The rise of recording technology means that more people can make more kinds of music without having to have a particular set of instrument skills. There are various types of music that are either impossible or just impractical to create live. There's music meant to be listened under non-stage, non-live circumstances (the various flavors of ambient, for example).
So, while records and CDs may have started off as a way to capture a sort-of live event, that's long gone. It may still be true for some, but for many it's an end in itself.
If people are dissuaded from producing CDs or other digital artifacts, they will also be dissuaded from creating art that is best rendered via CD, etc.
"And then there's the tired position of why does the creation of art need to be tied to a market or associated with capitalism? "
Markets are a fact of life. The question is, what sort of (economic) system best deals with that? No matter what you do, people will be trading, and that will include art.
Art is just another human activity, like screwing and hunting. It will find its way into commerce no matter what.
That's a good thing.