Dave Stewart has just had a baby and looks knackered. Admittedly, Anoushka Fisz, his 31-year-old photographer wife, has been doing most of the work, and, admittedly, Stewart, with his scruffy goatee and droopy eyes, looks pretty knackered most of the time anyway, but the ex-Eurythmic, who has spent the last two days flitting between hospital and work, really looks likes he could use some kip.

He slumps down at the kitchen table at Church Studios in Crouch End, where he does most of his recording, asks one of the staffers to bring him some food and, at my request, fiddles with the lap-top he's carrying to find a digital picture of his 12-hour-old daughter - Indya. "She's beautiful," I say dutifully, referring to the baby pictured in the shot, who is being held between her beaming mother and Annie Lennox. "Yeah." Is she your fourth? "Yeah." Your second with Anoushka? "Yeah." You must have had a long couple of days? "Yeah."

If these monosyllabic replies continue, we could be heading for the shortest interview in press history. Maybe he should go get some rest, answer all those congratulatory messages that keep setting his mobile off every two minutes and do this interview another time... But then, suddenly, at the very first mention of Artist Network, the reason for our meeting and a project that Stewart has been nurturing for seven years, the 49-year-old Sunderland-born singer/songwriter/producer springs to life.

The inspiration behind the new project, he explains fervently and at length, has been the complete failure of the entertainment industries - particularly the music business - to nurture talent. The creative industries are, he says, increasingly beset by corruption and rely, increasingly, on soulless corporate tactics that demolish talent and individuality just to boost short-term profits.

"There is total corruption in the music industry - it's like Enron. There's a corporate front end, but at the back end there's all this wheeling and dealing. It's a rip-off. The amount of money we've made [as the Eurythmics] compared to the amount of money we've made for the people around us is minuscule. It happens to every artist. People say that Motown was a great label, but it was the greatest cotton field of all - loads of the artists got tiny royalties. Loads died without a gravestone, yet their songs have sold millions and millions."

Artist Network, which hasn't had an official external launch and which hasn't, until now, sought any publicity, says it aims to break away from the ingrained habits of the industry by "challenging the traditional models of entertainment businesses".

At its core there is an independent record label, which will offer musicians more generous royalty rates than conventional deals, more transparent contracts and a greater degree of creative freedom and artistic development.

"The music industry is all about picking up some talent, fucking it up and then dropping it. We want to actually develop artists over time - provide an alternative to the mass-produced and meaningless product being churned out by the music industry, to things like Pop Idol. We're the opposite of that.

It's about giving artists a better deal and creative freedom.

"Traditionally, if a musician like Bob Dylan writes poems, the record company will say, 'can you put it to music please?' They never think, like, shall we put a poetry book out? They just want to put artists through a machine. It's like McDonald's, a conveyor belt. We want to change that. Artist Network will create a new paradigm for the entertainment industries, an entertainment company that is artist- friendly, that can work by a different rulebook."

Alongside Artist Network's music division, there will also be film, TV, publishing, and visual arts divisions, all infused with the same objective - "to deliver the richer, deeper, more diverse and more meaningful work that artists long to produce", according to the manifesto. The aim is to encourage all the departments and artists to work with one another, with musicians producing films, directors producing art, artists writing books and so on.

At first glance, Artist Network seems sensationally naive - well intentioned, but destined for certain failure. But your viewpoint does change once you discover how much financial backing it has. The company is starting out with a pretty impressive $10m of funding - Dave Stewart has put in more than $3m, Anita and Gordon Roddick, of Bodyshop fame, have put in more than $1m, ad agency St Luke's has put in more than $1m and Michael Philipp, the former chairman and CEO of Deutsche Asset Management, has put in a very large chunk of his own money.

Philipp, who is now a senior adviser for Asset Management and the Middle East for Deutsche Bank, and who met Stewart in September 2000, has been working on the business plan for two years. He says that he hopes to raise another $20m over the next 12-24 months and adds that the business will break even within the first two years. The initial $30m, he explains, will fund 10 music projects and four or five indie film projects. But, at the same time, the company will also raise money outside the main company to fund larger individual projects.

The creation of this $10m start-up is the result of two years of non-stop networking for Stewart. Indeed, his networking abilities are becoming legendary - separately to Artist Network, he has persuaded Paul Allen of Microsoft to help fund the development of The Hospital, a $100m, seven-floor hi-tech arts centre and TV studio, which will open in Covent Garden at the end of the year.

