Because most people don't want FLAC. It's huge and incompatible with the most popular players for no noticeable benefit to the vast majority of listeners.

AIFF or WAV would be much better candidates if we were going down the lossless digital music route because they are more widely compatible (though a 320 kbps mp3 is the most I'll ever need).

Agreed, though I'm entrenched in the Apple ecosystem, so I'd prefer ALAC from iTunes. Since I prefer to rip my CD's in ALAC, I would have no need to buy the actual CD. Of course, I suspect that's why the labels have been holding true hi-bitrate files back from the likes of Apple & Amazon.

Ripping to FLAC is the only reason I still purchase CDs.

That said, I do transcode to MP3 for portable players, so a cloud player that linked to MP3s from my phone would be useful.