It was a decade ago, in the summer of 1999, that the first significant peer-to-peer file sharing service, Napster, was launched, throwing the record industry into a tail-spin of fear, fury and chest-beating.

The popular Napster myth is a David and Goliath one. Napster's creator Shawn Fanning carefully cultivated the file sharer's Robin Hood image - still touted by the dodgy far-right-party-funding sleaze-bags behind The Pirate Bay - by declaring that his goal was "to take down the record industry and give away free stuff!"

This was, of course, nonsense. Fanning had actually been working on the Napster software since 1997, and was careful to put together an executive team based in California before releasing the program. This team were to stay in the background dealing with the approaches from the record industry that Fanning was both smart enough to know were inevitable, and bold enough to think he could turn into a viable business. Meanwhile Fanning and his college buddy Sean Parker deliberately presented themselves as a couple of enthusiastic hackers giving away the program for fun. The intention, though, was always to build Napster up to be the de-facto biggest music distribution service on the internet, and sell the record industry's own content back to it, by making the service legal and subscription-only, for the right price.

Its impossible now to say how things might have been different had the record industry swallowed its collective pride and gone for this blatant protection racket. The sunniest vision of this parallel universe sees us with a Spotify-like service, only a decade early, global, and with a much larger library than any legal service currently offers.

That's actually a bit of a stretch. The reality was that the genie was out of the lamp, and when Napster was eventually shut down by a court order in 2001, users simply migrated to the many alternative networks that sprang up in its wake. The technology that powered Napster was not particularly sophisticated - peer-to-peer networking is decades old - and once the admittedly inspired idea was out there, it was trivial for people who really were just enthusiastic hackers to emulate. So there's no reason to believe that users wouldn't have reacted in the same way to a request for subscription money and simply gone elsewhere.

From this point on, illegal file-sharing proliferated wildly and is still with us. So where are we a decade on? Surely by now, the record industry should have collapsed? After all, it keeps telling us it's going to, lumbering around with a hang-dog expression and a "The End Is Nigh" sandwich-board dangling from it's slumped shoulders.

The thing is, while certain operators are indeed struggling, UK music industry revenue has actually risen consistently throughout the decade. Yet the conventional wisdom is that it's all over bar the shouting. Perhaps, like Harvey Keitel to a grimly wounded Tim Roth in Reservoir Dogs, someone needs to bark at the record industry: "Just cancel that shit right now! You're hurt. You're hurt really fucking bad, but you ain't dying. Say-the-goddamn-words: you're gonna be okay!"

Myth No. 1: Nobody Pays For Music Any More

A recent Times Online blog article revealed a fascinating fact, that runs entirely counter to conventional wisdom: UK music revenues overall are actually up.

It turns out that while record sales overall have declined severely, with many labels feeling the pinch, artists' revenue is way up. Much of this is down to a remarkable increase in live revenues over the last five years, which is now around half a billion pounds annually and rising. In fact, live revenue will almost certainly overtake revenue from record sales for the first time ever in 2010.

Of course, not everyone is benefiting equally, and while precise data is hard to come by, it seems that most of this revenue is being hogged by "heritage" acts who have built their fanbases often over decades and can charge premium ticket prices. In 2007, The Spice Girls were the UK's biggest concert draw in 2007, netting around £3.5m for their UK dates alone. The only vaguely new acts in the top ten that year were Arctic Monkeys at 6 (£300k) and Amy Winehouse at 10 (£229k). And it is sobering to note that Led Zeppelin got in at number 9, with £240k's worth of tickets for a single show (the proceeds went to charity, it should be noted).

A more modest, but still significant factor is the increase in revenues collected by the Performing Rights Society (the service that collects royalties on behalf of artists) from broadcasters, including the emerging area of internet radio, and services like YouTube and Spotify. This means that even as record sales decline, new sources of revenue contrinue to appear. Sure, this is a bummer for anyone whose business is selling records, but no doubt the Victorian candle-making industry were pretty pissed off with Thomas Edison and his bloody light-bulb. Eventually, you just have to get with the programme and adapt.

YouTube's part in the story is fascinating. It's roots are entirely Napster-like, in that it was founded on blatantly illegal use of content. By allowing users to upload music videos and TV programmes, it did for video what Napster had hoped to do for music; become the de facto standard for web video by entirely illegal means and then offer to make a deal when the content owners came knocking. The ethics of this remain hard to defend, but the record industry in particular had learned its lesson from Napster and took a more pragmatic view this time around.

There was a bit of a face-off earlier this year when YouTube blocked "premium" music videos in the UK after talks with the PRS broke down; YouTube's owners, Google, were seeking a more favourable (i.e.: cheaper) licensing arrangement, and the PRS and the artists it represents were less than keen. Billy Bragg went as far as to brand Google as "menacing" and petitions duly did the rounds.

