Collectible CDs/boxed sets
can sell for a few hundred.
But yes, there are multiple stupidities happening here:
1. Loss of quality. MP3s are for casual listeners. Real music lovers want better quality. SACD is only playable on PCs with specialised hardware, but FLAC 24/96 is playable on anything with a decent sound card. (Arguably not as good, but more practical.)
2. Loss of back catalogue. Because the cost of digital distribution is close to zero, there's no reason why back catalogue couldn't be sold online. But currently record companies still sell CDs first, and then consider digital as an afterthought.
3. Freetards. Sad but true - getting stuff for free cheapens it. Even if you buy more elsewhere. Resolution Magazine (pro-audio and studio tech) recently ran a feature that illustrated how sales of prime industry production software *died* as soon as it was ripped off and torrented.
4. Greedtards. The app model suggests there are a lot more people willing to pay pennies for something than $$$$. High quality downloads for - say - $5, with direct artist support, would give everyone less incentive to torrent.
5,. Lack of talent support. The music industry spent forty years ripping off artists. It invested too small a proportion of cash back into talent A&R, and narrowed the kinds of music that it sold. So it didn't just price itself out of non-mainstream markets - of which there are many - it killed them. Which was stupid.
6. Lack of cross-media promotion. The industry still thinks in units - books, records, DVDs - and not in cross-media audience-related experiences. Some creators are starting to be more imaginative than this.
7. Digital sharecropping - see also YouTube, Amazon, MySpace, SoundCloud, etc, who put up any old content as a "service" but who are really just flooding the market with free creative product in return for ad revenue - which they feel no need to share with creators.
It's all a bit sad and unhealthy, which may be one reason why recent music has become so boring.
The core problem is that corporate wankers hate creative people with a passion, and don't understand what creativity or art are for.
If you're a bean counter you think it's all about unit sales - but it isn't.