When the history of our digital times comes to be written, one of the questions that will puzzle historians is why the record companies missed the significance of the internet.

Just think about it. Throughout the post-war period, theirs was a big and powerful industry making shedloads of money, and controlling just about everything - recording artists, publishers, distributors and retailers. By 1982, music had gone digital. (The first CDs went on sale that year.) So recording studios converted the sounds made by musicians into bitstreams - long sequences of ones and zeroes - while, at the consumer end, CD players converted those bits back into high-fidelity sound.

The problem was: how to get the bitstreams from the recording studio to the consumer? The solution was to 'burn' the bits onto plastic disks which were labelled, packed in (fragile) plastic cases, boxed and shipped to distributors' warehouses. From there they were ferried to retailers, who removed the disks from their cases and filed them in shelves behind the counter while leaving the case and its associated sleeve artwork out for browsing by customers.

Customers would take the empty case to the counter and hand over their money, after which the disk was fetched from its hiding place and replaced in the box. Once home, the customer inserted the disk in his or her CD player, and the sound of music filled the room.

This palaver of 'shipping atoms to ship bits' (as IT guru Nicholas Negroponte dubbed it) was probably the only way to do it at the beginning. But it was expensive, inefficient, inelegant and uneconomic: nearly 50 per cent of the retail price of a CD was taken up by the costs of manufacture and distribution.

The internet as we know it today was switched on in January 1983, and at that point a light ought to have gone on in the heads of senior management of recording companies. For the net was effectively a vast machine for shipping bits from one place to another - efficiently, quickly and at virtually zero cost. As far as the record industry was concerned, it was a technology made in heaven; it held out the prospect of halving their costs and quadrupling their profits.

So did the music companies fall upon the internet like ravening wolves? Like hell they did. First, they ignored it. Then, when Shawn Fanning launched Napster - the original file-sharing service - they called their lawyers. Then they started suing file-sharers and companies which operated peer-to-peer networks. Then the bands themselves, notably rockers Metallica, joined in the legal action. And finally they all started prosecuting teenagers and intimidating their parents. And while all this was going on, CD sales went into freefall, revenues collapsed and profits eroded.

As Ted Cohen, a former executive at EMI and Warner Brothers put it: 'The record labels had an opportunity to create a digital ecosystem and infrastructure to sell music online, but they kept looking at the small picture instead of the big one. They wouldn't let go of CDs.' It was one of the greatest examples in history of collective corporate stupidity.

So the 64-billion-dollar question is: how did it happen? The obvious hypothesis - that the senior executives of all the record companies were idiots - has always seemed implausible to me. Or it did until I read the recent interview in Wired magazine with Doug Morris, chairman and CEO of Universal Music Group. Morris's ascent to the top of Universal in the 1990s coincided with the rise of CDs - the biggest boom the music business has ever known. The colossal profits blinded Morris & Co to the threat/potential of the net.

Pressed by the interviewer, Morris went into rant mode, insisting that there wasn't a thing he or anyone else could have done differently. 'There's no one in the record company that's a technologist,' he said. 'That's a misconception writers make all the time, that the record industry missed this. They didn't. They just didn't know what to do. It's like if you were suddenly asked to operate on your dog to remove his kidney. What would you do?'

Why didn't they hire people who understood the stuff? 'We didn't know who to hire,' he responded. 'I wouldn't be able to recognise a good technology person - anyone with a good bullshit story would have gotten past me.' It beggars belief but maybe the reason the record industry screwed up can be summed up in two words: wilful cluelessness.