The answer is probably a bit more complicated than it seems.
Let’s use the phrase “what you can’t do at home” …
Most arcades were an evolution of other types of recreational entertainment. Many started off as billiard halls or “rec centers” with many types of physical machines like Foosball tables, etc.
Pool tables and the like were expensive, huge and luxury items that were impractical … “what you can’t do at home”.
When pinball sprung up — it was a force to be reckoned with. These were heavy, expensive machines that actually made more money than a game of 8-ball or 13 point Fooseball as most people couldn’t play for a half an hour for 50 cents. Again, you went to these places for “what you can’t do at home”.
As pinball reigned supreme, the arcade games like Space Invaders, then Pac-Man sneaked in. They cost less (typically) than pinball machines, they took up less space, and they really made more money. Again, these games offered an experience “what you can’t do at home”.
Soon, these locations started dropping “physical” things like pool tables, Foosball and other draws that weren’t able to be rendered obsolete by technology. Pool tables are still big, heavy and expensive — even today — few of us have one at home — meaning if you want to play pool, you still have to leave the house.
So now we’ve moved to the “pure arcade”. Pinball machines were phased out too — and we just had a room filled with all the rage; the latest arcade machines.
Many arcades became cesspools. Bad elements were here; drugs, smoking and undesirables. Cigarette burns plagued the expensive machines. Vandalism. Parents kept their kids away and arcades started getting a bad reputation.
Still, arcades were able to do “what you can’t do at home”.
Arcade chains popped up like Aladdin — and they tried to sanitize the arcade. They controlled who was there; they cleaned up the clientele and made the arcade family fun again.
Meanwhile, home video games were going strong. Atari, Mattel and Coleco were doing just fine with home video gaming — and arcades were still just fine. The reason, of course, is because arcades were still providing a level of entertainment not deliverable by these devices. Sure, some of it had to do with graphics fidelity, but the “home version” of the games just weren’t up to snuff. Plus the arcades filled another need; that of an audience. People liked to be in a social environment — they liked to “perform” their gaming prowess. Chasing high scores was still addictive. For many that still frequented arcades — the “experience” was “what you can’t do at home”.
However, the gap was closing in terms of arcade->home parity of video games. Colecovision stunned everyone by releasing a Donkey Kong that — er, looked and played like the real thing.
The video game crash of the early 1980s was felt everywhere. Home consoles took a dump, which removed the “arcade experience at home” moniker and arcade owners hoped this would drive people back more to the arcade. There was a nice resurgence, but it was short lived.
The home computer picked up where consoles left off. The Commodore 64, the Apple ][ … even Atari got in on the craze.
Games looked better, played better and were a considerably deeper experience than on the generation of consoles that took a dive.
Instead of returning to the arcade? People got Commodore 64s.
Arcades weren’t cheap; to stock or to operate. The big chains seemed to go away almost overnight — they sold their locations to local route operators or those still willing to invest. Buying new games cost thousands and took months to make any sort of profit. Prime locations like malls costed a fortune. It was an unsustainable business market.
It is worth noting that the smart arcades ended up reverting back; they brought back pool tables and machines that weren’t possible — even on Commodore 64s. They went to more service driven models; food, fun AND video games. Arcades shrunk into pizza parlors, eateries and back to recreation centers. Many of these are still alive.
The arcades never recovered from the video game crash and the transition to home computers. Even when consoles returned, it was simply too late. In 1985, Nintendo’s NES actually DID bring the arcade home with pixel perfect versions of the hottest games of the time (namely Super Mario Bros.) — but I won’t give them all the credit. The arcade had been on life-support for several years at this point. All Nintendo did was phone in the time of death.
It is worth noting that “entertainment centers” still thrive — mixing video games, pinball, redemption machines, mixed reality, gaming “pods” and things like miniture golf, rides and attractions like XD Dark Ride. These work largely off the “what you can’t do at home” principle with nostalgia on the fringe; parents bringing their kids to “the arcade” to play the games of their youth.
What destroyed arcades? I’d give a nod to the home computer market. They were there long before NES and portable game systems. They redefined gaming and moved it from an outsourced experience to a home one.