Most of your arguments are good, especially Naznatips'. But I still think you're concentrating too much on high development costs instead of thinking about milking franchises too. Remember what we heard about High Voltage's search for a publisher. Everyone wanted to get the game out as fast as possible in order to make some money, instead of taking enough time to polish it and make it a huge seller.
Remember also that EA apparently is stopping their Need for Speed series which was a huge seller only one gen ago, but it's overdone now. Now add high development costs to franchises that are not selling as well as expected anymore and to others that are not popular yet and a mentality to get a game out in time no matter how bad it is and you get the reason why western publishers are struggling.
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