Actually, even today, there are buggy whip manufacturers. The key is to recognize that you have a shrinking market size and that only the best and unique suppliers are going to survive. So, your friend, assuming he wants to stay in this shrinking market and intensifying competition will need to think of how he can outperform downloads. Are there services that are not provided by downloads. How about teaming up with the local pizza joint and delivering a pizza and a movie. Personalize the service and know the customer.
Look at, for example, stores that still sell LP records. How are they staying in business? What do they have that the other, now dead, players didn't have?