Welcome to the forums!
I doubt whether other music site owners will share how they do things with you - especially if they are in competition to you! What you are proposing will take a lot of money to set up and 10,000 is not unreasonable for a custom solution. If the business takes off it might take 2-3 years until you turn a profit so you will need some capital you can afford to lose.
As I see it you would need a dedicated server with plenty of bandwidth/data transfer, and as you want to stream audio as well you will need to relevant server side facilities. For a decent server you will pay $99 per month upwards, if you wanted a managed server $199/mo upwards.
You could run your site on 3rd party software which will cut down on your startup costs, have a look at these options..
http://www.musicboxv2.com/
http://www.jamroom.net/
http://easybe.com/
What do you mean by "local"? The size of your catchment area will dictate how much you can grow in the future. The smaller the area the less artists you can sign up and therefore income possibilities start to get limited. Of course, concentrating locally will attract a niche audience.
Income possibilities:
1. Artist accounts - artists pay for the ability to sell their work online and their account facilities. In essence you would offer them the facilities and the publicity. You could offer different account levels where the user gets more facilities the more they pay.
2. Audio tracks sales - any sales you make would go to the artist but you retain a commission on every track sold.
3. Supplement income with Google ads, and when your site gets busy, paid ad spots.
Expenses:
1. Server/bandwidth costs and maintenance
2. Support time
3. Marketing
4. Site design and updates
You'd need to work out a business plan, see what your total costs are going to be and then calculate how many accounts and downloads you need to sell to cover them. If your monthly costs are $300 you would need to sell 300 tracks (10 a day) at $1 each, just to break even.
