Exception or example?
There is a band - Show of Hands - who have been around for many years on the Folk/Rock circuit. Pretty big - played the Albert Hall a couple of times, regularly win awards, easily fill provincial venues like The Lowry, and as far as I can see make their living entirely from playing their music and selling CD's.
When I have seen them play live they have always made a point of telling people to go out there, copy their CD's, give them to your friends, tell them to copy them etc. Last time I saw them they told a story about how a chap came from Germany just to see them just because he'd heard a copy CD and explained that this demonstrated how they wanted their music to reach people. They have always worked on the basis that CD copying spreads the message of their music - the more copies, the more potential concert goers.
At concerts, people queue for the original CD's the same as anywhere. The only conclusion is that if the music is any good, and listeners respect the effort that is made to produce it, they will pay to own a part of it. Music is more than the sound, it is part of life. Owning an original CD is like keeping family photos; every so often, you dig out the old stuff, do a bit of reminiscing, remember the good times.
The record companies have to find a means of adding value to physical sales. Perhaps artwork, discount vouchers for concerts, access to limited edition clothing. Whatever. The only certainty is the present model will never work.
Also, regional copyright deals are nuts. I have ordered CD's from the USA of bands I have heard on Pandora/Radioparadise etc. Many American bands are losing potential sales with the restriction on world wide airplay caused by the stupid regional restrictions that are now being put in place on some net radio. The World is crazy.