Andy Gill: Glittering ceremonies cannot disguise the problems of the music industry

This lunchtime, the list of nominees for music's Mercury Prize will be announced, an occasion treated with almost as much ego-primping folderol as the announcement of the actual winner, sometime in September. Next year, perhaps, there will be an even earlier event to announce the date of the shortlist announcement? That would probably suit the award's sponsors, which since the collapse of the original backer – ironically, given the subsequent boom in telephonics, a telecommunications network – have included both hardware companies like Technics and Panasonic and more recently complete bankers like Nationwide and the current corporate partner, Barclaycard.

Indeed, it seems a little absurd to continue referring to the prize as the Mercury Prize, when there are other, pre-existent Mercury Prizes awarded in the fields of Professional Communications (that's PR to you and me) and Radio and International Travel Catering (the latter perhaps presented in a little plastic tray with a tinfoil lid). Then there's the Australian brewery that has a Mercury Award named after its cider, which doubtless goes down better with the general public than Speech Debelle's album did after winning music's Mercury Prize last year.

So it's a touch selfish of the Barclaycard Mercury Prize to insist on retaining its original title. There is, however, a certain irony in being named after a company that no longer exists, since that is the condition to which the entire record industry now apparently aspires – what little purpose it once retained now slipping from its grasp like a handful of mercury seeping through the cracks between one's fingers.

Digital delivery – or downloading – has been the elephant in the music industry room for the best part of two decades now. Yet the record companies have been as one in their stubbornly ostrich-like refusal to tackle the issue in any sensible way, preferring instead to follow the American industry model of effectively criminalising their own customer base, demanding punitive fines of hundreds of thousands of dollars from teenagers found "guilty" of file-sharing, effectively the modern equivalent of taping albums for friends (which, of course, none of the industry executives would have ever dreamt of doing when they were teens). It's an extraordinary position for a consumer industry to adopt, the kind of flailing-scorpion death-throes that surely portend ill for its future.

At last week's Westminster eForum, Peter Jenner – who as former manager of Pink Floyd, founder of Blackhill Enterprises which managed The Clash and Ian Dury, and now Emeritus President of the International Music Managers' Forum (IMMF) must be presumed to understand a thing or two about the music industry – was scathing in his contempt for the backwards nature of the record industry, with its desperate attempt to cling on to what he described as its "quasi-monopoly rights". In the old days, artists may have been reliant upon the labels' distribution systems for getting their product out to customers, but as Jenner pointed out, that is no longer the case. "In the online world, the marginal cost of a digital file is essentially zero," he explained, making it inevitable that the price of music will be pushed ever closer to zero, too.

Jenner doesn't like to use the term "consumer" in the context of the digital realm, however: "In the digital world, we don't 'consume' files: there is no limit to the number of files that can be copied; and every time you send a file to someone else, you increase the supply." Attempts to stop people copying files, he believes, are as futile and misguided as the prohibition of alcohol in 1930s America. "The music business is about service, not product; but the record companies have always been in the product game." Rather than the copyright extension for which the labels are desperately lobbying – that being their other obvious existing source of income – Jenner believes that a completely new model needs to be designed which will both satisfy the public's demand for new content and allow the creators of that content, and those investing in them, to make a decent return on their creativity.

Whether this takes the form of a BBC-style licence fee, some form of access fee worked out with Internet Service Providers, or paid-for file-hosting sites like RapidShare remains to be seen. But one thing seems clear: it's a future in which the traditional record business doesn't appear to have much involvement, other than as an outdated, institutionalised barrier trying to sustain its own superfluous position by blocking progress towards a modern system. Small wonder that the likes of Radiohead, whose In Rainbows album was successfully made available through their own online company, have been advising up-and-coming artists to avoid signing with record labels at all.

In the light of all this, awards beanfeasts like the Brits and Mercury Awards seem like invites to the Captain's Table on the Titanic, full of champagne-quaffing industry aristocrats seemingly heedless of the decline of their own business. Worse still, locked down below decks are those honest toilers whose fates have been inextricably entwined with the mismanaged music industry – not just the ailing support-system of magazines, in which advertising revenues and contributors' rates have been tumbling inexorably, or the steady stream of redundancies at PR companies serving the music business, but also the whole retail network of small independent record shops staffed by dedicated, knowledgeable enthusiasts, through which the industry once engaged with its customer base.

For years, the major labels have scandalously chipped away at this network, offering preferential deals to supermarket chains that allowed them to sell the Top 40 albums at a price for which independent retailers could not even buy them in as stock. Some chains were tacitly allowed to import cheaper stock from abroad via the Channel Islands, thus evading the punitive tax burden that independent retailers could not avoid. Meanwhile, the labels appeared to imagine that the relationship between distributor and retailer would remain the same for ever. One sales rep, astonished when an independent retailer ordered only two copies of its latest big release, had not realised that the cost price offered to the shop was more than the retail price the local Asda would be offering to its customers for the same product.

