I think a part of it has to do with society today as well. Before, if you wanted to hang out or talk with your friend, you had to go see them. You walked over to their house, or you all went out for lunch or whatever. Now though, people are less connected in the real world because they are so connected online. Cell phones, Facebook, Twitter, whatever you use. The image of a group of friends sitting at a table and all of them are on their cells, not paying attention to each other, has become very real.
People "hang out" more online now instead of in person. "Hey, you want to play X?" before involved setting up a time and then one of you going out of your way--be it two minutes or twenty minutes--to the other person's home. Now, it's as simple as turning on the system and linking up.
Local, split-screen multiplayer is becoming like a pay phone. Yes, they still work and serve their purpose just fine, but people just don't use them as much.
Yes, there will always be those fun party games where you can get a group of friends together and you all have a blast while eating pizza, but the idea of two people sitting down on a couch to play a non-party game is becoming a dated idea in society now. While older gamers probably have fond memories of going over to John's house, younger gamers today most likely find the idea very strange. "Why can't I just play with him online? Why do I have to go all the way over to his house to play the same game that I already have too?"
That's another thing too, I think. Consoles are more present in homes now than before. Before, Joey around the block was the popular kid because his parents bought him the new N64 or whatever and everyone wanted to play at his house. Now though, odds are Ricky and Jessie also have a PS4, just like Joey, so they see no reason to go over to his house when they can just play with--or against--him online.