Basically we will end up with fewer superstars but more people making a much more modest living from their music.
There are a multitude of alternative business models out there, they're all evolving, the trick is finding one that works for you.
Most of them are based around the following (which you'll see in a number of places on the web but i think it originated at Techdirt):
Connect with Fans (CwF) + Reason to Buy (RtB) = $
This is much the same as the 1000 True Fans theory but expressed differently.
Effectively it comes down to your ability to engage with your fans and persuade them to support you (CwF) and your producing a product that's sufficiently high quality to make it worth buying instead of downloading (RtB).
Personally i think there's a factor missing here, which, for lack of a better term, i shall call Elevation. And this what the current major labels do.
With the rise of free distribution mechanisms and cheaper technology there is more and more really good music being made. The challenge now for any artist is to stand out from the crowd, to raise yourself or your band above the level of everyone else and get noticed.
Sadly it's not enough just to be really talented, you still need some mechanism to elevate yourself above the noise level.
The major labels have massive publicity and marketing budgets, that's how they do it but it doesn't work for an independent act.
Another option is to partner with a publicist / advertiser, there are people trying to make careers there as well and some mutual backscratching might be possible.
One approach that appears to be coming through is to target a really, really small niche, with a very high-end product (hat tip to Confused of Calcutta). The mass market is always going to be the territory of the major labels - don't try and compete, figure out what your Unique Selling Point is and work out how to make the most of it.
So i think the equation should actually be:
e(CwF + RtB) = $
But at the end of 2010 i find myself no nearer establishing what my business model is. So i suspect 2011 will be no more successful for me than this year was. Hopefully others will get further along that particular line.