In looking again at the article I wrote on the nature of the short story, I realize perhaps I was a little too hard on the NBCC piece I was criticising. I think I was just so taken aback by the very narrow definition of "art" and the glib manner of dismissing old short stories as "not art" that it was difficult for me to be fair.
The thing is, film and television did change the short story. Yes, Joyce's Dubliners was part of a continuum of naturalism that reached back well into the 19th century and represented what short fiction would become, but its dominance was not an inevitability simply because modernism and realism were the new fashions. Indeed, while those things have dominated literary fiction in novels, they did not dominate novels completely, as any glance at the New York Times best-seller list, replete with its Stephen Kings and Harry Potters will tell you. Nor did it even dominate short-stories completely (only mostly), since work has continued to be done in the genre ghettos and published in places like Alfred Hitchcock's Mystery Magazine and Asimov's Science Fiction.
When the short story was created in the nineteenth century, it was the right form at the right time. Literacy had expanded to unprecedented proportions in the West, and industrialism had created the means for many more publications to exist than before. In other words, there was a public who would desire written stories, and there was an environment that could produce lots of magazines and newspapers happy to give it to them. The short story exploded, coming to the height of its popularity around the turn of the 20th century when Sir Arthur Conan Doyle and H.G. Wells walked the Earth. The short story was something people could read over coffee in the morning, or with a beer after they got off work and wound down, a quick hit of story, here and then gone.
As film became popular, it's true the the popularity of the short story began to fall off, and when television came around the short stories' narrative hold on the public was thoroughly broken. They no longer needed short fiction to get quick doses of entertainment. Once a lucrative career, short fiction became more and more difficult to make a living at, and the kind of people who really wanted to make a living entertaining people with stories started writing television and movies, which quickly became very lucrative indeed. The only people left to write short fiction were the people who really loved the form, or sought to use it as a stepping stone to success writing novels. Without the audience, publications stopped publishing short fiction, except for a few hold-outs like the New Yorker, Harpers or Playboy and some few genre magazines whose pay rates are ludicrously low. The form was really kept alive by literary journals and universities, exactly the kind of places which preferred Joycean Modernism, and that is the real reason why Joycean Modernism came to be the dominant style in short fiction.
Which is to say that the essay at the NBCC on the history of the short story isn't wrong, exactly, it's merely wrong-headed. And I think that with the rise of the Internet, with people reading off of screens all the time anyway, perhaps it's possible that the short story could make a quiet comeback. The trick would be to have short stories compelling enough to tear people away from Wikipedia or MySpace. Maybe they could read them over coffee in the morning, or a beer after work...