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I'm still not convinced that people won't pay for copies, even if the copies themselves are cheap or free to make.
Conversation overheard in an airport last night, between two young men: "...see, the problem is, I can't get a legal copy of The Wonder Years. I mean, I wish I could-- if they just had a notice saying 'send your paypal payment here,' that would be great. But they don't, so..."
The Baen model works. I really do think it will continue to work, and it would work for other authors and publishers as well. Maybe not everyone would pay for everything they download, but enough people would pay for enough content that I think the good content creators (and those wonderful editors who spend so many hours reading the slush pile) would still make as much as they do today. (This won't help the unemployed printing house employees, UPS/FedEx employees, etc.)
HarryT, one of the problems you've mentioned is that you've caught people actually selling your software on eBay. That, I think, should continue to be illegal and prosecutable. But for general purposes, I think the strategy I respect the most for software protection is the one that allows unregistered users to try software for 30 days, then flashes a notice up every time a program is run, delaying start for 10 seconds or so, with a reminder to pay for the software and instructions on how to do so. I've bought and paid for several programs that way myself -- not the ones I rarely use, but the ones I find myself using over and over again. But perhaps you're already doing this?
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