Excellent comments, all. It’s true that the music industry is a bit of a dinosaur, but it’s a HUGE dinosaur. It’s got tentacles into the radio business, movies, tv, distribution through thousands of stores, etc. There are billions of dollars at stake.
It’s not going to go down without a fight, and given the number of politicians in its back pocket, the government is guaranteed to be a big part of that fight.
Record companies still performa valuable services to artists, too. Aside from producing and distributing their CD’s (which I agree could be done today just as well or better by small independent labels or even basement studios), they also front money to artists to pay for concert tours, they arrange and promote the tours, they arrange for promotional appearances for artists on TV shows, they act as sales agents, selling the artists materials to companies for commercial jingles, to movies, etc.
But none of this needs a huge corporation any more. If this industry is allowed to evolve, I can see many of these roles taken over by small artist management firms and musical agents. Think about the way actors work with Hollywood today, as opposed to the old contract system. In the old contract system, an actor would become a contract employee of a large movie studio, which acted much like record companies do today. And the actors generally got screwed over in the process.
Now, actors work for themselves, and hire agents to manage all of their stuff. It’s a better system all around.
So instead of an artist signing with a record label and agreeing to create X albums for them, artists could create a demo tape in their basement studio, send it to an agent, and the agent could shop it to independent production facilities for a percentage of royalties, and then with a distribution house for the CD. Or, the artist could try to forego professional production with his own studio, much like some actors produce their own movies to cut out the middle man.
Can you imagine the innovation that would occur under this system? Without being locked to a record company, artists would be far more free to experiment and take chances. With multiple distribution outlets available, artists could put smaller, experimental works out on MP3 at very low cost, and save their premium or mass market work for CD production. There would be innovation in packaging, distribution, marketing, you name it. It would be very healthy for the music consumer.
And the large labels could even survive and even prosper under such a system, just like the big movie studios survived even after they lost all their contract actors. Adapt, find a way to leverage your strengths, etc.