UK record label body the BPI has slammed Apple and Napster - for advertising their legitimate music services on illegal music download sites.

Apple, Napster and other legitimate sites have placed banner ads on file-sharing sites, The Guardian reports.

They aren't the only firms to do so: Sky, O2, BT and Barclays have done the same thing, the report claims.

An honest mistake

But The Guardian report could be a storm in a teacup. It appears the advertising was placed without Apple’s consent and against its desires.

Apple places its online advertising through an agency called Mediabrokers. James Aitken, managing director of Mediabrokers told Macworld: “Mediabrokers does not advertise on sites containing unacceptable material, including pornography, obscenity, gambling related content, peer-to-peer sites or hate speech.

“Mediabrokers has a strong reputation in the market with advertisers and publishers. One of our suppliers breached terms and conditions without our knowledge. Mediabrokers has responded immediately pulling all of the ads and has also ceased all activity with this supplier. We sincerely apologise to Apple for this mishap."

File-sharing is bad

BPI communications director Steve Redmond told The Guardian: ""We deplore the unauthorised distribution of music on Internet sites which prosper by selling advertising on the back of copyright theft."

Redmond called the practice - an obvious attempt to put legal alternatives clearly in file-sharers' focus - "hugely ironic".

While the BPI and others work to ensure that digital music sales are subject to royalty rates below those that artists expect through sales in other formats, the industry group repeated its anti-file-sharing message.

"We urge all companies to be vigilant and put systems in place to ensure they do not advertise on such sites, even unwittingly."

BPI wants to pay artists less

The BPI is taking artist royalty agency the MCPS-PRS Alliance before the Copyright Tribunal in order to achieve a lower artist royalty rate than MCPS-PRS demands. It's attempting to reduce artist royalties to 8.5 per cent, or below - well under the statutory rate on sales to other formats.

The Music Managers Forum recently complained that record label practices could fracture the industry, creating a schism between artists and labels, claiming that an artist now needs to sell 1.5 million songs online before they see a profit.

If the labels succeed, composers will only receive 8 pence or less for every £1 spent on their music online, despite the label's clear saving on such sales in terms of distribution costs, production costs, artwork and pressing.

Music industry in crisis as majors battle artists

The majority of the money remaining will go to the labels in order to support their business model. For major labels that business model involves creating one successful artist to subsidise multiple unsuccessful ones.

The labels however call royalty agency demands "unrealistic", arguing that the payment of royalties at the rate such agencies demand will hinder the developing market.

In the UK, the agencies counter that, while they require a 12 per cent royalty eventually (the same royalty rate that was until the early 90's frequently given on vinyl and cassette sales), they have been happy to demand an 8 per cent royalty for two years to help the business develop.

Think of the musicians

For artists, a satisfactory resolution to the royalty dispute is essential, as digital music is likely to emerge as a dominant format for music sales.

In a recent complaint to the European Commission regarding royalties, Universal Music said that digital music sales may be worth up to 30 per cent of music revenues within five years.

Artists are concerned that if they earn less from digital sales as such sales become commonplace, they will be unable to continue their musical career.

However, the music industry is Byzantine in structure, and behind every argument in one direction stands another leading in an opposite direction. With such a multiplicity of interests and business models, it seems fait accompli at this point that the future structure of multiple parts of the business will be settled in the courts.