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zarx said:

1. The current trend in mobile computers in the form of tablet, phones and notebooks is forcing hardware manufacturers to put a renewed focus on low heat low power proccesors. Combined with the longer than usual generation should meant that price, power and heat will be less of a factor going forword. There are many technologies like Nvidia and Intel's 3D procesors and alternative meterails that will start to hit in the next 2 years that will drive the negative factors down. Next year manufacturers are looking to leap to 22nm transisters from the current widely used 45nm for example by 2013 the likely release year for the next gen that will be a mature proccess. 

2. Deminishing returns will more likely lead to an even bigger push as it will be needed to show consumers new experiances that don't seem possible on the current generation. The generation coming up will also probably be the generation of consoles as we know them so it will benefit them to push for consoles that have a lot of staying power. Services like onLive will become actually viable over the next 5-10 years and will most likely replace consoles as they have many of the advantages over consoles as consoles have (or had) over PCs, in that you  don't need to worry about instaling games or keeping them up to date, you can jump into a game or watch someone else play with a click of a button and no need to buy games, just play what you want like netflix. Plus OnLive people are saying with distributed proccessing games will look like current CGI so if next gen consoles aren't pushing visuals OnLive will.

3. A large leap in power could also lead to cheaper games as costly time intensive tasks like pre baking shadow maps and lighting will be replaced with real time effects that can be turned on with the press of a button. Tessellation allows much more complex geometry to be generated procedurally and allows dynamic water and procedural deformation that will reduce the number of unique assets that need to be generated. And fidality doesn't really increase cost that much as most assets are currently "optomised" by reducing as much detail as possible while maintaining the look to improve performance, the real increase in cost over last generation came from the number of assets needed, where before is was ok to have a shelf be a texture on a box in this generation developers are already placing hundreds of assets in a house creating every vase, book, spoon etc but once you are already placing and creating the number of assets they are now there is not much point adding more than is realistic, it doesn't cost a lot to not compress the textures etc. Also procedural generated content will help lower costs, today it is mostly just used to create trees (every time you see a speed tree logo every tree in that game was procedurally generated) or maybe NPCs like in Assasin's creed next generation procedural generation will be used (or should be) for most background assets. Procedual buildings, NPCs, rocks, terrain and more will all be genrated procedurally rather than with hundreds of outsourced artists of course important assets like main characters will still be hand crafted for the perfect look and the assets that can't be easaly generated but proceduaral generation should help lower costs a lot.

Game production costs will continue to rise no matter how many cost savings that can be had by improved technology.  The publishers have turned the video game industry into the Hollywood mentality.  Only the wise publishers will curb their cost while still providing a great product.  I believe even more 3rd party publishers will either go out of business or be absorbed by Activision, EA, etc... next generation.