Yet at the same time, the industry was becoming increasingly reliant upon these same hard-pressed independent shops as outlets for the back catalogue items that the supermarkets would not dream of stocking. And not just back catalogue, and not just supermarkets, either – last year, the staff of my local HMV regarded me with the sort of smirking incredulity reserved for idiots and wind-up merchants when I enquired about the Bob Dylan Christmas album that had been released the day before. I was having a joke, right? No, I wasn't, but when they checked and realised the album in question did actually exist, I was dismissed with the cursory comment that it wasn't the kind of album they would stock anyway. Quite how they knew this, when they didn't even know it existed, remained a matter of conjecture, as I sought out an alternative outlet for the latest release by an artist whose previous album had topped both the British and American charts. Yes, the future of music retailing was safe in HMV's capable hands!

Now, thanks in large part to the prejudicial ignorance of the record companies, the retail sector is all but finished, other than for a few small specialist shops, while the old record labels are slowly creaking their way towards insignificance. After all, if EMI couldn't even secure Lily Allen a nomination for last year's Mercury Prize, a place on the worst shortlist in living memory, what good are they to her? At the other extreme, Speech Debelle split from her small independent label Big Dada, claiming the label lacked the weight to market her winning album Speech Therapy properly, when it bucked the usual trend and scored the worst post-Mercury sales of any winner.

That, however, would hardly explain the album's poor online sales performance: indeed, the easy availability of demonstration samples on the internet may actually have contributed to the lack of enthusiasm for Speech Therapy, an album whose unremittingly grim tone of hurtful reproach I found enervating rather than uplifting – especially when compared to Kasabian's multi-anthemic West Ryder Pauper Lunatic Asylum, the obvious front-runner from last year, which has since gone on to become part of the cultural landscape, and even helped secure the Spanish football team, by their own admission, success at the World Cup.

In one fell swoop, Speech Therapy's poor sale, and Debelle's subsequent disappearance from the media spotlight, revived the "Curse of the Mercury Prize" after Elbow's success the previous year had done much to dispel this most amusing of media myths (in which winning the Mercury Prize appeared to presage the immediate decline, disappearance or disbandment of Suede, M People, Pulp, Roni Size & Reprazent, Gomez, Talvin Singh, Badly Drawn Boy, PJ Harvey, Ms Dynamite, Franz Ferdinand and Antony & The Johnsons – the jury still being out on Klaxons, who won in 2007 when any sane judgment would have acknowledged Amy Winehouse's ascendancy).

Not that my personal preference for Amy Winehouse and Kasabian over Klaxons and Speech Debelle ought to be taken as suggesting that the Mercury Prize should simply represent sales performance; but the obverse preferences, as chosen by the mysterious panel of Mercury judges, do confirm their quixotic, frequently baffling attitude towards what constitutes musical quality, or indeed the very notion of "best". The most common criticism made of Mercury Prize judgments is that they appear less concerned with intrinsic musical matters as with the desperate desire on the judges' parts to appear cooler than thou, and to confound expectations. Which aim was certainly achieved with last year's Speech Débâcle – although the sheer poverty of the shortlist made such a disaster virtually unavoidable, if the panel was determined, as seemed the case, not to award front-runners Kasabian, The Horrors, La Roux or Florence & The Machine.

In its defence, the quixotic nature of the Mercury Prize does at least offer a token corrective to the increasingly regimented pantomime that is the Brit Awards, for all the similarities apparent in the other big industry event. In recent years, it seems the record business has decided that the solution to declining interest and sales is to focus attention on fewer and fewer acts, stressing not the diversity of British musical endeavour, but the narrow range of chosen favourites upon whom the labels are prepared to lavish their declining promotional budgets.

The great irony is how much they have been assisted in this aim by the internet, which once seemed to offer portals to an incalculably vast range of alternatives and possibilities, but which is turning out instead to offer an incalculably vast number of ways of accessing the same small selection of industry-sanctioned blockbuster entertainment options. Why did we ever think it would be other than this?

So you'll have to forgive me if my anticipation of the impending Mercury shortlist is of less than feverish excitement; but from where I'm sitting, it seems like just another ephemeral distraction from the accelerating decline of a cultural form upon which I have invested much love and devotion. But if you're at all interested in the continuing health of that artform, here are half a dozen artists whose latest albums deserve wider attention: Laura Marling, Teenage Fanclub, The Imagined Village, Black Carrot, Southern Tenant Folk Union, and Corinne Bailey Rae. I don't suppose many of them will figure on today's Mercury shortlist, but you never know.