* the app had configurable limits for local storage and purchases
* it started with non-RIAA artists only (yes, painful, but worth it in the long run if you survive)
* it had a rating system with novelty, similarity, and unique user request frequency per day
* it cut out Amazon - have your own secured cloud service
* you charge for a resync (it's only fair, to cover your storage and bandwidth costs), keep the cost low but still profitable. Bandwidth and storage aren't that expensive.
THEN I think you could have a winner. An industry-toppling winner, actually... if you managed to make it work at all. I expect at first you'd try and be the go-to distribution method for tiny little bands just starting up and it'd be difficult to get new listeners when most people just want the pop top 30.
Still, it's important to cut out the RIAA and entities like Amazon right from the start or they will take all the profits while you starve and fail.