honestly...
...I really don't know.
When I was a teenager, I roadied for my friends band. Nothing major, just local stuff, though they opened for a lot of bigger 'national' bands at local places. From what little I was personally exposed to, I saw a lot of bands take it in the @$$ financially from those who 'signed' them to a record lable, it was definately a pay-to-play situation.
On the other hand, I saw quite a few 'signed' bands who really didn''t draw much of a crowd and can understand how their 'national tour' was really crap and a waste of advertising dollars for the record industry who took a chance on them.
I'm not defending record lables, I'm just pointing out that they actually do spend money on 'investments' that are losing ventures. And that there is more to consider than the individual cost of printing a cd.
I've also personally witnessed local talent who spends money to produce a so called independant release and has a difficult time getting people to buy it, then sells it to a lable and it takes off.
Point is, there is so much BS in general in that industry that it can be difficult to tell who is full of crud (nicespeak for cr@P) and who isn't.
Overall, I'm with most people that cd's cost too much, but as I said, I really don't know. Profitability is relative, just because an industry is making a profit doesn't mean they are screwing everyone (keyword is everyone- please don't flame me).