Twenty years after Britain's independent record labels induced punk-inspired panic in the established music business, history is repeating itself in the anarchic arena of the Internet.

BBC Breakfast News report on Internet music

The small operators have again caught the wave first. They are making new music more available to the public via the Web, promoting bands who would not get a major record deal and finding fresh ways to distribute their material.

Everyone in the industry seems to agree on one thing - the Internet will mean a revolution in the way the music business operates.

Alan McGee, the boss of Oasis' record label Creation, gave his own apocalyptic vision to the music paper NME last month:

"The record industry's dying on its feet," he said. "There will be no record companies in five or 10 years' time. It'll be sexier for bands to have their music downloaded from the Internet, cut out the middle man."

Number One on the Web?

The transition is already under way judging by the latest marketing and distribution methods being pioneered in Britain.

Rialto's Louis Eliot: No record store queues

On Monday, the band Rialto, which had a top 20 hit with Untouchable, becomes the first chart band in the UK to release a single only available over the Internet.

Monday Morning 5:19 can only be bought through the Interactive Music and Video Shop site. As the official Chart Information Network (CIN) does not recognise Internet sales, there is no chance of the single making the Top 40.

Rialto's Louis Eliot on the Net release

But Rialto's record company, China Records, sees the move as a means of promoting the band's album, available in real record stores later this month.

Benedict: Net is quicker,cheaper

China's managing director John Benedict says the Internet release allowed him to get the single out quickly and promoted better than through the normal, more expensive channels.

"We as an independent record company are not always in a position to market a single to a level where it is going to be received high in the charts, " he says.

Benedict: why he chose a Web-only release

"Because first of all it requires a very large budget and it requires a very substantial level of media and retail support."

Your own virtual jukebox

Cerberus, the first company in the world to distribute music over the Internet legally, is now heading in the opposite direction to Rialto by negotiating retail space in stores.

Adar has Cerberus in Levis

Levis has asked it to install its Virtual Record Store equipment in more than 300 of its clothing outlets, beginning with shops across Europe, Africa and the Middle East.

It began with a trial in its Regent Street, London, outlet in June with customers able to use a touch-screen to select their own compilation of music before a disc was burned for them, with a CD writer collating the tracks from the computer's hard disk.

Adar: on Cerberus and the state of the UK record industry

Cerberus's founder Ricky Adar lacks a roster of top stars from which people can choose music but has plenty of variety, from drum and bass to classical.

"We see some unusual choices," he says, "We've had people combining Classical with Rock music, next to House, but there seems to be some theme running between these songs that they like."

The Levis compilations are being offered at a special introductory price of £4.99 while Cerberus is offering ten tracks for £10 in its online version of the Virtual Record Store set up in Internet cafes.

"With the way that we distribute music, there is no stock, no warehouse and no shipping. Because it's the most efficient way for the music industry to operate, we've halved the price of CDs at stores and we're actually returning more money back to the writer and more money back to the record label," said Adar.

MP3 or not MP3

Cerberus has set an example by making sure artists are paid. The British Music Rights campaign would like an estimated 26,000 illegal sites to follow suit.

Rigg: Net costs to musicians

Launched in May, the industry-backed BMR is lobbying for tougher copyright laws and for a government task force to investigate the threat from the Net.

"Music publishers are losing around £40 million pounds a year on pirated CDs. We estimate that in the next few years that figure will double through online piracy, because it is difficult to trace, it is difficult to track and it is difficult to control use online," says the British Music Rights Director General Nanette Rigg.

Rigg: defends artists

The campaign recognises that many of the sites involved are built by fans and it is offering cheap licences for around £50 from the Performing Rights Society to encourage them to get on the right side of the law.

In the United States, the Recording Industry Association came under fire at this week's MP3 Summit for calling on sites offering MPEG layer 3 music to pay royalities to composers and artists. Attendees were sceptical that artists would see a penny of the proceeds.

MP3 sites offer CD-quality music but file sizes are small, meaning tracks are faster to download.

The new software produces high-quality low-bandwidth music through strong compression algorithms.

FT highlights need for change

A Financial Times Management Report on music over the Internet says the existing record business and royalties organisations need to re-evaluate their roles and must be prepared to invest heavily in new technology.