The reason for declining sales are ultimately the same as they have ben in every other year sales have declined -- that is, every year from the mid to late 90s, if you're keeping track -- namely, there are fewer new gamers. It seems that the decline was staved off by D20 and some restructuring, but now that the D20 effect has come and gone, it's back. Aside from the lack of new players, here are what I se as other culprits:
1) Unprofessional companies muddying the industry.
The barrier for entry into commercial game design is now effectively nil. Unfortunately, the industry has handled this pretty badly, by allowing culture where somebody's .pdf on Orcs and the latest HERO release are put on nearly equal footing.
The fact is that there should be a distinction between companies with commercial goals and hobbyists out to release a game no matter the cost. This distinction works well in virtually every other media form and allows good hobbyists to actually look forward to the chance of moving up, without dragging other established companies down.
As a rough example, I think that RPGNow would be much livelier if about 75% of its listed merchants gave up.
I know. I'm a bad, cruel man. The fact is, though, that an outfit where the creator is willing to lose money on each and every product has an advantage over businesses that actual want to be viable. The trouble is, of course, that most people willing to lose money will *never* leverage that into a sound business plan. They just want to see their name on pen-paper.net.
2) Redundant D20 product.
Related to the first issue, we have lots and lots of D20 stuff that was either going to be covered by WotC anyway, was reproduced by practically every company making fantasy .pdfs, or simply wasn't very good. Eventual failure here, though, merely stripped away deceptive chaff.
3) Lack of collective strategy.
The RPG industry has a terrible public profile. This hobby is ether ignored, mistaken for computer gaming, or held in contempt. D&D in partcular has been spectacularly mismanaged, with TSR and later WotC allowing product placement that holds their product in contempt.
Meanwhile, there are no collective branding, crossmarketing or effective consumer education programs. You would think this was GAMA's job, but aside from a few wan documents about educational games and Stackpole's refutation of Satanism, there's nothing there.
The one exeption is the "indie" brand which I think is inaccurate, but nonetheless a good grassroots effort to give a set of games a distinct identity.
I personally think this situation (not indie stuff, the rest of it) is related to the declining number of gamers and expanding number of companies. Many, *many* people know that the winnowing is doing its work, but *everyone* thinks that their company is special, that they have an exceptional nsight into things or a scheme that means they'll hit the top (or the top 5 steps after WotC) of the hill.
As a result, instead of cooperating, companies have in many cases tried to stymie each other's efforts. I'll spare the gruesome details except to say that I've noted that RPG fora are where a lot of this maneuvering takes place.
4) Brain drain.
Related to the low barrier for entry, we've had some companies offer penny a word contracts, offer *nothing* but trade, ask for huge on spec assignments and generally treat their creatives like dirt. Show me a company that's constantly pumping out dodgy or late product, and I'll show you a company that fires folks to avoid giving them raises, doesn't pay writers and artists as agreed (note that, White Wolf and Adamant have never done this to me, so I'm not dropping hints about them). Too many companies treat creatives like disposible objects that can be replaced with fandom in a pinch. When said fans are late or shoddy, they pay for it and use it as an excuse to drive labour standards even lower. Upward advancement is nearly nonexistant.
Poor standards is not the only reason, but it contributes to a production bottom line that is often too cheap to compete with without shoddy results. Even if I'm a self-starter, margins and maximum production expenses are low enough that my business either cuts corners or operates an an excessive loss. This means I'm forced int a lousy business plan, which, as I noted above, hurts everybody.
As a result, folks leave. John Tynes (Unknown Armies, Delta Green) is finished with this industry and actually recommends that folks don't start. Others have gone into journalism, other hobby games, computer games, and so forth.
5) Not enough new gamers.
. . . because you can never say this enough.
