Maybe because it wasn’t really practical to download music from the web? What you could get was of obviously inferior quality and it was just not possible to download a lot of it. I think the music industry would be quite happy with a world in which every music file is a 32kbit/s MP3 and it’s not possible to download more than three or four songs per week.

It was no threat to anyone. The reaction at the time is not all that surprising, what might be surprising is that no one seems to have predicted the development.

I’m not even sure whether Frauenhofer’s (then still relatively new) MP3 encoder was already pirated in 1995 and quickly spreading through the web. That might not even have happened at that point in time.