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but the cost to produce them is skyrocketing and the time needed is becoming unreasonable


This is often mentioned but IMO simply not true, at least put like that. Its more like an arms race. Big budget games can produce amazing graphics with todays technology and small developers cannot compete with that. Its similar to the movie industry where big budget titles have all the amazing expensive computer effects and movies with smaller budgets look weird.

Halo3, GTA4, Call of duty4 or MGS4 have huge budgets, amazing graphics and bring in big profits, but smaller developers have problems to follow the graphical standards that are set by these huge games.

One mitigating factor will be the proliferation of more and more middle ware like the Unreal Engine, Havoc, middleware for facial animations, movement, technology like vegetation creation which was used in Oblivion or is provided by Crysoft could further make it easier and cheaper to develop games.