Seems like a transition period for the industry where adjustments are needed to avoid things becoming completely not sustainable in the long term.
Hopefully people affected can find a new job soon.
Personally I think that development cycles have become too long, taking 5-6 years to ship a single game is too long and new production methods to develop games have to be found.
It's obviously a more complex problem than just making smaller, less ambitious titles with lower production values because without experiences that push forward the medium the whole thing is going to stagnate.
Good luck to the well paid executives
I think the solution is easier than some think, but it would have to involve gamers being okay with these massive games broken into smaller chunks/installments and those parts release more frequently.
Stuff like FF7 Remake shows that the scope and ambition doesn't have to reduce to pull this off; in fact it could probably increase in certain ways. But it does mean you're getting what's essentially one huge game spread out in smaller installments. The key is that each part feels like a game unto itself, while also serving the larger experience with the other parts factored in.
So narratively, it'd probably call for some innovation in multi-layered stories that can give all the usual story beats in that particular installment, while also setting up stuff that's built upon in the wider narrative successive parts elaborate upon. And each part still has to have fleshed out game mechanics, a realized game loop, and traditional difficulty curve as you'd expect from any game.
Because we are no longer living in the pre-2010 era where quality AAA games could be developed in 2-3 years like clockwork. It now takes double that amount of time (4-6 years) and at least double the amount of money. If it was feasible, Sony would have at least 3 Uncharted or God of War tier games releasing from their first-party studios every year, but it isn't feasible. This is why they are attempting and failing to have GAAS games made that will bridge the gap between longer and longer release schedules.
IMO that is not the only solution for SP AAA games. In fact the real solution is obvious: just break up the SP games into smaller installments released over a period of years. Square-Enix are actually doing that in their own way with the FF VII remake; if they waited until all three parts were finished before releasing, it'd take 12 years. Rockstar can get away with that type of time between major AAA releases, but most other companies can't. Their games just don't have cache at the level of GTA to do so.
I'd be 100% in favor of SP AAA games being done as installments that could release every 2-3 years for say $30 or even $40 each (for the chunkier ones), just as long as each installment feels like a game unto itself. That means a narrative both self-contained with all the usual beats in the installment itself, plus one that builds over the course of the other installments. That means fleshed out game mechanics (with at least one new big game mechanic per installment introduced) and difficulty curve taking advantage of the mechanics and game loop.
Basically, imagine if Sony released Uncharted 4 as 3 Lost Legacy-type installments once every two years at $30 each. That's part of the solution IMO especially for these games otherwise taking 6-7 years to make. Why have players wait for up to 7 years to play the game when they can start playing it a lot earlier in the generation? Not only that, but improvements in terms of physics or graphics with other latter installments can be retroactively updated to the earlier installments. Important part is making sure each installment feels like a complete experience, even if the bigger narrative is being continued with successive installments.
And of course you could choose to wait until all the parts are out, by then they'd re-release it as a full singular game and probably price it at $70 or even $60. Probably also if there were to be a PC port, that would be the time they do the port. But that's you now waiting up to probably 6 years before finally playing it whatsoever, that's way bigger of an ask to wait for vast majority than 1-2 years. So a lot more are going to get the console, and buy the parts as they release. I know all this talk about parts and "installments" might turn some off because they immediately think "episodic" gaming and probably think of "budget" gaming because of that, but we already know the level of polish Sony's expansion content like Lost Legacy and Miles Morales bring. They're up there with if not better than most full AAA games in that respect.
I would be cheeky and call it something like "development-as-a-service" because in a small way some of the working idea is the same as a GaaS model, but as ongoing content development for traditional, single-player games (mainly AAA, and story-driven). It woud even help with reducing development costs, because there are probably certain positions in parts of development which can be more specifically adjusted for labor costs and such on a per-installment/part approach and allow for easier reshuffling of people in those roles. I think if Sony did this, maybe combined with other things like a per-game optional fixed subscription model/plan (you pay a couple dollars a month to play a new release Day 1, just pay the cost off over a fixed period like a quarter, half a year etc.), then a lot of things open up for making 1P AAA SP games very financially viable for costs, revenue, and profits.