You're right, it is insane. But it's self-inflicted. This is what happens when companies are public and "need" exponential growth. At some point it becomes unsustainable, all while gutting a lot of what got them there in the first place. At least they're finally starting to realize smaller projects may be necessary.
Yup.
The strive for game makers to make bigger splashier games with AAA textures and voice actors and cinematics is killing some studios. Thats on them to go balls out, or be more conservative and make a good game that doesn't have to be huge productions or open world or even licensed. Marvel takes what from Sony? About 10% cut?
Not every restaurant is a AAA Vegas pig out buffet.
I think that's an overly simplistic and easy explanation that doesn't hold upon inspection.
Horizon looks better than Spider-Man 2, reuses fewer assets, is way longer and cost the better part of 100 million less to make. Cinematics and VAs out the wazoo, recording for much longer periods of time. I think Insomniac was less than smart casting Lowenthal and Bailey in the foremost roles for Spider-Man, but they don't break the bank any more than Ashley Burch and Lance Reddick, featuring Carrie Fisher.
Let's also not pretend like the push for improved technology is new or something consumers have nothing to do with, or doesn't exist outside of PlayStation's studios. Frankly, back when the industry was less public and corporate, the ambition for exponential improvements in technology was greater than it is now, and the hardware was getting cheaper and more powerful to facilitate it. Now we're plateauing.
The lead up to Spider-Man 2's launch on this forum and others was full of people noting how iterative it appeared from SM1 and MM, and it turned out to be exactly that. To the point that Insomnjac themselves don't know why they're spending 3 times the money for less of a cumulative effort for the game.
So the answer is more complicated and perhaps uncomfortable. Maybe there's too much bloat. Maybe game devs have actually decreased in productivity as a result of said bloat and the resultant bureaucracy, anti-crunch/work-life balance propaganda and working from home. Maybe California is a failed state, and way too expensive to pay people in.
Maybe margins are narrow because these games are worth way more than 70 dollars at launch, and gamers are too fickle and short sighted to understand that.
Notes: The smaller games were losing Sony money; and the cut Marvel takes ranges from 20-35% depending on the format of the copy sold, going by their X-Men terms.