You are helping to explain the mystery. But like you said it's BAR loyalty.
Bands don't have the problem. DJs don't have it...ONLY KJs.
I know people that go to crap karaoke so they can be the stars of the show. Even on a crappy system good singers can sound better than average.
They also go because they don't have to wait as long in the rotation. Being too good has it's draw backs.
Or they went because of a contest. Some go for drink prices/specials.
But they aren't going for the "good" karaoke...everything but. It's still frustrating. You work your tail off making them sound good and they reward you by being loyal to the bar, not you.