What matters is profitability, not revenues.
As for Pachter being a good analyst, I don't really know. I don't read his stuff. However, he knows way more than you all do. Common sense is cool and everything... but who knew that we would eventually have to pay for an online service (XBL) or to access online gameplay for used copies (EA's new fee) or that we would have to pay for "add-ons" (DLC maps). Bottom line, his timing may be off, but you're fooling yourself thinking that online gameplay will stay free forever.
I don't disagree with you guys... it's just that the guy's got a point. Shareholder pressure DRIVES companies. Not gamers' opinion.
So your saying that gamer's opinions do not drive gaming companies? You obviously are not in the business world. Clients (also known as customers) are the #1 driving force. Without products that clients want, at a price they are willing to pay, businesses are in a world of hurt.
MS provides a service (XBL) and the value of that service was worth the ~$50 a year people pay. If people didn't buy it, they would have adjusted the model.
Also, where did you get that software and hardware sales have plateaued? MS has posted significant hardware sales growth this year along with solid software sales as well. Products drive sales, as do market conditions. Interestingly enough, MS seems to understand this much better than Sony or Nintendo. Look at a 360 sold today, it has features that previous 360s didnt have (wireless, quieter, smaller, hdmi, larger HDD, etc). Look at a PS3 and you will see features were removed (emotion engine, linux, etc). if you are selling the exact same product, eventually you will see market saturation and mostly replacement purchases. The market is tough these days, so most companies don't want to spend the R&D on a new console and do not believe the market can sustain a new $500-600 machine when existing $200-300 appears to be the "sweet spot" for most.
Not to digress, but for this model to work it will have to provide value to the consumer. I am not convinced it does in most cases. For the top <5% of games with a rabid audience (RBx, CoD, etc) many are willing to pay for features. Other games, not nearly as much.