It's similar to the music industry, which could have bought Napster for $3 million and monetized it. Instead they chose to sue the pants off of it to teach it a lesson. Now we're left deciding between cumbersome iTunes, and Pandora and Spotify, both of which are unprofitable and plagued by complaints and hearings that they're screwing over the artists and labels. Great job, all.
At the end of the day that is pretty much what happened, but what's Erin excludes is that in 2000 BMG did in fact make a significant investment in Napster. Reports at the time put the deal somewhere between $53 and $85 million for ~58% equity.
Retrospectively BMG probably wish they hadn't done the deal. Music publishers and the National Music Publishers' Association pursued a $17 billion class action against BMG, which settled in 2007 for $130 million. BMG also paid a reported total of $154 million to Universal Music Group and EMI.
I've spoken with guys like Michael Smellie, former chief operating offer at BMG, and it's clear that he and others understood the importance of Napster/p2p/online to their future. But, it wasn't clear then how to make a profitable business out of p2p. Twelve years on that's possibly still the case (which frankly is a bigger problem since solid ideas exist).
From an entrepreneurial perspective, believing that an entire industry is populated by luddites is not wise. It's not the job of an industry to be disruptable, but of the entrepreneur to disrupt. That obligates a deep understand of an industry's dynamics.