Well, I have mixed opinions on all of that. I think there are more culprits than mentioned. I think one of the biggest ones is MMOs. I think the Computer RPG genere has taken such a massive hit in the last 10 years or so because for a similar amount of effort to make a good single player RPG, one can simply put things online, worry less about the storyline and the need for writing (half the people who play these things know nothing about the game lore or even read the quests) and nail both an initial software sale, and a monthly fee. Even if the game dies in six months more money has probably been made than a single player RPG would have netted.
The problem with other kinds of games is that producers have realized that it's cheaper to buy/rent someone's engine(s) than it is to have an in-house team create a new one. Games lack innovation because they are almost literally all the same. People will use things like the "GRAW" engine or the "Unreal" engine or "Havoc Physix Engine" to develop their game and all they are really doing is modifying the same engine as half the other games out there and putting in their own graphics.
I think that truthfully a lot of game designers would LIKE to make other games, but basically they have to do what the producers want, and producers by their nature are simply looking to make more money than they invest in a project as quickly as possible. Very few producers are in it for the love of gaming, or have much in the way of opinions about it. They look at something like WoW and the amount of profits it makes and then hire codemonkeys to make them a version of it, hoping to do the same thing. Without the budget or people it would take to recreate a success of that level (World Of Warcraft was developed on a massive budget by a highly skilled team that was given a totally free hand to do what they needed to, something you rarely see nowadays).
To be fair though, I can't complain too much about the lack of radical innovation. I'd much rather see more design time, better writing, and more playability within the framework of what is there.
I for one see nothing fundementally wrong with the WoW style interface for MMOs, Turn based combat for SRPGS/Party RPGs, or even how games like "Dynasty Warriors" or even the sports franchises play. I mean there is no real reason to change what isn't broken, and most attempts to do so result in complete garbage. The guys who complain about lack of innovation are oftentimes the first to cruicify a game for trying to innovate and failing.
I think what is "hurting" gaming is simply bad writing and too many people all trying to retread the same junk as before without bothering to invest any soul in it.
That said, I kind of feel that things go in cycles, and the game industry is no exception. You see a period of a lot of good stuff coming out, followed by a creative slump. Look at it this way, for a while we had a major cycle of decent TV sci-fi and fantasy TV programs like "Buffy The Vampire Slayer". Now that stuff has died out and been replaced with an endless slew of banal cop shows and sit coms. However given enough time it will swing around again and you'll see some decent stuff once more. I mean we went through a period of massive science fiction programming (Trek Vs. B5 was a defining era of TV) and then there was a slump, then we had the "Whedon Era" that produced Buffy, Charmed, etc... now we're in a slump again.
The game industry is the same way. Right now we're in the midst of a bad cycle where everything is sequel after sequel. Eventually that will fail, and the industry will again go out hunting for new blood to start new franchises and such. You'll see good writing again (even if the same interfaces probably, I think some of them are fairly ideal), and then another slump as they literally squeeze every drop of blood out of those creations.
I think the game industry is fairly recession proof, and I don't think there is any chance of it dying.
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