I don't have any idea whether this could work or not; I doubt the other guy is anywhere close to making any money on it but I could be wrong. I have only dropped by there a few times, never sat through a whole song and never paid anything.

You are right that we have to find a new paradigm but personally I cannot see me ever paying a cover charge to watch something on the interwebs! Just too many other things to choose from. I think you'd be wise to include the tipping method as it seems to be something folks could get into while already engaged with a show.

Also, you should probably focus initially on gaining popularity and then you could potentially earn your revenue from ads or sponsors or premium memberships, etc.

If you are serious about it you should consider launching a Kickstarter campaign and see if you can get enough funding to launch (or at least cover your costs for the first few months!)