There are other considerations. If it costs a lot more to have someone using the machines than to have someone using the free weights, you might be better off with just the free-weight crowd than you are also having the intermittent machine guys. You want customers that are profitable, which isn't the same thing as customers that only rarely show up.
If it's really what happened I'd see that as a pretty great move.
At same spaces, yes! Good quality barbells and weights, while expensive, keep for over 30 years. Bodybuilding and powerlifting doesn't take much space, so you don't need a large space, and the customer base is dedicated and can often tolerate their gyms being a bit out of the way. Machines, however, like to break and are incredibly expensive compared to barbells and weights.
When people want to join a gym they ask the fit guy which gym they recommend. It's a bit like techies recommending thinkpads or macbooks which gave those respective products massive boosts.