I hear this all the time. It's dead wrong.
It would be easy to compete with P2P. How? By adding value. Right now there's no incentive to buy music, even DRM free music. You pay, download, and end up with a decent quality recording. With P2P? The same thing, except you don't pay. Why would anyone pay? Because it's the right thing to do? We've already seen that an entire generation doesn't think so.
Instead of suing people or pressing for ISP surveillance, compete. Add value. If there's real value, people will pay.
How could a music distributor add value to an online music store?
The price also needs to be minuscule per song. Precisely low enough that it feels like "nothing" when you purchase. Somewhere around $0.10/song and $1/album. At this price point no one will hesitate to buy something they're unfamiliar with, and people will gladly re-purchase their entire CD collection for a few hundred dollars because of the sheer convenience.
That's competition.
"I think trash is the most important manifestation of culture we have in my lifetime." - Johnny Legend