That merely reflected the fact that without home movies, the volumes couldn't support the operation of the previous infrastructure.
It was 1983-4 when Kodak Canada started shrinking the Kodachrome labs. What date did Kodalux come into being?
It was first called Qualex. They took over processing in the mid-80s, as I recall. The name was changed to Kodalux (I called it Kodasux) in the 90s sometime. I gave them another chance in the 90s, and went right back to independent processing.
The story I have heard is that Kodak never made much money, if any, off Kodachrome processing in order to keep the cost down. That was to promote use of Kodachrome by keeping processing costs in line with other films, and they made their profit off sales of the film itself.
When Qualex took over, supposedly the agreement was they couldn't raise the price, or couldn't raise it much. So to make a profit, they cut back on personnel and quality went to hell.
One of the big problems was poor removal of the rem-jet. When that happened, little black specks would embed in the emulsion, giving an odd grainy look. One of the photo magazines (Pop Photo, I think) did an article on the problem, complete with magnified pictures of the contaminated emulsion.
I don't agree that loss of volume was the cause of the problem. The quality problems started immediately when Qualex took over. To keep up volume, they could have reduced the number of labs (and probably did) to save even more money. As I recall, at the time of the takeover Kodak had 5 labs in the U.S., (Fair Lawn N.J.; Los Angeles; Palo Alto, Ca; Honolulu and one more, maybe St. Louis, Mo.).
In the 80s, Kodachrome was still going pretty strong. Velvia only came out in 1990 and dealt a big blow to Kodachrome, as prominent landscape photographers like Galen Rowell quickly and very publicly abandoned Kodachrome for Velvia.