Both sides remain tight-lipped about the final deal, but the model was switched from a per-play fee to an overall subscription lump sum, lasting until 2012, from which PRS will pay artists on a per-play basis. This means that YouTube now pay for music content in much the same way as bars and clubs do, albiet on a bigger scale; once they've coughed up a fixed license fee, their responsibility ends, and it's down to the PRS to decide which artists get what share of the revenue.

Still, whatever the details, anyone looking for a ballpark figure should know that the PRS's standard rate for streaming audio is a don't-quit-the-day-job £0.00085 per play. To put it another way, you earn one shiny pound if your track is played 1,176 times, while a million plays bags you 850 quid. 80s pop svengali Pete Waterman recently grumbled that the massive "Rick-Rolling" phenomenon, where web-surfers in their millions were misled by interesting-looking links to a clip of Rick Astley's 'Never Gonna Give You Up' had netted him a princely £11 from YouTube, though how true that is is anyone's guess.

Myth No. 2: Fifty Quid Bloke

In the middle part of the decade, 'Fifty Quid Bloke' became a meme that spread rapidly around a desperate industry still focussed on physical goods and retail. This was a solid, dependable consumer, middle aged, with reasonable disposable income, who on a payday will buy a couple of CDs, a DVD, maybe a book; roughly fifty quid's worth of stuff. Suddenly, it was as if this was the only consumer that mattered. Screw the kids, they're all stealing everything anyway, this is the guy we need to reach.

What was most misunderstood about this archetype was that it didn't really apply directly to music industry revenues at all. It was posited by David Hepworth, publisher of The Word magazine as a way of describing his readers. Hepworth's point was that for magazine publishers to target younger readers was a fool's errand, as those readers were now getting their music news from the web. Only fifty quid bloke was actually going to shell out for a print magazine with any regularity, largely due to ingrained habit. Hepworth wasn't saying there were enough 50 Quid Blokes to keep the record business afloat, but rather that there were enough of them to make his magazine profitable.

Hepworth is a smart man, and despite the continuing decline in the magazine sector, events seem to have proven him right; The Word and the similarly-pitched Mojo are still thriving while most of their peers have vanished.

Arguably, an obsession with this hypothesis birthed the beige horror of the mid-noughties, with a strong push on the hideous dad-friendly rock of Snow Patrol, Coldplay and lesser lights like Starsailor. And as unbeleivable as it may seem now, 2004's two biggest selling albums were Dido's soporific Life For Rent and Will Young's Friday's Child.

But if Fifty Quid Bloke is the last viable consumer, who is buying all those Lady GaGa tracks? My fellow scribe David Stubbs argued in his Wreath Lecture that a "creeping corporatism" had all but killed off pop's ability to explore both "the sublime and the ridiculous" by the middle of the decade. He's right, in that a terrified industry was looking for safer and safer bets. But the famine before the feast is always part of the pop narrative, and as we shall see, a huge sea change was just around the corner.

Myth No. 3: The Death Of The Single

Nobody buys singles any more, right? Wrong. The BPI released data in October showing that not only were singles sales up year-on-year throughout the decade, but also that 2009 was the highest selling year ever for UK singles sales, even with two months of the year (including the Xmas sales spike) still to go.

As you can see, 2003 was the single's real annus horriblis, with the official data showing an all time low of 30.8m total sales, all physical (CDs and vinyl) with zero digital sales. There's no mystery here; plainly, by 2003, a minidisc (remember them?) or mp3 player full of downloaded songs was hardly an obscure thing to have, and only the wilfully naive would suggest that none of that material was downloaded. There were legal download services available, but at that time, the sales figures were so small as to not be worth counting. The following year's data shows physical sales declining further to a sphincter-loosening 27m, and the first appearance of digital sales of around 5m. So slightly up on 2003, but still grim.

By 2009, however, the picture had changed entirely. Physical singles sales now make up a negligible 1.6m. Download sales, however, have leapt to 116m and counting. And just look at those best-sellers; bright shiny pop all the way.

Obviously, this trend towards downloads is not good news for high street record retailers, who have been going to the wall at an alarming rate. Virgin offloaded their stores to Zaavi in 2007, who then went into administration at the end of 2008 and closed their last stores in February 2009. The much-loved Fopp chain, after buying out failing rival Music Zone, who themselves had consumed the enfeebled MCV, slid as rapidly as a doomed mountaineer from a peak of 100 stores in 2007 to become an 8 store sub-brand of HMV in 2009.

It would be crass to call this an especially positive development - certainly nobody who lost their job will think so - but it is perhaps time to face up to the inevitability of it, and seperate it out from the issue of general music revenue. People are still buying music, just not from bricks and mortar shops.

