The other day I was talking to a friend about the Atlantic Monthly article I posted about this week ("The Heavenly Jukebox" from September 2000....be sure to read it), and I mentioned that a lot of predictions at the onset of this decade were way off.

Contrary to expectations, labels aren't dead. The CD, while slumping, is not yet dead. Only last year did high-profile artists like Madonna, Paul McCartney and Radiohead leave their major labels. A lot of early-decade predictions have not come true.

What has changed? Plenty. Despite seven years of mergers, layoffs and uncertainty, the content providers (the labels) have survived while other sections of the supply chain have been decimated and transformed the most.

In the early years of the decade, wholesale distributors began to suffer from changes in format shifting and the resulting impact on retailers. (Wholesale distributors are middlemen that aggregate a large quantity of titles and sell them to retailers.) Valley Media, Northeast, Southwest and others have closed their doors as the CD downturn took away the economies of scale that drive such high-volume businesses.

Changes at retail sparked the fall of these wholesale distributors. According to the Almight Institute of Music Retail, about 1,3000 independent music stores have closed since 2003 (legendary stores like Music Millennium, Aron's, Rhino Records). About 2,600 are still in business -- that calculates to a 33% decline in the number of indie retailers.

Regional and national chains have either closed or cut down on their music inventories. Trans World has closed hundreds of stores and plans to close about 130 more this year. Tower Records is gone. Virgin Megastore is down to 11 stores and will soon close its Los Angeles and New York - Union Square locations. HMV closed its U.S. stores.

But music sales have sprouted in placed that would have seemed unlikely in 2000. Starbucks is a major player. Wal-Mart has sold exclusives by The Eagles and Garth Brooks (his entire catalog plus a new box set). Target has had a handful of exclusive releases. Hallmark has sold exclusive releases by Josh Groban and Barry Manilow, among others.

There's a lesson in what has transpired. The old ways of selling music have been a factor in the market's downturn (which is why the best indie stores are having record years...they figured out how to adapt). In the age of the superstore, consumers can't be expected to make a separate trip to a standalone record store. That's why I like the idea of gift cards at high-traffic locations (Starbucks cards, or Sony BMG MP3 cards at grocery stores and electronics retailers). That's why Putumayo is so smart for placing its listening station in non-traditional locations. That's partly why I buy so many CDs at concerts.

Critics and pundits are still predicting labels' demise, but I expect the biggest changes in the next five years will be continued evolutions in where and the way consumers acquire music. Because of the changes further down the supply chain, labels need to adjust their operations, products and strategies accordingly. Flexibility and nimbleness will determine their success in the years to come.