If children are your target audience then you will live and die by trends. Today's hottest toys are next year's clearance items. Brands achieving any real longevity are the exception, not the rule.

I think it's simple. The Toys to Life genre quickly got old. When Skylanders first came out the idea of having your toy show up in the game was an intriguing and cool idea that appealed to many people. However, once that magic went away after a few years it just wasn't as intriguing anymore, and I'm sure many people including parents were fed up with buying new toys every single year and I don't think Skylanders did a good job of trying to market these toys as being worthwhile outside of different movements. I also feel like Skylanders shouldn't have done an annual release model, people got fed up with buying new toys every year and it didn't help that there were other toy to Life competitors adding onto that saturation like Disney Infinity and even Amiibo.

So for TLDR, people just got tired and over the toys to Life concept and didn't wanna spend more on toys every year.

They milked it for all it's worth and the market ran dry. It was a trend. The trend ended. Same thing happened to Guitar Hero/Rockband. Too much in a short period. Too expensive. Too much plastic crap.

1. Too much, too soon. Who is to say if more games and revenue could have been made if there was about a 2-year gap between each game? It's possible.
2. The requirement of the portal and characters to play is not a massive barrier (since it comes with the core game in a big box) but it is extra stuff to worry about.
3. I think others were right about Nintendo. Nintendo in the home console space was in quite a weak spot from 2011-mid 2014. Mario Kart 8 and Super Smash Bros. helped pump some extra life into Wii U, but not enough. If a family isn't interested in new titles from Nintendo in about that 3-year time period, where do they go? Skylanders is the most obvious choice along with Lego games.
4. Too many competitors eating up market share. Lego and Nintendo went in on Toys to Life.
Activision Blizzard is making plenty of money on Candy Crush, COD and WOW to name a few that I don't think they're worried about reviving Skylanders.

Better watch what you call “plastic crap”! A few weeks ago, I purchased a Robow figure (character form Skylanders Imaginators) for around $390. Very worthwhile investment if you aks me.🤷‍♂️🤷‍♂️

I think another big problem that definitely contributed and accelerated it's downfall was that Activision was making Skylanders an annual release when they shouldn't have. That's too many toys to release in that short time span for people to keep up and stay interested without it getting old and too expensive very quick.

I think the toys to Life trend could've definitely stayed longer and potentially more profitable if Skylanders came out with a new game and toys once every few years where people could keep up amd not feel the need to spend money and waste space every year on toys and feel a bit more desperate for a new Skylanders game and toys since the games would release once every few years.

But Activision milked the franchise way too fast.

Well, the market was saturated. Not only did Activision release new Skylanders game every year, there were also many more toys to life games. Disney Infinity, Lego Dimensions, Amiibo games. Pretty much the same happened to Guitar Hero and Rockband games.

As the games were for kids, they get bored rather easilly, but also paying 60€ for a game and an additional 100€ for characters didn't make parents happy. I believe most bought the toys from a clearance once the new ones cane out, so the retailers didn't have much incentive to keep the toys on a store shelf because they weren't making any money with them.

And in the end, someone figured out that selling everything as DLC would make more money anyway. It's just hard to sell "toys to life" as "DLC to life" once people have learned to associate certain brands with toys.

I personally bought at least 3 Skylanders games, one Disney Infinity game and Lego Dimensions for my kids and quite a few toys - all toys from clearance for pocket change.