I recently blogged about this myself. The RIAA are like politicians. I want to vomit in my shoes whenever I hear a politician claim they are representing "the American People" like they know what we all want and that we all want the same thing. The RIAA and it's superstar artists do the same thing but they don't know me, they don't know what I need and want. And that's why they are failing. At least politicians get elected.
Would be nice but since the industry itself hands out the Grammys I doubt it could happen. The Grammy awards are just a bunch of self congratulating insiders. I think you're more likely to see the awards fold altogether.
But if you're an artist in a smaller niche, the internet makes staking a claim on that niche possible. It can be noise if you're trying to play in an already crowded field. But there is also opportunity to specialize in a certain type of coffee or spatula, to use your metaphor. It's the 1000 true fans idea. Hell, about a hundred true fans can pay for a 1000 cd print run. I haven't actually liked a new song from a new band on the radio enough to buy their cd in about 15 years.
Personal anecdote: About 12 years ago I discovered a band called Symphony X, thanks to the internet. I also could only buy their cd as an import from Germany (also, thanks to the net). After flipping through the booklet I find they are from NEW JERSEY! Over the years since then I have found so many great bands all over the world who've been utterly ignored by major labels. No, I don't expect the music I like to be popular enough to attract major label attention. But I don't need the major label machine to deliver the music to me either.
I have to second point number 4 there. Whether a songwriter or performer under the old system you'd only make good, consistent money when you get to be a superstar. Or, luck/break into something steady like commercial jingles.
Your argument might be valid if smaller bands with industry-standard record deals actually made any money from album sales. Bands signed to major labels don't make any money on album sales until they get as big a U2. The labels are pissy because we're cutting into their legal piracy (doing everything they can to squeeze a band for every last dime and avoid paying out to the band).
For the indie bands, we're either too small to get pirated or the exposure is worth a few lost sales anyway. In 11 years my band has never turned up on a torrent site except what I've put there myself. File sharing helps this little guy.
Makes sense to me, depending on your job. I'm at work right now. I'm either frantically busy or twiddling my thumbs. The company can either pay me full time for part time work. Or, I can take these little net breaks and I'm still in the building if I'm needed.