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Even at the height of the genre, I could see this coming (before it, really, thanks to the Japanese market and its response to Guitar Freaks and Drum Mania).  When sales were good, there were just too many games coming out from the same two comapnies to warrent continued purchases.  There was an obvious saturation point, and the publishers blatantly ignored it.  Considering the fact that gamers tend to go from one interest to another, it was easy to see that people who liked the genre at one point would give up on it even if they don't dislike it now.  They just want to play something different.

At this point, people who still want to get in can buy earlier games very cheaply.  They can even get the instruments for very little (used) because so many of them exist.  And at the same time the newer games have been so heavily transformed to accomodate the experienced players that have moved back to other genres they like that new players would actually prefer to track down the older games for a more reasonable experience.

This doesn't mean the genre is dead, though.  The opposite, in fact.  What the genre needs is a scaling back so that there is an incentive to buy a new game for the new player (who doesn't want things too complex) as well as the seasoned player (who has other interests).  The number of games published by Activision and EA could have been spread out over more years and could have gotten more sales, and eventually someone will come along and reinvigorate the genre at some point when it is under represented.

This wouldn't be new in gaming at all.  It wouldn't even be new in the music genre, either.  GH wasn't a new concept to anyone that played Guitar Freaks.  DDR wasn't a new concept to anyone that bought power pad based games.  There are definite technological and regional concerns that factor in, but music/rhythm gaming has shown that as a whole it will not die.  It thrives off of innovation and proper targeting, and it fails when those factors do.  Right now, in the West, there is a distinct oversaturation of instrument-based based games fueled by the publishers, and when that ends someone else will find some way to fill the void even if it takes many years.

You do not have the right to never be offended.