Like many others said, the collusion of HD and AAA in the OP is patently wrong.
Publishers do HD because they try to sell pretty graphics in trailers, posters and the like, the better more realistic the graphics look the more they are boasting themselves and the game. This is because for the longest time, the Publishers were running on pre-orders and needed to make them extra-shiny to ensure those pre-orders. Nowadays, that's much less true, but since the tactic worked for so long why change it? Never change a winning system, after all. But they are not obliged to make a game in super-shiny ultra-realistic MegaHD at all. Nothing's stopping them to make a game looking like Wolfenstein 3D if they wanted to.
But the death of mid-budget games IMO, is an exaggeration.
Microsoft, Nintendo and Sony still make those, as do Japanese Publisher. The big western publishers though? Ubisoft still makes some, but EA, Activision, Bethesda and THQ don't seem to be interested in those anymore, unless you count sports titles as these.
The fact that the publishers left these fields and concentrated on their "core" franchises, combined with digital distribution, led to the meteoric rise of teh Indie scene. Before digital distribution, the Publishers were basically the gatekeepers to the market. Since then, publishers have pretty much devolved into holding companies, pretty much bag of holding of a shitload of IP they'll never use again and a handful they use over and over and over and over and over...
While slightly off-topic, I also think that calling games AAA, AA and the like is not doing justice to how games are made these days. Unless you consider that the more A it has the more expensive it gets to get all of a game between all the DLC, Microtransactions, Lootboxes, pre-order bonuses...
Last edited by Bofferbrauer2 - on 19 February 2019