They need to stop selling a product and start selling a service.
The product, a digital file, has no value. It costs nothing to make. Therefore, if you attempt to compete by selling your zero-cost item for less money than the other guy, you're in a race towards free. If the other guy has no production costs of offset, you lose. And there's no extra value you can add to a digital file that can't also be copied for nothing.
The service, distributing digital files, has value. The act of aggregating, recommending, categorising, and indexing digital files offers a convenience. You can charge for that service. iTunes charges per track. Some of these shadier places charge per month. Either way, the charge is really for the service, not the product.
The service itself can now compete based on its technical merits (imagine an iTunes store that wasn't locked to a tab-less embedded browser!) or on its content. Production costs are now an investment in providing the service with exclusive content. Costs sunk currently on buying chart positions become a marketing cost for the service, instead of the content.
The best thing about this is that iTunes has already proven that this service model works. It's been over two years since the iTunes music store passed Walmart to become the #1 retailer in the US. It's been over two years and the music distribution industry hasn't had the lightbulb turn on over their heads yet.
You can self-publish books to the iBookstore. When you can self-publish music to the iTunes store, the RIAA will die.