The major record labels made two massive errors that will ultimately lead to their demise. The first error was releasing their entire catalog in unprotected perfect digital format, i.e. the CD. As many have said, the current debate over DRM (digital rights management) is ludicrous as they labels have already released all of their music without any DRM whatsoever. These unprotected CDs are the source of nearly 100% of the files being shared on Limewire and other file sharing networks. Why they are trying to force consumers into purchasing DRM wrapped files on iTunes, Napster, Rhapsody simply makes no sense. They already took that option off the table with the CD.
The second error, and the one that will drag them all over the cliff in relatively short order, is that they consolidated their retail distribution into the hands of a small number of "big-box" retailers, i.e. Wal-Mart, Target, Best Buy. These retailers became the 1,000 pound gorilla, responsible for nearly 80% of all sales of CDs over the past 10 years or so. The labels are totally dependent on these retailers for sales. The irony of it all is that music sales at these retailers represents less than 1% of the retailers overall sales volume. So the mistake was, lets get completely dependent on a retail sales channel that in fact, does not need our business.
A recent WSJ article (and others) describe the beginning of the end of this relationship, where the big-box retailers are beginning to acknowledge that they indeed don’t need to sell CDs any longer, as there are more profitable offerings (DVDs, video games) that can occupy the same shelf space. The reality is that if these retailers do indeed cut the number of titles that they stock by any significant amount, the major lables will lose whatever remaining oxygen supply that may be sustaining them, and drop like stones into the abyss.