Myth No. 4: The Kids Are Used To Getting Everything For Free

There are two key concepts buzzing round record industry boardrooms. One is ARPU (Average Revenue Per User) and the other is CLV (Customer Lifetime Value). The BPI's statistical yearbook for 2008 states that 40% of the population over 12 bought music that year in one form or another, and that ARPU for each buyer was £63. The fear is that young people are contributing little and older people contributing a lot, and this is where CLV comes in. Are younger consumers going to spend less over their record-buying lifetimes than the previous generation?

Interesting, this appears not to be the case. According to a recent survey conducted by think tank Demos, the 16-24 age group are the most active users of legal music services, and the 35-50 group the least. Further data from the PRS shows, however, that this older group are far more active users of the streaming service Spotify, which is most popular with people in their mid 20s, and only slightly more popular with teenagers than with over-50s. So it seems that 50 Quid Bloke has become 0.00085 quid bloke in fairly short order, while the youngsters are flinging away pocket money on pop music as fervently as ever.

Interestingly, the 16-24 age group are also the most avid illegal downloaders. We don't yet have enough data to extrapolate a trend, but it doesn't seem, on the face of it, that getting stuff for free is training people away from paying for the same stuff.

This is, of course, a deeply counter-intuitive notion. Why are people who are actually fully capable of getting all their music for free without consequence not doing so? Obviously, there will be outliers; a friend of mine merrily admits to having not paid a penny for any music since around 1999, while another is outraged by the idea that people steal it. But the general ground seems to be that people use a mixture of legal and illegal sources, primarily driven by convenience and spending power. In other words, it's not so much that people are replacing paying with not paying, rather that once they have spent all they are willing or able to, they continue to consume for free.

Arguably, this is not significantly different from music fans since the advent of the cassette recorder, who would buy music and also tape it from each other; a typical music collection has for decades consisted of a mixture of purchased material and illegal copies. It seems there is nothing new here at all. All the data points to a re-emergent truism about the UK music industry that's as old as the industry itself: freaky new stuff that gets The Kids excited is still where the money is, and thank the many pagan gods of Winterval for that.

This takes us back to ARPU. Obviously, it isn't the case that most people spend £63 a year on music. Ardent music fans buy a lot more, most other people buy a few CDs at Christmas, and hardly anyone is in the middle. So ARPU is improved by focussing primarily on the high-value consumers. This is the Spotify strategy in a nutshell, and why they have managed to persuade so many record labels to come aboard. Spotify are gambling that they will get enough subscribers at a baseline tenner a month - £120 a year being almost double current ARPU - that the free service becomes simply a gateway for netting those customers. In essence, it shouldn't matter that not everyone is paying, as enough people will. Furthermore, it doesn't matter that the £120 gets you as much music as you like, rather than around 10 LPs. The industry knows that it's bagging the top end of potential expenditure there anyway. What you listen to after they've got your money isn't really a concern. Music becomes a service, not a product range.

Arguably, Spotify's biggest problem is that its free service is simply too good to motivate anyone to switch. An advert every four or five songs is less obtrusive than most radio stations, and well within the bounds of what people instinctively tune out. Many hopes are currently pinned on the fact that Spotify for mobile devices like the iPhone is subscription-only. However, looking at the data gathered by Demos, it's clear that the optimum price point for UK consumers is around £5 a month (and around 45p for single track purchases).

Whether the record business can effectively reconcile the gap between what they feel they need to earn, and what consumers feel is a fair price remains to be seen. What is clear, however, is that money is being spent, more than ever even through the current recession, and business models that work are possible.

Also unknown is what effect any coming legislation may have. There has been some cautious excitement about the discovery that in Sweden, where similar anti-piracy laws came into effect last April, internet data traffic fell by a third as people abandoned file sharing en masse, and music revenues for the year are up 18%. It's unsound to correlate the two with any certainty - improving legal services have undoubtedly played a part - but it's not unreasonable to suspect that a combination of carrot and stick is keeping Swedish music fans mostly on the straight and narrow.

There's a lot to dislike about Mandelson's bill as it stands; the notion of cutting people off from the internet for infringement has been widely derided from both a human rights and technical point of view, and the clause that enables the government to further update the rules without having to seek parliamentary approval is an eyebrow-raiser to say the least. A bit of a mauling as it works its way through both houses looks fairly likely, alongside the howls of protest already coming from ISPs (such as Talk Talk, who have vowed to challenge the bill in the courts) but the present land-of-do-as-you-please situation is clearly coming to a close.

However, the landscape has now changed permanently, and any record label who thinks new legislation will enable them to go back to the good old days is simply deluded. A generation has come of age that finds the idea of physical media and one-off purchases simply absurd, as quaint and unappealing as a crackly 78 spinning on a mono Dansette. Technology has done what technology does, and changed the world without anyone's permission or approval. Seeing who prospers in this new environment, with what innovations, is going to be at least as interesting as music itself.