With music sales in free fall, many in the entertainment business fear technology as the death of the creative arts.

Award-winning singer/songwriter Peter Gabriel disagrees. Far from destroying creativity he thinks technology and the internet are enabling a creative explosion, connecting artists to audiences more effectively than ever before.

Music remains essential to modern life, despite falling sales, he points out. "Music is medicine. People use it as a mood altering drug, applying different music to different occasions," he explains.

Gabriel's no fantasist. He's been experimenting with technology since the moment PCs became creative tools.

His Real World Studios have been instrumental in introducing music from across the world to Western audiences. Nusrat Fateh Ali Khan is just one example of such an artist. 1993 saw associated company, Real World Multimedia, ship one of the world's first interactive CD-ROM's, a musical adventure called Xplora 1: Peter Gabriel's Secret World.

Xplora gave users a multimedia glimpse at life as a musician on the road - Gabriel was touring his highly-successful Us album at the time - along with a chance to explore the world music genre which was relatively unknown in the UK at the time, as well as insights into his personal life.

Produced on a Mac, the Windows version was prone to bugs, as the multimedia power struggle between Microsoft and the rest of the computer industry saw creators and consumers pay the price.

In spite of the technological barriers, Real World Media followed up Xplora with another CD-ROM, EVE, a touching interactive exploration of the loneliness of the human condition. Gabriel wrote the music.

On the face of it, it's some distance from 1967, when Gabriel founded UK music act, Genesis, a band he quit in 1975 to go solo.

But pushing the envelope of what technology can achieve runs in Gabriel's family.

The son of an inventor, Gabriel admits: "New technology has always excited me." While he agrees the internet has killed off conventional music retail, it also presents: "Many wonderful opportunities", he says.

"Never before has an artist been able to reach out and build an audience so easily - without needing record companies and their marketing departments. Equally, you've never been able to explore all kinds of new music in the instant way the internet allows," he observes.

Gabriel isn't just paying lip service. In 1999 when upstart US college student Shawn Fanning launched the original Napster, Gabriel invested in On Demand Distribution (OD2), one of the world's first legitimate online music download services.

"I co-founded OD2 with Charles Grimsdale as I thought there were many exciting opportunities for digitally distributed music," Gabriel said in 2004. "As a musician, I believe strongly that all artists should have access to this powerful new means of getting music to people."

Purchased by Finnish mobile giant, Nokia, for $38.6m in 2004, OD2 offered over a million tracks for sale through different European online services.

"I was convinced digital music was going to be the main means of distributing music when we set that firm up," Gabriel said. "I've been surprised how long it has taken."

The impact of legitimate music sales on the internet is huge. In the UK, an astonishing 90 per cent of all singles sold are sold through online music services, claims music label trade body, the BPI (British Phonographic Industry).

Album sales through online services are climbing slowly. Labels continue to see their annual turnovers shrink as physical sales decline.

The side-effect of file-sharing has been that many young people have lost the habit of buying music legally.

They've seldom purchased any music, so the notion of doing so no longer exists in youth culture. Young people grab music for nothing where they can. Labels are threatened by this because teenagers are tomorrow's mature music shoppers.

Some believe that moves by major labels to launch legal action against music file-sharers have politicised illegitimate music downloads.

Disaffected teenagers, they argue, see music theft as a rejection of the establishment. But even file-sharers are committed to the songs and artists they embrace.

"Many young people don't seem to be buying music legally but even so, the culture and passion for music both new and old has never been greater and this is partly down to the internet," he observes. "Music is becoming more of a commodity, people are expecting it for free and I'm not sure this attitude is going away."

The industry is changing, with music labels moving focus from music sales toward touring and merchandising, he says.

When Prince gave his album away for free with the Mail on Sunday, he was able to sell enough tickets for 21 sell-out shows in London.

Bruce Springsteen and Paul McCartney also have given songs away for free, while Nine Inch Nails frontman, Trent Reznor, makes his music available to fans for remixing.

Exploring the possible, Gabriel recently invested in ad-supported free music download service, We7. This works by popping advertisements on the front of tracks, based on a user's personal information - age, location and gender. Consumers can give the system extra information if they want to receive more appropriate advertising. They can also buy tracks ad-free.

Noting this form of advertising means music fans hear fewer ads than they will on radio, Gabriel says: "Ads disappear after a few weeks, so consumers end up with a collection of free music."

Gabriel says: "I'm convinced well-filtered ads can carry useful information to the right listener or viewer." We7 users can set things up so the system sends them ads for things they are looking for.

The disappearance of conventional music retail leaves a vacuum. "Sometimes people who loved music worked in those stores and when they knew you they'd introduce you to wonderful stuff you wouldn't have come across otherwise," Gabriel observes.

"We're drowning in choice and we're going to need the tools to find the stuff that excites, surprises and inspires us."

To fill the gap, Gabriel's invested in a new service called The Filter, software that analyses your digital music library to understand your tastes. It generates playlists based on selected tracks and can recommend music chosen to match your tastes.

With film, television and literature moving online, solutions that help people find exactly what they want could become essential.

Artists should benefit. Personalised recommendation means they could achieve a direct link with appropriate audiences - great for non-mainstream arts.

"It could and should lead to a creative renaissance in which the oppressive filtering of the mass market is turned upside down," Gabriel says.

In future, he sees three levels of digital media delivery: free, paid for with extra content, and high cost physical products.

The latter could be: "Small limited edition sculptures that when placed on a computer open up a library of an artists material or is personalised for the fan in some way," Gabriel says.

Xplora 1 worked a little like that. As users solved puzzles, new sections of the experience were opened up, unlocking live concert video and more.

As an artist, Gabriel continues to experiment. "I'm excited at using the internet to do new things with my music - inviting people to remix my songs, or my Full Moon Club, where I try and do something for my fans when there's a full moon," he says.