David Byrne wrote an entire book about the music business (which is sort of why I don’t dismiss his argument here – I read his book and it’s clear that he knows his shit). And, one thing mentioned in that book is the problems for artists that come out of a misunderstanding of common recording contracts.
The simplified version is this: a record company contract is like a fiction publishing contract, insomuch as the artist signs up for a certain number of publications and then gets a certain amount of money based on a projection of the success of these publications, intended to go toward finishing them. If the publications don’t make as much money as projected, the artist is expected to pay back the difference. A smart and well-informed artist will take the money, sit on it, and spend as little of it as possible on recording and mastering on the off-chance that the album bombs – after all, if the album bombs, they’ll be in debt, while if it exceeds projections, they will be getting royalties on top of everything else. A naive artist (like, say, pretty much every teenage rock band to finally land a record deal between 1960 and 2005) signs a piece of paper he didn’t read, gets a huge check, spends it all on cocaine and hookers, releases an album that nobody likes, and spends the rest of their life in debt to the record company. Even if they later release very popular music, it’s easy for them to get stuck in a pattern where they never pay back their debt to the record company; even if their initial album is very popular, if it is not quite as popular as the record company projection then these artists are stuck, and record companies have been known to inflate projected record sales in order to get artists into their debt. This latter group always appears to be living large but never genuinely has any money – they’re doing the equivalent of living off credit cards; the former group always appears to be very frugal, but actually is making a series of good business decisions and building up savings. There are some members of the second group that might surprise you.
TL;DR: artists are poor as hell, even the popular ones, because they don’t understand contracts.
(There are variant contracts and new business forms that are becoming more popular. Justin Beiber and some other people in the same domain are contracted not with a record company but with a concert promotion company, and have signed a contract that gives creative control to said company – and this is a very good deal for someone who doesn’t particularly have any talent of their own, because the company brings on professionals to do the real work. These artists get a smaller cut, because they do less work, and they don’t get a bunch of money up-front for even proposing a new album, but on the other hand, they get a steady paycheck and the promotion company will handle food, room, and board during tours.)