But I have mixed feelings about that from the standpoint of someone who still releases on CD, as it can cannibalize your physical CD sales.
I wonder about that too. It seems as if there are a number of possible outcomes and the way things add up probably depend a lot on how you conceptualize the plasticity of the audience.
For example, if you conceptualize the audience as fixed (e.g., 300 people bought the last CD-only release), then releasing the next album on digital + CD means that some fraction of those 300 buyers will opt for the digital version instead of the physical version. That will hurt CD sales for sure. That may turn out to be a loss for the label depending on the various costs of product, distribution, etc.
But it also could be the case that, as a result of a digital release, the audience itself grows. There may be, for example, people who were unwilling to pay > $13 for a physical copy who would gladly pay $5 for a digital copy. It could also be the case that there is a certain percentage of fans and collectors who strongly prefer physical copies regardless, thereby making it possible to sell a fixed number of CDs regardless of the available formats. If the total number of fans increases with a move to digital distribution, it is quite possible to sell the same (or more) physical CDs while growing your fan base. That's a win-win for everyone.
Anyhow, one of my concerns is that we can discuss these issues from the comfort of our armchairs and never really appreciate how things breakdown. Bandcamp, fortunately, makes it possible to experiment with various options, get some real numbers, and make decisions in a way that can best support a label and artist. I was impressed when Saul Stokes popped up a few months ago and noted that his "pay what you want" system had netted him more for his bottom line in a few days than his cumulative sales of physical CDs had over years.
I realize that it is difficult to write about these things without coming across as a pusher. To be clear: I'm not pushing for anything. I'm simply a fan who loves Bandcamp. I'd hate to see some of my favorite artists and labels shy away from it (potentially to at their own loss) when it is so easy to test the waters by adding a handful of releases to the site and seeing how it all plays out. If I recall correctly, Mike wrote in the past that the artists retain the rights to the digital distribution of their music on Hypnos. So Hypnos might not be in a good position to do such tests, except with some of Griffin's own releases.