Just a short piece, but with a valid point:

With the introduction of a new generation, we're looking forward to a set of consoles that are more powerful and more capable than the last.

Of course, this encourages developers to build games with larger scale than ever before, with super-realistic graphics to make the most of the new hardware. However, doing this increases development costs and could lead to smaller developers to stop making games altogether (unless they instead choose to put them on an online service). They may choose to charge more for their games to cover their costs, but this could lead to fewer people buying their game and so they'd still lose money. Basically:

 - Will there ever be a point where development costs get too high for the industry to keep growing?

 - Is there a point where improving graphics doesn't make a difference to the average consumer? Have we reached this point already?

 - How much of a leap do you expect in terms of graphics from the 7th to the 8th gen?

i think it is already showing in this gen. haven't dev costs already surged?

- They pretty much already are. Look how many studios tanked or are losing money because of stupid dev costs

- We already are there - BF3, Ni No Kuni, and Uncharted 3 - why would you want more?

- Not nearly as big as 6th > 7th

In the other hand, however, developers are already losing a lot of time trying to fit their games in the tiny RAM and ammount of shaders avaliable in the PS3/X360. Crysis 2 and Witcher 2 weren't specially expensive compared to the industry standards.

Honestly I think if they deliveir their content next gen in shiny 1080p 60fps, even with today's graphic standards, most people would be happy. Leave the graphical show-offs to the big exclusives / franchises.

It's not like there is so much room to improve anyways. Your top graphics card nowadays, which any console could only dream having in the current manufacturing process, is only some 7-8 times faster than the GPUs inside the PS3/X360. From the PS2 to the PS3, or XB to X360, the leap was more like 24-32 times, I estimate. If Sony had waited for the G80 cards, it would be more like 3-4 times! The PS3 could indeed last 10 years with top graphics @ 720p, 30fps.

It definitely is when it comes to RPG.

Maybe with current consoles, but the vita is supposed to be very cheap to develop for.

I'm actually going to say No.

And we are already seeing the reason why: As graphics get more complex, more of the workload gets shifted to third party software. Pre-built, high quality engines that power today's games. Someday perhaps modeling and textures will, at least in part, be done by third party software or packages, if it's not already.

This is not a bad thing. Developers still focus on the quality of their game, the software just helps them achieve their desired quality more quickly. I've seen people complain about Bethesda's use of SpeedTree, but really -- how can a human possibly design a realistic, open world forest, given any amount of time? An algorithm not only does it more quickly, but more realistically. There are no downsides in this situation. Any specific situations the developers want something different, they can just edit it themselves quickly.

As more competition emerges, prices will be driven downward, resulting in lower development costs, and better games.

The real factor in rising game development costs is scale, not graphics. We've already seen games like L.A. Noire that try to do things on a massive scale, to their own detriment. The scale of it was a drag on gameplay, and drove costs through the roof - quite a bad combination for the developers.

On the flip side, games like Fire Emblem or Demon's Souls are more focused, but still look and feel massive. They give a truly great gaming experience (and look nice too) without trying to be bigger and fancier than everyone else, with a fraction of the consumer base of games like GTA or CoD.

No, not exactly.  You can have those super cool engines but someone still has to take the time to make that art.  You can have the best most complete engine ever but it still takes people a significant amount of time to make the art for that engine.  You can really optimize the pipeline which really helps, but the more detailed things get, the more time and effort it takes to make.

There's a reason people say the Vita is easier to developer-- it's a tiny screen.  Home consoles and PC's require muuuuuuuch greater detail and higher res textures.