Arcades are like the motion pictures, motion pictures started at the movies and could only be seen there (same for early videogames), then the tv came out (home console came out), for both the quality and variety did not rival going out for the entertainment, then finally tv caught upto the movies and with cable, surpassed going to the movies. the same happened with videogames, home consoles surpassed going to the movies.
the difference is the movies still have something you cannot get on tv (yet, i stress), you have a huge screen and awesome sound and they debute their first.
arcades need to have games that cost less to make and using console hardware is a good idea (but beef it up a bit), then they can charge less to play the games, but arcades need to go online as well if theyre to survive (people just don't get the competition theyre looking for, whereas in its heyday everyone went to arcades).
if they go online, you will always have a person to play against, and their can be tournaments and such. wouldn't it be fun to goto an arcade and play a racing game against 28 other people at the same time? or do people prefer AI right now