I'll just break this down in basic, simplified math too as to what the publishers are looking at.

Take a game like Resident Evil 4 Remake. You may say, "great, it sold 6.8 million copies, that must have made a great sized profit".

Now lets break that down some, at $60 full price, you have to subtract $9-12 for the licensing fee that goes to the platform holder/Steam/whatever. Then for retail copies it's another $10-$20 off the top for shipping/packaging/retailer's cut.

But lets be honest, we all know these games are heavily discounted even 5-6 months after launch. So lets even assume a rather generous $30 average mean profit per copy sold for Capcom (some will be at full price, but lots of these copies are like $20-$30 total).

At 6.8 million x 30 = 204 million. That's not bad. If you spent $125 million making the game that's a net profit of about $75 mill. 

Now imagine for a second though, that budget number goes from $125 million to $250 million in 5-6 years because you gotta keep up with the latest graphics, that same scale of game now costs 2-3x more ... then throw in also $20-$30 million on marketing spend ... that all of the sudden 6.8 million copies sold is no where near enough to even break even.

Publishers know this stuff, that's why they're looking at different business models like GAAS, even Sony is.

Games that eventually have a $300-$400 million dollar budget need to sell 12-15 million copies before you even really start to see a dime in profit of a return on your massive investment (which probably also tied that money down for 4-7+ years, which is a long ass time to wait to see any return on an investment). 

Even Capcom and Square-Enix IMO can't really compete in a world of $300-$400 million projects, 6-10 million copies of a game isn't going to cut it anymore. 

That's like saying "not many people live in Tokyo if you don't count Japanese people, women, or people over 50."

Still, even with Western devs currently polarised between massive AAA juggernauts and low budget indie titles, with little in the middle even being attempted, you still have stuff like It Takes Two and Fall Guys in the last couple years, which both sold over 10 million copies. Japanese devs have embraced AA more so than the West, and do well out of it.

The story being underdeveloped and, well, shit was attributable to the live-service shenanigans, though. What little story it has is just there to drip-feed you objectives and GaaS gotchas, which is the whole catch 22 with making single-player games live-services and why they never work as live-service games (Platinum couldn’t even crack the code with Babylon’s Fall). That and the always-online stuff.

The fact that it shits all over the established lore irrespective of the GaaS model is just the cherry on top of the shit sundae really. It also probably didn’t help that Sweet Baby Inc. were actively involved.

The bottom line is all hardware platforms are basically getting to the level now where you can spend to your hearts content and bankrupt your studio even on the lower spec platforms, lol.

PS4 level games can cost more than $200 million if you want to pump out Horizon: Forbidden West of GOW 2018 tier visuals, Switch 2 will be able to likely do that and then some, same with tablets, smartphones are getting there.

So really a "retreat" to like PS3 tier visuals isn't going to happen, you're just going to have PS4 tier as your floor for everything and then many studios struggling with really pushing past that floor because the budget quickly balloons out of control if you want to make an epic game.

Even with Square-Enix we're seeing this ... FF7 Rebirth looks fine, but it's not like a monstrous upgrade over FF7 Remake or something that looks any better than Horizon: Forbidden West. 

For the "we love graphics!" studios, fine, great, you can jerk off on graphics even on lower tier platforms now and make games that will rake up a massive bill if that's what you're looking to do, you don't even need the highest end hardware to do that any longer. 

They didn't learn that a dozen years ago or so, why do you expect them doing it now? Jim Sterling made a video on that back then, just swap out the game names and fiddle a bit with the genre and you could remake the exact same video and argument all over again:

Perfect Pasta Sauce (The Jimquisition REMASTERED) (youtube.com)

Not saying they will change. Im saying they will learn. Going under is a way to learn.

Yes it would have. But Helldivers 2 may end up dwarfing Spider-Man 2's lifetime sales including PC. A shame Sony cancelled TLoU Factions 2, it's the one live service game I was really looking forward to.

PS4 tier games do not need to cost $200 million plus though.

Nobody is putting a gun to these publishers' heads and forcing them to make every game graphically cutting edge, 50+ hours long, and spared no expense. The mass market is clearly fine with games looking good enough rather than best in class, as the sales charts prove.

There's room on the market for your beautiful showpiece blockbusters and your lengthy expansive adventures, but not every major game needs to follow this path. If you cannot profit from selling a single player game at $70 then you need to rein in your budget. The live service push is about greed, not necessity.

If you want a game that looks like a PS4 title like Horizon Forbidden Dawn ... they actually do kind need to cost $200 million dollars. People deserve to be paid for the work they do on these games, frankly, the people who work on these games are underpaid because they're not unionized. 200 million is actually not even the norm for much longer, it will be 300 million as the low base line soon and 400 million standard soon enough, watch.

$200 million is frankly probably a bargain to these studios relative to the labour worth they are getting from these poor people that work 6-7 days a week, tons of overtime, don't see their kids/families during crunch time, sleep at the studio, etc. etc. etc. 

If these people were paid properly under a union system, these $200 million games would probably cost substantially more. 

They won't let go of this model because they don't know how to drive hardware sales or make their games stand out in other ways. Why buy a PS5 if a PS4 just runs the same games. Not everyone has a Mr. Miyamoto or Nintendo's design heritage to fall back on either. 

For a game like Horizon yes, you're absolutely right, and there's a place for games like that, but not every major game needs to try to compete with Horizon or God of War.

The AAA model needs to be rethought, because even going live service isn't going to be a magic bullet, given the failure rate of GaaS titles. For every one that succeeds there are many that flop, and if every one of those flops has a mammoth AAA budget attached, they'll still be in the shit.