I was going to create a much longer post...but lemme just cut to the chase.  Last gen you had Western devs left and right going bankrupt presumably because they didnt know how to manage their money.  Games selling in the millions would be considered failures mostly due to development costs.  Game budgest stay rising and it doesn't seem like these developers are doing much to combat this. 

On the other hand, you have companies like Nintendo, Level-5, Atlus, etc. who can somehow operate with games selling in the mid-to-high thousands.  How is it that these companies stay afloat while games that sell 3-4 million copies aren't enough to sustain other developers.?

Not sure. Maybe it has something to do with western devs chasing realistic graphics, whereas a lot of Japanese games are more stylised and therefore cheaper

Not really just western. Capcom nearly went under if not for RE and Monster Hunter from mismanagement of IPs. Konami before it became popular to hate them became a 3 IP company. CV,MGS,PES. Square while not in any real trouble keeps throwing bigger and bigger budgets at games then complains it didn't sell 10 million to make the money back.

It's mainly HD development. We have seen both Japanese AND Western publishers go under at an alarming rate since 7th gen. Just take JRPGs,the most popular genre in Japan. in the 90s there were more developers making JRPGs than you could count. Now? You can count on 1-2 hands. Yeah we lost THQ and Midway. We also lost Majesco,Artoon,Cavia,Cing,Gamrepublic and more.

The costs are really high and they need far more people to work on them. Did you know Breath of Fire on SNES was programmed by only a couple of people? This was not uncommon then. Now we have teams of 100 or more people working longer hours.

Nintendo is modest with it's budget,Nintendo doesn't dump 50-100+ million dollars into a game. Even Zelda or XCX high budget games for Nintendo,have a fraction of the budget FFXV or Dragon Age have.Level-5 isn't paying a cent. They are the ones being paid to make the games from others. I don't have a source but I think Bayonetta 2 for Nintendo is 20 million. That's pretty small in today's world. Again not confirmed.

Using Nintendo & Level 5 as examples is kind of strange considering Nintendo sells more software than anybody else while Level 5 has Yokai Watch and before that Professor Layton which each were multi million selling franchises in their primes.

Eh, last time I checked, both parties are guilty of this. For each small efficient japanese developer, there's also a small efficient western developer. For each desproportionated big western developer, there's one desproportionated big japanese developer.

Just look at Square-Enix with their ridiculously high sales expectations, Konami that found success by going mobile/pachinko and not having to worry about game budgets (since they were so inept at it in the first place) or Capcom who's struggling like crazy these days.

Western developers like to play Russian roulette (game is incredibly successful or bombs tremendously. No inbetweens). This means throwing 100mill plus into the development of one game with the idea it will pay for itself and earn 10x that back. Another problem with western developers is using tech to sell games vs the actual game.

Yeah, just look at Polyphony Digital they are...
Actually no you're wrong!!

Too much time spent on graphics..... sadly.
Also Open world and multi player aspects.

I dont care if it gives us games like Witcher 3, which is so far the best game of this entire gen.

Capcom, Square Enix, Sega, Konami, when I think of companies struggling with budgets and/or sales targets I don't think of the West. Our budgets may be sky high and business practices often very low, but one way or another we usually get that return.