It's not just an oversupply of musicians, but it's also an undersupply of venues, technology that lets a duo sound like a full band, readily available media, and laws regarding drinking and smoking that have affected the number of gigs out there.
Bands playing for free is a factor, as music scenes don't operate in a vacuum. But, it's not the only factor, or necessarily the strongest factor.
You know what else we can add here, if it hasn't been mentioned already?
The audience, or a lack of one.
As part of the supply/demand/free market discussion, we cannot forget about this. It just isn't as cool as it used to be to see live music. Particularly WRT "rock-n-roll" and any number of offshoots of it - who really cares anymore?
In the 50s, 60s, hell even the 70s, it was still new and fresh, it was exiting, dangerous, subversive, novel. Now everyone is a "rock star", you can see "live" music (if you care to) on TV, the internet and so on. A far smaller segment of the population gives a $hit.
The ones who should, the ones who used to get hooked on R&R, the pre-teens and teenagers, who couldnt wait until they could go to their first concert (with mom, or someone elses parent), and couldnt wait until they were of club age to go see some up and coming band
..they are into Justin Bieber and other crap these days. And while many of these Disney Pop artists are out there with bands behind them (hey, more power to the guys who get those gigs playing that rubbish), it isnt a band experience. Its an event, usually a re-creation of the videos and such that get the artist noticed.
A kid who has grown up seeing that sort of event isnt likely to going to understand or enjoy a basic club performance
.its too ordinary, even the good ones.
When I would see bands on Don Kirshners Rock Concert, Midnight Special, Saturday Night Live (the orig), or in the movie theater (The Song Remains the Same @ the age of 12), I was on the edge of my seat, cuz you just didnt see it that often. As a result, I was exited to see a teenage rock band at the town festival in the summer; it was a concert to me. When I saw my first big name concerts (Peter Frampton 77, then Aerosmith 78) I was blown away. When I was old enough to hit the clubs, I was thrilled, because it was much more intimate.
But in all of these cases the experiences (screen, arena, festival, clubs) were similar in terms of presentation. Thats not the case now.
Ugh I just read through this and I sound like a rambling drunk old man. Did any of that make any sense??
I guess all I am trying to say is your basic bar/club band (cover or orig), is in low demand not only due to oversaturation of bands, but because the general public doesnt really give a crap anymore.
Ultimately I blame MTV.
Really.