I understand the flaw and don't disagree with what you say per sé but what I'm suggesting is exactly the same as how new and/or underground bands become big now. The old situation is: a band starts up, and behold they actually make good music. They get some fame in the neighbourhood and score some small gigs in the city. The small gigs are a success and they earn some money to record a demo tape. With that tape which they send around more people get to know them and they score some more and slightly bigger gigs and earn some more money for recording/equipment/income. At this time a record lable scout might pick up on them and offer them a real chance. They record a full cd, become popular, get marketing. This is where the misery starts. From now on the band earns pretty much jack shit by selling albums. They tour and get money doing that but they do not actually make money from selling records.
The new situation wouldn't be all that different, except instead of signing with a record lable they use the money they earned to set up a website, and market and sell the records from there. Now the records they sell actually makes the band some money. They can use that money for marketing and income, while also doing the usual gigs. If they really are popular they can use whatever money they want on more marketing nationally or try to go international.
My text is a bit rambly and has a lot of 'ifs' in it, but the advantage of this ideology is that when I buy a CD the money actually goes to the band, and not to the record lable. Buying the CD directly supports the band. Also, if the band just loves making music and doesn't want to go for the big dollars they can easily decide to make their CDs €11 ($19) which is half price of the normal album price here of €22 ($37).