In reply to:
Plus they got worldwide free advertising and promotion as the media picked up on the story.
This part is true, but doesn't speak for the viability of the method as a whole; obviously, you only get that kind of publicity for doing this once.
Still, though, I think the results are mildly encouraging. Bands who offer digital distribution at a price which simply matches a normal per-unit will find themselves losing out dramatically in the absence of a record company promoting them; still, there's a lot of breathing room between the normal band's cut and the normal retail price of a CD. I think there's a magic number in the 6-10 dollar region where a band will be able to fund their own promotional efforts, and still have enough left over to make similar profits to what they'd make going through the regular channels. Maybe.
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