Hugh Panero, CEO of XM Satellite Radio, spoke at the Digital Music Conference on Friday, so I was able to thank him personally for sparing me the pain of ever again hearing Ronnie Mervis or the otther grating voices that populate commercial radio.

Panero devoted some of his talk to pointing out the unfairness of a situation where satellite radio must pay performance licensing fees while conventional radio does not (a valid point), and even more excoriating the RIAA for its current conllict with XM (a dubious point).

But there was some irony in his talk. As he boasted of how much XM does for the record companies and the artists, my reaction was that he should be favoring a free market divorced from compulsory licensing because, given his view of the world, the money should be flowing from the record companies to XM rather than vice versa, and a free market would quickly establish this.

My second thought was that, if his view of the world is correct, then XM (and Sirius) are missing a business opportunity.

The classic structure of the music industry is based upon three interacting issues of industrial organization: The first is the business of getting bits onto the pieces of plastic called CDs; the second is producing and distributing these CDs; the third is the venture capital function of identifying and promoting artists who will appeal to the public.

The computing and Internet revolutions have undercut the current incumbent advantages in the first two of these. So the incumbents' business now rests on their aiblity to identify and market new talent and product. The Internet has added a new source of industrial expertise, though -- the ability to secure artists' rights and negotiate through the thickets of online licensing deals.

It is also ironic that the P2P file sharers are actually increasing the power of the record labels by vastly increasing the cost to the artists of defending their IP rights, and thus enhancing their dependence on the big labels which can do licensing and protection on an industrial scale.

But if XM is superior at show-casing and marketing new music, then why should it remain dependent on the incumbent music companies? It can integrate backwards into the music business, producing and promoting its own music. If it contributes as much as it claims, these would soon say uncle.

The point, really, is that no one knows what the future structure of the music business should be. Maybe XM should integrate backwards; or maybe that would be very inefficient because the customers would scream blue murder at being deprived of artists who had not signed with a satellite company. I rather suspect that the division between production and radio makes sense, but maybe not.

But the only way to find out it is to let'er rip, without the presuppositions involved in compulsory licensing schemes.