One of the biggest issues for the Industry is this:
The Wii didn't bomb.
HD consoles didn't bomb either
Now I got your attention.
One of the major problems for the industry is for the first time ever, the console market is split precisely into two parts. There are two major platforms and for the most part the games produced on either are largely incompatible. The group responsible for causing this are the big 3, Nintendo - Sony - Microsoft. They are equally to blame for this situation.
If the current situation was like the previous generation. Say HD consoles had 70% of the market share or the Wii had 70% market share the situation the Publishers are in would have been alleviated greatly. The current split market configuration is expensive and makes developing on either platform more risky than otherwise. The two big expenses, advertising and development cost cannot easily be split between the two consoles. You can't advertise a Wii game the same way because it effect showing the HD versions would be considered false advertisement and the publishers would be fined heavily.
The other point I would like to make is this:
If the total number of big release games falls by 10% in the next two years, the improvement in profitability for these titles would be greater than 20%. At the moment its too many companies trying to make money on a market which is too crowded. Software development is funny, once you break even ever $ of revenue after than is almost pure profit.
Tease.
