I'd really have to say all of the above and other. Just like there was no one reason that caused the collapse of the Roman Empire in the West, there's no one reason for the dip in the game's industry. Here's my reasons and my logic behind it:
Piracy: This is definitely hurting PC games more than anything else, I remember reading somewhere that something like 50% of people playing PC games are using pirated copies. Now I don't put much faith in statistics, but even if there's a slight truth to that, it's a pretty high number. Now there are a lot of reasons for this, one is the fact that it's not always easy to find PC games by means other then download, and that doesn't always sit well with people. I find it kind of pathetic that the Target next to my GameStop has a better PC game selection. Sure there are download clients like Steam and GOG to give an alternative, but there's also a lot of torrent sites, and for some people free will always be the first option.
Pre-owned sales: I guess this one still kind of baffles me because I've been buying games pre-owned from EB Games and GameStop since the '90's and it's only really the last year or two that I've heard publishers and developers bemoaning like it's the end of the industry. Now perhaps that's my fault for not listening, but the idea is still pretty new to me so my mind is still set in the old gamer mindset. I can definitely see their point, game retailers like GameStop make huge profits off of buying used games for minimal costs and selling them for higher costs. Besides that, online distributors like Amazon, Half.com, and Gamefly all have a system set up for selling used games that ensure it's all profit for the seller. Again, it kind of touches on my piracy argument that people will go for the cheaper option most of the time, and with the fact that pirating games for consoles is much harder, people will look at the used rack and find that the game they're looking for is $20 cheaper. I had this happen when I went looking for Time Shift, new it was $29 and used it was $5.99, which one do you think I went with? I think that once developers start withholding important parts of the game because you've bought a pre-owned game, that's when the industry will really be in trouble.
DRM: Again I think this is more of a problem with PC gaming at the moment, but it'll definitely start to affect console gaming in the near future. In my mind it's a symbol is distrust and animosity between the provider and the consumer. This "always online" thing can be really annoying for people like me who have spotty internet that constantly drops them because of old wiring, or the percentage of people who don't have Internet. I know it might seem hard to believe, but there still is a number of people who only use the Internet in public places. Besides the always online stuff, there's the only 1 save file like in the new Resident Evil Mercenaries game for the 3DS, which pretty much means you can't sell it, and with that kind of gameplay, the amusement will subside, and then you're stuck with something you can't really get rid of for something that might be more interesting.
Micro transactions: Because I've scorned online play completely I'll have to feign ignorance to this one. That said though, I really have a tough time trying to figure out how a hat in Team Fortress 2 could be so damned important that you're going to shell out real money. When I listened to the Escapist Podcast where they were talking about micro transactions I was pretty shocked that hats have become a currency. It also really illustrated how much the industry has changed since I stopped playing online multiplayer in 2004. I don't know if games are already doing this, but if developers and publishers start giving people that extra edge in multiplayer for shelling out real money (on top of what they paid for the game) for a new weapon that unbalances gameplay, that's a sign that a line has been crossed.
Inflated AAA Costs/ Reviews: I think Jim was really onto something last week in that little column with Yahtzee and MovieBob. AAA games do cost a lot, but they also cost a lot to make, so there's no real way to recoup costs unless they charge that much. That said though, $60 is quite a bit of money, and not everyone is going to be willing to spend it on a new IP, so I think a tier pricing system is a good idea. Games that you know are going to sell well no matter what should be $60, but games that are a bit of a gamble should cost less, to entice people to give them a try without fear of wasting a chunk of change. Worked for me with Deadly Premonition. I also think that video game reviews are part of the problem here, because a game that gets under 80/100 really has a hard time getting people to take a chance.
Focus on Multiplayer: This can kind of be tied to the high costs argument I suppose, but charging $60 for a game that is only fun when other people play is just fucked up. I was genuinely intrigued when Game Informer published an article on Borderlands in the September 2007 issue, that was really the only media of the game I read before I bought the game shortly after it came out in 2009 and I was incredibly disappointed with the final product. As I've said a couple of times already in this post, I don't play online anymore, and I haven't for about 7 years now. Games cost too much for a developer to really only focus on the multiplayer aspect while confining the single player campaign to a second thought. I know this isn't the case with all games, and that this point is usually over exaggerated by proponents of a single player focus, but in the last 4-years I've really felt like my wants in a game have taken a backseat to please the multiplayer audience, which probably vastly outnumbers us.
