Is the video game software industry in trouble?

Newspapers these days are choc-a-bloc with articles hyping video games and their impact on pop culture; and the global hardware, software and accessories sales for video games reached $10.5 Billion in 2005. It is then somewhat surprising to note that video game makers such as Electronic Arts, Activision and Atari have all recently missed their earnings and announced layoffs. What exactly ails the video game industry? Mike Musgrove through this article in the Washington Post posits that the video game console upgrade cycle has much to do with these woes.
The three major video game console makers are in the process of upgrading their hardware and this has disrupted the industry through uncertainty. While Microsoft has already launched their next-generation Xbox 360 console, shortages have depressed video game sales. The complements for video games (high definition TVs, consoles) keep getting more expensive leaving little value for game makers to appropriate. To make matters worse, while the cost of game development doubles with every iteration of consoles, the consumer willingness to pay hasn’t move beyond the $50 price point. The video game industry also relies on a few blockbuster titles to make up the development costs of all the duds and this need for blockbusters has driven the proliferation of branded (Tiger Woods, Star Wars, Tony Hawk) games. The video game makers are hoping that increased scale in the form of new buyers worldwide will bail them out though even that will do little to address the other structural issues.