I just get so sick of this trope, in fact I'm surprised we still get away with these posts here... lol.
Well, they cancelled four books and stopped producing new content. The final 4th edition book was the Dungeon Survival Handbook published in May 2012. Which puts the lifespan of 4e at just under four years: June 2008 - May 2012. Now, assuming 3.5e was a separate edition from 3.0e it ran from July 2003 to December 2007 putting it a hair over four years.
So 4e lasted several months less than 3.5e.
That's a very peculiar and biased way to measure. 4e is the currently supported edition of D&D, which WotC is shipping as a product as we speak. It is the ONLY edition for which any support material is being provided, for which customer support is provided, for which errata is provided, and the only edition which has related content being published on DDI. Nor has WotC actually said that DSG is somehow the 'last book of 4e' (I don't really dispute that they're not going to publish any new 4e books, that may well be true, but neither of us know that). In fact, given that they won't have a replacement system this year, I wouldn't really be at all surprised to see some 4e material at GenCon etc. Even if we never do, 4e isn't 'dead' at all, it has lasted as long as 3.5, and even slightly longer.
As I've said before, they wouldn't have launched the D&D Next project if 4e was making a satisfactory revenue stream.
But you have nothing to support that, and even if we were to accept this statement out of the blue at face value then how do you explain the discontinuation of 3.5? Or 3.0 for that matter? Clearly the answer is that WotC wants to make top dollar off D&D and selling into ANY edition that is more than 3-4 years old is a losing proposition. This has always been true since 1e finally saturated the market in the mid 80's and fell off a cliff.
By the time 5e launches they will have been working on the game for three years. The first year (2011-12) they continued to release books written by freelancers while the in-house staff worked on the game. This means WotC was paying people other than their salaried staff writers to write books. The staff paid to make content that generates profit for WotC essentially does not generate profit for three years. Three years of salaries, benefits, office space, and the like.
WotC has ALWAYS used loads of freelancers. At no time did they not employ very significant numbers of them. In fact I remember talking to a guy who was a freelance editor on 3.5 projects and on 4e projects. They did it from day one and it was nothing new. In fact most of what the core product people inside WotC seem to do is high level product design, branding, strategic planning, R&D, and production management more than anything else. Of course they did the first wave of 4e products MOSTLY in-house because you don't generally farm out core books and it takes time to get a new product 'in the groove' so you can be sure to maintain quality when using outside people. So there's no "three years of costs" that has been sunk into DDN, 90% of those people's jobs has been doing 4e stuff, I guarantee you.
From an interview Mike Mearls gave the Tome Show podcast we know there are roughly 20-25 people involved in the D&D brand. Let's assuming as few as half will have spent the three years writing and testing the game and not been involved in board games, novels, or the miniature games. Even at a low salary of $30,000 a year, that's over a million dollars in salaries alone paid for the development of 5th Edition. Again, not including office space, utilities, computers, benefits, travel expenses to conventions, and the like.
And again, I think your assumptions are way off. I think a small number of people began to turn their effort towards products beyond 4e in 2010 (the recent MM interview talks about this actually) after Essentials was wrapped up. That means some R&D people and product strategy people gradually began to dedicate some hours to that, in concert with that they cut back on the release schedule for 4e books, probably putting dev time only into checking and reworking crunch coming in on contract, etc instead of working up new 4e ideas (this was the era when a couple of books were canceled). I think MME was really the final book that had significant internally designed crunch. You can see where the transition was a bit shaky in HoS.
Since then, as 4e projects have reached fruition some of the bandwidth of additional people has been redirected to DDN work, but 4e stuff is still always ongoing. There have been organized play things, DDI content, 4e errata, etc to continue with. I would suspect that NOW they're pretty much in the DDN crunch, so it is now shifting, the freelancer management stuff is wrapped for now, except for DDI, and we're down to novels, support, and working on DDN. For the next year? Yes, DDN will undoubtedly be the bulk of many of those people's work, but all of the last 3 years, hardly.
So either 4e was not a major commercial success (i.e. "failed") or it was doing fine and WotC decided to piss away a million dollars on the hopes of something better.
You guys just love that word 'failed'. This notion is really pretty ridiculous. You put whatever amount of money into product development that will make sense at any given time, its a business. They spent X amount on developing 4e and it grossed in some amount of money. Either it was a good ROI or it was a bad ROI, and nobody outside of WotC and Hasbro Corporate has the faintest clue what that ROI number is. If they spent $1 million (or whatever its been) on DDN then they have concluded that they can make a higher ROI on that than on spending that $1 million on say 4e splat book development. Great, but that doesn't mean that 4e 'failed' or that they couldn't have made money continuing it, just that they could make more some other way. That's just how products work and companies work. Trust me, I run one. I make these kinds of decisions.
Now, keep in mind, the reasons 4e failed might only partially involve the system. There are many, many other factors that likely influenced its declining sales. Such the ability of people to get all the content via the Character Builder for a single monthly fee, the lack of 3rd Party support, the radical revisions to the lore of the game, the "nuking" of the Forgotten Realms, and devaluing the core books via updates and accessories that replaced the PHB. None pf those have anything to do with the rule system or the game but easily could have impacted sales.
Again, you really have to begin to understand business. It isn't about products that succeed or fail. It is about ROI, and pretty much nothing else. Any edition which has gone 4 years is unlikely to be able to compete with the idea of spending the same money on new core books for a new edition, which are known to be VASTLY the highest selling part of any game. The 4e PHB1 was the highest selling RPG book in history. That doesn't mean 4e is still a gold mine. You just have to refresh your product. Frankly all the various talk about this and that aspects of DDN and Mike's going on about what audience he's chasing and etc is quite secondary. The primary drama here is the splatbook treadmill. I'd say Strategically WotC is trying to change the tempo a bit, because they'd like to time things so that next time Paizo releases a core refresh that they can FOLLOW it. They learned that lesson good, its better to release your core books 6 mo after the other guy and cut out the tail of his sales and force him to burn money, like they are now.
