Videogames were popular in the early eighties too, but were certainly not cinematic then. You had openworld games and tightly focussed games then. Elite/Mercenary were open Horace goes Skiing, not so much.
Thing is you're talking about 2 different markets here
The OP is complaining about the decline of games that are very targeted in their market. That appeal to a very specific fanbase with very specific needs and wants.
Pacman and Mario brothers were never that type of game. They were mass market everybody-pick-up-and-play console games. This type of game is obviously not in decline.
The type of game in decline is games that appeal to a very specific market. Take the new battlefield game for example.They are trying to make it appeal to as many people as possible, by making a balance between a casual game, and a hardcore one for the fans that just want a BF2 re make with the new engine.
A BF2 remake with nothing changed and a new engine would undoubtedly sell, but not nearly enough to cover the costs of making such an epic game. In generations gone by, it was much cheaper and easier to make games like this, so it didn't matter that they didn't sell very well.
Take battlefield 1942, between its release in Sept 2002 and March 2004 it had sold 3 million copies. That's over a period of 18 months, it sold 3 million units.
In comparison, Black Ops sold 5.6 million units, in its first 24 hours !
producing games like 1942 that only appealed to a niche market was fine when games development was cheap. But the bar has been pushed so high now, that its just not viable to produce games anymore than only sell that small amount of units.
New Super mario brothers on the wiii for example, sold over 21 million copies between its realse in Nov2009 and april 2011, a similar comparable 18 month period to Battlefield 1942.
And even if games like Battlefield 3, could be viable by producing a game that only appears to the hardcore fan base and make a profit from selling - say 5 million copies over 18 months. Why shouldn't they alter the game to one that appeals to the mass market, and instead of selling 5 million copies, sells 20 million across the various platforms like COD ?