British music can still star as rock finds a new role

But don’t panic. All is not as it seems. The traditional behemoths – the people behind tonight’s event – may be in a terrible state but music is thriving in Britain as never before. Revenues across the industry as an entirety are actually rising – they were up five per cent to £3.9 billion in the last recorded year, just as they grew the year before that.

Yes, CD sales fell by another seven per cent last year (although we still bought 120 million albums). But live music is doing well and there is more music being consumed, whether on ringtones, advertisements, video games, shops or clubs. Music is everywhere. And this means rising income not just from stage shows but from merchandising, sponsorship, publishing, online streaming and emerging markets.

Festivals show the speed of change. Once there were a handful of venerable institutions such as Glastonbury and Reading. Now there are hundreds catering to all tastes, and instead of taking place only in July and August, the season starts in June and runs until October.

Many are expanding their sites and extending their duration. Lovebox, in east London, is typical: started by members of Groove Armada, it has tripled attendance in eight years, offers an eclectic line-up for the iPod generation and last year added a third day. The result of such innovation is that British festival audiences rose six per cent last year – quite an achievement in tough economic times with tickets that can cost more than £100.

So dry your tears at the thought of all those struggling record companies. The truth is that when a previous new technology called compact discs came along, they drove up margins to milk fans as they repackaged back catalogues. This made them so rich and complacent that they turned down the opportunity presented by Napster – which they could have bought for £10 million to dominate the digital market – and allowed Apple to steal their industry.

Now they harp on about piracy, despite evidence that illegal downloaders spend the most money on music. They face dozens of new competitors, ranging from coffee shops to mobile phone companies, and there are hundreds of new outlets for music. Everyone has to work harder, move faster and innovate endlessly. But music itself is flourishing, even as the old models break down and people search for new ways to monetise songs.

When the first Justin Timberlake album was released nine years ago it spawned five products: an album, a DVD and three singles. By the time of his second album, four years later, there were 182 products. Today, a band can release twice this, with old-fashioned vinyl and cassettes alongside multiple digital offerings. The unlikely godfather of this new economy is Trent Reznor, who used his close relationship with fans to give away an album, then made more than £1 million in a weekend selling extra tracks, deluxe and signed editions.

Even in this unruly marketplace, record companies can do well. Take the west London-based XL, whose successful roster includes Vampire Weekend and The xx, both up for awards tonight. It keeps costs down and focuses only on original acts, the sort that can sustain a career, instead of rushing to copy the current fad. So it signed Dizzee Rascal at a time when labels shied away from rap and released The xx album with minimal fanfare, allowing it to seep into national consciousness.

Also hoping to win are Mumford & Sons, who understand the new terrain better than most. They were deeply unfashionable and had minimal radio support but played endless gigs, promoted hard and used the internet to turn fans into an army of “brand ambassadors”. As a result they arrive fresh from a performance with Bob Dylan at the Grammy Awards in Los Angeles. And like Arcade Fire, or Lady Gaga, they disprove the widely held theory that it is impossible for new acts to challenge the ancient stadium rock gods.

So why is Britain doing comparatively well, even increasing its share of the US market? It is, of course, a creative industry that we have excelled at from the start. And as a country, we are open to new ideas and cultures. But Will Page, chief economist at the Performing Rights Society, puts it down to the BBC, binding the nation together and providing so many layers of support across a myriad of platforms. “This is the difference between what is happening here and the double-digit declines in markets such as the US and Spain.”

Music should be seen as a model of the digital age. It was the second industry – after pornography – to be smashed asunder by the disruptive force of the internet, with all the old certainties swept away. It is a few years ahead of the chaos engulfing so many other industries, such as publishing, printing and retailing.

Things are likely to become even more chaotic, uncertain and tougher as record shops disappear from high streets, competition intensifies and technology changes. But it is not dying, just evolving at dizzying speed. And in Britain, it is coping better than anywhere else in the world – which is something worth celebrating tonight.