Firstly Reilly, I am not disagreeing with you that SALES of albums are declining - the evidence is confounding, and hard to argue with. But the major flaw in your argument is that you seem to be persistently isolating the whole industry to just album sales. The music industry comprises a number of different revenue streams, not just the sale of physical CDs that you seem to make it out to be. Sure, stores are closing down, sales are down (in your graph) but the thing is that only represents one section of the market.
So, considering the true model where the music industry comprises of different revenue streams, let's break it down.
#1 - Physical CD sales - LOSING REVENUE
Falling dramatically. Manufacturers and stores losing money fast because of a fundamental consumer shift to alternate products. The evidence shows this.
#2 - Digital Music sales - INCREASING REVENUE
Increasing rapidly because of cheaper prices of digital downloads in some cases, increasing because of accessibility on the internet, and the high sales of complementary products such as ipods and iphones. Labels like digital downloads because of the low (almost no) costs of distribution associated with sales on, for example, itunes. It's not just itunes, there are a wide variety of online sellers and labels are even going direct to customers these days. This is a major growth area, and it is proposed that digital sales will surpass physical for sure in the future. This doesnt mean the industry is "fucked" - it's just a consumer shift towards a new product. Were people saying the industry was fucked when CDs came in to replace vinyl all those years ago?
http://www.zdnet.com/blog/gadgetreviews/good-riddance-digital-music-sales-to-surpass-cds-in-2010/6758
http://news.cnet.com/Digital-sales-help-Warner-Musics-profits-sing/2100-1027_3-6039289.html (and this is back in 2006. Think what it is now)
http://paidcontent.co.uk/article/419-research-digital-revenue-now-a-quarter-of-uk-music-business/
"Yankee Group predicts that within the U.S. digital music industry, online music will grow faster than mobile music downloads and online single downloads will outpace album downloads or subscriptions. Despite wireless carriers’ best efforts, online distribution will continue to dominate the category, accounting for 80% of the industry revenue."
http://industry.tekrati.com/research/9918/
#3 - Live Music (touring) - INCREASING REVENUE
This is where a major negative gets turned into a positive. The international fan base for music is ever growing as the internet becomes available to more people in the world. Whilst illegal downloading is hampering sales revenue of records, it is turning into increased exposure for bands because kids put the songs on their ipods, share them with their friends, and therefore the band's exposure spreads virally. Whilst I agree people don't see every single one of the bands they like live, they now are exposed to more acts than they would have been in the past and this means that they are more aware of live shows. Its simple economics too, the less people spend on albums (because of file sharing) the more money they have to see the band live. There's a fundamental shift towards this today evident through the heavy touring schedules of bands.
“Up until the iPod age, record companies maintained the business, releasing material by performers, and the live tour was about promoting the record, which would make the money. Now it is the complete reverse and the live side of the business has become stronger and totally dominates the global music market.”
Evidence: http://www.ilmc.com/about-the-music-industry.html
"Why live revenues have grown so stridently is beyond the scope of this article, but our data - compiled from a PRS for Music report and the BPI - make two things clear: one, that the growth in live revenue shows no signs of slowing and two, that live is by far and away the most lucrative section of industry revenue for artists themselves, because they retain such a big percentage of the money from ticket sales."
Evidence: http://labs.timesonline.co.uk/blog/2009/11/12/do-music-artists-do-better-in-a-world-with-illegal-file-sharing/
#4 - Merchandise sales - INCREASING REVENUE
Pretty much the same argument as the live revenue - because people are exposed to more music, this has increased the prominence of a music culture amongst teenagers in society, and revived a 'music culture' where its cool to buy the t-shirts and associated merchandise of your favourite bands. This is increasing the revenue from online sales and also at the live gigs where attendances are higher than ever before.
#5 - Licensing - INCREASING REVENUE
Many industry members identify licensing revenue as a key growth area in the industry. Bands are selling their music commercially to advertising revenue agencies, movies, etc. and enjoying the royalties of commercial exposure. The flow on effects from licensing result in more revenue in the above four areas also.
"Music revenue is poised to reverse a decade-long descent. Yes, you read that correctly. Despite all the dire news stories of the past several years, there are reasons for optimism in the music business. Slowly, inexorably, the economic picture is going to begin improving for artists, songwriters, publishers, distributors and record labels."
Evidence: http://musicindustrynewswire.com/2010/08/04/min3196_173012.php
I hope you can understand in the music industry business model today, physical CD sales only represent a proportion of sales revenue, of which is declining. Music labels would be foolish to remain reliant on traditional physical streams of distribution. These ones that do are the ones that are closing down. The labels that capitalise and adapt on these new sources of income (growth areas) will be the ones that survive, and hence why the industry is not doomed to be "fucked".
It's just too naive to solely consider falling physical record sales to base your argument on why the industry is "fucked". I love this quote that I have found from my study on the industry throughout the year: "a symptom of the rapidity of change is the fact that the industry is almost indistinguishable from what it was a year ago" (Letts, 2008). This is the case, and it is only forcing companies to respond and alter their strategies to meet the new needs of consumers to remain alive in the industry.
And for the final piece of evidence, comprising ALL areas of the industry:
If that wasn't a nail in the coffin, read this article.
http://labs.timesonline.co.uk/blog/2009/11/12/do-music-artists-do-better-in-a-world-with-illegal-file-sharing/
From the article above:
"This is the graph the record industry doesn’t want you to see.
It shows the fate of the three main pillars of music industry revenue - recorded music, live music, and PRS revenues (royalties collected on behalf of artists when their music is played in public) over the last 5 years.
We’ve broken each category into two sub-categories so that, for any chunk of revenue - recorded music sales, for instance - you can see the percentage that goes to the artist, and the percentage that goes elsewhere. (In the case of recorded music, the lion’s share of revenue goes to the record label; in the case of live, the promoter takes a cut etc.)
Hopefully, this analysis - and there’s more on the nuts and bolts of our method below - sheds some factual light on the claims and counter-claims that are paranoically sweeping across the music industry establishment, not least that put forward by the singer Lily Allen in this paper recently - and the BPI - that artists are losing out as a result of the fall in sales of recorded of music."
Hmm, fucked, you say? I don't think so. You're just a victim of a massive scare campaign led by greedy record companies.