The simple answer is no, AAA games are not killing the industry, but poorly made AAA games are killing the studios that create them. Say what you want about Call of Duty but it is an incredibly well made shooter. I haven't personally played an iteration since World at War as I don't like the modern setting, but back then it was everything you could want from a game. It was fun, had a decent story, and was incredibly well made, and that is why it became such a large franchise and also why the sales may now be slipping.
Create a game that you are passionate about, that people want to play, that you are going to take the time to make special, and it will sell well and make you money. Rush out a game, cutting features and your vision in the process, then prepare to close the doors of your studio. Look at No Man's Sky as an example of a passion project and look at how the gaming industry has got behind the game. Look at The Last of Us and Grand Theft Auto, at Borderlands and Assassin's Creed 4 (with Ashraf Ismail being so passionate), and look at Halo and now Destiny from Bungie. Look at The Witcher from CD Projekt RED and how people have reacted to that game.
To cut a long story short, passion and pride, and realism will sell your video game. If you a passionate about it enough that you will create something amazing, prideful enough that you will not ship it in a state less than perfect, and realistic enough with your expectations, you are going to make a profit.
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