As a contrary example I offer the text book case of The Grateful Dead. As a rock band, the Dead are/were in the business of generating intellectual property. A certain percentage of that intellectual property was always sold at a premium--albums, concert tickets. But the group also amassed a social network of fans, ie Deadheads, and encouraged widespread, uncompensated file sharing among the network's members. The result? Long term growth in the enterprise and asset value of the group and its music.
It's impossible to quantify the lost opportunity cost that resulted from allowing the reproduction and distribution of concert recordings among fans during the cassette-tape trading era. No one seemed concerned at the time. Dubbing cassettes was a time consuming pain in the ass and the audio quality was lousy. But in the Internet era the group has more closely guarded it's intellectual property. (This may in part reflect the finite nature of that IP and the band's inability to make money touring after the death of Jerry Garcia. Before Garcia's death, which roughly coincided with the beginning of the commercial Internet era, Dead music was a renewable resource).
For a while the group allowed fans to download freely thousands of soundboard concert recordings via Archive.org's live music database even as the band did a thriving business in selling the Dick's Picks CDs series of old concert recordings. But last winter archive.org pulled the Deads shows in response to concerns by some band members. After upheaval within the Dead's social network, the group arrived at a compromise solution: soundboard recordings would be made available for free via archive.org but for streaming only. Audience tapes--which the band didn't own anyway--would be allowed to be posted and downloaded for free. But the group would periodically pull soundboard tapes from the streaming menu and instead offer them for commercial release--sometimes in the form of CDs as well as downloads, sometimes merely in the form of a new Download Series of archival releases--with cleaned up sound and high end mastering. Furthermore the group instituted a tiered pricing structure for it's downloadable music--$13 per album for 128kps, DRM-wrapped files; $16.75 for 256kps, DRM-wrapped files; and $19.90 for "lossless" files without DRM.
In essence they Dead employs a dynamic "freemium" model for its archival live recordings, with various layers of premium pricing.
The Dead's system is far from air tight in terms of copy protection. A thriving online culture still exists for the trading of concert recordings via peer to peer systems. And devoted fans can stream concerts from archive.org while recording them to hard drive via an application like Total Recorder. But these inconvenient solutions remain workable only for die-hard fans with higher-than-average Internet and computer literacy. For those who just want to download music to their iPods, that service is available for a fee. For those who want the best sound, that is available for an additional premium.
Some might argue that the Dead's ability to sustain a freemium content business makes it unique. But I don't think that's true. In essence Comedy Central's ill-fated development deal last year with Dave Chappelle was all about pursuing a "freemium" content model. Within months of it's release the DVD package of Chappelle's first season sold 2 million units making it the biggest selling TV DVD in history. Sales of the "premium," for-pay version of the TV content--uncensored and unexpurgated with value added content like deleted scenes and commentary--dwarfed the money generated by the ad supported airings of the original cablecasts, but the TV broadcasts helped generate the audience for the premium product.
Others might argue that the Dead's freemium plans work now that the group is an established act, but perhaps won't work so well for up and coming groups. But that doesn't follow since the Dead encouraged filesharing among fans from nearly the very start.
One of the daunting things about the Internet business is that it resists the kind of snappy, pseudo scientific, pronouncements of "natural law" that other industries thrive on (Moore's law, for example, which to me never seemed like anything other than Intel's marketing plan dressed up as a law of physics). So, I can't say that the freemium model is THE business model for content on the Net. There are simply too many different kinds of content, too many choices among platforms, too many disparate preferences among consumers for any one model to fit all. But I CAN say that it's wrong to toss out freemium as a model for content summarily and entirely. It can work. It has worked. It will work again.