Sit down with him and a couple beers and have a sincere man-to-man talk. Something like, 'Hey, you suck. Seriously. You might have potential and all that good shtuffit, but it's not showing yet. Do you want to play in my band under my terms and rock, or would you rather keep crappily funking around by yourself in your bedroom?'.

Well, that would probably be a really bad thing to say, but don't be afraid to be blunt.