Let me put it this way - "the fandom", meaning the hardcore III veterans, wasn't interested in playing anything but III. Never was, never will be.
That's a pretty outlandish assumption and I'm fairly sure a lot of people would absolutely love to play a new proper HoMM game if it arrived. The community sure liked V enough for it to have an active multiplayer scene, modding and proper expansions, including a standalone that's best HoMM outside of III and that many of my homm-pals played the living shit out of.
And after games like Disciples 2 or King's Bounty came out it became clear that the only way forward for the series is a completely new approach.
These games are barely homm-like and since D2 is like 99% about combat that's not homm-like at all even "barely" is probably an overstatement. The most important part, though, is that KB is strictly pve and while D2 technically has multiplayer it's hugely pointless and was doa so they were never "future" for homm at all. They were also obviously unable to secure the future for their own series particularly well so not sure what the assumption that their approach would be good for a much bigger entity is based on.
There were two options when it comes to homm actually having a future:
1. Developing on V with more money and more talent, which the new owners were not able/willing to do.
2. Let the game remain a completely oldfag thing that's actively supported, which the owners were obviously never interested in outside of limpdick cashgrabs like the official III re-release. But a bunch of Russians did it for free so hey, no complaints.
Not that VI delivered on that front, it was way too half-assed for that. VII was more courageous but by then it was too late.
For whatever reason you make it sound like VI and VII and the "death" of homm are not connected? Products like that are obviously the cause, not the result.
The genre was long dead, suffocated by the "original formula" that nobody gave a shit about anymore.
Here's the part where I really don't know what you're talking about. HoMM was never even close to being dead, especially not as far as concepts from the nineties go. It always retained a big and vibrant community that later got a huge shot of krokodil when HD and HotA became a thing. Today, it remains popular even by modern metrics and doesn't seem like it's going anywhere. And we also have Succession Wars in the pipeline.
Why would you ever bother with any other Heroes games when III and V exist? Forget about everything else and just play those two.
Well, pretty much but also kinda no. I really like getting back to II because of the music, the graphics and the economy, which is miles better than III and not that straightforward even on normal. Being able to actually field level 6 creatures is a huge thing that feels super satisfying and really changes the game, as it should be. It's just that II is obviously completely dead as a "serious" game due to III being a better version of it and utterly fucked up faction balance.