This reminds me a lot... a whole lot even... of the "video game crash" that took place between 1983 and 1985. This might come as a shock to the younger readers of this blog (ooh-boy am I dating myself here :-P) but once upon a time, video games were not "hip" at all. Ya see, in 1982 the Atari 2600 was the king of home video gaming. It seemed nigh-invulnerable. But within a year or two the home video game industry hit rock-bottom hard.
What happened? Mostly it was a market way over-saturated with games that were, well... crap. Turkeys like E.T.: The Extra-Terrestrial (a title now infamous for how Atari paid the mob to bury millions of unsold E.T. cartridges in a New Mexico landfill) and Pac-Man (HOW did Atari mess that one up?!) did plenty enough damage, but so too did M*A*S*H and Porky's and Custer's Revenge (I refuse to even begin to describe what that game was like, it's so unbelievably... wrong).
Same thing has happened to the music game genre. Between Guitar Hero and Rock Band and seemingly "new" titles for those series every few months - not to mention the over-abundance of the gaming peripherals - there is simply too much music video gaming on the market right now.
I don't think the genre is ever going to disappear completely. But today's announcement from Activision is certainly gonna obligate the studios to re-assess where music gaming goes from here. Personally, I think it'll prove to be a good thing. It has mandated an obligation to be innovative. I've little doubt that music games will not only continue to be produced, but will also become better in the long run.