The article is missing a lot of context. The Video Game History Foundation (VGHF) has gone into this in great detail on their podcast, and slightly less detail on their blog. In summary:

Every three years, the US Copyright Office considers petitions for exemptions to the DMCA. The big famous example that everyone talks about is in 2015, teachers won the right to bypass DVD copy protection to preserve teaching materials. This exemption had been rejected at least twice previously, but they finally won approval in 2015.

Every three years though, it's a fight. Previous exemptions can also be withdrawn during these proceedings if the Copyright Office or the Librarian of Congress believes that the exemptions are not working as planned and are harming the market.

For a long time now, folks like the Internet Archive have been petitioning to legally allow digital lending of all kinds of content, including video games. This is far from the first time this exemption has been considered. However, these proceedings include testimony and discussion, and the Entertainment Software Association (ESA) always sends lobbyists to oppose the exemptions.

In the past, one of their main arguments that worked was that those who wanted to allow digital lending were customers and enthusiasts who wanted to open their own digital arcades. There was no serious scholarship behind it.

They also were able to imply that video games weren't culturally important like books or movies because they were purely entertainment, and therefore not worth studying or preserving. And this argument worked because indeed, the Registrar of Copyrights saw video games as lesser cultural artifacts.

That's one of the reasons why organizations like the VGHF became so important to the fight. By proving that there is an academic community and non-profits engaged in treating video games as seriously as they deserve. Because of that the ESA shifted its argument completely to the economic harms to the retro game market.

To counteract that argument, the VGHF performed a study last year showed that 87% of video games are no longer commercially available, so there's there's no market to ruin if those 87% were allowed to lend. They even proposed a lot of safeguards to limit the number of copies lent and DRM schemes to prevent borrowers from dumping the ROMs (which are out there anyway).

The ESA countered that those games would still be competing with retro games that are still being sold on the market, and that the protections weren't good enough. DRM can be cracked, and they don't trust the people who want to lend the games to not introduce side-channels to get around the restrictions. In their argument, only the rights holders can properly protect their games, and only with help from the DMCA.

It's worth noting that the Registrar of Copyright is famously even more strict than rights holders at these arguments sometimes. In 2012, they denied the request for teachers to break DVD encryption, even though lobbyists for the motion picture industry said they would accept it.

And so that's what this news is about. Despite the lobbying and the studies, they sided with the ECA, seemingly taking their arguments all at face value.

I should also note that publishers do often go after libraries for lending books. It's often said in these circles that if lending books through a library weren't already common when the DMCA was enacted, we'd have to fight just as hard every 3 years to get exemptions for what libraries have always done, and we still probably wouldn't get everything.