You know what will kill the industry? What Maxwell stated, the Wii, and about 4 or 5 other things as well. This is no SIMPLE problem. Its EXTREMELY layered and complex, thus the solution is especially hard to grasp for most because we want simple answers and to point the finger at a 'villain'. There are greater minds than ours that are trying to tackle these issues head on with limited success.

No offense but it seems really backwards to blame the customers.  I don't think that logic has helped any industry.  Besides many publishers have found their niche doing exactly that(EPIC). If they wanna keep up the marathon it's their business(in more ways than one).

I find it hard for the consumer to make video games... you know... the things that the video game industry runs on... consumers fund the market and also has a hand in choosing weather it lives or dies, but when a developer can't survive cause of development costs that's a real issue... sure they can make a better game but development costs hinder that as well... and downloadable games are a limited market still, as with handhelds you're limited to more people and kids that don't know how to hook their systems to a wireless router, then you have another factor which is people fearful of buying anything over the net, having downloadable games is limiting yourself a lot. 

I'd like to know how that works... the big problems right now is the economy, inflation, and development costs...

The industry dies if the cultural perception of videogames is that they are boring garbage and they fail to entertain. If you end up having what happened with the Atari 2600 and the crash then, you can get some idea what can happen. Even after the crash, Atari still sold around 1 million 2600's (until the NES came along). I know one guy I saw at a Toys R Us who bought an Atari 2600 over an NES, because of the name recognition.

Is it possible the industry could contract? Definitely. By not sure killed. Retrench and structured smarter is a possibility though. As would be a slowdown in the release of new systems.

Overall the gamers that came into gaming during the Saturn, PS1, and N64 era of gaming generally love the looks of games, 3D was a big part of bringing them into gaming as well as image, so many of these gamers want more and better graphics without knowing what it's taking to produce these graphics, hell you got some of these people out there everyday spouting how their PS2 was graphically superior to the Gamecube.  Companies like MS and Sony listened to these fans and made consoles with tech to try and rival the PC which in the console business had never been done before, sure there was the console here and there that tried and failed horribly but on a large scale it has never been done and trying to make near PC graphics standard and now we're seeing backlash to that with developers like Free Radical having to let go a lot of it's staff because of one flop...

I think he said tht it's NOT the wii.....

Unfortunetly the Wii has only delayed this problem. As the next generation of consoles hit, development costs will double again, but the market size will not double. These means for companies to stay in business one of two things will have to happen.

1. The price of games will have to go up.
2. Companies will have to find a way to reduce development costs.

What we really need are new tools that will speed up development and reduce the costs. Spicificly, we need new model techniques since this is where alot of time and development costs go.

Or better yet build machines with ease of development in mind, lower tech maybe stay the same level as this gen just make a new console with new things and a little more power not double or three times as much like they did this gen, like I stated the advantage of consoles were always that they were NOT close to the tech of PCs which made them very profitable,

Somehow the industry needs to cut down the time it takes to create content for games(models, textures, animations, etc.).