I cofounded a yet-to-be-released web application with a friend. It's yet another music streaming service for independent artists.

So far we've agreed that we should distribute 70% of the revenue generated from song sales to artists.

I don't think this is enough though -- I think we should distribute some specific percentage of our total revenue (including song sale revenues and advertising revenues) -- maybe 50% or more -- to artists. But my partner disagrees. He says that doing so would be generous, but wouldn't make sense financially. He argues that it would be absurd to pay artists more than the business is making itself.

I think that it wouldn't make sense not to pay artists more than the business is making, since the only reason artists and users would use our site would be to share and discover new music, something our business takes no part in creating. I think it's in our best interest to be fair to artists because they'll reward us with loyalty to our service.

Anyways, it's difficult to find a balance between how much revenue we're pulling in and how much we're willing to pay out. We host the music files for free (maybe not a good idea), we offer song downloads for less than half of the industry standard, and we offer a good recommendation system to help users filter through all of the music.

Any ideas about what we should do?