I really have enjoyed reading the opinions in this thread. I really like and agree with Ghost of RubangB's posts. I also see lots of wisdom in the market theory of Sqrl. This is my take on this issue:
The dev costs of the video game market are offset by great game on handhelds and shovelware, at least in the past. The current model of many publishers is to publish a few low cost games at the same time while funding the "flagship" titles everyone knows. They hope to help recoup the costs of the huge budget of the big name title with some profit off the smaller games (eg. Zach and Wiki).
This model is failing this generation, at least thus far. This is because when the dev houses, not the publishers per se, cannot turn a profit easily. They sink everything they have into one or two big games and hope they are hits. Especially true with small/independent devs where one game may be the entire budget. They have big dreams and goals, but when a game starts to cost around 10-15 million dollars, they are crossing into a gray area of questionable profitability. If that game cannot turn a profit, the small dev may be in serious trouble financially, which opens them up to purchase by Evil Arts or other big conglomerate companies.
The cost of development on the PS360 games are so high that many small dev houses cannot make the games they want for it, or if they try they might get in serious trouble if it doesn't hit. I am particularly pointing out the PS3's difficult to program for Cell processor. How many more delays can we expect to see for MGS4 or FFXIII because they can't get it the way they need it to? The problem with high end graphical consoles is that the expectations for every game is HD graphics and ultra high polygon counts with super-duper perfect lighting! WOW!
While all of these things are great, they do not make a game great. But while they are not necessary to a great game, they are now the expectations of nearly all games on the HD consoles, which greatly increase the costs. If the game doesn't have HD graphics then it is frowned upon by the tech-savvy owners of that console, as "last-gen." This HD expectation increases the game costs further by untold amounts.
My friend and I with the help of a few other friends could indeed make a game with passable graphics and have bold new moves in the game play department. We can't do this for financial reasons mainly, but we are thinking about this and other bold moves. Until the dev costs come down we can't make our game. That and our time table is based around around spare time... which we have less and less of these days...
The point is that Development costs are out of hand, and with no drop in the cost of HD game production in sight, the Video Game Market is in some serious trouble. The real money for publishers is in handhelds, the Wii, and downloadable games (WiiWare, PSN,XBLA). Many of the big publishers use this money to subsidize the costs of the big titles... There is nothing wrong with this approach, but it is not entirely healthy for the entire game market. It puts an undue strain on small devs which are the life blood of fresh ideas and approaches, unless you are Nintendo (Miyamoto et all are geniuses).
This is my two cents. Dev costs rise -> choke out small devs -> game play stagnates -> tons of mediocre/shovleware games -> unhappy gamers.
