They didn't close City (profitable) so much as shut down Paragon Studios (not profitable), which has the side-effect of closing City. Paragon was developing two next-gen games in addition to City - they had 80-something folks working for them. They were definitely losing money. City was profitable but Paragon Studios was not. NCsoft allowed Paragon to be unprofitable and then decided that Paragon being unprofitable wasn't good for NCsoft. It's like chopping off your foot because the toe you shotgunned hurts.
However, if their intent was to replace City of Heroes with an updated version based off the Unreal engine, killing the existing game while development starts on its replacement is the
stupidest business move possible, ranking just above deciding to replace CoH with CoH2 and
not taking the existing devs and telling them "We want you to suspend development on CoH and build a next-generation version of the game using
this game engine" and, instead, firing them all and bringing in a new dev team.
And, quite frankly, I would be deathly afraid,
were NCSoft to fund development of a follow-on to CoH using a new dev team, that the entire game would turn into a game full of "Go out and stop the Hellion muggings, and bring me twenty switchblades as proof (BTW, switchblades only drop from Nasty Hellions, not Brutal Hellions, Angry Hellions, Deranged Hellions, or any of the half-dozen other flavors of Hellion -- but you don't get told
that)" open-world missions like virtually
every other MMO on the market, just to turn it into a grind-centric Korean-style MMO so that they're comfortable with it.