For Artist Network, Stewart has secured the support of seven key people, who, at face value, have very little in common with each other. There's Andy Law, the chairman and founder of radical ad agency St Luke's, who got to know Stewart after working with him on a Eurythmics project and then moving into the same village as him. Law, who is close to the Roddicks, introduced the Bodyshop founders to Stewart. Malcolm Gerrie, chief executive of Initial TV, an Endemol company, who is looking after TV projects for Artist Network, and Shekhar Kapur, the film director behind Elizabeth and Bandit Queen, who is overseeing the film division, are old friends of Stewart's.

The key and most obscure recruit has been Philipp, who Stewart got to know, when Philipp was still working full-time for Deutsche Bank and was responsible for more than $900bn of assets. Philipp has a rather strange background - before he got into banking, he was a potter. His involvement with Artist Network, he says, means that he has now come full circle and is back where he began - working in a creative business.

Stewart's networking and fundraising means that Artist Network starts from a strong base: it has Church Studios, where many of the signings are already recording their albums, offices in Dean Street, which are just being completed and an LA office is due to be opened imminently. The company also has a 50 per cent stake in The Marquee club, which is being re-opened in August to operate as a venue for live music - a platform for Artists Network acts and others.

It starts with a roster of about nine music acts, brought in by Stewart. The initial line-up includes a mixture of older acts like reggae artist Jimmy Cliff, who has made 22 albums during his career, and brand new acts like Joanne Shaw Taylor, a 16-year-old blonde from Solihull who, rather bizarrely, plays the blues. Five albums are near completion and Sly and Robbie, the legendary rhythm section, will be joining the company soon.

Under Kapur, the film division will concentrate on recruiting and developing directing talent from Asia, and pushing digital film projects, while Shekhar Kapur is already working on a major film project with Irish director Jim Sheridan through Artist Network. Last week the film division became bigger in its scope when Dave Stewart, Scottish actor James Cosmo and Rick Wood, director of the Aberdeen-based production company Vincero, got permission to build a new film studio in Inverness. It is proposed that the complex be built in three phases, with the aim of having the studio available for use by the end of the year.

The TV division, meanwhile, will be overseen on a project-by-project basis by Malcolm Gerrie - his contribution, which involves no investment from Endemol, means that Artist Network can plug into the Endemol machine if it needs to. Elsewhere, Artist Network is in discussions to set up a visual arts division and there are plans to extend the concept into the publishing world. "We'll have a new deal there as well," says Stewart. "There's a lot of changes that could be made in the publishing world too - better deals for authors."

The crossover between the different departments is already being planned. There are plans for Jimmy Cliff, who starred in The Harder They Come, to make a sequel to the film through Artist Network, and Malcolm Gerrie and Dave Stewart have plans to produce and direct a TV series called Street Dreams, which will document a nationwide search for new bands using a travelling sound stage. The idea has an interactive element: both live and home audiences will be invited to determine the outcome each week by telephoning or voting via the internet.

At the moment, the business is being run by Andy Law. The hope is that he will be able to repeat the success he had in setting up St Luke's, one of Britain's most self-consciously unconventional advertising agencies, which has never had a business plan, never set a financial target, works as a co-operative and which was set up in 1995 to "change the very DNA" of the advertising business. The Artist Network mission statement has echoes of St Luke's' and Law says there are many parallels.

"St Luke's is a creative company and we know how to make money out of a creative company, how to value art and people. The key to Artist Network will be the contracts we sign with artists. We are still finalising the contract but, in a nutshell, the artist will get a more generous royalty rate. We are trying to set up each artist in their own company - we will then co-own that company with them. Any money they make out of their company will go to them: some it will be split 50/50 with Artist Network, other parts of it - say money from merchandising agreements - will go entirely to the artist. Instead of fighting us, the artists will be working with us. It's a complex thing, and we are still fighting the tax lawyers, but it's important and other companies will not be able to match it."

