Adam Solomon comments:
Insanity. Will the record companies even be necessary if we switch out of this CD store model, where you have to make, market, and sell physical items? I see no reason why they would be, and I’d imagine that model is the reason artists are generally so dependent on the record companies. We’re going in that direction, but we have yet to show signs of leaving the MTV age, where the public wants its music pre-selected and mass-produced. This gives us centralization in iTunes and the rest, which we clearly see is no better, but will the iTunes behemoth be so invulnerable to competing services (say even the LL were to expand, significantly of course!) if their tie to the all-powerful record companies is severed? I don’t think so, and I think soon enough artists will realize that they can and should try/create other digital media outlets. The lure of iTunes is centralization, that a user can get almost anything from it, so a series of unconnected LL-type sites is a less-than-ideal alternative, but if iTunes continues to screw over the artists and doesn’t have the record companies as insurance, the artists will all flock away.

It seems we’re on our way to eliminating the middleman; it may not be that long before artists finally have the means to open the music up to the market and let the listeners decide.

Good comment, Adam.
Will record companies be necessary? Well, something will need to take the place of finding and nurturing artists, advancing the money to make an album, supervising the recording and its subsequent release and promotion. Ideally that’s what a record company does. Now that manufacturing and distribution is becoming less of a factor, the smart record companies become media-management companies. While recording itself has become in-expensive, experience is as valuable as ever. That means that when producing a record, especially one’s first album, one usually depends on experienced producers and engineers and their experience is expensive.

And then there is the promotion-racket. The press, radio, TV, placing the album in the store – real or virtual! In real stores that includes the cost of “listening stations” and whether the CD is presented at the end of an aisle (end-capping). In virtual stores it means buying placement on the home page or whats-new-page. It costs the artist or label thousands of dollars for amazon.com to send out one of those stupid emails “we noticed that you bought music by XYZ and think you might really enjoy the new album by ZYX as well…)!! The established record companies have the experience, the connections, the relationships.

Lastly there is price and centralization. People like the idea of one-stop-shopping. It’s convenient. It has meant the end for many small stores dedicated to carrying a few great products. It seems that most people value a low price over quality of goods or service/repair.

No, I don’t think we will ever cut out the middleman. The middleman will change, certainly, but the buying-behavior of the masses makes the middleman position too profitable to be eliminated. Well, and many musicians just don’t like this business-stuff. At least once a month do I think fondly of my slave-years when I could concentrate on the music and Epic sold the CDs. I did not have to deal with the biz and they made most of the profit, and did I mention I did not have to deal with the business?