There's a great Hypebot post on Corey Smith, a musician who has apparently made millions because - not despite - giving stuff away and charging low prices for gigs:
First, even though the music is available for free, plenty of people still buy his music on iTunes. However, as an experiment, they took down the free tracks from Corey's website for a period of time last summer... and sales on iTunes went down. Once again, this proves how ridiculous the claim is that free songs somehow cannibalize sales.
But, still, the real money maker for Corey is concerts, and even here he's doing something innovative: making concert tickets cheap: $5. The thinking here appears to be that once you see him in concert, you become a true fan who will keep going back (and paying) for more. And, in fact, at $5/ticket, you can afford to drag along your friends as well, and turn them into fans as well.
But, you might object, not every act could do well out of that - and, indeed, that's true:
Corey's manager, Marty Winsch, has tried this with other artists, where it hasn't always worked as well. So, some may claim that the model (again) is very limited. Of course, the reason is that those other acts just weren't that good.
A system which actually rewards you for being any good? (Or at least for making a connection with fans)? The record industry won't like that one...