In traditional music industry business models, the primary focus is on churning out hits – mass appeal songs performed by marketable artists that can be heavily promoted and thus earn the company squillions. Such a paradigm is based on scarcity – because of space constraints, a record store can only stock so many CDs, so you want to make sure that the CDs which are stocked, are the ones that are most likely to sell.
But, this paradigm starts to break down when you move online. A web store is not limited by space so can potentially stock any recording ever made (if its Amazon-sized, of course). Faced with such a dizzying array of choices, consumers start to explore, and their appetite for the traditionally non-commercial (fuelled by those “If you like this, check out this” lists) expands… As a result, everything that becomes available online eventually finds a buying public. Sure, in many cases, it may only consist of one or two punters, but when you consider that there are hundreds of thousands of these little niche sellers, then what you are talking about is a market whose unit-shifting potential rivals that for the small handful of stars at the top of the charts…
In the business, this is known as the Long Tail, and just what it means for the future of the entertainment industry, is explored at length by Chris Anderson in this very, very interesting article from Wired magazine.