Since there's talk about this on this sub, I feel like it's a good time to put this out there:

I was at the ESO tavern in Germany last year where I talked with a couple of ZOS devs (they aren't higher-ups) who verbally expressed how they and the team disliked the cinematics because it didn't represent the game well.

They also talked about how the "wholesome" Tales of Tamriel trailer from 2025 and the You Belong Here trailer from 2024 are exactly how they wish to market game going forward and that they loved how they turned out.
That same sentiment was also shared by Rich Lambert in 2024 when he talked about how they're looking to evolve the way they advertise ESO to the public.

Those in-game trailers use licensed 60s and 80s songs such as "Turn! Turn! Turn!" by The Byrds and "We Belong" by Pat Benatar.
They were shown off at the Xbox & Bethesda Showcase for the past two years.
They're tonally reminiscent of Sims 4 trailers to a point that it makes ESO look like a quirky life sim set in Tamriel.

Most people reading this post have likely never watched the trailers I'm talking about, but believe it or not, they have internally replaced the cinematic trailers.

The financial aspect

I don't have to explain why gameplay trailers are cheaper than CGI cinematics, but they're paying for a license to use popular copyrighted music in these recent gameplay trailers.

I've worked for a movie studio distributor and a common thing for movie trailers is to use/make a song cover instead of using the original song in order to considerably lower costs.
In ESO's case, they used the full original songs.

What I know for certain is that when a licensor gets contacted by a Microsoft subsidiary that wishes to use a full original Pat Benatar song in their trailer, the licensor will grin so wide that they'll look like that Jerma sus face.
It will not amount to the same as commissioning Blur Studio to make a CGI cinematic, but it will not be cheap.

All this is to say that I'm not convinced they stopped making cinematics for purely budgetary reasons. It definitely helps that they save some money this way.
But if Satya Nadella's hammer truly fell upon them, then they wouldn't have used the full Pat Benatar and Byrds songs for trailers that didn't even make it past 60k views on YouTube.

In my opinion

WoW and FF14 will not stop making cinematics because cinematics work. They create hype the way gameplay footage never could.
The argument that it's catfishing people isn't unfair, but it's not the same as an unreleased single player game using CGI instead of in-game footage in trailers.
People understand why these MMOs don't look the same as the cinematics and that's never been an issue.
They might overshadow the actual product in popularity, but that's what good marketing does.

I can understand why they'd dislike the cinematics. I can see why someone would think that they make the game look bad by comparison. The characters look and move in ways you'll never be able to in the game.
But if the alternative to CGI cinematics is "happy fun lalala" Sims 4-esque trailers, then I genuinely believe CGI cinematics represent the final product considerably better.

ESO's cinematics were some of the best CGI work in the industry, and I really don't like that they've turned their backs on them, especially since they're still using those three heroes as the game's poster boys. It was flabbergasting to hear they disliked them.

TLDR

Devs think cinematics don't represent the game well and the team is happier with quirky in-game trailers instead.

The source for the video is KARTHIKEYAN on Artstation. They're a former The Mill CG artist. It's part of a reel showcasing Gold Road lighting tests for the Breton Hero and the Altmer Hero.