I don't work in the mobile-games space myself, but it feels to me like the real problem here is the massive collapse in accepted prices that market has seen.
If people were willing to spend $10 on mobile games -- which is still 80% less than what AAA titles on console and PC cost! -- the "hit-driven" model he describes would be much more tenable. But when everything has to cost 99 cents there's just no way for anything other than a truly massive, once-in-a-lifetime hit to be worth it financially.
Blame Rovio, Tiny Wings and Whoever makes Wheres My Water etc.
They had hit games, made sequels and therefore had the power to push the market value back up again (even by some small increments) but instead they chose to sell for the smallest amount Apple allows again.
No publisher singlehandedly has the power to push prices up.
If they raise the prices, they'll sell fewer copies. Given that the number of downloads is the primary way to get exposure on the app store, free games have an edge over paid games, and cheap games have an edge over expensive games.
It's my belief that you'll sell more than 4x the copies at $1 than $4. This higher revenue coupled with the increased chance of exposure in the app store makes it a no-brainer.