To really assess the format, one would need to check all the matches that have been played and rate how entertaining they were. My gut feeling is that the smaller teams did not necessarily make for less entertaining matches.
If there is a problem currently, it may be more with the game itself than with the format of the competition.
The defenses are now so well organized that a lot of teams are confortable defending and going for fast counter-attacks. When two teams that want to play like that face each other, you are in for a 'boring' match. Even when the other team is offensive minded, things can get 'boring' as the offensive team will be careful to not be exposed to counter-attacks. The third scenario is when the other team play the now mostly defunct 'possession for possession' style and you get a 0-0 with 9875765 lateral passes.
I put 'boring' in quotes because, this can still result in tense matches that can be entertaining in their own way and because we might just need to reevaluate what we find exciting. After all, a great defensive tackle, a well executed off-side trap or defenders smoothly shifting their positions to always have two people on the guy that has the ball are great football plays.
Crazy idea: Maybe they should do something like in rugby and also hockey I believe where you get a set quantity of points for winning, but there are other ways to win points, so, say, 2 points for winning and 1 point for every goal you score. That way, both team lose if the result is 0-0 and an exciting 3-3 is worth as much for both teams than for the winner of an ugly 1-0. But then... is it still association football?