Compass was based on the first -- and best -- of Philip Pullman's "His Dark Materials" fantasy novels. Pullman is an English writer who despises C.S. Lewis's "The Chronicles of Narnia" children's novels and was initially pretty upfront that his works were designed as a sort of "anti-Narnia," although he didn't use that term.
Pullman misreads Lewis at a number of critical points. His trilogy has the disadvantage of having enough attitude and agenda for three books, but having story enough for only one and a half. And New Line was facing the reality that a film based on the best book of the series draws a 42% rating at Rotten Tomatoes and carries the barely better than break-even score of 51 at Metacritics.
New Line was also facing a wretched financial picture, managing to somehow squander the mint of money that came from The Lord of the Rings trilogy into several year's worth of box-office underwhelmingness. They spent between $180 and $200 million on Compass and had an initial domestic take of barely $70 million (Mr. Elliott's figure of an $85 million gross comes from who knows where). New Line, in fact, went under and was bought out by Warner Bros. less than three months after Compass was released.
This writer notes that the church has protested a number of things which have gone on to do quite well, among them a handful of little movies about an English boy wizard, a gal from the Detroit suburbs who's sold a record or two, and some books about vampires written by a Mormon homemaker.
So I'm going to take the risk of disagreeing with Mr. Elliott, who's one of my favorite character actors, and say that the real reason no one's going to make any sequels to The Golden Compass has more to do with The Green Paper than any religious influence that the Roman Catholic church holds over the board of directors of New Line Cinema or its successors.