Yes, in fact, the music companies should embrace downloading. They need a new business model which lets consumers download music, easily, legally, and at a fair price.

Ultimately, prices are established by consumers' sense of value. If almost all consumers do not want to pay high prices for CD's an MP3's (essentially music) then the providers will not be able to get the price they want and they will go out of business.

The entire music industy has changed in the last ten years. Ten years ago, artists were treated like start-up companies. They needed heavy venture capital to distribute, promote, and brand themselves, essentially creating a business.

Now, artists can do almost all their own branding, promoting, and especially distribution by themselves. They no longer need millions of CD's to be printed so everyone can have their music. They can just throw up an MP3 or FLAC file on their website, and their fans can all download it instantly. If the artist is the 100% owner of the original piece of work, and they choose to distribute and share their music, then it is perfectly legal to download their music from them. Perhaps it is illegal for the download to then redistribute that music, but most artist aren't going to care because you are giving them free fans and free exposure.

Music is quickly heading to worthlessness. People just don't want to pay for it and it is almost sad that the record companies are so ancient and unflexible that they cannot create new business models to sustain their bloat. I would be willing to bet that the five major record labels, Sony, Universal, Warner, BMG and EMI, are going to become almost unrecognizable to their current selves in the next twenty years. There is no way around it. Even if they win a huge settlement in court and figure out how to police music downloads, more and more upcoming artists are going to opt not to sign on with huge record labels and will promote themselves. New, saavy, digitally enabled artist are going to bootstrap their music career and reep the benefits of having sole ownership of their IP.

The record company industry is like any dying industry. Think about fax machines, typewriters, and even the cash register. Those companies had to adapt to new technologies (email, personal PCs, and computer point of sales respectively) or the companies which amassed fortunes off their flagship products went under. It happens all the time in business.

Now, the music industry could save itself in several ways. One way is to totally scrap all current forms of CD distrubution and embrace total digital distubution. Almost 50% of CD cost are accounted for in distrubtion, retail costs, and manufacturing costs. If a high quality, self sustaining torrent website was set up for consumers to legally download CD's for under five dollars, I'm sure the record company would end up making more money in the long run than they are now. Most consumers generally want to follow the law and be good citizens, they just don't want to be ripped off.

Another form of distrubution would be to scrap the entire ownership of music model and make almost all music available via stream. Especially in the United States, people have an internet ready device and can get on the internet most of the day. This model would need to really expanded and thought out, but it's something to think about.
All in all, I don't think downloading of music is the major problem. I think is the record industry's inability to move forward and adapt which is the problem. They want to keep doing things they way they have been run, and it is just not a realistic view of business.

http://delivery.acm.org/10.1145/910000/903899/p89-premkumar.pdf?key1=903899&key2=4969514521&coll=GUIDE&dl=GUIDE&CFID=55100783&CFTOKEN=28472201