I hear this argument time and time again. As I said on another site:
Buying merchandise is good because the bands get the money directly from the sales, but it doesn't help the label in any way. The label is the one that has invested in the band. If no-one is buying the CDs then it's very likely the label will drop the band from its roster. And then all that promotion, distribution, all those recording advances - everything - will have gone because the CDs haven't been bought. If you really want to help the bands you love - support them AND their label. Buying CDs is the very best way to support the band since the band will earn money off the CD you have bought AND the label will be more willing to invest in that band for future albums.
Also, remember that buying a concert ticket is no guarantee that the band will get any money from your ticket sale. Gig promoters normally have to break even before the band gets any extra money from the ticket sales, and even after break even it's purely dependant on the band's arrangement with the venue or promoter. Booking bands for gigs can be a gamble for both band and promoter and it's very common for both to be out of pocket as a result.
People who download music illegally weren't going to buy it anyway. If they genuinely liked the band enough to support it then they would have bought the music one way or another.
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