Large budget and large dev teams, usually pushing over $40 million in development and needing to sell multiple millions of copies to break even.

Very likely means the entire market, not just one company.  Not sure how much a market now, with the low end  being what it is, can  support titles needing to sell 3 million copies or more in a year, to break even.  

That may be true in the current market. But if gamers expand, and more people play games, more can be supported. Games seem to have eaten some of the movie going money.

The best thing would be expanding the middle class, as they buy lots of entertainment.

It has a clear definition.  AAA budget games are specifically how much money goes into a game (big budget) which often times results in a high quality game (although not always).  People on forums like to act like it has something to do with scores but in reality it has nothing to do with scores.

Even if the reason for this is misguided, the world needs less $60 titles, and way more $10-$40 experiences.

Expand how?  The Wii ended up doing some expansion, but what indicated with the likes of the Wii U or PS4 is showing that it will expand consoles?  The thing that is happening is people, if they do gaming and aren't console gamers, end up using their smart phone and tablets for gaming.  It is doubtful you get growth in the home console AAA market.

Okay, based on peoples' responses, I'm going to say a AAA title is one with a $25 million or higher budget for development and/or marketing. In 2012 dollars. Using that basic number:

*E.T. was the world's first AAA game by modern standards, due to the sheer expense of purchasing the licensing rights
*Duke Nukem Forever was a AAA game
*The original Assassin's Creed might fall a bit short of AAA status, but the 2 and 3 definately qualified

It's just a really expensive big budget game. It'sa  developer/publisher definition not a gamer definition. Halo 4, COD BLOPS2 and Tomb Raider are all big budget AAA game. Majin and the Forsaken Kingdom would be an example of a quality game that didn't have a big enough budget to be AAA even though it deserves the same kind of respect as the games mentioned above.

free to play doesn't really mean free to play. It means free for the core game and a bunch of DLC and other stuff that they will offer you,if you really want to get any kind of enjoyment out of it.

Console Games have not attained the high level of penetration uses they have since the Atari 2600 era.  Back then there were time where 85% of the USA population (sorry I don't know other numbers) had played a console game in the past month.  This is at a time the Atari Console would be about $800 in today's market.

Phone/Tablet games can be fun - but I would hope some companies would use that as an intro to lead people to the 'premium' entertainment on a console.  The more people have consoles the bigger the market.

Yes, the Wii got many people into Video Games, but unfortunately, many didn't keep playing and purchasing. 

My other point can be summarizes as this - if a CEO gives themselves a 30 million dollar paycheck - fewer people have disposable income for games - if the pay ratios were more reasonable, and the CEO got say 12 million (still an enormous amount of money), and the rest of the workers at the company had and extra $10,000 disposable income.  They would have more money for entertainment – buy more games – more developers make money, more AAA games!  (Everybody Wins!)