(Note: This article focuses purely on the AMERICAN arcade market)
Ah, the good old arcade: birthplace of the video game industry. Many great games started from this place before being ported to the consoles. But now, those great games are seemingly reaching the consoles first and the arcade second. A business once on top of the world is now only able to survive by being combined with restaurants and bars, or put to the side of some super store for parents to leave their kids at. How did it come to be this way? Was it the industry's own fault? Was it because of the gamers? Or was it because people don't know how to run an arcade place? For today's Gaming Trends, I look at why the arcade has failed.
A brief history of the Arcade

Think of any establishment that comes to mind. It's likely that in the 80's, it had an arcade game in it.
The arcade market started around the early 70's, with Atari releasing the first commercially successful arcade game: Pong. Atari and Midway would dominate the 70's with Pong and Gun Fight respectively until Taito would release Space Invaders, a game so popular that Japan was forced to triple their coin output because the game was taking all of them. By the 80's, the arcades had become a phenomenon. Iconic characters such as Pac-Man and Donkey Kong were getting their own cartoons, cereals, and in Pac-Man's case a freaking song. All sorts of stores and other business locations were carrying arcade units, including grocery stores, restaurants, and a funeral home. I'm not making this up: There was once a funeral home that had an arcade machine. Yep, arcades were really big in the 80's.
But that would soon turn out to be the problem. Arcade games got so big that it cracked under it's own weight. The market was so saturated that the orders just stopped coming. It also didn't help that arcades were also getting the reputation of being evil places for children to be hanging out and was blamed for kids cutting classes. By the early 90's, fighting games such as Street Fighter 2 and King of Fighters would come out and seemingly revive the market, but it was not to be. By the time the new millennium began, the arcade industry was pretty much dead.
In most amusement places, arcade games are largely replaced by "redemption games", where you earn tickets to trade for prizes. The only kind of arcade games to be played a lot of the ones you can't experience or not as well at home like Dance Dance Revolution or Police 911. So why exactly did this happen to the arcades and who's fault is it? Here are some of the reasons I've come up with as to why it happened.
#1: They're fucking hard! Or rather, just not as simple

Know how to fight as someone besides Ryu? Congrats: you might make it past Round 3.
This is how to play Space Invaders: Move left and right, press the shoot button.
This is how to play Pac-Man: Tilt the joystick in the direction you want to go.
This is how to play Marvel vs. Capcom: Press MP + MK to call a striker, press D-DF-F HK + HP to do a tag team super, press D-DB-B HK+HP to use both characters at once, and then to do a combo for a character...yeah, see where this is going?
Arcade games thrived on being simple to play in the old days. These days, you have to play really good in order to have any fun. If you don't get really good, you're not going to have much fun. If you don't have much fun, then you're not going to keep playing are you? Even if you do, you're going to run out of quarters sometime. This leads to my next reason...
#2: Newbies be gone
Say you find a fighting game like Dead or Alive and you've never played that game before. You decide to pop in two quarters and try it out. Then out of nowhere, an experience player comes in, kicks your ass, and there went your turn. You've spent approximately three minutes playing a game you've never played and lost 50 cents because of it. Does that sound like you want to come back?
Basically, you'd have to find a way to get real good real quick, and unless you can find a place to play alone, what are you mostly likely to do? Buy the home version of the game. But even if you keep practicing, suppose you keep getting beat at the arcade or you never get to play again. Then it's likely you'll just stick to your home version.
This is the same kind of "social cloud" feeling you'd get if you were new to Counter Strike and got lashed out for being new. Personally, I've got better things to do then being called names and racial slurs because I'm not such a damn professional at games like others. I think a lot of people thought of that as well when they decided to stop going to the arcades.
#3: Manager? What manager?
So one day my brother and I decide to go visit an arcade/pool place. We were dropped off at the time the place would open (2PM) and we said we'd be there for an hour. But when we arrived, the place wasn't openned yet. Okay, the guy is a little bit late I suppose. Ten minute go by...no one arrives. Twenty minutes...no arrival. Then it became thirty minutes. Forty minutes. Fifty minutes. By 3:15PM, the guy FINALLY arrived but it was AT THE SAME TIME our ride came to take us home. We just wasted over a fucking hour waiting for somebody to arrive!
I have to think that this is another reason why arcade/game places go out of business: the people running them are idiots. Video games, no matter how much we try, are just not taken seriously in society unless someone starts a shooting. People with this kind of mindset about video games will pretty much run an arcade to the ground.
#4: The consoles fault? Wrong!

Consoles were so superior that the arcades were stuck with inferior looking games like Soul Calibur 2.
Some might argue that the reason arcades are dying these days is because the consoles have become much more advanced then they've ever been. With graphics rapidly changing and advancements like the Sony EyeToy emulating camera games and the Wii having motion sensor controls, it's a valid theory.
But think about this: consoles were also around during the time of the Arcade boom and they had the same games as well. So in a way, arcades were just as or more advanced then consoles. Even these days, there are games like Police 911 and Silent Scope that you can only play at arcades (ignoring the bastardized home versions of Silent scope). So technically, haven't arcades become much more advanced then they've ever been? Perhaps it's really the arcade's fault for not advancing enough. It succeeded back then, so it should've succeeded now.
Overall
Americans seem to care about arcades about as much as Soccer. You'll find an occasional fan, but the market is long done. As always with the game industry, the old consoles are moved aside to make way for the new ones. Perhaps the arcade was meant to be as well.
[credit: Lee Andrew's "History of the Arcade" article, Killer List of Video Games for all images]