I think that in order for there to be a discussion about the state of RPGs, we should probably figure out what an RPG is in the first place. A lot of hardcore 'old school' RPG fanatics focus a great deal on dialog and freedom of choice within an pen storyline. However, the industry isn't anywhere near that limiting in its descriptions. Diablo is today classified as an "action RPG". First, it's worth noting that when Diablo was released, the word "action" wasn't anywhere near its genre description. It was called an RPG, plain and simple. We have since coined the "action RPG" term to describe games that utilize a RPG character system, but focus on combat instead of questing.
So, is an Action RPG an RPG? Is it a separate genre, or a subgenre of RPGs? How do we even draw the line between a regular RPG and an Action RPG? Looking back at some of the earliest RPGs, they have a stupendous amount of combat with relatively flimsy storylines and almost no freedom of choice in the plotline. The Ultima, SSI Gold Box, and Might and Magic series all involved essentially linear storylines there were completed in a sequential manner, with few, if any, choices about how to resolve them. The only choices were really whether to complete a quest or ignore it, and what order to do the quests in.
Might and Magic is an extreme example of this. Pretty much all dialog and NPC interaction in those games was limited to (1) giving you quests which involved going out and killing monsters, with no plot options for you to choose and (2) improving your characters' abilities in some manner. On top of that, every map you were on threw hordes of monsters at you, with loot galore. Yet the M&M games are called regular RPGs, while Diablo gets the Action RPG designation.
So, what exactly is an RPG? Is it any game where the player character has stats and abilities that improve over time? If so, do we call Bioshock an RPG? What about STALKER? How exactly is Ultima Underworld different from Borderlands?
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