It's true that some types of film, tv, games, and software made with huge budgets and teams. However, all of these things are still produced by individuals and small groups of people, even without the change of major financial success. The rise of things like kickstarter, bandcamp, youtube, etc. are all evidence of people looking to and actually creating something.

Indeed, but the public's appetite for alternative and crowd funded entertainment is relatively insignificant, as evidenced by a glance at your average torrent tracker. That's why it's described as alternative.

The public want slick, expensively produced mass market entertainment. They just don't want to pay for it if they can avoid it.

Very true, also people like Radiohead and Louis CK probably have particular audiences that are more likely to get behind new ideas of distributing content because they care deeply about the content and the artist themselves.