Few made money back in the day when people were making money. The few that achieved success propelled the hopes if others.
This made pay to play work in La. There was always the hope of being discovered and becoming the next GnR.
Point is; the only place to make money in music is in the service industry. (For the little guy)
The reason so many studios failed has everything to do with the computer, the interface and the daw. Home recordist types have ruined it.
Not the lack of money in the industry, but because with the exception of a few, it was never there to begin with.
What has changed is the hope of getting signed. The 80s and 90s are over.
Cheap home recording and a surplus of mostly lousy and some good music has killed it.
Why pay for recording studio time when
a) you won't get a deal anyway
b) no one will hear your stuff
c) most likely youll never even be in or have a band
and d) you can put together your own studio for under a thousand bucks.
So youll never see a stage and will spend your time jerking off in your bedroom with a sapphire, asking people to listen to your mixes, and maybe try to get others to mix and master your crap for free.
Pretty dismal state of affairs.