Bob Pittman made music videos free for consumers when he found­ed MTV 27 years ago. And now he’s pretty sure music in all formats should be free. No more $15.98 CDs. No 99-cent iTunes. Instead, he says, artists should use recordings to build a brand so that they can make money on concerts and T-shirts. Sitting in his New York office, a foot-tall MTV astronaut statue behind him, he says, "Maybe get a sponsor to pay a million dollars and just give the album away."

Pittman has nailed the future of music.

It's fun to watch the flailing going on now. Producer Timbaland—this generation's Phil Spector, though less weird—has cut a deal with Verizon Wireless to produce songs to be sold exclusively through the company's cellular service. Nine Inch Nails released its latest album only on its website. And those Radiohead guys will try anything. Last October, they released their album In Rainbows on the Web—asking, essentially, for tips in return—and have made the raw tracks for one song available on iTunes so fans can mix their own versions. Any day now, I expect to find a flash drive with a Radiohead song on it inside a specially marked box of Cap'n Crunch.

On the business side, the ideas are flying. Apple is reportedly considering a subscription-based iTunes, EMI handed its digital music business to a former Google exec, and Warner Music C.E.O. Edgar Bronfman pitched a "tax" to pay for music—a proposal getting about as much traction as a return to Prohibition.

This flurry of experiments is painful but probably necessary, like a teenager's goth phase. The endgame is clear, however. Sometime in the next decade, Pittman's model will win. Artists will give away recorded music and consider it promotional, just like music videos. All of the revenue in music will be generated in other ways.

How? Through concerts, certainly. CD sales are deflating like a baseball slugger gone off steroids, but consumers pay more than ever for live music. Concert revenue hit $3.9 billion in 2007, up 8 percent from 2006. And while hip bands endlessly test funky business models, Jimmy Buffett, of all people, has it figured out. Most Buffett fans haven't bought one of his albums since they bought their first CD player. They probably wouldn't know MySpace from their sock drawer. But they flock to his concerts, donning parrot hats and partying in tailgate festivities that look like scenes from Girls Gone Wild: Menopause Edition. In 2007, Buffett played 25 dates, with an average ticket price of $136, raking in $35.6 million—up 34 percent from 2006.

Bands will make money on 3-D movies, like this year's U2 and Hannah Montana flicks. They'll branch out, as Elvis Costello will by hosting a Sundance Channel talk show. They'll get creative with sponsorships. How about selling naming rights? The Foo Fighters' drummer might play his Arthur Vining Davis Foundation hi-hat. Or they could emulate Nascar: U2's the Edge could play a guitar bearing a Budweiser logo. Or for the Jonas Brothers, Juicy Juice.

Dedicated fans might cry that their heroes are selling out. But it's the way things already work in China, where what seems to be the music-business model of the future is already in place. Ninety-nine percent of all downloaded music in China is illegitimate, and 85 percent of CDs sold, even in stores, are pirated. Chinese companies and artists, including popular bands such as Yu Quan, start with the understanding that they'll make nothing from sales of recordings but will generate revenue from endorsement deals, commercials, and, of course, concerts. Record labels? Copyrights? Ha. Not in China.

If that's the future of the music business in the U.S., then record labels are toast. They'll have to emulate Live Nation, which looks most like the music company of the 21st century. Originally a concert promoter, Live Nation came to see that everything an artist does must feed a single enterprise. It now handles its clients' concerts, merchandising, videos, and recording. While most old-style labels suffer, Live Nation enjoyed 2007 revenues of $4.2 billion, up 12.6 percent. Artists sense the shift: Madonna signed a deal with Live Nation last year, reportedly worth $120 million, and Jay-Z joined in April for a reported $150 million. You can bet more stars will follow.

It's all part of an unstoppable movement. "For-profit culture will move toward the nonreproducible, more thrilling aspects of music," says economist Tyler Cowen, author of Good and Plenty: The Creative Successes of American Arts Funding. Since perfect copies of music can be made and distributed for almost nothing, he says, the value moves to one-of-a-kind experiences, like a Jimmy Buffett concert. As even Ashley Dupré, Eliot Spitzer's favorite escort and would-be pop diva, can use pitch-correction software to record a perfect track, consumers increasingly will treasure the ephemeral, even flawed, live experience.

"Everybody has gotten accustomed to a kind of flawlessness that doesn't exist in reality," says Mary Davis, a music-history professor at Case Western. "Reality is sometimes awful, but it's more human." And, yeah, we'll pay for that.