Probably multiple reasons.
1.) Home consoles improving their graphical power, thereby eliminating the need to go to an actual arcade for comparable graphics.
B.) Japan's culture seems inherently more social than the Americas. In America, if you want to be social, you get online and chat with your friends. I don't know from experience what Japan is like, but it just seems like their interactions are more about getting out of the house and meeting up for dinner or something. Arcades just seem like they'd be more popular and sustainable there.
4.) Online gaming probably put the final nail in the coffin in America. You can't play COD at the arcades. Most of the types of games that are popular in arcades (score-based like shmups, fighting games, etc.) aren't as popular in America as they are in Japan. FPS dominates the American market and those don't lend themselves well to arcade experiences.
With all that said, there have been retro arcades popping up in places all across America in the past decade. Ground Kontrol in Portland is supposed to be one of the best. We just got one a couple years ago where I live with all the classics: TMNT, X-Men, Turtles in Time, Contra, Galaga/Ms. Pacman, House of the Dead, SFII, Mortal Kombat, etc. Every game I played as a youth, plus Mario Kart 64 on a huge screen, plus alcohol and pizza = good times. The place is packed with people of all ages every time I go. So maybe there's a small resurgence happening?
It'll be awhile before I figure out how to do one of these. :P