Lack of a future vision: Back in June (around the time of E3) Cracked published an article about the 6 ominous trends in video gaming, and I think lack of a future was the number one ominous trend. The Xbox 360 has been around for 6-years now, that's usually shelf life of a console, and yet the only confirmed new console for the 8th generation is the Wii U, which seems to be Nintendo's feeble attempt to recapture the hardcore gaming demographic they lost with the Wii. I can't blame Microsoft or Sony for letting their current consoles go on beyond the usual timeline, what with the high costs of creating a new console and getting developers to pump out the launch titles for the console. How much better can graphics really get though? I mean I've been playing games for over 20 years now and I've been them evolve from 8-bit to what we have with Battlefield 3 and it really looks like we're reaching the limit. I mean that was always the goal for the next generation of console and PC technology, get to that next stage of realism, and now it seems like we're on the verge of it, where do we go from there? People will get tired of series' pumping out sequels every year (I mean just look at the Guitar Hero series) and will demand something new, yet do we really have any idea of what that new thing will be? I don't see it yet, and I don't think a lot of other publishers see it yet either.
Games becoming popular: Okay I think I probably should put up this warning, I'm going to be speaking in HUGE generalities but there's just no way to really talk about it without sounding like a massive elitist douche, so I apologize in advance if I offend anybody and please feel free to tell me how full of shit I am. It won't change my mind, but if it makes you feel better then at least it's something right?
Video games for the longest time were made for geeks/ nerds/ whatever you call it. Geeks/nerds/whatever tend to be smarter than the average person, and that intellect was usually thrown into the games in some way. Looking back at the PC games I played as a kid in the late '80's, early '90's, I see a lot of the higher concept ideas were more openly discussed. Games had bit more of a "highbrow" attitude to it, a narrative that was a little more complex and well designed puzzles that are really a shell nowadays of what they use to be. I was a PC gamer in the '90's and my only console experience was playing with friends, so my augmentative points are more geared towards PC games, this isn't elitism, just me pulling points from my own experiences.
I first really noticed the popularity of games explode in 2004 with the releases of Grand Theft Auto: San Andreas and Halo 2, which were both hugely popular with the jocks in my senior year of high school. Before then, talking openly about video games was a sign of your nerdity (for lack of a better word), but after 2004 I really noticed that video games were becoming accepted among mainstream society. As Nietzsche said in his arguments against democracy, focusing your attention on the most popular things will usually result in the intellectual aspect diminishing. I can't help but see this in popular music and movies, with far less thought provoking entertainment, and far more pretty pictures/ sounds to zone out to. Without that mental stimulation, the medium suffers, and I think that in the last 6-7 years, video gaming has suffered from a huge lack of mental stimulation in favor of pleasing the larger audience who just want something to zone out to.
Again please feel free to call me an elitist prick.
Lastly... old gamers like me unwilling to change with the times: The older you become, the more hostile to change you become. I still have a hard time seeing a console as a computer in which I can download games and stream movies from. To me that's what a computer is, a console was always the alternative to installing a game and hoping your computer can handle it. A console was far more limited in what it could do, but it was reliable in ways that a computer isn't always. I didn't have to download updates for a console game, or wait for it to boot up, it was just turn on the console, set the TV to channel 3 and go at it. Hell it even took me awhile to view downloading services like Steam as the way to go for my computer gaming needs.
I have very strong memories attached to gaming from a time that seemed more simple and happier, and with current gaming I just don't get that same feeling that I remember. My old man mind just has trouble comprehending the idea of micro transactions, of DLC, of completely skipping out on the single player campaign to exclusively play online, of disregarding the medium as a story telling device in favor of turning it into a competitive experience.
So yeah, I think I'm just as much a problem with the industry that has changed in the 20-years that I've been playing. It wants to cater to the new generation of gamers, but at the same time knows that there's millions of people like me who have certain expectations when it comes to a video game. Who's side does it choose? Or does it? Is there a middle ground?
I think the video games industry needs to find that middle ground in order to dig itself out of this rut it's been in for the last half decade, but how it does that I really have no answer.