I think you're thinking about this a bit too extreme in either direction.
Gaming is becoming a lot like Hollywood, where you have major $200 million blockbusters, and then some notably cheaper movies.
The blockbusters, while not super plentiful, don't actually disappear. However, they do overwhelmingly tend to be a from a few sub-genres like superhero movies, centerpiece CG animated films, and various sci-fi/fantasy action/adventure films. These are akin to modern day AAA games.
Then there's still a lot of smaller stuff like art house films, romantic comedies, or smaller action films that don't cost nearly as much to make and are satisfied with a notably lower performance. These are akin to digital games.
Just because people can watch TV for free, it ultimately hasn't stopped them from going to the theater, because the content they want still exists there. They just don't go to the theater and much as they might have back in the days of Gone With The Wind. Despite this, the biggest movies still make an astronomical amount of money.
What we've lost is more akin to the type of serial programming that used to run before a movie like Flash Gordon, because that's obviously a much better fit for something like television (since the format is effectively the same) and a variety of movies that now are delivered as direct to video, when they might have been in theaters if we turn the clock back 60-80 years. This is most akin to casual gaming moving to video or certain types of mid-tier titles disappearing or getting even lower budget renditions as digital games.
If your hope is for healthy variety among AAA games, then yeah, overall you're going to be disappointed. However, I don't think you need to fear most of the remaining types of blockbusters drying up.