I have read several interesting articles on the price of video games, especially relating to how the casual game market has harmed the more traditional market. (See here, here and here.)
I predicted games for the next wave of consoles would be sold via digital distribution, but the next consoles are going to have to deal with casual games in a way that has not been necessary before - games for mobile phones, tablets and (of course) social networking sites. Zynga is the big dog here so far.
Both casual games and console games have their advantages. Causal games can be played for a few minutes at a time and put down, and are much less expensive. Hardcore gamers prefer console games and are willing to pay for them. Console games offer a longer, more involved experience that can be well worth the money, especially for some role-playing games. Even the DragonQuest games on the Nintendo DS can easily take 30 or 40 hours to complete - longer if the player wants to find every single special item and weapon.
The way I see it, there are two distinct markets, though there is some crossover between the two. First, you have your traditional "red ocean" market represented by the 16 to 30 year old single males. The much newer "blue ocean" is made up of people who are nontraditional gamers who aren't interested in playing a 40 hour epic or a complicated first person shooter or sports game, but are willing to sit down for a couple minutes with Cut the Rope or Words with Friends. There is some overlap, of course, and that overlap may be increasing.
With the power of tablets like the iPad, game console makers could be in serious trouble if there is ever a serious effort to make a traditional controller for it. The biggest disadvantage they have now is that the touch screen is just not user-friendly for arcade-style action games and first person shooters, but adding a controller could help. Tablets and mobile phones (along with the iPod Touch) also have a lot more capabilities than your traditional game consoles, from e-mail to web surfing, social networking, calendars and even office suites.
Console game makers will have to step it up. It simply is not acceptable to have the single-player campaign of a popular game take four hours to complete when it's selling for $60. Game makers are also going to have to stop putting out mediocre or bad games to cash in on a movie license, especially when there are so many more options today. The glut of bad games helped kill the Atari 2600 in the 1980's, and it hurts the console market today.
One of the reasons it hurts is because of the casual games. The App Store for IOS actually carries a lot of games, including role-playing games for much less than their console counterparts. The first three Final Fantasy games are already on IOS, and the popular X-Men arcade game from 1992 (one version of which allowed 6 players to crowd around the machine to play) is available as a $0.99 download. If gamers are burned too many times by terrible games that cost $60, even hardcore gamers may look elsewhere - and casual games are waiting.
I do not believe the hardcore gaming market is going anywhere, but there are so many entertainment options - and not just video games - that the game industry cannot continue the current manner of business. It took several years for the current generation of home consoles to become affordable, and if the next PlayStation and XBox consoles launch at $600 (which is where the PS3 launched) they could be in huge trouble. Whether they like it or not, the traditional game market is going to have to adapt and run a better operation to stop the bleeding of customers.