"Sorry, don't get it. "
Sorry Bryan - what don't you get?
Are you saying what you describe didn't happen, that the clubs didn't become a dumping ground for any type of music, and the audiences could no longer find what they were looking for (not an "unexplained reason"), or are you claiming that everything that that was performed at a folk club became folk because it was it was performed at a folk club - as has been claimed?
None of this has anything whatever to do with dictionary definitions; it would be "purism" if anyone were to insist that only songs conforming to a definition were performed - never happened in my experience.
People stopped going to the clubs because the term "folk" ceased being a guide to what they would find there; the term never evolved, was never re-defined; it became meaningless (to most of the clubs); it retained its meaning in its literature, documentation and research; that remains the same - it is basically a club phenomenon.
Jim Carroll