DJs are cheap, and demos are expensive.
Music is the most important thing to good dancers, or at least dancers who've had a lot of practice. Demos, with some honourable exceptions, are more important to dancers who haven't had time to get bored with them yet.
Inexperienced dancers learn what's important mainly from how other people behave.
If you get a good DJ, you give the DJ a booth or table in a prominent, high-status position with a view of the dance floor, and you expect and enable the DJ to attend to the the music for the benefit of dancers, you are acting as though the music is important. And, with luck, you deliver good music. You attract good dancers, because to be a good dancer you need some appreciation of the music. They attract OK dancers (like me). You convince the less experienced that music is important, and you give them experience of good DJing which they can compare with poor DJing, to your benefit. You influence people to dance better, and specifically in a social way because that's what makes sense when the music is strong. The dancing gets better and the dancers are happy, also to your benefit. The cost is relatively low.
Ten out of every dozen demos probably drive away those who can tell the difference between the professional and the good. They convince less experienced dancers that social dancing is a watered-down version of stage dancing, and that they should get a performance for their entrance fee. They influence people - ten times out of a dozen - to dance worse, and specifically in an antisocial way, which drives out better dancing. They are mostly one-offs by visitors, and don't create loyalty. And they are relatively costly. None of this benefits the organiser much.
Specifically, why are there more Boring Performances than there are outstanding DJs, and why doesn't the price of an outstanding DJ rise to approach the price of a Boring Performance?
Well, for a start, most of this is mere assertion and I could be just wrong. I'll leave that aside.
One guess is that it's availability; being an actually good DJ takes a rather high level of knowledge and skill, getting there takes a lot of time and a lot of collecting music, and there's no money in it currently, so it might not seem worthwhile to do the work of becoming really good. You can't hire an outstanding DJ if there isn't one available for your location and night.
Another guess is that there aren't enough dancers who care enough about the DJ to get the process of influencing other dancers started. There certainly are some, and they're remarkably consistent about going to places that are pricey, uncomfortable, and weak in other areas, for the sake of DJing that by all accounts (I'm no expert) is only marginally better than average, and far from reliable. But there are probably far more dancers who want to see a performance, even a bad one, and who seek it out rather than staying away. If the short-term survival of your milonga depends on numbers, then you have to go for numbers over quality. And while long-term survival is all very well, the problem with the long term is that the short term comes first.
Or I could be just wrong. Maybe pouting, knickers-flying, beat-molesting demos don't influence people to dance like fools, maybe they do create long-term loyalty, and maybe nobody turns up for good music. I can't measure these things. But I doubt it.