The downside to this is that smaller studios will continually be absorbed by larger companies (EA continues to play this role in the industry), with many others falling under the umbrella of hardware manufacturers like Sony or MS.
While that umbrella provides resources to produce games with greater developmental staff, better resources and longer time tables (before a project is published and can begin providing a return on investment), it also means that as more risk is involved financially, less risks will be taken creatively once too many big budget games fail to provide a reasonable return on investment.
At the current rate of expansion, there will be another glut in the video game industry unless it somehow manages to supersede other forms of entertainment (TV, film) as the leading form of entertainment. While video games managed to outperform the film industry last year, it is still important to consider whether this is sustainable beyond 2008 when the current crop of consoles begin to lose their luster.
But there will always be a market for home spun type games, supported by the current generation with WiiWare, PSN and XBLA releases that would never see the light of day through physical media distribution.
How long can big budget games be sustained? For as long as they provide a reasonable return on investment. And that depends entirely upon the level of consumption of the gaming market. As long as the gaming market continues to grow, they will remain off the endangered species list.
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