You’re right about the success of the “sue ’em all” strategy in having achieved the labels’ immediate goals, but the problem is that it has been a pyrrhic victory. Napster was the most effective music discovery and acquisition engine in history, it had an enormous and enthusiastic user base, and the labels killed it in an attempt to preserve their current business model.
Then mp3 blogs arose as a ground-up completely distributed user-driven model for taste publishing and music acquisition. They had a series of early instances of driving wild success of unknown bands (Broken Social Scene, Arctic Monkeys, Clap Your Hands Say Yeah, Arcade Fire, etc), a possibility that was formerly open only to the labels. The labels couldn’t actually sue each blogger — there were simply too many — so they conducted a comprehensive FUD campaign to discourage bloggers from linking to mp3, which has been fairly successful. Simultaneously they have worked to encourage the rise of a small number of highly visible music sites (Pitchfork, et al) which they have worked hard to control via the traditional methods of ad revenue and star access. The result has been the recreation of an online music journalism that looks a lot like its offline counterpart and is hence a relatively poor niche-satisfying discovery engine.
Somewhere in there the iTunes store arose as a very user-friendly interface and captured an enormous portion of the market. It didn’t benefit from any of the network effects of the web, but it did its best to serve users and so it became an incredibly powerful promotion and discovery engine despite its best efforts to the contrary. The labels immediately got scared of Apple’s power over them and so have tried to stand up a whole series of competitors such as the Amazon mp3 store, each their own totally incompatible silo. This has been good for customers in terms of prices and DRM options, but has again eliminated the incredibly powerful networks effects that are what make the web the world’s best tool for getting cultural supply together with demand.
Each of these incidents (and others, such as the Pandora/streaming debacle) has shown the labels choose control and fear of change over the potential distribution, discovery, and money making power of the web. The result has been that while they’ve “won” in the sense that they’ve largely prevented the creation of an online distribution system that would be a competitor for their offline systems, they’ve done it at the cost of utterly poisoning the well: ensuring that music on the web has withered as a market just when so many other digital ecosystems have taken off.
It’s had to argue that an industry that has gone from being enormously profitable to being on the edge of utter bankruptcy in the face of the largest expansion in the consumption of its product in history has done “Awesome”.