While I was reading I found myself thinking 'well yeah, Dragon's Lair really sucked'...but then I remembered a time when I thought it didn't. and in fact, it was a huge financial success, so much so that it is still being ported to new systems despite its numerous flaws. See http://en.wikipedia.org/wiki/Dragons_Lair
Throughout the 1980s, Sierra sold a ton of games with horrible EGA craphics, but which were basically cinematic games with fairly simple decision-tree gameplay. Other high-selling games continue to include lots of cinematic material, a case in point being the Kojima Metal Gear Solid series or alve games like Half-life. Having name (or at least professional) actors lend talent to a game is common now in many genres. And in fact, CD-Rom's did revolutionize the gaming industry - not quite in the way that the company anticipated, but enough. And San Francisco's SOMA (aka multimedia gulch) is still the favored home of a lot of startups, again suggesting Rocket Science were onto something.
I wonder if Mr Blank, ruing the company's failure, is being too harsh on himself - it sounds like they went terribly astray with the design of their own games, but that's a problem of execution rather than vision.
This has always struck me as one of the most interesting aspects of computer game history.
Back in the old days, adventure games were all about the story and experience, not the gameplay. This even continued into the 90s in some cases, with games like Planescape Torment, which contained over 800,000 words of text, and the ill-fated (but brilliant) Last Express, a game whose graphics was made by rotoscoping tens of thousands of scenes made by professional actors!
These games weren't about brilliant game mechanics, in-depth strategy, or competitive experience. But few deny that they were great games. Of course, the genre basically died towards the end of the 90s--and many claim that it killed itself ( see http://www.oldmanmurray.com/features/77.html ).
Interestingly enough though, I've noticed that despite the proliferation of seemingly mindless entertainment these days, there has been somewhat of a revival of the genre of "games with lots of text". The genre of visual novels, once just an offshoot of silly Japanese dating sims, has begun to turn out some seriously impressive material. The most impressive to date, IMO, has been Umineko no Naku Koro ni ("When the Seagulls Cry"), a murder mystery reminiscent of a cross between The Last Express, The Usual Suspects, and Agatha Christie's And Then There Were None. Even more unusually, it has no decision tree at all: it is completely linear. The "gameplay" is the author's challenge to the players--to solve his mystery before he reveals the true answer in the final episodes of the game.
In a sense, we've come full circle: we began with simple mostly-linear adventure games, gone to complex, branching plots, and now we're back to simple, mostly-linear adventure games.
>> The only trouble is that nobody can accurately formulate sure-fire game hits on a consistent basis.
I'd say that Tim Schafer has done a pretty incredible job on this front. Maniac Mansion, Day of the Tentacle, Full Throttle, Grim Fandango, Psychonauts.... presumably the fact he isn't a millionaire suggests something about the size of the market.
But, I think it's important to realize at the time he probably thought other things where really important. It's a classic case where he did not know enough to understand he needed to know more.