I have a bit of experience in this - both in industry and as a gigging classical musician. Sadly I do not have any experience with digital music, but I do have friends that have made some money that way.
My industry experience is many moons ago and I'll basically say that the experience was so bad that I would NEVER work with a label again.
As a classical musician it is 100% possible to make a living (not luxurious - but a living) if you hustle. A combination of church jobs (choir, orchestra, holiday gigs), wedding/country club type gigs, and chosen vocation are usually enough to get by. If you play piano you can make bank playing good cocktail hours and also working as an accompanist for music schools (who never seem to have enough pianists for students).
I have a lot of friends that have put their stuff on Pandora, Spotify, etc and only one of them has earned any money of it. His breakthrough piece was specifically "inspired" by a piece from a famous musician and the musician tweeted about it - thus earning my friend an instant following.
A composer friend of mine specifically writes for a production music library and he makes great side money (his full time job is a prof of music theory). His stuff has ended up on a couple of sitcoms and several reality shows. If you are a pop-ish writer this is where I would aim for extra money as it seems the most do-able way to earn real money. Also look into sync music licensing (youtube, vimeo, etc).
I don't know if any of this is helpful - but I thought it was a really interesting question and felt compelled to respond :)