So, they should only make Just Dance 2, 3, World Tour, Lady GaGa version, 5 etc?

You make perfect sense!

Or more like - You don't get it.

Except there is the element of time. You can make more money. You can not make more time. As much as they'd "like" to make Assassian's Creed games (or the likes), it is a waste of time when they can be doing different things that will make more money (and may take less time).

The highlight is the reason why gaming (or traditional gaming) is dying. You do not get to make what you want. It was interesting that you mentioned artist becuase most art was created because the artist had to do it. They were commisioned to do something. This is how they got by. This is why modern art is stupid. No one actual commisions the work. They sit in a studio and make weird stuff. Gaming is becoming this too. They make what they think is creative, but no one actually demands it. They do it for themselves, not for others. Game developers today make games for theselves. Just Dance is successful becuase it is what people want. The developers obviously weren't trying to have fun doing it. This is work, not play time.

The mass market you're talking about doesn't replace the more sophisticated one. It makes sense producing for either of them as long as they aren't saturated. So doing the way you suggest, saturation of the mass market would be eventually reached, while the other market would be underexploited. Black or white isn't the way the world works. What's true is that wannabe artists (or their gaming counterparts) won't make a living out of their work, you're right about this. But really creative and talented developers can exploit the smaller "elitist" market a lot better than the mass one, where they'd be wasted and competing with the crowd they'd end up being underrated and underpaid.

What your suggesting is not what they should do. You look at this from the smaller market's view.

If they want to play in both markets, then the resources need to be allocated to them as they need. The mass market division gets far more resources, devlopers, space, and will make more games. That market is much bigger. The smaller niche market gets fewer of everything and gets maybe one game a year. This is so long as the contribution margin of those games exceeds their cost. There could be the problem that the niche market is more demanding, in which case they may be ignored becuase to cater them would require too many resources that could be better allocated to mass market games.