"In a typical deal, the band gets thirteen or fourteen percentage points. We’d have to give a few of our own points (four perhaps) to the producer of our record (producers typically get a fee and points). Then we’d be down to ten points. Before calculating the value of those ten points, however, Electra would subtract a large percentage of the gross sales to account for free goods, records given away for promotional and other purposes. Thus, the amount on which our 10 percent was calculated would be reduced by 20 to 25 percent. So we’d be down even further, perhaps 10 percent on 75 percent of the wholesale album revenue. If our CD was sold in stores for fifteen dollars, the band’s share of the revenue might be something between fifty cents and a dollar per CD. Would we get to keep it? No! ..."
source: http://www.google.com.au/url?sa=t&source=web&cd=1...
A more optimistic (and modern) document which contrasts options such as the iTunes store (which gives the band perhaps 60% of the proceeds and the customer a DRM encumbered copy of the recording):
http://www.bradsucks.net/archives/2007/05/22/where-your-musi...
Secondly, because digital distribution of unencumbered music is in many ways a better experience for the consumer than purchasing physical CDs or DRM encumbered tracks.