Fiction is alive and well. This article is specifically about the decline of literary fiction.
I think people simply realize how boring and pretentious much of contemporary literary fiction is; many choose to go pick up a science fiction, or thriller, or even romance novel that can convery all the same ideas in more interesting and accessible ways.
I think it's pretentious too, but I also think it's a useful distinction in the sense that the category aspires to deeper and broader ideas than a lot of fiction- Harry Potter, Hyperion, Dennis Taylor, We Are Legion, Twilight.
Not to say that the distinction itself, literary vs non-literary fiction, isn't extremely pretentious. But we all recognize that some book's ideas are more shallow than others.
I think people simply realize how boring and pretentious much of contemporary literary fiction is; many choose to go pick up a science fiction, or thriller, or even romance novel that can convery all the same ideas in more interesting and accessible ways.