hmmm . . .
that's a good question really. how do icons like John Cale continue to live off piddly alnum sales and undersold tours?
my guess is it's all to do with communities. Someone like Paul Westenberg or Jeff Tweedy may not have a lot of international celebrity, but they have a lot of cultural collateral in a certain community. This community wants the artist to continue making music for pure reasons, so they are supported by labels and the general community. What indie wouldn't sign Wilco to add cultural value to their company?
also, the larger community wants to support these "pure" musical ventures as it adds cultural value to their larger community, from morale to national/regional pride to tourism - what would nashville be without country music? (although admittedly Country is a cash cow)
this is especially true in New Zealand where I live. They are various government schemes to support NZ music and even an 'Artists allowance' that allows you to get paid for not working as long as you can prove you're pusuing an artistic dream - it's not much but it's enough to live off.
having said all that, it's still a mystery how some artists can EAT, let alone make music
Hang on, the dog is talking to the rabbit