Music industry: The party's over. Haven't they heard?

The record industry is dead. Long live the music, says Cole Moreton

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"Babylon's burning, baby. Can't you see?" The Ruts had their hit with that nearly 30 years ago, but someone should rush out a cover to mark the end of the record industry as we know it.

The internet is to blame, apparently. People are daring to share music with each other for free. The big labels are in a panic, unsure what to do. So they have approached six major internet service providers and persuaded them to "crack down" on the "pirates" – mostly not commercial bootleggers, but music lovers who download tunes without paying.

What will the punishment be? A letter. Scary. And after that? Er, they're not sure. They may tell the customers to go away. Always a good business move, that – particularly when countless smaller ISPs refuse to go along with the intimidation. Most of them know what the bigwigs at Universal do not: it's over. The genie is out of the bottle. There are too many people sharing free music to stop, prosecute or even warn them all.

Alan McGee of Creation Records says: "The only people who think music isn't free any more are the record companies." He gave away the last album by the Charlatans in the hope that it would boost their earnings from live performances. It did, by 400 per cent. That's where the money is now.

Someone else who knows what he's doing is Eoin O'Mahony, the lead singer with the band Hamfatter. You may have seen them on Dragon's Den last week. They walked away with £75,000 from the entrepreneur Peter Jones in return for 30 per cent of profits from two albums. Crazy ... until you hear the alternative.

The deals offered by big labels were ludicrous, says O'Mahony. "They screw you. They only offered us about 30p per album. You have to sign away any right to how your songs are recorded and you have to pay your advance back. You can end up owing the label hundreds of thousands of pounds." What's to stop fans of Hamfatter copying their music for each other, cheating them out of payment? Nothing. But here's the thing: most people are willing to pay. They just don't want to pay all the other people who take a cut. If Hamfatter had done that big deal, the rest of the money from a £15 CD would have gone to the manufacturer, the distributor, the promoter, the record company, the lawyers and many others. New technology offers a way of cutting them all out.

When Radiohead made a record available for whatever people wanted to pay, the industry said they were fools. But they say they made considerably more on every copy than by conventional methods.

Why do people still pay? Because they feel a direct connection with the artist. Record labels and internet service providers are exploring new business models - one suggested by Peter Jenner, a veteran music industry figure who managers Billy Bragg, is for downloaders to be charged a levy.

Elsewhere in the paper Feargal Sharkey, the CEO of British Music Rights, which represents publishers, argues that we will always need an industry, but he's wrong.

As an ex-punk he should know that every great pop culture movement has been a rebellion against an industry set up to rip people off. So Babylon is burning? Let it burn, baby. Burn it down.

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