While I agree with a lot of what you have to say, I think 38 studios is more at fault for their demise than gamer's expectations. 38 Studios had a ridiculous high overhead with no other titles being made besides Kingdoms of Amular: Reckoning and their MMO. They set their goals way to high with no streams of revenue. The programers and artitts made a great game in KOA:R and I was excited to see what their MMO had to offer. In this case I think that the management of 38 Studios is more at fault than the consumers' expectaion.

I think its two main problems

 1.) there are alot of games its an extremely packed generation of console games and made even even more cluttered with the surge in causal app games on phones and facebook.

2.) Most importantly console games are priced so high that  have cornered themselves into such a small bit of the market that they will always have a struggle to survive.  Think about a movie/film production costs are the same if not way higher, competition is higher, but so is their market. Films reach 100s of millions of people while console games struggle for millions even though the stats say that that a majority of people game. So why are all these gamers not buying console games? Because they are too high in price and they talk about raising prices. So basically what they are doing is counting on their 1st day and early adapters to pay the majority of the costs. However 1st day and early buyers are dropping off because of costs and the amount of games in backlog. Even then to pay for those early purchases many have to trade in the games to recoup the costs. Now think about your own purchases, have you ever turned down a $20 console game that didn't have poor reviews? At that price point did you feel the need to trade it in or did you rather opt to keep it in your collection to enjoy again? At those more reasonable prices you will start to get the massive causal gaming and app gamers that make up the majority of the market.

Think about it like this: The console gaming market right now is a Abercrombie & Fitch  it needs to be a Target/Walmart that gets you in the door where you are more comfortable and buy more. Once these gamers are in the door you have way more people that will consider buying DLC (expansions, map pack, luxury items). That is the trick of the social and free to play games that makes them successful, people are in the door and invested in the game and buy tons of junk. But you need them in the door and playing or they are not going to invest their money or time and these games will never come close to their potential. I don't know about you but when I was a kid playing NES I got about 2-3 games a year because of the costs and I think it was the same for alot of people. That is the way it seems to me at least but maybe there is info we don't have on why they do what they do but I think it is far more likely that they do it this way because it is the way it has always been.

So many things I could say on this subject, that most likely the reply will read like an incomprehensible jumble of a mess, so here I go.

First, to everyone who bought a Call of Duty game and made it a raging success....thanks for destroying our industry.

To Sony and Microsoft, thank you for making your consoles so absurdly expensive while making the development costs so freaking high that all developers have had to stick with the $60 pricepoint to cut a profit.  Thanks for destroying the industry.  You are directly to blame for only a few companies being allowed to survive in this industry, effectively destroying it.  

Back to Sony and Microsoft.  Since you are unwilling to drastically drop the price point of your consoles, you should have definately taken a loss on your hard drives.  Because you didn't come up with a way to get everyone with a console a huge hard drive, you destroyed the industry.  Had we of had terabyte size hard drives, you could have made the online sector so much more, by allowing titles to have larger shelf lifes and allowing developers to drop price points on their major titles as time went on.  Without doing so, there is not a chance for most developers that dont start with Electronic or Activision to have a chance at surviving.  You could have taken a page out of Steam and made this generation so much more.  As it stands now, only a small fraction of your user base buys games online instead of it being the must go place to go.

To anyone who is excited about Assassins Creed 13, thanks.  Your all blind.  It was only a year ago that everyone was up in arms with the yearly release.  You have all been fooled in to believing that by slapping a new winter wonderland with guns and Americans that somehow this game will be hugely different from the last 10 games that came out in the last 5 years.  Hate to blow your wad for ya, but you have been duped.  I dont care how cool you try to tell me the game is.....it is going to be the same game you played last year.  Shocker, I know.

This goes back to the CoD fanboys.  You have destroyed innovation and have no shame in allowing this to happen.  Once again thanks.  

Last, to any RPG fans that have been unwilling to try anything other than the next Final Fantasy game, I hate you too.  Kingdoms was a good game and should have been supported.  But RPG fans have ruined the RPG landscape by only sticking with an RPG like Final Fantasy while still calling themselves RPG fans.  

My rant is done for now.  I feel better.

Curt Schiling and 38 studios went under for thinking they could sell enough copies of a game to pay off multi-million dollar loan. That was a reckless gamble. I'll admit that some studios can be made or broken by the success of a single game, but that business approach just seems so foolish.

"Hey let's just throw every cent we have (and a lot we don't) into a single juggernaut and assume it will sell to meet our overly liberal expectations."

Buisnesses beyond just the gaming industry do this every day and get punished in a very similiar way. You just don't place all your eggs in one basket. If I were a development company, I would take the Double Fine approach from recent years, split your awesome team into smaller teams and mass produce downloadable titles. A creative approach to a quickly evolving buisness. Sometimes people just get stuck in a rut and don't stray too much from established practices, which can't be allowed in buisness.

And I don't blame gamers, we aren't entitled to anything. The publishers and developers just want to appease us if it gurantees a greater bottom line. We want the medium to move forward and we want to see standards go up, don't blame us for wanting more quality.

I am kind of ambiguous when it comes to the actual labor in the industry though... something needs to change about that. I think they need to unionize honestly. When I heard L.A. Noire was essentially built on exploited labor, I was sickened. It definitely is unfair if we want our standard of quality for games to increase but are appthetic towards game industry workers.

When I see people bash games like Call of Duty and Assassin's Creed, I can see where they're coming from. These games have become massive, unflinching juggernauts that receive little in the way of innovation on a year to year basis. 

But they didn't used to be broken. There was a time when they too, were huge risks. Think back to when Call of Duty 4 came out. The industry was stuck in a rut of WWII shooters (created by that same CoD franchise.) Activision didn't want Infinity Ward to even think about making a modern military shooter, but they took a risk and it paid off (which has now led to a new rut, sadly.) 

And Assassin's Creed? How marketable is a third-person action game set in the period of the Cursades? The only reason that game was made in the first place is because Ubisoft Montreal bolted (somewhat elegantly) a sci-fi story around the period piece to make it more palatable. Even still, that game was a huge risk, and it turned into a huge franchise. 

These giants all started as risks. To try making a first-person shooter really work on a console? Thanks Bungie for taking that risk on Halo. To stray from the money-making sure thing you'd been doing for years? Thanks Epic for taking a risk on Gears of War. To make an game about making game levels? Thanks Media Molecule for taking a risk on LittleBigPlanet. 

I'm not saying the industry's not broken (it can certainly be improved,) but risks are still taken every day in this industry. Innovation still happens. And it's unfair to all the developers experimenting (especially the big budget ones,) to say the whole industry is doing it wrong.