Artist compensation is something that is important to get right. Artists have to think they will get paid using the system, or else they wont want to use it. If I were putting my music up on the system, my main concern would be that people could circumvent the system and get my music without me getting paid for it.
Maybe we need 2 steps here. Artist need to begin to understand the disconnect between distribution and compensation. We aren't paying them based on how many copies of the song were created... If somebody emails somebody else a copy of the song, that doesn't cost me anything, and it doesn't really cost the artist anything either except lost opportunity.
So what are we really compensating the artists based on. I think song ratings is the way to go. The more favorably your song is rated and by more people, the more you get paid. I think this model makes sense as well, because the higher your song is rated, the more likely it is to be recommended to somebody, and the more value it has to the system (better recommendations for songs create more value for the user).
So the song has value to the system primarily in it's ability to both 1) bring more users into the system and 2) keep more users happy with the system (and subscribed). So the artist compensation model should be based on how successful a song (and the artist) is at doing those things.
Quantity of music doesn't matter either... if you only put one song up, but everybody loves it, it's just as valuable as somebody with 50 songs that some people like.
So practically what does this mean? Do we count positive recommendations and breakout the cash based on those recommendations?
The thing I like about that model is that it encourages the arist to throw the curve, by bringing their fans/family into the system. We should consider that when putting the payment structure together. If Bill creates four songs and puts them up in the system (at no cost to him) and gets 10 members of his family to sign up and rate his music highly, it seems like he should get some cash money out of that. It might not be much money, but it would be nice if we could put him on the map. Those positive recommendations would also potentially push his music out to others... and depending on how they rate the music, it will move up or down in the ratings (average rating).