I've read this whole thread, and I can see both sides. However, that's the market.
To me (and I'm not a paid musician, other than being paid to put my instrument away and piss off!) this ad is a call for free, decent music. It's an offer to the musicians, with each party getting something. The restaurant gets music of an unknown quality, the artist gets exposure of unknown benefit. A gamble for both sides, but some people like that kind of thing. It may work out great for everyone, or it may bite them all in the arse.
I don't see it as an insult to great musicians. This restaurant doesn't want the product you supply. If they did, they would call you. And you could show them that paying your band would be an investment, because the outlay would be made back in plates and drinks sold.
What do musicians offer as an incentive to be paid? For a bar or restaurant owner it has to be that they can make more profit on food and drinks than is outlayed on the band. Period. Anything else is an indulgence by the owner. If you are the best band in the area, and you want $500 a night, prove to me that you are worth it in dollars to me, not in artistic merit.
Art is a such a funny thing, and the value in it is seen so differently by people. Who would think that a splodge of paint on canvas would be worth as much as a Picasso is worth? I certainly wouldn't pay it. I wouldn't hire Megadeath to do a show, I don't see the value in that. But that isn't saying that their works isn't valuable. It just isn't valuable to me.
To those who feel their music is valuable and has a minimum price, that's fantastic. I'm happy for you to stand so strongly behind your work, and that you take it seriously. Some of us value your work like you do, but you can't expect everyone to value it that way.
Make a note.
Right, make a note.