I mostly agree with the article, but I wouldn't necessarily say AAA games are going to go. Currently, there is definitely too much competition in the high-budget console games space. The market needs to open up and allow for lower budget games at variable prices. We're already seeing this in the PC space, and it has proven that medium budget games can be successful.
Is there more money to be made with high budget games? Probably. The point is, however, that high budget games have much greater risk associated to them. If the success of medium budget games can be proven in the console space, and if the public can accept these titles at a reduced pricepoint, then this will offer a less risky ventures for new IPs and for publishers to experiment.
Of course, as the writer of the article has implied, this may all be usurped by the uprising of "games as a service". No matter how attractive paid games may be to the public, they will be competing for the customer's time against free to play games.
I'm glad that, as a PC gamer, I don't have to worry as much about the future. No matter what happens, there will always be a stream of low/mid budget PC titles to satisfy my interests. PC gamers have already moved on and have accepted the fact that we no longer profit from AAA titles, at least not in the way we used to.
The funny thing is its not the hardware driving production cost up, its user/critical expectations.
The real way forward is for people to get past the shallow overemphasis on graphics and production values. Can't see it happening though.
That is the biggest problem console gaming has faced this gen. As the graphical bar raises, so does user expectation and as a result it drives development costs up across the board. What needs to happen is that lower budget games need to prove that there can be successes in the console space without needing to resort to $30m costs and 3+ year dev cycles. Besides the PS2 HD port projects, I don't think we've really seen any developer/publisher rise to the challenge.
As I've been saying, I think publishers only need to look at the PC space. There are many low budget titles that have been a great success, despite user "expectations". Minecraft is the most obvious example.
Publishers need to realize that there are more ways to make money than having expensive graphical showcases at E3 and marketting budgets larger than development budgets. They need to realize that word of mouth is the best marketting. Create a great game, and it's going to sell.