Is the cost of the engine development most of the expenses? I would assume art/sound assets and planning and design and qa and promotion/marketing is a bigger chunk. I still belive that 3 small/medium games are more costly to make than 1 large.
I saw a talk with Matt Damon where he talked about when the DVD market disappeared, then a whole layer of medium big movies also died. Because they relied on DVD sales to recoup and make profit.
Now that sales channel is gone and they have to go really big and make the money back on worldwide teater releases. Which costs a lot of money, so studios are gambling on bigger sure thing projects than somewhat little smaller titles with possible smaller audiences.
I think that the same thing has happened to games, the AA type games are going away because publishers are risk averse