• Videos return to website after deal with trade body
• Musicians protest about plans to punish file sharers

Thousands of music videos pulled from YouTube in a royalties dispute will go back online after peace broke out today between the website and the music industry.

A new licensing deal with PRS for Music, the trade body that collects music royalties, has brought the six-month dispute to an end.

It began when YouTube accused the PRS of proposing exorbitant new payment terms and led to the website fending off criticism from the PRS, which felt it was punishing British music fans by removing videos in the quest for greater profits.

Thousands of music videos are now being reinstated after being blocked from the site by YouTube's parent company Google during the licensing wrangle.

But while this conflict has been resolved, another dispute has erupted over the digital future of the music industry.

A rift has opened between music's creators and its record labels, with a broad alliance of musicians, songwriters and producers fiercely criticising the business secretary Lord Mandelson's plans to cut off the broadband connections of internet users who illegally download music.

In a statement seen by the Guardian, a coalition of bodies representing a range of stars including Sir Paul McCartney, Sir Elton John and Damon Albarn attacks the proposals as expensive, illogical and "extraordinarily negative".

The Featured Artists Coalition (FAC), the British Academy of Songwriters, Composers and Authors (Basca) and the Music Producers Guild (MPG) have joined forces to oppose the proposals to reintroduce the threat of disconnection for persistent file sharers, which was ruled out in the government's Digital Britain report in June.

The plans have already been attacked by privacy campaigners, internet service providers and a range of MPs, some of whom accuse the business secretary of being influenced by secret meetings with senior figures from the music and film industry, a charge he denies.

The coalition accuses the government of being backward looking, saying there is "little support from logic" in proposals to cut off file sharers – a move welcomed by the record companies and UK Music, the umbrella body for the entire industry.

The statement says: "We vehemently oppose the proposals being made and suggest that the stick is now in danger of being way out of proportion to the carrot. The failure of 30,000 US lawsuits against consumers and the cessation of the pursuit of that policy should be demonstration enough that this is not a policy that any future-minded UK government should pursue."

There has been an explosion in file sharing in the last decade, with albums being swapped hundreds of thousands of times over the internet – Lady Gaga's The Fame was swapped 388,000 times on P2P site Pirate Bay within seven days of its release. But there is little agreement in the music industry about how the problem should be tackled.

The BPI, the body representing record labels, argues that the UK's 7 million file sharers cost the industry an estimated £200m a year and called Mandelson's proposals "a step forward".

But Patrick Racklow, the chief executive of Basca, said those involved in music had to look for new ways of licensing new music technologies, rather than fighting them. "The problems the music industry faces will not be dealt with effectively through legislation," he said. "We can't support these proposals because we don't think it will work, it will cost too much and is far too blunt a tool."

Research suggesting that people who file share also buy more music provided hope, he said. "The music industry is quite a scary place to be at the moment and we don't know what it will look like in 10 years' time, but if we find ways of licensing, new ways of doing things will evolve. What we can't do is try to push things forward by looking back."

Deals such as the one struck between YouTube and PRS, as well as licensing agreements with music-streaming websites such as Spotify and We7, may provide light at the end of the tunnel for the industry, proving that compromises can be made if consumer demands are considered.

Patrick Walker, YouTube's director of video partnerships, said the dispute had been regrettable, but that the service was committed to building relationships with the music industry. "This deal provides a positive example that people can come together with the objective of satisfying user demands," he said. "It is a very fast-moving area and we need to make sure we don't retrench but remain flexible so that everyone can benefit."

Andrew Shaw, the managing director of broadcast and online at PRS, said the organisation was delighted that music videos were back on YouTube. "We hope it is the first of many deals with other services so that music can get out there in whatever way people want to listen to it, while making sure our members get paid," he said.

Both organisations were vague about the agreement, but music industry analyst Mark Mulligan, vice-president of Forrester Research, said the disclosure that a lump-sum deal had been reached suggested the terms were more favourable to YouTube than PRS.

The YouTube deal and the musicians' condemnation of plans to prosecute file sharers were indicative of the fundamental power shift happening in the music industry, he said.

"We are in a period of transition, and traditional business models are being reassessed," he said. "The position of the record labels is inherently weaker because of the falling value of recorded music and that gives the other people in the equation, including artists, managers and producers, more power. What we are seeing here is those players flexing their muscles, which is only possible because the record labels are weakening."

Did that with the new metallica album, most albums i just don't like, mainly because albums don't tell a story like they used to, they are just songs stuck together for a quick bit of cash.

Metellica havent made a good album since 88, why bother?