It's unclear what St Luke's will get out of its involvement. Law says the Artist Network might be able to produce creative material for some its advertising clients, but he says nothing is finalised: "We are going to build this first then we are going to see what happens with it." It's also pretty unclear what the Roddicks will get out of it and what they will put in. Anita Roddick is supposedly involved to inject some "social purpose" to the company and to bring in her own projects, but even Stewart doesn't seem to know what these might be. "Anita will bring projects to us that none of us have even imagined yet... some of them quite frightening."

These questions lead to the ultimate question: will this ambitious, sprawling project work? The founding directors concede that it sounds naive in parts ("It might sound wide-eyed and hippy, but those are accusations that people once made about St Luke's and we are as commercially strong as anybody," says Law), but all of them insist it can and will make money. "We'll make loads of money, because we're doing the right thing," says Stewart. "The people involved know what they're doing. Within five years we should be a company worth somewhere between $150m and $300m."

The key, adds Philipp, is that Artist Network, will not, like other record companies, play the "volume game". "There's a problem with the current model - all the majors are suffering. They have major issues with piracy, distribution and retaining talent. The problem is that they're geared up for big hits - they generally don't make money unless they sell 500,000 records. We can have a model which will make money on say 50,000 to 100,000 sales, and that, in turn, means there's no pressure on an artist to sell more and more, and we can develop the artist over time, and don't have to drop them instantly if they don't make it."

Only time will tell whether the formula has legs, but it's easy to spot potential flaws in the concept. The biggest weakness, arguably, lies in one of basic tenets of the company - the idea that an artist in one field will necessarily be good in another. "It's a rule of thumb - it works nine times out of 10 - that if you find someone who is very competent in one art form, they will be competent in another," insists Law. "You'll find that a musician is also a filmmaker, a filmmaker is also an artist." This is not true - the entertainment industry is scattered with hundreds of examples of artists stretching themselves too far - Madonna's acting, Jim Morrison's poetry, and, of course, Dave Stewart's film directing - his £4m film, Honest, starring three of the All Saints, was thrashed to within an inch of its life by the critics a few years ago.

There's also a question mark over the team of people behind Artist Network. The Roddicks, Andy Law and Mark Philipp have a great deal of business knowledge between them, but how much do they know about the music business or other entertainment businesses? Not much. Dave Stewart, the creative director of the company, has experience, and he has had massive success over the past 20 years, selling over 30m album sales with Eurythmics partner Annie Lennox, but lately, his projects have, at best, had mixed success. The man who The Mirror once dubbed "the maddest rock star on the planet" has put out a series of solo works, with diminishing commercial returns, and has launched Innergy, a channel dedicated to "human potential and the journey of self-discovery", which hasn't exactly set the media world alight. Has he got what it takes?

There are certainly a lot of unknowns. None of the TV programme ideas has yet been commissioned, it's questionable whether there's a market out there for the digital films that Shekhar Kapur will be generating, the company is still to strike a distribution deal for its record division, and Artist Network does comprise a bewildering web of businesses, which will be difficult to contain and manage. Furthermore, the entertainment industry is littered with failed attempts at artist empowerment. In the 1990s, George Michael launched Aegean, a record label with similar aims to Artist Network, but it didn't survive for long.

And there was, of course, Tony Wilson's Factory Records, which was geared to serve the people that recorded for it. It had a 50/50 profits split between label and artists, a "non-contract contract" which gave the workers ownership of their own products and had three of the biggest acts in British pop history - Joy Division, New Order and Happy Mondays. It went bankrupt in 1992. "Factory records was exactly right but it didn't have the infrastructure," argues Stewart. "We do. Michael Philipp was in charge in of a trillion dollars before doing this. Anita and Gordon went from running a little shop to running thousands and Andy Law made St Luke's a powerful ad agency. We can manage this."

Indeed, it's early days, the determination to succeed is there and so is the demand among artists. The Artist Network concept has been tested widely - Stewart has consulted everyone from Stevie Wonder to Quincy Jones, U2 and Robert Altman - and there has been a lot of positive response from creatives.

It certainly deserves to succeed and the music industry certainly needs to think radically to find solutions to its multiple difficulties. Only time will tell whether Dave Stewart's baby will offer a feasible solution. "It's a big messy idea, but it's time for big messy ideas," concludes Malcolm Gerrie. "Who knows what the hell will happen. If the people who are running it can make the numbers crunch, it's going to be very exciting."

sathnam.sanghera@ft.com

www.artistnetwork.com

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