The business of art (or "cultural product", which one could argue also includes things like journalism, that one might tend to exclude from "art") has a few levels. The artist, whose raw talent, inspiration and hard work generate the basic work. "Post-production", where other technicians and artists polish the work (especially for music and film). Distribution, where someone makes the art available to consumers. Marketing, where someone tells other people about the art so that more people can consume it.
In the traditional model, marketing and distribution are the most expensive parts of the process. In the internet age, word of mouth can do a pretty good job of taking over marketing. Downloading takes care of distribution for a roughly flat cost. Technology is even bringing the cost of post-production down as home computers become capable of doing video, sound and image editting at "good enough" levels.
So, all of a sudden, producing and distributing cultural product is cheap and easy, which means that a much larger number of people are potential producers, and the advance of technology is just going to make it easier. In the new world, art can be created and distributed even if it doesn't appeal to a very broad base of consumers, since the cost is so low. If it's good, then it can be found and accessed by people who are interested in it pretty easily, too.
The end result is that we have a sudden increase in supply without a significant change in demand. This means that the cost is going to drop. The arts industries are, predictably, trying to prop up thier traditional business models without too muich success (at least so far). The first casualties are the distribution and marketing folks, which makes sense as those are the parts of the equation that are most easily streamlined by current tech.
The next stage that I expect to see is a dramatic change in the life of the artists themselves. Anything that can be created and broadcast easily is going to drop in value. This includes TV shows, movies, books and music. There are just going to be enough people who create art that the supply will drive the price down. True, the quality is going to suffer as artists are rewarded far less well. The literature industry is going to converge with fanfic. The public is going to expect to pay much less for thier art than they do today. It's possible that some "rock stars" will be able to charge more, but new stars are going to have a hard time becoming the next Nine Inch Nails.
My theory is that "disposable" or "easily distributed" cultural product is going to become very cheap, if not moving to a primarily whuffie style economy where your reputation and praise is the primary reward for the creation of art. I think that it may only be in the non-distributable fields of art that there will still be money to be made. Give away your music and make money off of live shows. Great for Amanda Palmer and Trent Reznor, but death for musicians who prefer to put out albums and hate performing live.
This is going to drastically change the kind of art we as a public consume. I will miss the kind of movies that come from a big budget, the kind of tv that comes form a handful of studios controlling the distribution, and most of all, I feel ill when I consider what will happen if artists can no longer make a living writing novels.
I don't think people are going to stop making art, but the economics of easy distribution are going to significantly change what kind of art people get paid for. I don't think that this is something we can stop, short of a complete collapse of the internet and/or Western culture.
On a tangent, I have another theory that artists are, in a general sense, like athletes. A sport like boxing, where the prizes are not as high as they once were, doesn't attract as many of the gifted athletes as it used to - if you're a gifted athlete, you're better off going into football, baseball, basketball, etc. So, the pro boxers are not (according to my pet theory) the best of all possible human boxers, because a lot of potential really good boxers are making millions playing basketball or hockey instead.
I propose that something similar applies to artists - when the economy of art shifts, a lot of people with creative talent will start moving to fields that have tangible rewards. How many people with writing talent work on poetry these days? How many potential decent poets are writing for TV or writing novels instead?
I think we will see a lot of artists abandoning the 20th century's popular media and going to... whatever remains more scarce and hence more profitable.