I have noticed a trend recently with games, where many games are eschewing pre-recorded FMVs in favor of in-engine cinematics. With this, there is another problem I have noticed: because in-engine cinematics are often so action intense, they frequently strain the system, requiring a reduction in the game's resolution or a drop in the framerate. Because of this, I really think the old cinematic FMVs should come back. While they aren't gameplay related, and games aren't movies, when artfully and carefully done they can be extremely memorable (Arthas's betrayal in Warcraft III being perhaps my favorite). Furthermore, game companies don't have to stick to just pre-rendered FMVs, they could go with cartoons, anime, or other stylized FMVs, should they desire.

So what do you think? Should pre-rendered FMVs make a comeback? Or should game companies spend their money elsewhere and stop trying to make movies?

I think they do have a place, but going from an in Game cutscene to gameplay in the same camera motion is awesome.

And there's something a little jarring about seeing a super cg version of your character then ingame so it would have to be like comic strip anime mirrors edge kind of thing.

I think I'd be fine with only in Game cutscene, graphics are so good now they don't need them.

FMVs are immersion breaking. Good riddance.

Isn't there a racing games that merges FMV with in game graphics? I want to say at E3 was a video of real people walking around and then it panned to the car which was rendered in game.

Nah, I can't stand it when a game has cutscenes that look nothing like the game.

Are FF XIII's cutscenes still unbeaten?

Yes they should. Running an fmv is the perfect place to hide loading times. Sure switching to an upgraded look for fmv is slightly immersion breaking, having to wait for the next section, or next piece of in game cinematic to load is worse.

I like watching proper cinematics. They can give a glimpse of what games could look like next gen. Since disk space is limited, more care is put into making those pre-rendered cinematics. In game cinematics are often too long winded. Plus the artists are free to do anything they want not restricted by rendering budgets. Trying to get in game cinematics to run within budget is a pure waste of time imo.

Movies have been doing blue/green screen from the beginning. Games have inserted real life fmv into game graphics, why not insert your actual character(s) into the pre-rendered backgrounds. Best of both worlds. In the end it's a non interactive cinematic. Who cares if it's rendered live. Instead show off the best the game engine can look, rendered at 8k with everything on max. Not hindered by object limits, memory, cpu or disk access.

However games are already very big and 1080p video takes up a fair chunk of data. Publishers are allergic to using a second disk, hosting even larger files, or paying royalties for good video codecs. Seems we're stuck with a lot of mediocre in game cinematics instead of fewer really memorable sequences that actually feel rewarding to watch after an intense boss battle. Oh well, press x again to skip.
The last game I actually rewatched certain cinematics was Ni No Kuni, the hand drawn animated sequences were awesome. Press x again to repeat should have been an option there.

I disagree with this sentiment. I feel like the most immersion-breaking cinematics are the videos that look half-way between a pre-rendered video and in-engine graphics (the Mass Effect trilogy does this the most egregiously, I think). Those types of cinematics manage to create their own sort of uncanny valley that I find incredibly unsettling. 

More so, proper FMVs discourage QTEs, so that's a good thing.

Plus, FMVs look good way longer than in-engine graphics do. FF8's FMVs still look good, for example. As do Diablo II's (I still love the battle between Tyrael and Baal).

Its too much work now days

FMV was only good when consoles were not powerful enough to deliver epic movie-like scenes(ie Final Fantasy 7) through their real-time engines. Metal Gear Solid was brave enough to use the in-game engine(albeit with added effects) to achieve its cutscenes and through the PS2 era we saw more and more games follow suit. During the PS1 era it would transition from amazing(for the time) FMV to contrasting real time gameplay(Resident Evil, Silent Hill etc). At the time no one cared because the FMV looked awesome and was actually a huge advantage the PS1 had over the N64. But now, looking back to that FMV, real time graphics of today look much much better. Real time graphics actually look much better than Toy Story, Bugs life etc these days. And you get to get the consistency of the graphical style by going through real-time cut scenes.