We've already seen a bunch of developers go down during the 7th gen for various reasons.

Sometimes it's poor business management or overinflated expectations regarding product performance, poor public reception, delayed and over budget projects, etc.; in other words, the same types of things that will sink any business that isn't being propped up artificially.

If anything, major product failures will simply mean more resources invested in smaller projects and games that may never generate hundreds of millions in revenue, or even tens of millions, but it would allow for more experimentation, more variety and less attachment to franchises and more focus on original, or at least different concepts in game design.

Besides, it's not as though there isn't room for both blockbuster, big budget titles and smaller and independently developed ones.

I don't see the industry shrinking at any rate; it will become more fragmented across multiple platforms if anything between PC, console and mobile, which ultimately just means a larger potential audience.

There won't be a repeat of 1983 because the conditions that led to the Crash don't exist today. First off, Atari essentially was the console market. The Intellivision, Colecovision, and other competitors only sold a small fraction of what the 2600 did, and aside from Activision and Imagic's output nearly everything on the 2600 was Atari-published (Activision was the first third-party dev ever). When a series of costly mistakes (E.T., anyone?) cause Atari to implode, it took the smaller consoles out with them, and the market lost over 95% of its value between 1983 and 1985. Activision were about the only ones to make it out relatively unscathed, and they continued making games for home computers, but that third-party status probably helped. The industry is simply too decentralized for one company's mistakes to crash the whole market. Xbox and PlayStation are owned by major companies who don't specialize in gaming, Nintendo is solvent enough to where even if the Wii U only sells as well as the GameCube it won't hurt them (plus they have the very successful 3DS), and there are so many third-party studios that even if one goes belly up, even a big one, the rest of the bunch will absorb the brunt. For the industry to faile, all the major and semi-major third-party developers would have to fail nearly simultaneously, which could cause demand for Xbox and PS hardware to dry up enough for MS and Sony to withdraw from the market if their own output isn't enough (and given how dependent they are on third-party software, it's possible their first-party output wouldn't be enough), and Nintendo would have to see the 3DS drop like a brick in sales (say, less than 5 million units globally next year) and both their next handheld and their next console would both have to fail catastrophically as well. The industry, for all its flaws, is simply too structurally sound for it to collapse anytime soon.

Furthermore, the article's author's points are laughable:

#5: There will always be businesses, including game companies, that make boneheaded decisions. Whether the guys in charge. Sometimes they make up for them, sometimes they don't. THQ lost a lot of money on uDraw, which was one of the reasons they went out of business. EA ruffled a lot of feathers with their online passes and eventually capitulated to consumer demands and discontinued the practice. Ubisoft followed suit as well. Few big publishers will do anything so monumentally damaging to force them out of business, and even if they do someone will buy their most successful properties and publish them. And besides, all these executives must be doing something right, because EA, Activision, Ubisoft, Take-Two, SCE, and Nintendo are still making games that sell millions of copies.

#4: First off, budgets won't keep growing at the rapid rate they used to. There will be a limit to growth. To say otherwise would be to assume that game budgets could get to over a billion dollars by the end of the eighth generation. Average budgets will likely stabilize at around or slightly above current levels. Second, somebody could have made that same argument any number of generations ago: "In the 16-bit era, a game could be made on a budget of $100,000 and with a team of 20 guys. Now that we have all these 3D graphics, some games are costing several million dollars and can teams of 50 or even a hundred guys. This is unsustainable and will lead to a crash." Finally not every game either needs nor gets $50+ million budgets. While GTA might run as high as a Hollywood blockbuster, I doubt BioShock Infinite, Bayonetta, Injustice, or Super Mario 3D World cost nearly as much to make.

#3: Mostly bullshit.

#2: Were things any better in the 80s or 90s? Before we had the internet and all it provides, the only thing we had to go by were Nintendo Power, EGM, and Game Pro. No videos, a few screenshots, and otherwise limited info compared to what we get now. And if we didn't read gaming mags, all we had to go by was word of mouth from friends and other locals. Apparently the author forgot what it was like in the 20th century, because if we're flying blind today, we were flying blind, deaf and dumb back then.

#1: Okay. I got nothing this time. I've already spent nearly half an hour on this and I'm burned out. Any takers?

In which bizarro universe does failure translate to riskier projects and experimentation?

Our world dude.

More resources are being diverted into mobile and other smaller projects, even among the larger companies. In some cases, it's simple coverage of existing and potential markets, and in other instances, since the capital investment in smaller projects minimizes risk, the result is often something beyond the norm.

If you took that to mean an eight figure product tanks so publishers will spend the same or more on an unproven concept or new IP, you might want to work on those reading comprehension skills.