As a longtime user of Fabchannel, I'm disappointed by all this. The future looks bleak for labels unwilling to embrace what their real customers, music fans, want. Instead of turning to fear and taking defensive measures, they should be taking advantage of the changing times.
Nice, well-thought out communication about why the business stopped (albeit poorly laid out). Also a great example of pg's comment that for startups "If you can just avoid dying, you get rich." [1]
It's always a shame to see a business you know could work ultimately discover that they can't. Without knowing much more than what this blog covers, I can imagine this is a business model that will work at some point.
My best guess about the difference between that future, successful site and Fabchannel is that the next site will come from much closer to the major labels - leveraging solid relationships into an acceptable product, instead of creating a solid product but not being successful at generating the required volume of relationships needed to make it viable.
Related: http://muxtape.com/story