It kind of depends on how you define 'live service games' exactly. The companies behind Path of Exile and Warframe weren't big when the started, something like Valheim is still being developed (still in EA), done by an extremely small team and has been available since feb 2021.
Imho throwing a lot of money at the problem only increases the problem. As the project needs to succeed on such a big scale to earn back the initial investment that it becomes almost impossible to become 'succesful', no matter how good or bad the actual game is. What I've noticed is that a lot of the smaller successful titles have a small, but highly skilled and motivated team behind them that isn't marred in bureaucracy. I often see in larger companies (in other branches), that there is a lot of bureaucracy, a lot hierarchy, a cog in a larger machine mentality and that stifles productivity drastically. There isn't one perfect solution, because smaller teams often have less resources and thus have big issues with that.
To be honest, I've been having a LOT more fun with smaller/cheaper games then the big AAA titles for a LONG time now. I own BG3, still haven't played it, while it might be an awesome game, I'm still more interested in the older games from Larian (which I still also haven't played extensively)...
A Blizzard/Activision threw hundreds of millions against Diablo IV (development AND marketing), but Path of Exile (2) is still going very strong, and according to the SteamCharts, far stronger then Diablo IV (5-10x). Development studios with vastly different budgets and sizes. Big isn't necessarily good, good is good. And good small titles can become good large titles, but bad large titles generally aren't around long enough to become good (with the notable exception of No Man's Sky, but you can consider that a unicorn).
It's a no-man's-land problem.
The absolute
titans of the industry, like Microsoft or Square Enix, can bite the bullet and pay for the enormous cost of a maximum-budget game, knowing that as long as it's at least
pretty decent they'll make their money back eventually. And then, as you say, the nimble and probably midnight-oil-fuelled small companies can get away with a bit of a fly-by-night approach, because their fanbase is targeted and tends to be pretty loyal and more patient than the mass market would be.
It's the space between, the
mid-size "live service" games, where only the best of the best can survive, and everything else either crumples as a wreck, or fades into F2P obscurity. Because they're having to compete for mainstream market share, without having the titans' budget for soaking up the trials and tribulations that will inevitably arise along the way. They can't
do "nimble", and midnight oil alone ceases to be adequate for the size of the task. But they also can't do "$20M is an acceptable up-front cost".
I find a lot of social things end up in a situation like this. The extremes are, ironically, the most stable positions, while the transition between is extraordinarily
unstable, and tends to result in implosion rather than settling down somewhere comfortable. There are, of course, exceptions! But they really are
exceptions, deviations from the pretty solid norm.
