Terry Ellis, who co-founded Chrysalis Records, is setting up StarGig.com, which he hopes will wipe out the need for artists to rely on record labels to release their music.

He plans to distribute music from new acts on the StarGig.com Website - allowing users to download them for free onto their PCs or onto compact disc.

Artists will be encouraged to set up fan clubs and develop merchandising deals to secure their income, rather than rely on income from record companies.

Mr Ellis, who is setting up the Website with Internet entrepreneur Damian Aspinall, said StarGig could have major implications for the pricing of music, and the dominance of major companies like Sony and EMI.

'Liberating' artists

He said: "The impact of MTV on the music scene was profound. The impact of the Internet will go way beyond that.

Music can be downloaded onto MP3 players like this one

"The Internet is the catalyst for the complete disruption of the music industry's traditional economic model. It will vastly increase the number of musicians who are able to make a living from their creativity and will liberate the next generation of artists from the dominance of the big five record companies.

"The concentration of power into the hands of a few large record companies has meant that the business of music has become less about the careers of talented artists and more about the packaging of disposable consumer goods."

Currently music sales on the Internet are dominated by retailers like CDNow and Amazon, who sell CDs through their Websites.

But technologies such as MP3 - which allows users to download high-quality audio onto their PCs or onto portable players - mean many acts are now publishing their music on the Internet.

Most of the bigger record companies are developing technology to encrypt music to protect their copyright and to prevent piracy.

Mr Ellis built Chrysalis up into one of the world's biggest record labels by signing acts like Blondie, Jethro Tull and Billy Idol. He also brought Max Headroom to TV screens in the US and UK.

StarGig has taken a 50% stake in The Band Register, a registration service for unsigned acts, with 255,000 members on its books.