This is key. The Internet is a new distribution channel - the marginal cost is very low compared to traditional methods...
It's perfect for selling IP that can't beat the higher marginal cost for traditional distribution methods. There are probably orders of magnitude more people that would pay $1 to watch "They Live" than would fork out $10 to buy the DVD...
We'll see. I'd love to see a massive groundswell in music. But so far, we still have junkie 'hits'. Most peoples itunes playlists are essentially like the other guys' itunes playlist.