The music industry must change or die, the former manager of bands including Pink Floyd and the Clash has said.

Peter Jenner, who made his name managing artists including Marc Bolan, launched his stinging criticisms in a report exploring the future of the music business for independent research group MusicTank.

Mr Jenner accused the recording industry of failing to embrace new technologies, and said labels must find new approaches to business if they are to survive.

"Rapid, consistent and complex change has enveloped the global music industry over the past seven years," he said.

"The possibility of the era of mass markets turning into an era of masses of niche markets is very real and exciting, with huge implications for the structures of the industry."

He said the growth of social networking websites such as MySpace could significantly change the way artists interact with their record labels. Although they have traditionally exerted a powerful influence on musicians, labels could be forced to give up much of their control.

"The current record company model might well morph into that of venture capitalist licensors, working in partnership with artists to develop their businesses," he said.

The rise of file sharing and digital distribution has had a significant impact on the music industry. Last year digital music sales worldwide were worth $1.1bn (£590m), three times the year before and accounting for 6% of the music industry's revenue, according to industry body IFPI. Analysts expect the percentage of digital sales to rise to 25% by 2010.

But the internet is also exerting an increasing influence on the promotion and breaking of new acts. MySpace, owned by Rupert Murdoch's News Corporation, will soon begin allowing any artist - even those without a record deal - to sell their music directly over the internet.

MySpace will take a significant commission from each sale, leading to some artists questioning the interests of such deals, including Billy Bragg, another of Mr Jenner's proteges.