For me, the worst that could happen is that people spend so much time listening to AI generated music, that human musicians can no longer find audiences to connect to. It's not just about economics (though that's also huge). It's the psychological cost of all of us spending greater and greater fractions of our lives connected to machines and not other people.
Black metal community, for example, has always rejected all forms of "automation" and considers it not kvlt - rawness is a sought-after quality, defined as having people performing as close to the recording equipment as possible.
There's also a rapper named Bones (Elmo O'Connor) who's never signed a contract with a label, does only music he wants to do, releases a couple albums every year. There's something about his approach that makes his music sound very organic and honest. I listen to him more than I listen to any mass produced rapper.
So in conclusion, music was always about people. Unless AI reaches AGI level, I don't think it will ever impact music enough to kill all audience.
I think that kind of attitude is defeatist - it's implying that humans will be stopped from making music if AI learns how to do it too. I don't think that will happen. Humans will continue making music, as they always have. When Kraftwerk started using computers to make music back in the 70s, people were also scared of what that will do to musicians. To be fair, live music has died out a bit (in a sense that there aren't that many god-on-earth-level rockstars), but it's still out there, people are performing, and others who want to listen can go and listen.
Maybe consumers will start consuming more and more AI music, instead of human music [0], but the worst thing that can happen is that music will no longer be a profitable activity. But then again, today's music industry already has some elements of the automation - washed-out rhythms, sexual thematics over and over again, re-hashing same old songs in different packages... So nothing's gonna change in the grand scheme of things.
[0] https://www.youtube.com/watch?v=S1jWdeRKvvk