I think Prince is just at the stage (and has been for a long time) that he just makes music for the love of it. He doesn't need the cash, stress, politics of it all. This way is perfect for him. No worries of record label 'slavery' or chart positions or illegal downloading etc, he just make music and those that want it can have it.
Of course, the cynic in me says that Prince hasn't had any real chart hits to speak of for around 15 years so is losing nothing.
Personally I'd hate to think that music has become that meaningless that it can be given away free with a Sunday paper like a pair of 3D glasses or a packet of football stickers. I love handing over my hard earned cash for something that will possibly give me a lifetime of joy and memories and sweep me of my feet. Even getting a proper case, CD booklet, liner notes etc means something to me; not the cheap cardboard cover free CDs come in.
The compromise may be what some artists have done, which is like a sampler CD. A couple of greatest hits, live tracks and one or two songs from the new album as a taster.