I just came across this article, and even though is "old" (July, 2012) it shows a nice retrospective of deleopment cost in video games and how it could affect gaming. If you are too lazy to read here are some images to show how dangerously fast this cost are increasing.

http://www.notenoughshaders.com/2012/07/02/the-rise-of-costs-the-fall-of-gaming/

Why games cost $60

Increase in developement cost with team sizes over the years (Note: the "Next Gen" in the graph is the Wii, PS3 and 360, not the new consoles)

The most expensive games this gen compare to some movies budgets.

And high budget games sales needed to break even (aprox) including marketing.

There are more on the article itself.

Team sizes:

The article is pretty informative and I recomend you read it. It's very long so I don't want to post it in here. One the most interesting parts:

The article continues:  “ The average Xbox 360 and PlayStation 3 game costs between $15 million and $30 million to make, Ibis estimates, and a $15 million game must sell at least 500,000 copies to break even, double that for a $30 million title — and that doesn’t include a company’s overhead costs.“  The article also mentions how the average Xbox and PS2 title only cost between $5-10 million to make, and Nintendo Wii titles cost $5 – 7 million to make.

With Crytek saying devs cost will increase next gen things are getting quite alarming, if this continues we are only going to see the big guys next gen. 

Are you afraid of this increase, do you think video games will be fine? Discuss.

Wow.....Thats alot of cash getting thrown around! big budget stuff!

They will use the same tools and the same models (smart studios are making great looking models for a couple of years now and then downscaling them, so they could be used on the current consoles). thats why costs od development will stay the same.

Great read, I fear alot of devs will choose to make games on cheaper gaming devices to minimize the risk of losing money.

That is only if people are interested in making grand flops like Star Wars:The Old republic with 800 people while it's proven that you can throw out masterpieces like SMG with 120.

Also, indie gaming.

Personally, I'm no afraid. We see a lot of people here defending simpler games and worse graphics to cut costs down. For me, the day we sacrifice technological advances and innovation to cut costs, is the day I will quit gaming.

We need better graphics, better physics, new gameplay mechanics and so on. The devs needs better tools, SDKs and engines and with that the world will keep going. Of course games are becoming more expensive to develop, but that is the natural evolution. Movies were made by a few hundred thousand at the beginning and now cost hundreds of millions and the film industry isn't going down because of that.

Yep. Came across the article some time ago. That is one big positive factor for Wii U as development costs would not be as high as 720/PS4/PC but for some reason developers have been ignoring it. Atleast for now they are.

Everyone loves graphics but they really end up harming the profit margins of a lot of games. Here's hoping the next generation doesn't go absolutely insane with power only. Graphics without good artistic design don't mean much.

Record number of developers have gone down in business this gen. Let's see what follows next. I am going to say a lot of big franchises will continue but mid tier franchises will suffer if they don't assess the market well and go against big games. Indies and downloadable games with thrive and improve in quality and sales.

The problem is that AAA games aren't getting as popular as devs would want. Take a look at Kingdoms of Amalur, the game needed to sell 3m units and the game sold 1.51m (according to VGC) let's add 1 more million because of digital sales and possible undertracking. 38 Studios shut down it's doors because of low sales.

Video games are not as popular as movie, and as you can see, game dev cost are staring to match movie budgets. 

i wonder what is the budget for angry birds XD

That 7% marketing slice seems a bit low compared to the top examples.
COD4: 40-50mil production, 200mil marketing
Skyrim: 700 people of which 100 in marketing and 270 voice actors.

But as the hardware gets more powerful, the tools get more standardized and easier to use. More and more work will be automated and results can instantly be checked. There's no reason teams need to keep growing at the pace they have this gen.