Can't remember who said it, but it was from the King of Kong, "Everybody, even grandma, games. If not now, in the past. I mean, show me a frickin' nun or a hermit who hasn't played cards or checkers."
Lots of comments mention that this is such an arcane hobby, which it is. A lot seem to miss that this is a game. So I think comparing it with knitting or collecting toys is only somewhat apt.
It used to be that people went out for entertainment. Now they have larger houses (generally), beautiful home theatres, video games, deep board games, etc.
Arcades died when people had access to top quality gaming at home. Pinball, while unique, suffered along with arcade games. Less machines got made, and the average person can't justify spending thousands of dollars (even though they more or less retain their value) on a game that serves one purpose, takes up space, and requires maintenance. Of course many spend it in other ways. But frankly, I'm perfectly happy with one 15 year old car split between my wife and I...
All that being said, I am still surprised that location pinball isn't more popular. It's unreplicable, and while I see the social aspect of billiards, I fail to see how pinball can't be similar if you have a friend on the machine next to you.
What I think is the real question is: why isn't it more popular on location? I think everyone here knows why more people don't have a machine at home.