The impact of legitimate music sales on the internet is huge. In the UK, an astonishing 90 per cent of all singles sold are sold through online music services, claims music label trade body, the BPI (British Phonographic Industry).
Album sales through online services are climbing slowly. Labels continue to see their annual turnovers shrink as physical sales decline.
The side-effect of file-sharing has been that many young people have lost the habit of buying music legally.
They've seldom purchased any music, so the notion of doing so no longer exists in youth culture. Young people grab music for nothing where they can. Labels are threatened by this because teenagers are tomorrow's mature music shoppers.
Some believe that moves by major labels to launch legal action against music file-sharers have politicised illegitimate music downloads.
Disaffected teenagers, they argue, see music theft as a rejection of the establishment. But even file-sharers are committed to the songs and artists they embrace.
"Many young people don't seem to be buying music legally but even so, the culture and passion for music both new and old has never been greater and this is partly down to the internet," he observes. "Music is becoming more of a commodity, people are expecting it for free and I'm not sure this attitude is going away."
The industry is changing, with music labels moving focus from music sales toward touring and merchandising, he says.
When Prince gave his album away for free with the Mail on Sunday, he was able to sell enough tickets for 21 sell-out shows in London.
Bruce Springsteen and Paul McCartney also have given songs away for free, while Nine Inch Nails frontman, Trent Reznor, makes his music available to fans for remixing.
Exploring the possible, Gabriel recently invested in ad-supported free music download service, We7. This works by popping advertisements on the front of tracks, based on a user's personal information - age, location and gender. Consumers can give the system extra information if they want to receive more appropriate advertising. They can also buy tracks ad-free.
Noting this form of advertising means music fans hear fewer ads than they will on radio, Gabriel says: "Ads disappear after a few weeks, so consumers end up with a collection of free music."
Gabriel says: "I'm convinced well-filtered ads can carry useful information to the right listener or viewer." We7 users can set things up so the system sends them ads for things they are looking for.
The disappearance of conventional music retail leaves a vacuum. "Sometimes people who loved music worked in those stores and when they knew you they'd introduce you to wonderful stuff you wouldn't have come across otherwise," Gabriel observes.
"We're drowning in choice and we're going to need the tools to find the stuff that excites, surprises and inspires us."