*coughs*
Your timeline is wrong. Creative's first MP3 player was a full two years after the first commercially available MP3 player, maybe even three.
http://en.wikipedia.org/wiki/Mp3_player
The first was announced in 1997, but I'm not sure when it shipped - hence saying two years, to be generous to your good self.
My first MP3 player was a Diamond Rio 500, which shipped in 1999, the year before Creative's entry to the market. It had a USB connection, which was much faster than its predecessor's serial connection. And a whopping 64Mb of internal memory meant you could fit two whole albums on it (at 128kbp/s using VBR, assuming they weren't long albums). Plus the SmartMedia slot allowed for another 32 or 64Mb of storage. I seem to recall I had a fancy leather older for mine, which held a spare SmartMedia card, meaning I had two permanent albums and then a choice of two cards, each holding two more albums.
And I had to get up in the morning at ten o'clock at night half an hour before I went to bed, drink a cup of sulphuric acid, work twenty-nine hours a day down mill, and pay mill owner for permission to come to work, and when we got home, our Dad and our mother would kill us and dance about on our graves singing Hallelujah.
And you try and tell the young people of today that ..... they won't believe you.
*ahem*
Anyway, Apple did have a chicken and egg dilemma. The original iPod shipped in 2001, and iTunes wasn't a store then. Heck, the initial first generation of iPod wasn't even Windows compatible - the first revision to (1a) shipped in 2002, and was Windows compatible because it shipped with the 3rd party MusicMatch software, which was replaced by iTunes in the third generation (shipping in 2003).
iTunes became a music store in 2003, meaning that Apple shipped iPods for two years and expected customers to rip their own CDs.
For what it's worth, I don't necessarily disagree with your premise - that old publishers are dying, because retailers/manufacturers (Amazon/Apple) are cutting out what they view as an unnecessary middleman.
But your supporting facts aren't historically correct, and perhaps those supporting facts show why Apple/Amazon have taken the iTunes/Kindle road - because they saw how bad the middlemen were and decided to circumvent them.