I probably am too young to know anything about the arcade business, but arcades died because better, more convenient technologies replaced them. Their form factors shifted to consoles, handhelds, and computers.
Consider now the adoption rate of smartphones, where we'll have a billion devices in the hands of users within the next few years. Mobile devices are now replacing computers and gaming consoles. Do I see anything replacing smartphones/tablets anytime soon? No. That's why the bet is obvious to me, your audience is shifting to a new platform. Apps ARE the future because that's where the audience is and will be.
True enough, but there's no "law of conservation of gaming". As interfaces, form factors and fashions change, so does the population of gamers and the time and money they spend on gaming. Some of the most brutal periods for the gaming industry have been when the current fashion turned against gaming. That there was a solid growth trend underneath the contrary fashion didn't make a difference to the many studios that went bust in the meantime.
Its not the business model that will change. The business model works, thats why there is so much competition in the gaming industry and lots of money being made. What will change are the types of games themselves. Because as competition increases, acquiring a user becomes more expensive, so the games will have to have different mechanics and be of higher quality to differentiate themselves. Your smartphone is increasingly becoming your new console.
Consider now the adoption rate of smartphones, where we'll have a billion devices in the hands of users within the next few years. Mobile devices are now replacing computers and gaming consoles. Do I see anything replacing smartphones/tablets anytime soon? No. That's why the bet is obvious to me, your audience is shifting to a new platform. Apps ARE the future because that's where the audience is and will be.