This will only work if they can cultivate collectors, either for their products specifically, or from the artists they work with. Because they take up so much space, they have to be something you'd want to show off. In other words, because they are obviously functionally deficient, there has to be some other mechanism to make them desirable. Obviously I can listen to an album all the way through on a small iPod, or better yet on the phone I'm already carrying.
They could also achieve this via exclusivity: get small acts to release a new album only via this format for the first week, so people have to experience the album in order before it's on iTunes and everyone just buys the popular song.