There was a time when arcade games destroyed the competition from home consoles. As incredible as the home consoles were, they couldn't compete with their arcade counterparts. You can watch any game that has appeared on both consoles and arcades to see for yourself.
Compare famous arcade games like Skee Ball Machine, Pinball, Iceball, Double Dragon, Shinobi, and all the other classics from that era with their NES versions. It's pretty obvious which ones were more powerful than the other. You can also browse to alleyrollers.com/ and buy skee ball machines.
No matter how much the consoles have grown, you still can't catch up with the gaming experience that arcades provide. Even when extraordinary computer games like Doom or Half-Life appeared, they still didn't have the graphical and audio power of "Time Crisis" in your local arcade.
At some point, things have changed. It really became obvious when the past "next generation" consoles (XBOX, PS2) came out. It was the first time that people could unequivocally say that home video games could compete with arcades. The sounds and graphics were sharp.
Popularity in arcades had been dropping before then – add that to the fact that the days of 25 cent games have been dead for quite some time. It used to be that you could walk into a game room with $ 5 and you knew your afternoon was ready.
But due to the higher cost of games, arcade owners had to be reimbursed in some way at a faster rate than ever before. People could now have that similar experience at home without having to pay for each play. Players simply stopped spending hours and hours in the arcades. Now they could have fun laying on the couch.