As far as i understand, the block producers will be incentivized to not allow illegal & encrypted data to be hosted (that's what the regular internet is for), they can simply reject to host the files if they believe it to be illegal, of course they can be punished (voted out) for erroneous censoring. Either way, it may be the case that license agreements are still required to host a Spotify type app. although i agree, using a blockchain to distribute profits to artists would certainly be more accountable, and possibly more fair. I'm sure someone will do it, but i don't think is as easy as basically making a website and a contract. Especially in the new world where people will be accountable (to some degree) for what they do and support online, folks will not want to brazenly host an app like that (without proper legal support) that could end up deleting all their coins if it turns out to be illegal.
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The system would certainly need feedback to identify plagiarist and cheaters which could incorporate a time delay that would prevent someone unauthorized to receive funds. I see this as completely doable.