Quoted from snyper2099:Few different reasons.
First was Got. after releasing Barb Wire.
It slowly died. Look at the production numbers for machines form the late 90's. Most of them are much lower numbers from one year to the next.
Then B/W shut down because the guy running things essentially hated pinball.
He wanted to focus on slot machines, a much better selling product. So they shut down the pinball division.
Sega morphed into Stern and to be honest, the first few years Stern was open was not the best years they had. No one even knew if they were going to survive to year #2. They had Harley Davidson (and holding on to South Park) as a solid license and that's about it.
To be honest, if you look at raw numbers, we have still not come anywhere close to the production year of 1998, in which there were over 20K machines sold across Sega, Midway/Williams in a single year. That will NEVER happen again. Never.
Big business likes guarantees and products that could never lose money. If you look at Sega/Stern in 1999/2000, there were zero guarantees. Gary kept it going as well as he could and a few talented designers and programmers pulled it from the ashes.
The death was a little more protracted than that.
Data East wanted out in the early 90's and sold their part to sega who had been a stakeholder from the start. Sega thought they could maintain by cutting costs as can be seen by their going to the normal sized dmd, showcase 1 and 2 experiments, and through reduced bom. Sega saw the writing on the wall during the late 90's and sold out to Stern who had been running the company. They sold out during south park which was outselling mm at the time.
Alvin G failed trying to be the cheapest and frankly their experiments failed to sell well. Leading with the head 2 head games which have never done well, attempting redemption games with Dinosaur Eggs and punchy, before finally going with traditional pinball. If they had started with traditional pinball they might have lasted longer but would have still most likely have gone under within a few years. Keep in mind they made mystery in fall 93, pistol starting november, and by 94 were dead. Only al's had time to build and market making about 900 which is similar to capcom in 95/96 when the market was in decline.
Capcom took too long to market. If they had gotten in earlier and not had python building zingy bingy which scared off capcom's japanese leaders they would have lasted longer, but still failed due to declining sales. This would have happened with or without williams pressuring distributors to not buy capcoms.
Premier/Gottlieb had a reputation for terrible games both from a reliability standpoint and a ruleset standpoint going back to system 80b. Their 3 month development cycle where everything was done in parallel and lack of updates post release made their games very hit or miss. They latched on to theming their machine off existing ips and it probably kept them alive much longer than it would otherwise. It did have the side effect that if they bet on the wrong ip they would run into a sales problem.
This is all background and doesn't really explain why the market declined and to that end what really changed was the cost of video game development. In the 70's arcades were top dog. In the 80's consoles exploded, imploded, and came back but arcades were still top dog. This lasted through the mid 90's and then something changed. In the 80's a single person could code a console or arcade game in a short timeframe. By the 90's arcade games now required teams but since consoles couldn't pull off anything close to the power and thus experience there was still a draw to arcades. By the mid 90's consoles and the pc market lagged behind power wise by a number of years, but in order to maintain a lead arcade games required too many resources to justify while consoles ensured better sales.
Major video game makers started cannibalizing their arcades by porting to less powerful systems. You also see it pre-planned by releasing more arcade hardware that was console based with hardware tweaks. Compare Virtua fighter to its console incarnations. Then compare soul caliber to its console ports. The incentive to go the arcade was gone. Arcades died out and a large market for pins died out. This is without even going into the issues of pinball maintenance or the fact that the public has a problem with paying more than a dollar to play a game despite inflation.