This letter is in response to your blog posting lamenting the murky results of offering the NiggyTardust album you produced with Saul Williams for free on the internet with an optional $5 donation.
I applaud you for releasing these statistics and I thank you for writing honestly, but let me, one of your most devoted and loyal fans be just as honest with you. You're totally missing the point. Consumers don't want to pay for recorded music anymore. It has absolutely nothing to do with "doing the right thing" and everything to do with the inevitable march of recorded music toward free. Market forces dictate that the consumer cost of a product will inevitably fall to the cost of distribution, which, in this case, is zero. This cannot be stopped, no matter how "cool" or "likable" you are to your own fan base.
I said above that I'm one of your most devoted and loyal fans, but even I stopped buying CDs, even yours, almost ten years ago in favor of, well, alternative methods. Frankly, I think NiggyTardust was album of the year, but I most certainly did not pay for it. I opted for the free download instead. Attitudes like mine are common and have a lot to do with your 18% figure and you need to accept this and move on. But as I have written about previously, just because consumers are unwilling to pay for music doesn't mean there isn't any profit in it.
You need to abandon the classical consumer-cost business model of music distribution and offer your content 100% free on your website paid for by advertising. You can even run a Bit Torrent tracker on your site to reduce bandwidth costs. Don't be afraid to dive into these uncharted waters, you're halfway there already! Keep in mind, Bit Torrent sites like thepiratebay.org make obnoxious sums of money off nothing but advertising. Among their most popular content in their music section is your discography.
You can fight this by offering a superior service. Run your own Bit Torrent tracker on nin.com. Get a Google Adsense account, or some other advertising deal. Better yet, start a whole new record label based on this concept and require all artists who sign on to allow their music to be distributed for free on your label's site as well. Businesses for decades have operated successfully on this model. Everything from broadcast television, to radio, to Google, to Yahoo!, to thepiratebay.org make huge amounts of money distributing content to consumers for free.
You can do this too. You've got the money, influence, and respect to move the whole industry forward. You've already started the process. Just finish it. If Yahoo! and Google can make billions ever year off of free content, then you can at least make a living doing the same thing with your music. And maybe you can even make a difference too, leading by example.