It's a combination of mainly two factors: the increased cost of producing a game, and the lack of a secondary, long-tail market for games.
You look at movies, they have get released into the theater where they do a 1-month run. But then after that, the DVD comes out and sells for years and years, everywhere. Same thing with music and books. A big sales explosion upon release, followed by years and years of slow but steady sales.
Videogames don't have that. If a game doesn't sell within the first two to three weeks of release, it's effectively dead. That's it. There is no other market the publisher can turn to for steady, long-term sales. The game will go into the "used game" bin at GameStop where it will be left to die, but the publisher doesn't see one red cent from those sales.
Combine that with the fact that hit game budgets are beginning to approach hit movie budgets, and you have the makings of an unhealthy entertainment industry. That's what the videogame industry is right now; unhealthy.
The game publishers are in an increasingly open war with the retailers because of this, and the publishers have been forced to make the business more and more hit-driven, far moreso than the music, movie or book businesses. In a hit-driven business, profits from the sale of a handful of hit games are used to finance the development of the games that lose money (which is most of them.) In the game business, the goal now isn't merely to create a hit, it's to create a franchise.
This is unsustainable, especially if the next generation of consoles brings a leap in technology, with the attendant leap in budgets.
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