At the annual industry gathering in the south of France, executives revealed a sliver of optimism for the first time in years, after agreeing retail deals with the likes of Nokia, Amazon and MySpace NWSa.N.

But the music industry’s many critics say executives need to relinquish more control and could even pick up some ideas from the pirates – people who have created services to download music illegally – who they are fighting.

After years of trying to protect its content and sue anyone who illegally downloaded it, the industry has moved to forge partnerships with online retailers as sales slump.

In 2008, some 95 percent of the music downloaded from the Internet, or more than 40 billion files, was illegal, leaving the overall music market down around 7 percent on 2007.

Michael Robertson, the head of MP3Tunes who had to speak via video link because he is still engaged in copyright infringement lawsuits in the United States, urged the industry to go further and allow more experiments with their music.

“When you sue a new technology, you lose the opportunity to channel that into a positive direction,” he said.

“There is innovation happening but it’s coming from the dark side of the Internet, from pirates, from the underground. And that is showing where the industry is going to be.

“You have to look underground, to see what people are doing and then give them commercial outlets that mirror that.”

Consumers will only move to legal sites from illegal ones if the proposition is better and easier to use, critics say.

“There are only so many of those (large, established retailers) around,” Ted Cohen, who has been involved in hosting the MidemNet conference for the last 10 years, told Reuters.

“The tap is going to run out. So there’s got to be room for retailers who can’t write a half a million dollar cheque.”

CULTURE CLASH

One of the sharpest critics at Cannes was David Eun of Google, the owner of video sharing site YouTube, one of the most powerful music discovery tools on the Web.

“Being partners means that you work together … and you don’t necessarily presume that the other person is trying to screw you frankly,” he told the audience at Cannes.

“There’s a culture where it’s: this is my interests, meet them. And … what you find is I think a risk that you decrease the number of companies and partners that you have.

“So the question I pose to you and everyone in the industry is, how much innovation is really going on in the music industry and how much more could there be.”

YouTube has most recently been involved in a spat with music major Warner Music Group, which forced the video sharing site to take down all clips by Warner’s artists after contract negotiations broke down.

The industry, in its defense, says it has been burned in the past and that asking for advances are its way of establishing whether a new service is legitimate and serious.

They also point out that new services are coming through.

7digital.com saw sales of digital music increase 260 percent in the fourth quarter after it started selling MP3 downloads which can be used on any device from all four major labels.

Irish music TV Web site MUZU.TV, which hopes to challenge YouTube by paying labels and bands through advertising every time their videos get played online, has also secured significant achievements, signing deals with EMI, Sony BMG and independent group Beggars.

BlackBerry maker Research In Motion also spoke in glowing terms of how it can act as an open channel in more than 150 countries, allowing music applications such as discovery tool Shazam and Webcaster Pandora on its devices.

The presence of the new services has prompted optimism, with RIM co-Chief Executive Jim Balsillie predicting that the music industry will be unrecognisable in a couple of years time.

Reuters Group By Kate Holton for the Reuters Group

MySpace Music will offer music from Sony BMG, Universal Music Group and Warner Music Group, will be reportedly be funded with $120 million from MySpace.

The site’s plans to make bank with downloads, ring tones, music paraphernalia and of course – branded ad campaigns.

Vivendi’s Universal Music Group, Sony BMG Music Entertainment and Warner Music Group are minority stakeholders in the new project.

A formal launch date has not been announced.

The label has been looking to somehow meet user demands for its content and interoperability. The partnership will also allow each company to create specialized digital bundles which will be appealing to Amazon’s audience.