Record Companies Don't Understand How Their Own Business Works

But if you do, it's prosecutable.

Recently Judge Easterbrook (correctly) ruled that it is not a defense to copywrite infringement to claim you were acting in the best interests of the holder. That presents problems when the holder has completely lost sight of where its interests should lie. To quote Joel Jacobsen:

Just take a look at the archived press releases of the Recording Industry Association of America: "RIAA Praises Department of Justice, FBI and Nashville Police Department", "New York State Police Raid Local Warehouse", etc. When the recording industry praises cops rather than musicians, its problems go far beyond the capability of cops to solve.

And this problem is that most music that gains wide airplay sucks. So in order to hear new music that we might like to buy, what options do we the consumer have but to download? Apple was the first to really address this, both by allowing generous samples on a-try-before-you buy basis, and allowing a la carte pricing. If iTunes had been available in the late 90's, I seriously doubt that Napsterization would have seemed such a big problem to Lars Ulrich. (Try making good music again. And for god's sake, don't ever cut your hair again...)

For some reason, they don't realise that things like mashups are good for them. I didn't buy The Black Album until I heard The Grey Album. Anyone who somehow hasn't heard American Idiot is probably going to get it after listening to American Edit. As Matt Yglesias says:

Preventing non-commercial mashups will obviously directly reduce the amount of quasi-original music out there by a huge amount if it's rigorously enforced. Permitting them, by contrast, could only have a tiny impact on artists' incentives to write songs. If anything, a good mashup like "A Stroke of Genius" is going to increase the Strokes' record sales.