The record label that received over $7 million in federal funding despite producing very little music has been told by the Australia Council that their funding will cease on June 30 after huge backlash from within the contemporary music industry.

The backlash started after it was uncovered that Melba Recordings had received $5m in 2004 and $2.25m in 2009 from the federal government through the Australia Council, but was not required to compete in the competitive grant rounds.

According to those familiar with the matter, Melba was able to bypass the grant rounds with the aid of “very influential friends” who went above the Arts Minister to then-Treasurer Peter Costello, and that their funding had been maintained ever since.

Costello and the Howard government granted Melba direct funding of $1 million a year for five years, and when the Rudd government took office that kept the deal in place while halving the annual amount to $500,000.

The label counts a number of prominent Australians as backers, such as Dame Elisabeth Murdoch, Baz Luhrmann, and Sir James Wolfensohn.

The label’s managing director, Maria Vandamme, was told of the news late last week by the director of the Australia Council music board, Paul Mason. Mr Mason said that there would be no guarantees of funding and any future funding allocation would be “informed by industry need, determined following a sector-wide consultation.”

So what does $7.2 million over 8 years buy? According to The Age the label produced 67 albums with the money, but Vandamme wouldn’t go into details about sales figures due to “commercial in confidence”.

Public records show the label generated a total of $18,000 from record sales last year, including those from their back catalogue.

She also hit out at the label’s critics, accusing them of being motivated by jealousy and greed. “There’s enormous jealousy and I can understand that but I make no apology for wanting to do something that no-one has done before,” she said.

“What we have done is great value for Australia, because there’s always the perception that Australia is a dumb blonde, a hole in the ground, but now we are telling the world of the quality of our musicianship.”

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