If your conclusion was correct, the music industry would have run out of money and died. That has not happened yet. How do you explain how your theory does not match observed reality?
The music industry, meaning the record labels, may well be dying. If they didn't have a steady revenue stream coming in from easily identifiable licensees -- film, television, radio -- they would likely be in worse shape. I think the record labels are starting to realize they can't rely on individual consumer sales to keep them in business, which is why they're working with Apple, Amazon, Spotify, Rdio, MOG, etc.
If by the music industry you mean musicians, the common understanding seems to be that more and more musicians are relying on revenues from public performance. This works for music because people like to see it performed live and are willing to pay for tickets.
It's not clear how writers will make money. Public performance is probably a reasonable route for David Sedaris and a few others. There are probably a few who can do the Amanda Hocking thing. And the Kickstarter model may work for some.
