What's the price point you're looking for? "thousand song library that rotates about a quarter of the songs per year" means 1k at start, then 250 per year. Taking spotify as an example, that's $0.01 per song the first month, then $0.48 per new song at your rate of cycling through the library.
Renting (streaming or otherwise) video should be no more than ten percent (10%) of an hour of minimum wage with no commercials. So a typical movie would be about $1.10. A half hour sitcom with commercials stripped out about $0.25.
A rented song should be about one tenth of a percent (.1%) of an hour of minimum wage per listen. So about a penny per song. (What you said.) But a purchased song at a dollar is too much (a dime is about right).
Tying entertainment to minimum wage also has the neat benefit of having one sector of business fighting to raise minimum wage too.
Spotify and their ilk are fine, but last time I looked they didn't have much in the way of the music I liked. (I'll take another look at Spotify and see if the catalog has grown to encompass my tastes.)
That being said, how did you arrive at 7%, may I ask?
Also, by your numbers you say you play a typical song 10(=dime/(cent/song rental)) times? I suppose it's highly dependent on the person, but I personally would say ~25x. (Mean of the playback numbers of all songs I have that I have played at least once is ~21, and I occasionally play songs off of my mp3 player, etc, so it's really higher than that.)
Personally, I'd love a service that was both a micropayment enabler and music player - ~one cent per 5 minutes, period.
Just because I was born into poverty, barely made it out of high school, and lack the genetics, wherewithal and mental acumen to move myself into a better life doesn't mean I'm going to deny myself life's pleasures.
Screw you rich people who _can_ afford the lifestyle. If you want me to play by the rules you've made up for your society then I get what you get. Otherwise, I guess it's civil war across class lines. Then we'll make the rules!
Edit: And don't downvote me if you're going to reply to my comment. Your witty riposte will just get buried too.
Edit to edit: (Apologies to commenter 3rd3)
Take out the middle man and let the market decide what the price should be. I suspect it will be much less that what's being charged now and, without the middle men, the content creators and performers themselves will make significantly more.
And no I would not go to jail for stealing music, movies, etc. What kind of a society would jail someone for such a minor offense. Oh wait, a corporate oligarchy like most of the first world has become!