Suddenly, what Microsoft has been doing with its first party makes a little more sense. Everything from them doing it once the losses were too large to ignore, to looking for a historically successful model in a similar industry (rather than creating a business strategy tailored to the gaming industry) falls in line with what I would expect from the company.
I personally think the gaming industry should never have focused so much on visuals. I think perhaps some games should emphasize realism, but what separates the gaming industry from everything else is interaction. Gaming is defined by interaction, and therefore should not try to compete in visuals with the industry that is defined by visual experience (movies). Nintendo definitely has the right idea in providing new ways of interacting, but the problem is not solved until companies start focusing their creativity on interaction instead of on all the other places they are spending mountains of money on. And for that to happen, expectations for these extraneous elements in games needs to decrease (in the minds of both consumers and developers/publishers). I think my best hope is handheld gaming, which is closest to providing this optimal environment.
