I hear what you're saying and I would agree with you if live music was the only thing we're offering the venues- but the fact is that we're bringing paying patrons to their bar: 30-40 people last Sat. we have a little following and they come to see us play- and they buy food and drinks (some buy alot of drinks)- and we also promote the show and the venue for free as well. some venues even want us to bring our own PA... for free.
The thing is, unfortunately, is that it's not what YOU do for the bar owner...it's what you do in relation to others. In other words, if there are 3 other bands that would bring in 30-40 people too, your 30-40 people become less important. Now if you bring in people like nobody else can, you've got something...
Also use Craigslist and Facebook to put pressure on the clubs to pay they're bands. I'm sure your not the only ones not happy with the situation. This is after you speak with the club owner.
I don't want to criticize the giver of advice but this seems like a good way to lose your non-paying gig and future gigs as well. As a local businessperson, I would not think to highly of any tactics like this...
I doubt that asking for a small amount of cash instead of free drinks and half-price meals would be helpful. The actual cost to the owner of the current deal is very close to zero.
The probablility of organizing an overwhelming majority of the bands in your area is nearly zero.
CD's and merchandise are the only ways I see to cover your expenses.
I agree with this 100%...IMO, the only way to combat it is to produce a new product (CD or other merch) that would be of interest to those that come to see you...