This seems like a natural evolution of the market: a period of expansion followed by saturation and contraction. And there can be no doubt that we have hit a saturation point. There has been an absolute explosion in the number of games available, largely because platforms like Steam have simplified the logistics of distribution tremendously.
On the positive side for small developers, if you look at which games are rated “overwhelmingly positive” on Steam, the vast majority are not high-end graphic-intensive AAA games. There is a huge market for lighter, innovative games that can run on a cheap laptop. For every massive Cyberpunk type games in my collection, I have three Stardew Valley, Caves of Qud, and Undertale type games.