Hi, my proposal:
instead of a monthly subscription, why don't put a spot every 3 or 5 songs? One spot you should listen and that you can't jump. I think you can make lot more money in this way, letting last.fm free!
A lot of models are applicable. Salon.com, for example, makes you look at one ad and the rest of the browsing of the site is free for the day. Hulu.com sometimes does similar stuff: whole days/programs with limited or no commercial interruption sponsored by one co. whose ad you have to see at the begining. So on and so forth. It is not hard to sit down and get creative about this.
Hell, they should've done that before the $3 bs. It isn't that hard to sign contracts with royalty collectors.
Commercials instead of monthly subscriptions