Alternatives to MP3 already exist but it takes off because no one seems to try too hard to enforce the license it until much later on in the game. MP3's and other digital music has been shared for a very long time on the internet, FTP sites, IRC, and other mediums. Napster is just easier and, because it combines each individual's hard drive into the pool, the database is much more diverse. The industry does not react. For a long time.
Record companies PAY for radio stations to play songs for publicity.
Upon Metallica, the rest of the industry jumps up against Napster and MP3 sharing. Also, no one mentioned the rocketing cost of education as affecting disposable income that might make for CD sales. Not only that, but often they are put in debt and must make back the money. You can't slice it any way you want. Information is not always free, deal with it.