Many reasons. Going back to the 1980's, successful bands had huge earning capacity by the public paying a cover charge to enter (even only $5). This allowed a medium to large band to provide full production, road crew and put on a 'show'.
With the refurbishment of Fremantle in 1987 for the America's Cup, a proliferation of taverns starting providing solo, duo, trio and backing track entertainment with no entry fee. With late licences and the new look 'smaller' venues, this has a sharp impact on the 'pub scene'.
By the early 1990's, cover charges had all but disappeared locally, and with them went the roadies, the trucks, the light shows and the pa's - and consequently, the 'show' factor and then the musicians themselves, who had to revert to music being a hobby.
Combine this with tightening drink driving laws, sharp increases in the cost of drinks to replace the cost of entertainment (that had previously been subsidised directly by the door charge) and before you know it - there are very few bands with no production values.
As a result, the consumer, who is willing to pay in excess of $100 a ticket for a real 'show' (touring concerts etc) now thinks no cover charge is still too much for a group of guys playing songs in the corner. Especially then to pay $10 for a drink you can but from the bottle shop for $2!
Throw in the advent of accountant-run hotel groups that realise they can get a better m2 rate fro their property 'investment' by knocking down the venue and building apartments or offices, or installing bottle shops or poker machines, and you can see the magnitude of the issue the music industry has faced in the past 20 years.
These are no means the only factors, but I believe significant contributors to the change and decline of the live music scene in Australia. Sadly at least 2 generations now have not experienced the excitement of an Australian 'pub show' - and never will. They will play rock band on their Xbox or PS3 and think how cool that is, without having been part of the real thing.
It is sad in a way, but that is apparently 'progress'. I still play the occasional show in Perth with a bunch of mates who also played in the 80's - but these days it's just for fun. It was great to be part of that era but time has moved on.
The entertainment industry as a whole has moved on and will never be the same again - despite the dreams and hopes of many that were part of it.
Tom Tapping runs Event Masters at www.eventmasters.com.au - a specialist entertainment business assisting groups with fundraising events and general entertainment. From 1985 to 1991 he fronted poular Perth cover rock band the 'Rookies' and in 1994 went on to form 80's 'send-up' party band 'Countdown'. The band still performs some corporate shows in Perth. In July 2011, Tom and a group of seasoned musicians will tour the 'Monsters of Australian Rock' show, as a big production tribute show to the Angels and AC/DC.