Pirate Bay is going to win on appeal, there's no doubt. You can't sue somebody for running a search engine of links to downloads of stuff that may or not be copyrighted. If you could, Youtube and Google would get shut down pretty fast.
As for the industry's response to all this, they just need to develop a model to make this profitable. What that model could be is beyond my expertise, but I'm sure it can and will be done.
Suing individuals just doesn't work, and why they do it is foolish. Historically, it's been shown that the frequency of a crime is only affected by the certainty of getting caught and punished for it (which is next to zero for the pirating we're talking about here) and not affected AT ALL by the harshness of a punishment (which is pretty steep in this case). Back in the old days when everything was punished with death, banishment, mutilation, and the like, crime was still much more frequent than it is today, because the offenders almost never got caught.