If only Steely Dan wouldn't have existed, thanks for giving me something good to dream about tonight.
"Only because of copyrights, and honoring those copyrights."
Yep, if somebody wants to use your music in a movie, TV show, video game, or commercial they still have to pay for it even with the big bad internet and in a much larger amounts to the song writer/performer than from record sales.
"Link?"
That's personal experience, but you just have to look at the number of indie bands playing on Conan, Letterman, and SNL to see that it's going on. Most indies aren't exactly publicly traded, so I can't link you to any financials.
"You're also limiting most income to touring income. Steely Dan, for example, would never have existed. Bands that want to write, but not tour constantly, are doomed."
Not necessarily, see above. Bands just have to step up their hustle. Bands that just want to write have to put in their time on the road. You're right that Steely Dan wouldn't exist if they came out now, but so what? It's a stupid idea to spend that much money on studio time, dreaming about the days when labels could afford to let a bunch of dudes dick around in top notch studios isn't going to make it a good plan.
"Use that model with movies, and all you're going to end up with is short viral videos"
I believe that's pretty much what I said.
"the folks who are really hurt are the ones who (used to) sell several thousand CDs. Now, one person buys it, and posts a perfect digital copy for the closest 10,000 friends he never met. And unless these small-to-mid-level bands are willing to spend the majority of time on the road, they can't make a living."
First off, nobody's making a living off of selling several thousand CDs and not touring their asses off. Even if they recorded for free, had their dad's print shop make the packaging, and spent all day every day selling them themselves just so they could keep every cent. Second, before the internet you could only DREAM about having every person who bought your album play it for 10,000 people! Some of those people might actually like it and come and see you, or buy your songs for Rock Band, drive up your web traffic to the point that your label thinks it might be a good investment to send you on a european tour, etc...