Pandora is not really a subtitute or rival for the existing business models - more like a competitor for radio stations. Grooveshark from what I can tell relies on breaking copyright. Meanwhile iTunes is successful but a) not much cheaper than CDs and b) only a small portion (combined with the other MP3 stores) of the overall music retail market. So it would appear to me that music is sold by 'the industry' at a price people do find acceptable, round about the same price they'd been selling at during their most successful days, which ended with the popularization of illegal filesharing.

Basically out of all the people who love music, a large subset of them will pirate it without qualms, and that's all that's really going on here. The changes brought about by the internet have just shrunk the overall industry, rather than allow it to be reshaped by visionary businesspeople or artists. 99 Designs works because due to copyright protection designers feel confident about showing work before receiving payment, meanwhile the music industry is failing because people feel confident about avoiding the legal sanctions of downloading copyrighted material. That it should be like that is just an accident of law enforcement practices and tracibility.