This TechCrunch story talks about how it's hard to create a music streaming startup. The problem here is that these startups are trying to bring the old radio business model onto the internet. That model has the radio stations paying the music industry for promoting their product. To pay for privilege, the radio industry has plastered there service with ads. Online, where ad rates are much lower but the streaming rates are much higher, the economics just don't make sense.
Why should the old analog model that was based on the scarcity of government owned radio frequency bandwidth make any sense in the long tail enviornment of the internet where the only scarcity is attention.
So how should the music industry work on the internet?
The music industry should be paying startups to help them promote their artists. This should be under the control of both the artists and the listeners. Listeners should no longer be force feed what the music industry thinks that they should hear. Alternatively, artists and labels should be able to be able to promote themselves as they feel the market might find interesting with a minimum of disintermediation. Where those two spheres intersect, we get maximum value for listeners and ideal promotional opportunities for the music industry.