I think it is not just diluting the quality to get a worse average. Fiction often involves the audience filling in the gaps: Someone drops a hint that characters have known each other a long time; you can imagine that as you’d like. In the end, you get “and they lived happily ever after,” you decide what “happily ever after” looks like.

Sequels and prequels need to add more drama and action, so happily ever after never ends up being all that happy.