There's nothing really wrong with the music business, says Mike Howlett. The raw talent is still out there — it's just a question of creating the right channels through which it can develop.

The music business has always been cyclical, and what's happening at the moment — the slump in album sales and so on — is not unusual. I have seen this happen a number of times before, not least during the 1970s, when people were very worried about falling sales. But along came the Punk thing and the industry got a boot up the backside. Album sales picked up and bands from that period — bands like U2 — are still going strong today.

I really don't believe the music industry is in the state of terminal decline that people like to say it's in. Though the problems are there, they're not insurmountable, and one has to remember that people always like to make out that the past was rosy and that the present is so much more difficult.

In fact, all that has happened is that the major record companies have backed themselves into a corner which doesn't allow any room for outrageous creativity or the unpredictable. The major labels have eaten the smaller labels to the point where there are now just five big fish — BMG, Sony, EMI, WEA and PolyGram — and the problem is that they are expected to lay out so much money on new signings that they can't afford to be experimental. I recently had a conversation with an A&R person at one of the majors who admitted that signing a band usually involves an overall investment of about half a million pounds. You can't make mistakes with that amount of money, so record companies are tending to play it safe. But by doing so they miss the point. Creativity has nothing to do with playing it safe and you have to have room for wild improvisation, taking chances and going on gut feeling, even if it means blowing it from time to time because music is so unpredictable.

Now that the big fish have eaten the little fish, there is a hole in the low budget end of the market which will eventually have to be filled. It is simply not necessary to spend half a million pounds making and promoting every record by every signing. You can make a perfectly good record for as little as £5000 if you know your way around the business, and if you take that route — the Indie route — you can make a reasonable profit without having to sell millions of units.

Robin Hitchcock of the Egyptians summed it up when he was interviewed shortly after signing to A&M. He was asked if he thought the deal would make him a mega selling artist and he replied: "Really, if I'm honest, I don't think there are more than maybe 120,000 people in the whole world who need my music."

I think his comment hit the point. There's a lot of good music out there but it doesn't all have to be the big coffee-table album of the year. And if you accept that, it is quite possible to make a very decent living by selling 120,000 albums, provided you cut your coat according to your cloth and do not run up a huge advance.

It would make sense for the major labels to introduce low-budget deals, but they are reluctant to do so publicly because their reputations ride on every act they sign. Nevertheless, I believe they do it in a clandestine manner. Indeed, I think the answer lies in a resurgence of the Indie label, and that's what will happen because it is only in low-budget situations that you have the freedom to experiment and put out music for no other reason than that you like it! I'm currently setting up a new label, called Embryonix, for precisely these reasons. There's always talent, and real talent won't take no for an answer. It will keep pushing and eventually find a way through.

Talent sometimes has to be reshaped because it is there but in the wrong context, but I don't believe you can keep it down indefinitely. I remember once sitting in Sting's basement flat in West London before The Police became the mega stars that they later turned out to be. At that stage, the band had a slightly different line-up and was playing as a quasi-punk band, a style which didn't really work. The trouble was that the musicians were actually too talented to pull it off — they sounded too good to be punk. Anyway, we were all sitting there when Stewart Copeland came in with a pile of Bob Marley records and said "Right, now I'm going to turn you on to this guy". And he did. Now I have nothing but respect for him, because what he did was to recognise that although Sting had an obvious talent, he also recognised that it wasn't working in that particular style. He needed to find some other way to bring out that talent — a way of enhancing it and at the same time making it unique and marketable. By introducing a reggae element he did just that and the results speak for themselves.

I believe there is talent out there — it's not just a matter of finding it but perhaps sometimes reshaping it so that it works. That is part of the role of a producer, but it helps to get together with the act before they sign a deal with a record company, because once that band is signed it becomes much harder to change the style. A&R people sign bands for a particular sound. As a producer you are employed to work with the band within the boundaries of that sound — the record company doesn't always appreciate it if you mess around with the band's style too much.

I think it's important to remember that the music business has been at this kind of low ebb before — it doesn't mean we have run out of talent. It's simply that the business is cyclical, and eventually it will turn around again.