It's simple: the agencies are stupid
The income of an artist doesn't dwindle by people copying their music. In fact; in most of the cases it actually does the exact opposite. Something people who knew what they're talking about have been saying for years now.
A very recent (and IMO awesome) example of that would be South Korean singer / rapper PSY's latest achievement: Gangnam Style (YouTube link). Its Korean dance music combined with Korean rap (I suppose), crazy (funny!) dance moves and IMVHO its an /extremely/ catchy tune.
Yes ladies and gentlemen; you can listen and watch it as many times as you like because PSY himself made sure to share this as much as he can on YouTube.
The original video (as linked above), a feat with the "Making off" (which IMO is pretty awesome in itself), several other (not always related) video's and music and here's the catch...
Already he shared /several/ movies where he's performing this song live on stage. Also totally free for us all to enjoy (and maybe I'm biased but it looks awesome to me!).
NOW stop there for a moment and ask yourself this: Did the audience witnessing those live performances got there for free? I don't think so! How many times have we seen "professional" artists starting to cause a riot because people tried to film their performance(s) and share it?
PSY otoh puts it all online himself for us to enjoy. And from what I understand (I could be mistaken here:) he currently tries on as many gigs as he can.
Result? Well, we (gf & me) reached a point where we are actually keeping track if PSY will ever consider a European tour, because if he does then we want to be there!
Gee, I wonder where the real money is made here....