It can work this way in the Napster world too. Or you can just pay for discrete copies. Good luck with your research. I am particularly interested in going back and getting a master's or PhD because I am so passionate about these various issues and particularly with the threat of additional legislation by conservative congress members who can't seem to navigate through the concepts of intellectual property and what it means in terms of international trade. They are too busy kowtowing to their constituents without realizing they can appease those constituents and still respect copyright laws.
Advertising revenues are just one possible source of income.
Another is sale of data collected from users. Think of all the times you are asked to provide your email address, your name, etc. Who cares what form the compensation takes - money vs. valuable info that otherwise you would have to pay for. While certain record co's might be a problem to get licenses from,the bottom line is that a license can generally be had for some kind of consideration. Note the attraction of investor capital that has now been infused into Napster.