I have blank CDs and a CD burner. You, the record company, have content. Sell me the content and let's skip the plastic box, the pre-printed CD, and the little flaps of paper with writing too small to read. I will burn my own CD or MD, or place the content on my file server for safekeeping. If you make the price reasonable, I'll buy all my music this way and you can eliminate ALL of the middle men. The majority of people are honest and would pay a reasonable amount for the convenience and quality you could offer.
2) Do you believe that last sentence? and
3) Why wouldn't this work?