People still buy. Lots of people. Enough to make the labels very rich. IF they would do it in a way that the customer wants.
CD singles, priced in the 2-3 dollar range would sell huge. CDs would sell huge if priced more in line with the 10-12 max range available at iTunes.
The labels have priced themselves out of the market..and then cried poverty when the consumer turned to the net...where the labels forced them to go.
Music sharing is nothing new. I'd bet its not even any more prevalent now that it was pre-cd technology when we were out making cassettes from the albums our friends bought.
The problem now is 1) new music offered by the labels, in general, just plain sucks 2)they offer it at $18-20 for a full disk worth of garbage to get the one or 2 tracks you want and 3)they've introduced the uncertainty now, with Sony's venture into DRM, that you might not be able to play your music once you pay for the disk.
Add to the above the dearth of real radio to be used as advertisement for the crap they're trying to sell...and you've got an industry in crisis. A crisis they brought upon themselves and seem compelled to not fix.
Introduce Garage Band to the mix...and the fact that now, for the cost of 1 hour of real studio time I can now build a digital recording setup that will rival anything they can offer (aside from a good producer)...and you have the big entertainment groups looking at real trouble in a few years.