Kinda, but kinda not.
The bar business, from what I understand, is pretty high-risk. IIRC something like half of them go out of business within just their first year or two. You can make a killing in them if you strike gold and become the hip place in town where everyone wants to go; but otherwise you're scraping by on a poor margin or bleeding money.
When it comes to having a band, or not, it's a pretty straightforward calculation; will having a band mean I make more money than I would have made if I didn't have the band? If just as many people come and drink just as much and I don't have to fork over $500 to musicians, then I'm $500 more in the black. Having music makes sense only if it means more money in the till than I pay the musicians.
The reason CBGB's worked was because the owner was open minded to allowing the kids to introduce
and play a new form of music, that other kids could appreciate and identify with, even though in most
cases they were not talented musicians. It was originally a Country music venue, CBGB's stood for
Country, Blue Grass, Blues which in NYC maybe wasn't a very popular choice of entertainment. So
he encouraged the punk movement by default...and yes you would definitely have caught something if you used the bathrooms there.
So my pov is that it had little to do with the location but rather a movement, and an art form if you will,
that allowed the audience to share the angst of the performer, which they of course identified with.
Today is a much different scenario, people are broke (not that we weren't, but things costed significantly
less then) they have to choose where, when and how they are going to spend what little discretionary
income they have (a few drinks will run you $50 here in NY!), so they as well as everyone else would
rather spend at a place they really want to go to. They price is generally deemed to be not worth the experience or the atmosphere is lacking. That's why live music dive bars do not do well, and gigs that
used to be commonplace are difficult to come across....we can bitch about it all we want...but really
it all comes down to a poor economy, and a younger generation that in general cannot relate to live
entertainment as a valuable product to spend discretionary income on.
Depending on where you are, there's going to be a kind of ecosystem, where the population and demographics of the area are only going to be able to support a limited number of prime-quality clubs that can afford to really support live music. Then you'll have a string of second-tier places that barely scrape by but maybe the owners like having bands so they have them in anyway, and then desperate dives that probably won't last long but hey, maybe if we get a band in here it will bring in some customers. Bands have fans, right?
I had my eyes opened about this when I was reading about the early days of American punk. CBGB's, the legendary CBGB's, was actually EXACTLY the kind of ****hole that you describe as to blame for killing live music - but it was ground zero for American punk, and later New Wave (Blondie and the Talking Heads came out of its scene). The other thing that really impressed me was how FEW venues those bands had to play in - CBGB's, Max's, and maybe two or three other places - in NEW YORK CITY. That gives me a bit of a perspective when I feel like there aren't enough venues for bands in little ole Manchester NH.