I'm familiar with Mr. Masnick and I've seen him speak about his "Connect with Fans + Reason to Buy" model for musicians. It seemed to make sense. He even attempted to squash the perception that this model only works for established musicians. I was sort of buying his mantra of having music be free and having it act as a loss leader. I'm a musician myself, so this is was all very pertinent.
Recently, my brother visited from New Zealand. He's a professional record producer and sound engineer, and he's very interested in questions like this as well.
I told him about this talk I had just seen and asked him what he thought. He thought that it was ridiculous to be a musician and have your primary product, the art that you create, be free, and try to make money off of things such as t-shirts and dinner nights with fans. He pointed out that people do in fact pay for music online, even when using a site such as ThePirateBay. They pay their ISPs every month. They are will to pay for this content. He called this the "swindle of the century".
See, this stuff matters very much for him. He's not a brand that he can sell to fans. He's a brand that he sells to record labels and musicians. He can't survive off of selling t-shirts with his face plastered on them. This model doesn't get him payed and depends on a functional industry to operate. Contrary to popular belief, it is not any easier to get a great sounding recording than it was 25 years ago. Great recordings and mixes still take a lot of talent, and that talent doesn't come cheap. How is a burgeoning young band or artist supposed to get studio and mixing time? $12,000 would be a budget recording and mixing session, good enough for maybe an EP. You can be sure that Radiohead and NIN are spending a lot more than that.
Take a look at Time Warner or AT&T's broadband advertisements. They've got tiered prices, based on bandwidth. Both have similar columned designs showing what plan works for you. Both have "Downloading music." Whose music, dare I ask? Listen, I know this opens up a huge can of worms, because Time Warner and AT&T both pay their own upstream providers, but you get my point. People are not getting music for free. They are paying for it, only the artists or the owners of the content don't see a dime.
I remember when I first heard about ESPN360.com. It made me slightly furious. A website that only works for certain ISPs? Well, that goes against the whole free love on the Internet thing, right? But it just clicked for me. This actually makes sense. ESPN nailed it on the head. They are forcing ISPs to pay for the content, while leaving it free for the end user. This would work brilliantly for music.
Imagine if the RIAA decided to make an ESPN360-like service. All music, for free. The catch? Your ISP is paying the bill. You can't tell me that the consumer wouldn't use this service and not pick a local ISP that offered it, even if at first it cost a little bit more than some other provider.
I know there are TONS of holes in these lines of though, but the madness has got to stop. People are paying for all of this content but it is not getting to the people that actually make the content.