According to contactmusic.com, Jeff Tweedy knows why the Internet scares record companies:
"[Tweedy] is convinced the music industry is terrified of internet exposure because fans will be deterred from buying many albums after previewing their sub-standard contents. The CAN'T STAND IT singer, who is happy to give his fans the chance to listen to Wilco songs online because they receive little radio airplay, thinks the main reason music bosses are so against internet technology is because many releases are of a poor quality. He says, 'I think what the industry is really most afraid of is the fact that people can hear their product before they buy it, and discover that it's not very good in a lot of cases. That's terrifying to them.'"
There's some validity to this, but you can usually sample music in record stores in those listening booths. I think what the record companies really don't like is that music is so easy to steal on the Internet. Also, bigger artists need record companies a lot less because they can release music on the Internet without a label's help.