Sega talks about their actual state. Core games at risk

[NJ5]

WereKitten said:
"When expenses increase faster than revenue the bubble must pop at some point"
Expenses went up all of a sudden when moving to HD and very big projects, you can now expect them to slowly decrease as the development of tools and reusable middleware software starts to pay off. On the other side, revenue will slowly grow as the install base increases. In this light, I can't see how that ratio can't but get better over time from now on.

"Not to mention that Nintendo themselves could go under in such a scenario which would make the industry crash even worse"
How would Nintendo going under touch the other two consoles? They don't share multiplatform development. Shovelware producers would move to the 360/PS3 platform, just as last gen they worked on the PS2, though the increased entrance point cost would cut some of them. Big deal.
Third-party, middle-sized projects like Sega's would have some troubles with increased costs, but if other developers can do it, why shouldn't they? Do anybody really think that MadWorld would have ended with less profit if it also came out on PS3 and 360? I'm pretty sure its stylized art wouldnt have costed significantly more in HD, and the demographic would have been more favourable.
Projects like da Blob would probably live on as XNL/PSN games, exactly like Braid did.

Regarding your first point, I think it's widely accepted that development costs have been rising very fast for more than a decade. It's not a problem exclusive to this generation, it just so happens that the costs finally became unbearable during this gen.

As for the second point, think about what would happen if there was only PS3 and 360. No cheaper Wii development to make easier cash on small projects. No expanded userbase captured by the Wii to prop up publishers who are taking advantage of that demographic. I think you're vastly underestimating the consequences of a potential Wii/Wii HD flop.