[RandyMcCharles]

And this is where it gets very confusing. After reading several vague FAQs and answers to emails, what it looks like:
1. The manufacturer/download company only purchases personal use rights. (Possibly the public use rights are including in the mechanical rights, which I think is tied to the pressing of the CDG)
2. However, bars pay for the rights to play music in their establishment, which is why they can play a radio or music station). These rights also include the playing karaoke music.
3. The point of contention is in displaying the karaoke lyrics, which is not included in the entertainment fees the bar is paying. Therefore it should be just fine to take your download and sing to it provided only you, the private purchaser, see the lyrics. And there seems to be no mechanism for you as a download purchaser to pay for the right to show the lyrics in public.

Therefore, it appears to be technically illegal for a KJ to purchase a karaoke download and use it in commercial or non-commercial public shows. It can, however, be used in private, non-commercial settings.

That said, everything I have seen has been vague and unclear. Even the manufacturers and download companies don't seem to have a clear understanding. Most of them don't seem to have a license statement or a FAQ. Those that did were unclear. I emailed for clarification and either got further muddiness for no answer.

If anyone can shed more light on the the question of legally using a download in place of a manufactured CDG, please enlighten us.