Smooth Jazz is an amalgam of genres.
"real jazz"? No such thing...Jazz is interpretation.
Traditional Jazz/Classic Jazz...wonderful music, artists, and history, our true American Music & Art Form, but it translates poorly to the confines of commercial radio.
This is by no means a scientific measure, but when I was working public radio 20+ years ago and we ran fund drives, the format that always has the least amount of donors and actual dollars was Jazz, while the Classical, Blue Grass, and other formats we played/carried always had money, support, and active listeners. What does that mean? Maybe not much other than support for Jazz as many would define it wouldn't survive a lick on terrestrial radio. Not that Coltrane, Miles, Parker, Brubeck (to name a very select few) aren't awesome and aw inspiring, but that style is tough to capture in a finite medium when the music is so deep, vast, expressive, and free form.
Smooth Jazz is "pop" Jazz...meaning it is made more palatable for the masses. Still giving you some of the essence of Jazz without playing a 10-20 minute masterpiece.
For those who rail on Smooth Jazz because it is not "sophisticated" enough for them, hate to tell you, the format is not aimed at you. Just like the "purists" of Classic Rock, likely they don't spend much time listening to their local Classic Rock station play the same 700+ songs. They want the "deeper" cuts and album sides.
The reason Smooth Jazz is losing on terrestrial radio, first from a sales/business side...folks are not trained enough to sell the qualitative...they focus on the quantitative. Agencies don't know how to buy/use the format for their clients (plus it doesn't help when an agency rep is in their 20's and doesn't get the format). Also, owners want results now, and they do not have the patience to grow and nurture the format. SJ stations need at least a year or more to gain traction...in these new days of PPM's, the already quick hook of management and ownership will be that much quicker in flipping formats.
From the programming side, unlike Classic Rock, Oldies, Country, AC, and a few others, Smooth Jazz has no "feeder" format from which to attain the younger audience who grows and matures into Smooth Jazz. The aforementioned formats have Top 40, New/Alt Rock, Hot Country (in some cases) where they will get their younger demos who eventually become 25-54. Smooth Jazz, outside of cherry picking a select song here or there from some of those formats, does not have that....there is no "Top 40 Instrumental Jazz" format.
This is just my insight having jocked and programmed on some very successful SJ stations in well known markets back 10-12 years ago and up until now.
I love the format, and think it has a place, but outside of Cali...with KKSF, KSSJ, KTWV, KIFM, and a few markets on smaller fringe signals, the format appears to be relegated to Satellite or Internet.