2 things.

Framerate gets shafted so much because the vast majority of gamers does not give a shit about it. Optimizing for framerate is an objective loss for any developer compared to optimizing for best graphics.

The assumption that worse graphics will result in better gameplay is a fallacy. Gameplay is dictated in the original game design and heavily influenced by the producer. Look who makes the prettiest and most boring games, the biggest publishers. They are the only ones to even have the financial power to even create the best graphics. Their focus is not on great gameplay because they either don't care or they just simply don't have the game design talent. That however has nothing to do with their graphics budget.

Indies usually focus on gameplay because they just fon't have the finances and they are basically forced to do something special and extraordinarily to even get a foot in the market. A smaller team also means a lot more freedom. Freedom that does not exist in big companies.

That said, graphics or marketing have nothing to do with gameplay. They're completely different entities and gameplay basically has no impact on budget. That's why it's usually pure luck if a AAA game is fun or not. And people love to forget that there are actually some really fun AAA games out there.

If you think of graphics a s a genre, then it makes a bit more sense.
There are some games that are graphical beasts, and that's all they are meant to be.

Just because a game type is seen as less popular because it focused on graphics, doesn't mean there isn't a niche of gamers who want it.

What gives you the idea that the majority of people aren't enjoying their modern games enough (and that they would enjoy them more with worse graphics)?

Because of the bickering of a vocal minority in internet forums and youtube commentaries?

Your arrogant stance that people, while spending a lot money on their games, do not have fun will not get you very far.

The industry, nor the fans do not care what you think about the CODs or Watch Dogs of this world. These games do sell and the vast majority that buys them has exactly the same fun that they expected and needed from the experience. To insinuate that your "fun" you have with graphically less impressive games is somehow worth more than their fun is unsulting.

It doesn't make your argument more valid when you use conjunctions. The industry is exactly where it was meant to be.

I never said that people don't have fun!

You have to admit that a lot of game companies started going bankrupt around the mid 2000s.  Is that just coincidence that games kept getting more expensive to make and if they had one flop then an entire company was ruined?

Many developers making small or medium budget games also died in the 2000s or even in this decade.. sometimes because their games had serious flaws, sometimes because their good games didn't good enough attention or had a too narrow target group.

While other small or big developers with small or big projects prospered.

Graphics aren't as important as many people think they are. I value games for their fun factor, so it doesn't matter how they look. If it's a genre like a fps, well, those games need good graphics to stand out among the crowd because there is no room for different gameplay mechanics. The last revolution in that regard was Halo, after that came only repetition. Or maybe a racing sim like Gran Tourismo, yeah, those need excellent graphics and an excellent driving feel as well. I am very easy to impress when it comes to graphics simply because I want to be entertained more than I want to be impressed.

Right now I just see small and big.  The medium developer is pretty much gone.  Luckily, some indie developers are putting out as good of a quality game that you would see from the medium developers of the past.

You have good points, just want to say that it heavily depends on the game. Imagine an Animal Crossing with superduper realistic graphics. Would that work? I think not.