I agree with what you are saying Rainbird. There is a problem here that we might come up against in the next generation, that creating assets that push the hardware is too expensive for it to be commercially viable. That is, unless the way we create assets change.
I know of two (swedish) developers that are experimenting with computer generated content. I've seen that video of a girl talking that is looking very much like a real girl, that actually runs on a computer (they had some fancy video capturing tool to make the model...). I've also seen a video of a facemodeling software that was able to build a 3d model of a face from just a photograph.
What I'm getting at here is that assets could be created differently from how they are created now and that that would mean vastly superior assets could be created for a fraction of the cost. I'm not saying it will necessarily happen, just that it could. Lets not do as Bill Gates, when he said that 640k RAM was all one would ever need. I prefer to hope that the future will see techniques to conquer the problems that lie ahead.
Still, there are also other huge costs associated with big budget productions. Most of them comes due to more content, and are virtually untouched by my reasoning above. Voiceacting, for instance, will hardly become less expensive. Music and good directing will always cost money. These have little to do with graphics and more to do with the scope of the project, the ambition of the creators, but they still contribute a fair part to the expenses of game creation (though I have no idea as to how big that part would be). On the other hand, these costs are not likely to rise as steeply as the costs for creating graphical assets.
So I agree with you in part, I just think that there is more to this problem than what you have outlined.
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