It was not just pop music industry. It was a collapse of whole arts & entertainment industry in early noughties. Pakistani upper classes got disenchanted with Pakistan back then. Almost all of the passionate people from those upper classes have now left Pakistan and settled abroad. Another reason could be the inadequacy they felt about their own work relative to the artistic revolution that took place in india around the same time.
Don't know a lot about the Pakistani Band/rock/Western music Scene. But I can describe why in Bangladesh we had some success since the late 70's in this area.
1. Ability of upper class Western-music-fan kids to combine their 'talent' and their parents' money in forming new bands and buying expensive equipment for gigs, initially at small community get togethers and the usual Dhaka hotels and clubs...

. Some of the early bands were FeedBack, Miles and Zinga. The first two still exist

.
2. Widespread popularization of English language and therefore, Western Music - because of bootlegged cassettes and later CD's. Now its pirate bay etc.
3. Minimal interference of Jamatis (even today) for public performances unlike Pakistan.
4. Laissez Faire (Let live) attitudes of parents about Western culture even in middle class circles.
5. Minimal interference from other cultural sources (Hindi music) because of banned Hindi Movies.
6. Strangely enough, lately in the 90's and 2010's - a move toward combining (fusion of) traditional Bengali musical forms with Western Musical arrangements. This move has proved popular and successful...interestingly.
Here's the Bangladeshi Band music thread in our forum.
Bangladeshi music