Recordings were first invented to simulate live performances and the first record companies (Edison) were the phonograph manufacturers. It was a way to make sales after the sale of the machinery. Soon, independent record companies began manufacturing these "phonograph disks of recorded music" as well, thus providing a "record" of some musical performance that has occurred in the past, be it in a studio or a "live" performance. If you think about it, it is much like today, a bunch of engineers and scientists are dictating musical taste, applying their skills not to provide the best music or even the best recordings, but to engineer product lines that return the best investment performance for their shareholders.
Bands on the radio probably would not get national exposure without the aid of the record companies. There are hundreds of other acts that sound just like the them, but without company support, they will never get out of the garage. Many would even argue that many do not deserve to get out of the garage.
Since the sixties record companies have learned to manufacture pop superstars made up of amateur models playing simple tunes.
In this current model, the overall quality of music that is consumed by the public is generally low and formulaic. The radio stations engineer their play lists in the same manner, ensuring that they are pleasing the majority of their listeners and their advertisers.
This limits the overall choices to the publics ear, ensuring that only the most profitable music has the best chance of exposure to the general population. This very market force artificially lowers the publics taste for more complex and creative musical styles.
This is also why the RIAA wants the government to impose unmanageable fees on podcasts and internet radio. Since they and the record companies do not have much influence on these play lists, there is the risk of dilution away from the most profitable songs. On the surface the strategy is to raise more licensing revenue from internet broadcasts, but the real strategy is to keep music off the internet where musical taste is harder to dictate, and instead use FM radio to direct record sales to profitable categories.
Let's assume a world where free internet radio becomes the standard for exposure to new music -- Selling copyrighted recordings will eventually become a somewhat silly business to try to get into. It won't be cost effective to support bands and spend $400,000 on recording studio fees If radio is free and recordings are free, this leaves live performance as the main revenue model. So after a brief stint with the obsession of pre-recorded music, the music business returns to its more natural, market-driven business model, and almost everyone wins.
The only artists that will be able to survive in the new music business will be the ones that can perform live *better* than on a recording. This will force the musicianship and quality of popular music to a higher level. Artists that rely on electronics and studio gimmicks will fall out of favor because their live performance will be almost non-existent. And without support from record companies, manufactured music will be difficult to promote and distribute on a national level. This will have the effect of returning the music business back to the musicians (to a certain extent). After a while, the public tastes will change as they are exposed to better music and experience more live performances.