It's a new generation with bigger risks, bigger rewards. Some companies and developers are going to bite the bullet. Some won't be able to stand the test of time.
Some will pass with flying colors. I'm sorry but Sega hasn't made that many wonderful games (Recently) as far as I'm concerned.
Some companies are going to go out of business but to act like the whole industry needs to downscale and de-grade in graphics is absolutely hysterical and stupid. Only the developers who cannot develop quality HD caliber games need to downscale.
Plenty of other studios are doing just fine. (Rockstar, Blizzard, Valve, Guerilla, Naughty Dog, Bungie, Insomniac, Epic, to name a few).
The jump into HD is/was/has been expensive no doubt about it. This is true for Cable TV, Movie Production, Etc. Although it's moving forward not backwards. The further this progresses the cheaper everything involved with it, becomes.