Suppose for now, that we were to bypass the recording labels, providing what they nominally provide for the artists but not requiring ten pounds of flesh. Here's one idea. Set up a non-profit organization with a set pool of money. Please note, this shouldn't be like the NEA, living off of public funds, attracting controversy, and making nearly no one happy. Release the individual songs electronically.
Pricing can be low because expenses are low.
As the artist sells more CDs, the price per CD can actually decrease. But if the last CD sold 5000 copies, only a dollar per CD would need to pay back the loan. The really interesting part is what happens after the artist pays back the loan. Let's say, for the sake of argument, that the record labels aren't completely and utterly evil, and that they actually have a good idea now and then. We'll take the non-hideous part out of it, and say that after the artist has paid back the seed money, we'll take maybe 5 or 10 percent of subsequent revenues of that album alone and put it back in the fund.