The main issue in the OP revolves around the physical existence of the CD and the virtual existence of the data file.
The record company paid for the recording of the artist to be made originally. In terms of copyright law, this is a “derivative work” of the song, allowed by the copyright holder (the songwriter). They make CDs and sell them to stores to recoup the cost of recording, give the artist their contracted share, and make a profit.
So someone buys the CD from a store, and decides they don’t want it after awhile. Since it’s an optically scanned recording, it’s still perfectly usable unless badly scratched (it was much harder to return LPs and tapes, because the act of playing them wore them down incrementally). They sell it to a store, which means they no longer have it to listen to or make copies from. The store sells it to you, which means THEY no longer have it. Of course, the store made a profit that they didn’t have to share with the record company, and you might have bought the used copy for less instead of a new copy which the store had to pay the record company for, so the record company doesn’t like this, but as previous posts mentioned, this was not a point they could afford to stand up for.
But with each transaction, there was ONE copy of the recording that passed from hand to hand. The record company can only expect to make a profit off of the sale of these CDs when they are sold the first time.
With a P2P network, someone has a digital file of the music, and since music is now recorded digitally, you can arrange that the recording will not degrade over time. The person may have ripped it from a CD they bought, in which case the record company may have gotten its expected profit off that copy, and the artist got their share of the sale of that CD.
BUT: Now, the person has the recording on their P2P network, and instead of buying new or even used CDs, people simply download the song for free, and the person STILL HAS IT on their computer, which means there are multiple copies of a recording that the record company owns that they did not authorize and did not get a profit from. The artist also got no money from these additional copies, when they had avery right to expect it. What’s more, these are copies not approved by the copyright holder, so they are illegal, whether or not the ripper burns his own CDs and sells them.
In the early 80’s, the record companies got into a snit over home taping, which they said was ruining their business. This went away eventually because people were usually just taping an LP so that they could listen to it in their car deck, which congress decided was OK. There wasn’t a great deal of illegal trade and sales, and these were analog recordings on degradable media anyway, so it wasn’t like they were good copies, and they would fade over time.
NOW we record music digitally, and can trade the data over computer networks. When this started, the record companies looked into it and saw that, even though illegal multiple copies of songs were being created, these were digital recordings of the sound on the CD, and the music file formats did not offer particularly good fidelity, so they decided it was not worth their while to go after it heavily, in light of their failure in the home-taping mess.
Enter the MP3 format. Now the recordings had very high fidelity, and the technically illegal distribution networks were already in place from earlier, so now you can fairly easily get a high-fidelity copy of your favorite artist’s music that they never see a dime from. What a loyal fan you are!