I think you called it Chris. I think what is necessary is some sort of "value added" enticement to get people to purchase the physical media. Something that is not easily reproduced and the T-Shirt is the perfect example. Really, I think independent artists, like anybody building a business, would be smart to do less profit-taking. Let's go with the assumption that an independent artist sells less units but can keep more of the profit. Taking part of that greater margin and returning it to the consumer may be the big advantage of an indy artist. For example, for a limited time with every CD they get a free T-Shirt, or a eCoupon good at the band's online store, or the first XXX who order it can have it signed, etc.
I know there are smart people who work for the majors, so I am hesitant to criticize too much about things I know little about. But when CDs were introduced we were told the manufacturing costs were higher than LPs and eventually the cost of CDs would come down. Well as they got cheaper to make, that never happened. Seems to me, that had the record labels had the foresight to take a little less profit and even if they didn't lower the CD prices, instead improve the value proposition of the CD product they were selling, they might have not suffered the sliding sales.
For example, they could have included some sort of merchandise in the packaging. Mini posters, stickers, guitar pics, cheap jewelry (like band logo pendant). It just has to be something that downloaders CAN'T get. Some of my better ideas I don't want to mention as I may use them. Also, what if it had become the norm to sell enhanced CD's that included song videos, band photos, band trivia game, etc.
In my usual rambling way, what I'm trying to say is that if you want someone to buy the
legitimate product instead of a copy, the legitimate product has to offer something of greater perceived value than the copy. In an odd way, the Digital Performer manual (a subject we've seen beaten to death on this board) is such an example. If you want that manual, you need to buy the program. And in this context, it seems to make perfect sense that MOTU does NOT make a PDF! What's the value to buying a legit copy of DP if you can find both the app AND a PDF of the manual on a file sharing site? Seems like, if you think about it, the manual is probably far more effective an inducement to purchase than the serial number protection which little better than no protection at all.
Oh well... just more thoughts for the discussion. I'm going to go search the web for silkscreening machines now!