Aren't you in the perfect position to establish a premium subscription for users, establishing a market place for musicians without the labels? Say, a user could choose the ad-supported model or a model where he deposits some money in a soundcloud account. A musician can then have some songs available for free, some songs available with ads played beforehand or some soungs available easily for a micropayment from the user's soundcloud account (say 5 cents). Soundcloud gets 30%, the musician 70%. If you love the song or album, you sell unlimited access (and download) to the song or album for something decided by the musician.

Just because ads are a horrible way to monetise a web endeavour.