(FORTUNE Magazine) – The music business is trapped in a new-economy time warp. While the rest of us plod through Scandal Summer 2002, record companies are still dealing with "paradigm shifting technologies," talk of cannibalization, and provocative research reports, circa 1999.

The spate of controversial music-business research--from GartnerG2's report on online music service Pressplay 2.0 ("the most significant development in digital music in two years") to the usual harangue from the Recording Industry Association of America (sue the Internet!)--reached its zenith last month with Forrester Research's "Downloads Save the Music Business," which predicts that downloads will generate $2.1 billion for labels by 2007.

Currently, of course, downloads generate nothing but headaches for the Big Five record companies. RIAA numbers show the number of albums sold sank 10.3% in 2001 and have sagged another 7% this year, "decisively debunk[ing] the theory that stealing music online is somehow good for the music business," says the organization. It could get worse. If you believe the data from now-defunct Webnoize, pirates downloaded 3.05 billion files a month from the top four sites alone in 2001. Assuming that there are ten songs per album, that's more than the number of CDs sold worldwide in 2001 (2.5 billion). In fact, the only thing propping up the industry might be laziness. "People find it surprisingly difficult to do simple things," says professor and intellectual-property expert Stanley Liebowitz, author of the forthcoming Rethinking the Network Age. "As it gets easier to burn a CD, you could see more of a negative impact on sales."

So what's with all the savior talk? Forrester predicts that after one more year of depressing sales, labels will supply more content on the cheap; the story goes that by 2007 this will create a downloading wave of tsunamic proportions that will wash all this additional money onto the music industry.

One indication that it is starting to happen is last month's launch of Pressplay 2.0, a joint venture between Sony and Universal. The updated service offers downloads at lower prices and allows more freedom. (For 99 cents a pop, plus a monthly download fee, you can store a file wherever you'd like.)

That's a good deal, but--wait! check your calculator!--it's not free. And since Pressplay's catalog doesn't yet include BMG or Warner (owned by AOL Time Warner, parent of FORTUNE's publisher), both of which operate MusicNet, you won't find everything you're looking for either. That yawn is 70 million users of Kazaa, Grokster, and Morpheus not caring.

But they should. The record companies have come a long way since Napster. Says Larry Kenswil, president of Universal Music's eLabs division: "Things are ready to go now much more than they were a year or two ago." He expects that Pressplay will offer music from all the major labels by year-end, and MusicNet will likely follow suit.

Even if the new wave of services are perfect, will people pay at all? Some analysts think the price needs to drop to 25 cents to draw significant traffic. But if even a portion of downloaders cough up that much, suddenly the music business doesn't look so bleak.