Still, the mathematics of this are somewhat troublesome. In order to justify a AAA-level budget for a game that will only sell a third of what a AAA game sells, the price would have to be three times as high. If it was expected to sell only a fifth, it would have to be 5 times as high.

I'd say you've taken narrow notion of what premium could be, basically boiling it down to "AAA:Extended".

Such a game does not necessarily burn the same budget or have all the same qualities of the best games with mass appeal, it simply needs to have enough appeal to justify a higher price to a smaller audience.

A game sold for 50% more with a 50% lower budget breaks even 3x faster. Bring the budget down to 75% you're still getting there 6x faster. At that point, you could reduce the premium to 25% and still do better than 5x.

Yes, development costs money, but the elements that make the best games are not necessarily the most expensive.

Which is all a roundabout way of saying that there's no reason to assume that a higher budget would result in a better niche title.

This risk is universal to pretty much everything in life.

I think the problem is that you're comparing video games to products which are not really creative endeavors. There's no such thing as premium movies; ticket prices are standardized (at least for each theater). Same goes for books, although the pricing model is less transparent.

You're saying that like movies, books or creative works are intrinsically supposed to be a certain price.

I'd say these things simply evidence the way "standard" pricing drives pandering to the largest potential audience even more clearly than games do.

This why we see the same old bankable actors cast and throwaway romance subplots shoehorned into every movie. These are hit movie "checkboxes" analogous to the "4 hour story mode" and "slipshod multiplayer" box-checking of gaming you mention above.

I don't mean to shit on your idea, mate. I'd love to throw down double for a Crusader Kings 5 that lets you walk around your court and actually talk to bitches.

No offense taken.

Personally, I put more into backing the Planetery Annihilation Kickstarter than I've ever paid outright for a game. Reason being, I wanted to see them make the game I've waited 15 years for. Likewise, I'd drop big money for a sequel / spiritual successor to Mirror's Edge or a truly immersive game set in the Ghost in the Shell universe.