 copies in the country.

As well as being profitable, the industry is relatively vibrant.

Compared to the hit-obsessed US market, Britain has a strong independent sector, and depends for its success as much on discovering new acts and genres as on its back catalogue.

But the industry is also worried: income from digital downloads is growing, but nowhere near fast enough to offset the decline in analogue sales. In the US, such speculation has generally seen their domestic music industry go into spasms of panic - suing individuals in their thousands, lobbying Congress for draconian copyright laws and snarling at the internet in banner headline quotes.

British music may be a giant too, but it's an independent thinking, more spritely giant than the slow moving businesses of the US music scene. In recent months, there has been a move in some quarters of the British industry to consider what has until now been a inconceivable idea: licensing previously illegal downloading.

The proposal, in some form, has been around for four years or more; net users would pay a regular, fixed, monthly fee on top of their internet service provider (ISP) charges. The fee would be divvied up to recording artists by a collection society, with some sort of monitoring system to detect who gets how much.

The revenue from this system would counterbalance the competition that the industry faces from free digital copies flying around peer to peer (P2P) networks and between private individuals. It would also eliminate the costs to industry and customers of intrusive copy controls - the endless, losing battle the music industry fights to make their works uncopyable by computers, and the increasingly high hoops that consumers must jump through to listen to their music.

The idea seems like a win win. The cost of supporting even a large music industry such as Britain's would amount to less than a few pounds per month. In return, net users would have access to all British music - the "celestial jukebox" of endless, always accessible music that has been lost since the days of Napster.

That's certainly what a growing group of independent musicians, managers, labels and collecting agencies are concluding in Britain. Over the past few months, in various arenas, they've been consulting and discussing how such a system might work.

But before it can be introduced, that discussion needs to be widened to a far greater group of "stakeholders" (as the political wonks call those with skin in the game). A music licensing scheme for downloaders would be a vast technical, political and social undertaking, and would need buy-in from a large swathe of the general public.

One issue revolves around exactly how compulsory such a licence would be.

There are two points where the requirements could be less than voluntary: the licence could be obligatory to charge for ISPs, and obligatory to rights holders to comply with.

A compulsory requirement that all ISPs should cover the music charge would bring in billions to the music industry, but could be politically unfeasible to present to a wider public. Effectively, the charge would be similar to the compulsory television licence fee, with the money going to a privately-run concern, and with little recompense to show. Why, would most broadband users say, should I have to pay a fee to remunerate an infringing practice.

A compulsory statutory licence for music copyright holders would force the music industry to license music to these new services: no music would be excepted from the scheme. There is, in fact, precedent for such requirements.

Copyright holders have often worked together to form collective licensing agencies; and if these collective agencies misuse their monopoly powers, statutory compulsory licences have been imposed. Industries usually have to be dragged kicking and screaming toward a statutory licence - and understandably. Losing the power to negotiate a deal, and instead a fee being fixed by the government is a terrible loss to a private party. Sometimes just the threat of its imposition can bring the rights holders to the table, however.

Right now, that threat appears to be unnecessary: the rights holders are already considering the possibility. But even in Britain, the bigger labels are run from the US. When the London-based head of the International Federation of the Phonographic Industry made positive noises in public about such a licence at the industry conference Midem this year, he was cut short by the US recording industry's Mitch Bainwol. It's an uphill battle for the British independents. To win their licence to survive, they'll need to convince the British public that it's not a tax, ISPs that it's not an undue burden, technologists that it's even possible, and the US music industry that it's not communism.

But for a country like Britain, it would make sense. It's a radical rearrangement of the current industry, but music faces a far more extreme reordering if it doesn't act now. And the solutions it has so far pursued have done nothing but demonised its representatives in the eyes of the public, and damaged the ability of our technology to do what its users want.

Nobody said that working out how best to make money in the digital era was going to be easy. It's a challenge we should all meet now, rather than on the other side of the oncoming car wreck.