Wrestlemania was always a premiere event, even in the down years. Lets be clear, the down years for WWE were 93-95, before Monday Nitro, The NWO, Goldberg, etc.
Although WCW business started picking up in late 93, it wasnt at the expense of WWE entirely. No doubt the Brett Hart "NEW Generation" era was a dud creatively and saw a major business downturn but WCW's initial upswing had more to do with old NWA fans coming back than WWE fans switching. Those fans were leaving and staying away.
As WCW business upticked further in 95 it was still older fans returning, not a huge number of WWE die hards bailing. The NWO explosion did bring WWE fans bored with a product they were loyal to but werent enjoying but it really brought in a large number of old 80s fans who quit watching in the early 90s. Even then the WCW audience was more NWA fans and older WWE fans that hadnt been watching much wrestling for several years. WWE business was mostly the same or better in the early Attitude era in 97 as it was in the 93-95 time frame.
WrestleMania was always an event that was talked about and noticed by ALL wrestling fans, it was the most watched PPV in all but one year in the 90s (Starrcade 97). There were certainly WCW shows that did well, often eclipsing most if not all non WM PPVs (Halloween Havoc 97 & 98, SuperBrawl 98 & 99, Starrcade 98) but the most watched show was consistently WM.
The audience dynamic started shifting in mid 99 as the older 80s fans started switching to WWE, you still had 10 million plus watching wrestling every week but instead of a near even split like it was in most of 98 and early 99 by late 99 it was 70-30 WWE. The decline of WCW and the over the top craziness of WWE slowly started chasing away much of that audience. Now, with older favorites like Hogan, Flair, HBK, Taker, etc completely or almost completely gone today's audience is just a bit larger than the 93-95 years, loyalists and kids, little attention from casual fans.
As far as venues, renting an arena is cheaper than a stadium and with an active WCW fighting you among advertisers and sponsors for marketing dollars from the same audience it made sense with the business of the "New Gen" era to use arenas. Why does WWE still use stadiums now when over all business is down ? They dont have to share the advertising dollars with anyone so it's easier to generate revenue even though business is slower tham it was in 97.