They were thinking that he'd sell more records to white middle-class buyers, and they were successful at that for a long time. From a purely financial point of view, Elvis was never bigger than during the early movie years. And don't forget that Elvis's idol, the man he wanted to be, was Dean Martin.
Part of the problem with the movies (and their soundtracks) was that they made too many of them. Three a year at times. That forced them to use weaker and weaker songs ("No Room to Rumba in a Sports Car," anyone?) By about 1966 the public was catching on. The movies weren't doing the business they were, and the soundtracks weren't selling at all. All of which set the stage for the 1968 comeback TV special, where he showed he could still rock. From there, though, it was a pretty much a quick slide to self-parody and death, interrupted by a couple of good songs ("Suspicious Minds" and "In the Ghetto") and the "Aloha From Hawaii" special in 1972.
Blame Colonel Tom for a lot of it, but in the end it's an American Tragedy.
You mean he didn’t sing “In a Yugo”?