Theory: Family Share killed because MS mis-communicated what it really was
...and what it was was un-finalized.
The PS3 has had a game share system for digital downloads since 2006. Between 2006 and 2011, you could pay for one digital download but install it on 5 systems. In November 2011, Sony announced a change in policy that slashed that to two systems max.
Why the change? It's pretty obvious. Having a system as liberal as that is ripe for exploitation. Publishers didn't like it because there was nothing stopping gamers from freely sharing their PSN account details with friends so that they'd get 4 free copies of the game. With five systems allowed to share one purchase, a $60 game costs $12 if 5 friends agreed to split the cost. By limiting sharing to 2 systems, Sony placates the publishers.
But suddenly in 2013 the publishers have changed their tune and are ready to allow sharing across 10 systems, double what the PS3 originally offered? We all know that pubs don't like used games as they don't get a cut of the revenue. But it takes a lot longer for 1 used game to end up in 10 different people's hands (if it ever does) than it does for a game that can be immediately downloaded and shared with 10 XBL users.
The only way publishers would be OK with this is with significant restrictions on its use. No multiplayer with shared copies is a no-brainer, but for AAA titles like Skyrim or Mass Effect which are single player games, the restrictions would have to be even harsher, like time-limited demos. I'm not saying that the Pastebin article was real, just that I'm sure it's a restriction publishers would be fine with.
MS never specified those restrictions during E3 or before the reversal. Probably because the details were still being worked on. If what they eventually agreed to was a significantly gimped version of that, they would have started a whole new shitstorm, except that this one was closer to the time of launch and could do a lot of damage to sales numbers. I think we all know that MS wouldn't have pulled a reversal like this if pre-order numbers had been satisfactory.