That model works for live bands, but not everyone is a live band. While I believe some major changes need to happen in the music industry, I think it would be sad for it to go in this direction. Some music is best recorded in a studio. It's an environment where a performance is perfected and creativity abounds. A classic example is The Beatles. Their best music came from when they camped in a studio and quit touring. Under the new live model, that couldn't work.
And that's just regarding the artists. There are people behind them who make the recordings possible. I'm studying to become an audio engineer. It's not a lucrative business as it is and if the live model were to become the norm, I can only assume I would have to find a new job. Free recordings, for the most part, would be done by amateurs. Only the biggest live acts could afford a high quality recording, and even then it would just be treated as an advertisement for their concert, not a work of art. My point is not that the recording business should exist for the sake of jobs (obsolete jobs should disappear), but that it is difficult to imagine a model of free recordings. More than just the bands make their living from recordings, too. In a free model, they disappear and recorded music will, in a word, suck.
The music business needs to adapt, but I don't think abandoning the recording business and simply accepting piracy is the answer.
That's my two cents.