You're going to see a lot more 360 deals like the one Jay-Z just did, although they'll be doing them for much smaller amounts from much smaller artists and they will be TERRIBLE deals for the artists. Jay-Z got so much because he has the power, influence, and track record to justify it. The majors want to own the entire vertical but won't create any sort of deal that is going to be fair for new projects.
http://www.kk.org/thetechnium/archives/2008/03/1000_true_fan...
People bandy about "the long tail" as if it's some sort of conclusive proof that conventional economics is in the process of being shaken up by these new distribution methods, when in reality that's just conjecture and doesn't yet seem to be the case.
The vaunted 57% number that the long tail is built on is actually half that.
The days of bands with 100 million fans will be replaced with one hundred bands having 1 million fans each.
And a few bands will have 1 billion fans in a 'flattening the curve' type motion where a band's talent is reflected by their popularity.
http://www.nytimes.com/2007/04/15/magazine/15wwlnidealab.t.h...
And what do you play?
I've been chewing on a long response for you here, but I think I'll save it for my blog. Instead, the short one: Touring only works at the superstar end of the scale, while recorded music revenue scales with the popularity of the artist. If the price of recorded music falls to zero, the labels don't have so much incentive to sign groups that aren't already at the touring-huge scale, since they're guaranteed to lose money on them...
Also, if just giving away your music made you popular, MTV Cribs would feature a lot more unsigned artists than it does now (namely, zero). Since labels are the only ones in the music industry with the money to do the marketing that's essentially a prerequisite to getting huge, it's in the best interest of the artists for the labels to have the freedom to sign groups that are promising, but not yet big. That freedom comes from CD sales.