When it all "imploded" was about the time they were starting work on the films, and they wanted new / more profitable contracts for gaming products.
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ICE had a near bankruptcy in 1993, then their distribution network collapsed. Additionally, the price of paper practically doubled overnight. This is why there was never a Southern Gondor module for 2E (it ended up being split in two, People and Land, and is why they split the Arnor module up).
When ICE filed for bankruptcy (chapter 11) in 1999, that allowed Tolkien Enterprises (later Middle Earth Enterprises) to pull the license, if this bankrupcy had not happened (and the chapter 7 in 2001) ICE may have been able hold onto the license, the terms that ICE had very very good (ICE basically got the license because no one else had asked for it previously).
ICE of course made other mistakes. See the links below if you are interested in the history of ICE.
A brief history part 1.
Part 2.
I read in an ICE newsletter a short while back (cannot remember exactly what month), that no MERP/Middle Earth material will be supported by ICE unless Middle Earth Enterprises accept economic terms within the grasp of ICE (Middle Earth Enterprises require large upfront payments and steep percentages of revenue, ICE is barely breaking even).