All the champagne and backslapping in the world can't hide the panic bubbling under tomorrow's Brit awards. New technology threatens to kill the record industry so why, asks Kathleen Nutt, is everyone still partying? Record industry moguls are bullish about the future of their industry following the outcome of the Napster trial. But Kathleen Nutt finds that the men in suits may simply be enjoying a stay of execution.

TOMORROW night the biggest stars of the pop world will gather for the annual Brit Awards in London's Earl's Court. British singers Robbie Williams, Craig David and Dido will sip champagne and vie for gongs alongside artists from around the world such as Madonna, Kylie Minogue and Eminem. Musicians will mingle with promoters, record company executives and DJs while the television cameras capture some of the glitz for the public.

To the outside world, the extravaganza is a showcase for an industry supremely confident in its ability to harvest billions from one of the world's most lucrative markets. But behind the smiles and the backslapping, the record industry is fighting for its life.

Until two years ago, the world's five major record companies - Sony, Warner, BMG, EMI and Universal - had a vice-like grip on the recording, promotion and distribution of music. They searched for, and in many cases created, bands; they nurtured the stars; manufactured their CDs and sold them to the world.

But the results of a Mori survey published last week found that more than a third of all people aged between 15 and 24 believe they will stop buying CDs within five years. Instead, they will access new music by downloading it from the internet.

The technology which allows them to do so - known as MP3 - has been used to store music for more than three years, but the record industry has still to devise a coherent strategy to cope with a development which could one day make record shops redundant.

The industry has been successful in closing down Napster, the free music swapping website. Launched in May 1999 by American computer science student Shawn Fanning, the site allowed millions of internet users to download their favourite music for free.

But the gateway to internet music cannot be closed so easily. The net is awash with sites offering a similar service, including Songspy, Ohaha, Yo!nk and Gnutella.

Gnutella, for example, has managed to avoid litigation because unlike Napster, it has no chief executive or director behind it and has no formal presence. It is simply a network set up by internet users.

Other paid-for services, such as iCrunch and Vitaminic, have also emerged which have brokered deals with record companies allowing them to sell music over the internet.

While the legal battle between Napster and the Recording Industry Association of America divided the pop world (Elton John and Metallica were among those siding against Napster, Public Enemy among those supporting them) there is a lack of real sympathy for the plight of record companies. Many artists and music fans are delighted that finally something has emerged to rival the hold of major record companies.

It's not difficult to understand why record companies have annoyed British fans. For one thing, the price of CDs in Britain are almost twice that in the United States. Earlier this month the Office of Fair Trading launched its latest investigation into the supply and price of CDs in the UK, six years after a previous investigation cleared the music industry of anti-competitive practices.

The latest investigation was prompted by the OFT's suspicions that "UK-only" versions of albums, featuring extra tracks, was a ploy to jack up UK prices.

Even in America, there is a growing mood of disenchantment. The massive student market is growing increasingly angry at what it regards as a narrow choice of music and promotional tactics which force them to buy entire albums when they only want a couple of tracks.

Pop manager Peter Jenner, chair of the Association of United Recording Artists, reckons it costs around 50p to manufacture a CD. With no more than #1.50 going to artists and taking into account retail mark up, which means an average retail price of #15, and other costs Jenner reckons record companies pocket about #4.50 from each CD.

Jenner, who was the first manager of Pink Floyd and now manages Billy Bragg and Eddi Reader, argues that consumers should also be disturbed by the decreasing number of record companies. He believes this restricts the variety of music on offer to fans.

"It wasn't long ago that Island, Virgin and Chrysalis were all separate record companies that I as a manager could go to. Now they've all disappeared and there are very few major record companies that you can go to. You either go independent or virtually do it yourself," he says.

He cites how Eddi Reader was dropped by Warner because she was not selling enough records to illustrate his point that the majors aren't interested in smaller artists.

"Warner weren't putting enough money into her. She wasn't selling enough records and so they just dropped her. But we put it out ourselves and showed that we could make it work.

"Clearly it's difficult to compete with the majors. For instance in terms of advertising - you're not going to see Eddi Reader adverts like you see Madonna adverts."

He adds: "There's much less choice and many fewer records come out. The majors are only interested in artists who are going to sell at least a couple of hundred thousand in the UK. Basically, it restricts all of our choices as to what records we get."

The narrowing variety of music around has a knock-on effect on musicians - who can find themselves quickly dumped if they don't become megastars, or tied to contracts they could better if they do hit the big time.

A long series of rows between rock stars and their record companies have hit the headlines. Just over a week ago Blur's drummer Dave Rowntree took out a full-page advert in Music Week to complain about the British Phonographic Industry wanting artists to support its stance on copyright (which many artists have long claimed has been to their disadvantage).

Sometimes the disputes have reached the courts. In 1996, Robbie Williams, about to pursue his solo career, was faced with a humiliating climbdown after a High Court action failed to free him from his contract to BMG. In 1995, George Michael finally resolved his dispute with Sony who received #10 million for the star from rivals Virgin and Dreamworks SKG. In 1990, Michael had declared he would never release another record for Sony because it was treating him as a product rather than an artist.

Commentators argue that the emergence of online distributors gives artists their first real alternative method of exposure if they decide they don't want to be signed (and perhaps compromised) by a label.

For smaller bands distribution websites can be of particular importance. Jenner sees them as a way for less established bands to have their music heard by wider audiences without paying for expensive promotional campaigns.

"Bands are already turning to the internet to get themselves heard and I think the culture of bands promoting themselves through MP3 files will continue," he says.

"In America we've been paying for people to play our music on the radio and in the UK we have pluggers who get paid a lot to try and get the record on the radio.

"You then have to give records away to retail so you get a chart position, which you need to get played on the radio, so you can sell the album. It's all marketing and promotion and costs a lot of money.

"The positive thing about Napster and other websites for bands is that people can find out about our music without it costing us anything."

Paul Brindley, bass player of The Sundays and author of an Institute of Public Policy Research report on the impact of technology on the music industry, agrees. Brindley notes that, increasingly, bands are launching music on the internet for fans as a taster of what's on the album but then they need to buy the CD to get the full music "package". He cites a forthcoming album by French dance duo Daft Punk as an example.

Brindley and Jenner, however, are not alone in believing these developments will happen more in the long term than the short and say no evidence suggests a significant drop in CD sales in the past few years is because of online distribution. Along with Pat Kane of Hue and Cry, they argue that young people in Britain do not have the same access as American music fans to the technology needed to download music quickly from the internet.

"Other than students, I don't think people have the bandwidth to download that much music," says Kane.