Yesterday the 34 movie studios represented by the Australian Federation Against Copyright Theft (AFACT)  lost their Federal Court appeal against internet service provider iiNet. A victory for ISPs? No. It resolves nothing.

If you came in after intermission, you’ll pick up the plot quick enough. AFACT said iiNet’s customers were illegally copying movies, which they were, but iiNet hadn’t acted on AFACT’s infringement notices to stop them. AFACT reckoned that made iiNet guilty of “authorising” the copyright infringement, as the legal jargon goes. iiNet disagreed, refusing to act on what they saw as mere allegations. AFACT sued.

In the Federal Court a year ago, Justice Dennis Cowdroy found comprehensively in favour of iiNet. It was a slapdown for AFACT. AFACT appealed, and yesterday lost. Headlines with inevitable sporting metaphors described it as  two-nil win for iiNet.

But read the full decision and things aren’t so clear-cut.

One of the three appeals judges was in favour of AFACT’s appeal being dismissed. Another was also in favour of dismissal, but reasoned things differently from Justice Cowdroy’s original ruling. But the third judge, Justice Jayne Jagot, supported the appeal, disagreeing with Justice Cowdroy’s reasoning on the two core elements — whether iiNet authorised the infringements and whether, even if they had so authorised them, they were then protected by the safe harbour provisions of the Copyright Act.

There’s plenty of meat for an appeal to the High Court, and that’s exactly where this will end up going. Wake me when we get there.

What’s particularly depressing is that in the two years since AFACT first started down the litigation path there seems to have been precisely zero progress in the movie industry’s thinking about how to best adapt to this new world in which the internet exists and — goodness — is used by people.

Part of the problem is that while they portray themselves as “the movie industry”, what they really are is “the movie distribution industry”. In the digital era, distribution costs are tending to zero and in-home cinema set-ups are commonplace, paid for by the viewers. Yet the industry imagines it can still make the same profits as before.

Perhaps it’s time the movie industry paid attention to what happened with the music industry, and to one word: iTunes.

As Business Insiders’ Chart of the Day showed last week, the golden age of the music industry was a decade ago, when almost everything was sold on CD and global sales were about $15 billion annually. Of the $20 you paid for that CD, maybe $1 went to the performers. The rest was for “the industry” — CD replication, shipping, record company marketing, and margins from wholesaler to suburban music stores. Ninety percent of the retail price was, essentially, paying for distribution rather than music.

It took someone outside the traditional music distribution industry, Apple, to create a digital distribution model. One that took “only” 30% of the retail price. Apple’s iTunes Store is now the largest music retailer on the planet.

What’s needed is a new distribution model for movies, one that takes advantage of the digital world rather than treating it as the enemy. And one that faces up to the fact that people’s entertainment choices are changing, with time and money moving from passively watching movies and TV to including interactive entertainments such as gaming, Facebook games such as Farmville and even watching the movies their own friends and families are making.

If all this sounds familiar, you’re right. All this has been said before. Many times. People have pointed to US-based Netflix: “Instantly watch as many movies as you want. For only $7.99 a month.” Many times. But for some reason the movie industry here in Australia isn’t listening. Why is that?