Guys,
I don't really feel like writing a huge post for this subject, but I'll let you know some things that you may not have considered. My father has been a record exec for RCA Records, BMG, Sony (just had his contract bought out last Saturday) for over 30 years, so I do have a different perspective on this subject.
Have record companies been short-sighted? YES.
Have record companies been slow to react to downloading music? YES.
Have you been overcharged for cds? Well this one is difficult to answer. When you consider everything that used to create a cd, the salaries of everyone involved (not just musicians, but sales and marketing staff), the marketing of the cd, the money that has to be paid to Best Buy, Circuit City, etc. to put the cd on their so-called 'Power Wall' and end-caps, among other things. This is where a large portion of the money goes. The artist doesn't make that huge percentage off of each cd. In many cases it's pennies.
Other places the money goes, development costs for other artists. Putting out cds for artists that will not sell much. There are thousands of cds put out by each company, each year. Very few of those are profitable, but the public gets diversity, and eventually, if developed properly, will be profitable for the company. A perfect example of this is Dave Matthews. This is no longer taking place, with very limited budgets, you are getting fewer choices.
Another thing killing the industry: When you pick up a Best Buy, Circuit City, Target ad, what is the first section you look for? Guessing by this site, it's games, but for the majority of the public, it's dvd's. Ten years ago, cd's covered 5+ pages in these advertisements, now it's barely a third of a page. My point is, that encroachment by other types of media have also taken a bite out of the music industry's pie. There are only so many dollars that you are going to spend in a typical month, and most people don't use them on cd's (at least not any more).
Each year, the top grossing album of the year is much less than the previous year. Each year the music landscape is more and more pop dominated (this is what is a sure seller).
The music industry won't die, but it's in a tremendous recession. Your choices will be fewer, the quality of music will decline, and when you get older you'll talk about the good old days. These things are cyclical, and eventually there will be a new movement, a new artist that will lead a new charge, and will hopefully bring change for a little while.
I'm not telling anyone to stop downloading music. It's a pandora's box of sorts. It's too late to tell people to stop. The music industry has to adapt and develop new strategies, but this can take many years. I'm just glad that my father is now in the twilight of his career, because things will continue to get worse before they get better.
Just my 2cents.