I buy lots of electronic music where I would neither bother to see a live show, nor wear their merchandise. What are those bands supposed to do? Be more controversial to make t-shirts attractive? Change their business model by becoming rock bands?
It's like saying that authors can still make money through public readings when pirated ebooks are everywhere, <cue famous example here>. Or that games can just have unpiratable multiplayer. That's all true, but it kills off whole genres.
I have donated to software projects before, but it's so annoying to keep track of it. I honestly couldn't tell you if I have donated to Adium, Colloquy, or both. I don't think donations can ever achieve the fairness and efficiency of buying songs.
To clarify on the fairness, buying software and music almost feels like a donation already. And I have been surrounded by anecdotal evidence in my youth who happily cracked "silly" casual shareware games, which just felt awkward to pay for, then played them for months. Yet when their favorite brand's AAA game was released, they bought it, played it for three days, then proudly put the box on top of their shelf and claimed that they do buy software -- but only when it's worth it. I can easily see the same thing happening for higher-profile vs lower-profile bands.
I stopped buying physical media since I've started traveling, but I am still putting them on my wish lists for when I'm home and people want to spend money. So practically both.
It's like saying that authors can still make money through public readings when pirated ebooks are everywhere, <cue famous example here>. Or that games can just have unpiratable multiplayer. That's all true, but it kills off whole genres.