Will Murdoch call the tune as providers move to end free music downloads?

A subscription-based model could help put an end to illegal file-sharing and boost musicians' earnings, reports Nick Mathiason

The band was in full swing celebrating the launch of top UK film director Shane Meadows' recent release, Somers Town, in a Soho preview cinema. On stage, in front of the cast, crew and film executives, were established musicians, who had won critical acclaim over the years for a string of albums and collaborations with artists and directors. They supplied the music for Somers Town.

As the throng swayed, the mind of one of the band members drifted. Contemplating his life as a musician living with an artist and struggling to bring up their small child on a houseboat, he mused: 'You're loving this, but what you lot don't know is that if the money doesn't improve I'm going to have to jack this in and train as a teacher.'

It's a familiar refrain. A recent EU survey revealed that in the UK 80 per cent of musicians earn less than £5,000 a year. So much for the creative economy.

'I hope that's the sort of statistic which concentrates the mind of cross-party politicians and industry figures, because this suggests there's a serious problem,' said Feargal Sharkey, one-time lead singer of the Undertones and now chief executive of British Music Rights, which represents more than 50,000 musicians.

In the last 10 days there have been clear signs that the music industry, internet service providers and the government are beginning to get to grips not just with plummeting artists' revenues but with the crumbling edifice of one of the UK's most lucrative industries.

A memorandum of understanding (MOU) signed by the world's biggest labels, the government and the UK's six biggest ISPs - BT, Virgin, Carphone Warehouse, Orange, Tiscali and BSkyB - will see letters sent to those suspected of serial downloading, warning they could be liable to heavy fines for breaching intellectual property rules.

The measure is intended to shock downloaders and their parents into line. Surveys suggest this warning shot would persuade 75 per cent of those who receive them to pay for music. 'Even if that figure was 40 per cent, that would be something,' said Sharkey.

The reaction to the MOU has been mixed. To many, nothing can turn the tide of 'free content'. Some argue that people have always swapped music. Whether making cassettes for friends or buying bootleg recordings of concerts, there has always been a 'healthy' black music economy. Others say that a slow death at the hands of technology is the least a complacent industry deserves.

In the last five years, though, the rate of illegal copying has gone off the scale. In the UK alone, the music industry believes it is missing out on over £1bn, with thousands of jobs lost as a result. These days anyone with a computer has access to vast quantities of free tracks and can easily make available their entire collection via peer-to-peer networks.

To most under 30, free music downloads are a human right, akin to a free health service. But it's clear that the days of free music are numbered.

'Just because we have been slow getting to grips with this doesn't mean there is no way of profiting from technology soon,' said one leading executive.

Following initial agreements, the true work for ISPs and the record industry is beginning: attempting to find a workable economic model. And it appears there is one in sight. In recent days an array of different pricing models have been bandied about. They range from a licence-fee-style tax which would give unfettered access to all music, through to ring-fencing a proportion of a broadband fee to go to music labels and musicians.

The licence-fee idea has gained virtually no support. The top-slicing of the broadband subscription has a few supporters who argue that since music and film downloads are part of the attraction of taking out a broadband service the ISPs should compensate the industry from a portion of their overall revenue.

Sharkey believes the way ahead could be a subscription model. A small monthly sum would give consumers access to a huge range of music and a specific number of downloads. A larger sum would increase the number of downloads and give fans unlimited access to a treasure trove of back catalogues.

It is a model that has won support from Rupert Murdoch's BSkyB. Last month BSkyB announced a tie-up with the world's biggest record label to launch a subscription-based music digital service to compete not just with Apple's iTunes but carve out a new market.BSkyB reached agreement with Universal, home of U2, Duffy and Amy Winehouse, to become an equity partner in the new business. The service will go live later this year and it is expected other labels will join up.

BSkyB will offer the package as a stand-alone service. This way it gets a new revenue stream and makes incursions on its competitors' territory. It will combine an unlimited on-demand jukebox service with a set number of downloads saved for a monthly charge.

All eyes will be on Murdoch later this year when he unveils his pricing models. If he gets it right he may have found a riposte to those who believe there is no alternative to free music.