For those not in the industry swim, this terminology is used primarily by agents and editors. (Maybe by in-house marketing people, I don't know.) They use the phrase in panels at conferences, or during one on one pitches. They'll sadly shake their heads and say, "that sounds like a great story, but that genre is dead." By that they mean, the agents don't think they could sell it to a publishing house and the editors don't think they can sell it to their acquisition board or marketing team.
You'll also hear them say it with confident scorn - largely when asked what they're looking for and what they don't want to see. "Vampires are dead!" they'll scoff, perhaps with an eyebrow waggle for the pun. "I'll set my hair on fire if I have to read another vampire story."
There's a couple of things going on here, one real and one not.
The not-real thing is that this is their job and, like everyone does with their jobs, they get tired of certain things. It's easy to wear thin on stuff and cast your scorn for it in a stronger light than you might otherwise. There's also a huge component to that job that's reading the future. In traditional publishing, they're trying to forecast what readers will want to buy as far out as two or three years. Being able to prognosticate confidently is half the battle. (Being able to accurately do it is the other!) Most of them want to sound smart and savvy, so being able to declare what's hot and what's not is part of that.
If you press them, they'll pretty much all concede that no genre ever "dies," that it's all cyclical, and they mainly mean that it's a hard sell right then. It just doesn't sound as sexy to put it that way.
That leads us to the real part. It's a fact that the publishing market gets glutted. What happens is this:
- NEW BOOK BREAKS MOLD AND SELLS LIKE CRAZY (e.g., Fifty Shades of Grey, Harry Potter, Twilight)
- READERS LOVE THIS AND WANT MORE
- PUBLISHERS SEE CRAZY SALES AND WANT THAT, TOO
- AGENTS AND EDITORS SCRAMBLE TO PUT OUT MOAR BOOKS LIKE THAT
- MOAR BOOKS LIKE THAT GLUT THE MARKET
- READERS BEGIN TO TIRE
- SALES DECLINE
- AGENTS AND EDITORS DECLARE THAT KIND OF BOOK DYING OR DEAD
- NEW BOOK BREAKS MOLD AND SELLS LIKE CRAZY
So, really, it's not like a genre dies on its own. Arguably the industry flogs it to death and leaves it dying on the compost heap.
Still, what authors need to know is that a "dead genre" doesn't mean there's not a market for it. It means they're unlikely to interest an agent in it or sell it to a publishing house.
It doesn't mean that the well-established authors in the field aren't still producing and selling books. They very likely are.
It doesn't mean that self-published books in the genre won't sell well. They very well might! But a little numbers comparison explains that. If an author self-publishes a book and sells 1,000 copies for $2.99, she makes $2,000 on it. Considering that she likely spent no more than $1,500 producing the book, she's already ahead. If she sells 5,000 copies, she's made over $10,000; if 15,000 copies, she's made over $30,000. That's a decent income.
Now, to many publishing houses, selling 15,000 copies is a failed book. They work on an entirely different scale.
It all depends on what you're trying to do.