More and more rock stars are ditching record labels in favour of lucrative tie-ups with corporate sponsors.

The trend has seen chart-toppers Groove Armada sign a deal with rum giants Bacardi, Madonna launch her latest single in a shampoo advert and the Spice Girls sell their albums via a US underwear chain.

Proponents of the move claim it is the future of music and is the only way for artists to survive in an era where the collapse of CD sales has pulled the rug from under record labels.

But critics believe it is a case of artists selling their soul for rock and roll.

Revenues from record sales in Britain have dropped by more than £130m since 2004. The true cost to the industry could be far greater. Market researcher TNS looked at the spending habits of file-sharers between 2003 and 2005 and estimated a £1bn loss to the country in retail spend.

Groove Armada, one of the UK's most popular dance acts, have shaken the industry by ditching Sony BMG in favour of a deal with Bacardi.

As part of the pioneering agreement the alcohol firm will fund new recordings by the group – who have sold three million albums – as well as paying them an unspecified salary.

In return Bacardi will have unfettered permission to use the new music in advertising campaigns.

In addition, the duo, Andy Cato and Tom Findlay, will perform at events across the UK – including T in the Park – under the Bacardi banner.

Dan O'Neil, the band's manager, predicted many others would follow their lead.

He said: "The old record company deal is a defunct model.

"Artists go away and sit in a studio for 18 months and create an album which people don't buy any more because they simply download individual tracks.

"There is still a large emphasis on how you get little plastic discs racked on a shelf. It just seems wrong."

Cato added: "There was a degree of nervousness about taking a leap so far away from anything that's gone before.

"But we have an amazing live show and need financial help to bring that to as many people as possible.

"You need a corporate pound and whether that is a Sony one or a Bacardi one really doesn't make any difference."

Their biggest hit single, 'I See You Baby', was previously used to advertise the Renault Megane. New EMI boss Guy Hands has said the music industry needs "fundamental restructuring" and has suggested that one solution is bands taking on corporate sponsorship.

On the company's website Hands claims he has been surprised by the levels of resistance to the idea.

"Does the Royal Opera in London feel upset that Barclays sponsored a performance?"

The Spice Girls, one of EMI's biggest names, have led the way by agreeing a £5.5m deal in the US that stipulates that their greatest hits album will be sold exclusively at branches of the lingerie chain Victoria's Secret.

Similarly Madonna's latest single 'Four Minutes (to Save the World)' was first seen in an advert for the shampoo giant Sunsilk.

The endorsement is believed to have earned the Material Girl around £5m.

Last year the multi-million-selling singer left Warner Bros in favour of agreeing a direct deal with concert promoters Live Nation.

She said at the time: "The paradigm in the music business has shifted and as an artist and a business woman, I have to move with that shift."

Sir Paul McCartney, Joni Mitchell and Sonic Youth have also abandoned their long-standing labels in order to have their music promoted and released by the international coffee chain Starbucks. In the UK competitor Caffe Nero is considering launching its own music outlet, while the caffeine drink producer Red Bull is also set to launch a series of recording "partnerships" this year.

Nicola Slade, the editor of online music industry newsletter Record of the Day, said: "The major labels have to cut costs. They have to sign fewer bands and give out smaller advances.

Bands are going to have to be less idealistic about selling music to adverts in order to survive."

Scottish music guru Alan McGee, who discovered Oasis, predicts that artists, like football teams before them, will be forced to adopt sponsors – a scenario he claims which would have John Lennon "turning in his grave".

He said: "Dreaming up new ways to make money is vital. One solution – teaming willing artists' albums up with corporate sponsors, as EMI plans to do. That might have some artists turning in their grave – just imagine that, John Lennon – but with music arenas often branded these days, EMI is confident it can sell the idea."

History of protest and controversy

The mere thought of big-name sponsorship for rock'n'roll will have had some of our musical heroes of the past aghast with horror.

From the Sex Pistols' infamous f-word outburst on the Bill Grundy show to Neil Young's protest song 'This Note's For You', which was a direct comment at the music industry's increasingly close relationship with corporate America, not playing by the rules has been the mainstay of some of our greatest music stars.

Two years ago, Scots' rockers, Franz Ferdinand turned down a $50m (£25m) offer to use their music in an advertising campaign because it might "compromise their artistic integrity".

Los Angeles' rockers Rage Against the Machine are perhaps one of the best examples of musicians refusing to toe the line. They fell foul of US TV giants Fox News after saying senior White House figures should be tried for war crimes.

And only last month, Björk infuriated the Chinese government when she shouted "Tibet, Tibet" at the end of a performance in Shanghai.

More conventional forms of anti-establishment behaviour like Oasis frontman Liam Gallagher losing his front teeth during a brawl mean the industry will, for sure, never be short on controversy.