How can we "fix" this decline? Well, to answer that, we first need to learn what went wrong.
How D&D Became Big...
D&D first came out in 1974, and is widely regarded as starting the whole tabletop RPG industry. And to understand why D&D became a success, you need to look at how the state of the tabletop industry as a whole during that time.
Back then it was actually a world devoid of "geeky" entertainment. Computer games were available, but only as coin-operated arcade games. The famed Atari system - the first home console system - wouldn't make its debut until 1977.
D&D's competition at the time was in fact just traditional boardgames (Monopoly, Risk, etc), miniatures (D&D was based off a minis game), and wargames. Wargames were, in fact, the hottest item in tabletop gaming in the early 70s, peaking in 1980 with 2.2 million wargames sold.
With so little competition, D&D and RPGs began to boom in the 1980s. This was greatly aided by the fact that wargaming essentially crashed after 1980, while computer games were still limited to twitch-based games like Pong.
Essentially, D&D and its RPG counterparts monopolized not just the "roleplaying" side of the tabletop experience, but also dominated the "intellectual" side of gaming in the 80s.
So it didn't matter that a lot of books had poor production values. It didn't matter that the mechanics were pretty primitive and counter-intuitive. This was an era when a hard sci-fi game like Traveller could be published and make big bucks, because gamers had no other choice.
In total, Wizard estimates that there are about 24 million RPG gamers worldwide, and the majority of them played during this era.
... And How D&D Became Small
Unfortunately, the happy times for D&D and tabletop RPGs was not to last. And it all began (not with 4E) in 1994, with a game called Magic the Gathering.
CCGs brought something new to the tabletop market: A competitive, face-to-face, and intellectual game that could be finished in under an hour. Suddenly, all of the "intellectual" gamers who were forced to play D&D had a choice. They could play a game without all of the roleplaying drama from LARPers, and they could play a lot more games in one evening than the usual "one combat session per game night".
Simultaneously, Euro boardgames began to gain popularity abroad, with the introduction of Settlers of Catan in 1995. These games were more "social" than CCGs, but it again gave the intellectual type of gamer another choice.
Finally - age had also caught up with most D&D players who started in the 80s. Ten years is a long time for an individual human being, and the teenagers who played D&D in the 80s were now fathers and mothers. They now had jobs and responsibilities. They simply found it much harder to set aside entire evenings for gaming.
As a result - aided in part due to massive mismanagement by TSR - D&D sales began to plummet. It got so bad that D&D was finally bought out by WoTC in 1997.
The 3rd Edition Comeback
But D&D's story doesn't end there. It came back, somewhat, in the year 2000 when WoTC released D&D 3rd Edition - and brought the active player base to 6 million people.
The merits and problems of 3rd Edition have been done to death in this forum. But what was happening to the rest of the world at the same time had not, and these were very interesting times.
First of all, by this time the Internet revolution was in full swing. Chatting over the Internet, posting on forums, and using e-mail had all become mainstream by this year. MMOs were about to take off - with Everquest being launched the year before in 1999.
What this means is that 3rd Edition became the "standard" edition for the average Internet user. Especially since most of them could actually download the SRD and play the game without ever having to buy a book. A few 2nd Ed players made their presence known online - but again most of these guys were already pretty old by this time and had to focus on other stuff, albeit enough of them appeared to inaugurate the first Internet Edition Wars.
Regardless, because most of the people who started playing 3.0 were part of the Internet-savvy generation, it's 3.X that dominates the online space even to this day.
Secondly, this was in many ways the "golden age of fantasy". The Lord of the Rings films came out starting 2001. Single-player Computer RPGs were represented by the classics - Baldur's Gate, Diablo, and Final Fantasy VII were all released within 3 years of D&D 3rd Ed. In short, fantasy as a genre had become mainstream.
However, despite all that, D&D never regained its lofty heights. Again, we're talking about 20+ million D&D players before, and around 6 million or so with 3.X.
What happened?
Well, what happened is that players now had a lot of choices - a consequence of fantasy becoming mainstream, and a consequence of the Internet quickly spreading information throughout geekdom.
People who liked strategy, but not player interaction, were probably forced to play D&D back in the 80s. But by year 2000, they didn't have to play tabletop RPGs to play fantasy strategy anymore. They can play Baldur's Gate. The person who wants to cleave through 2,000 goblins? He doesn't need a DM anymore. He can play Diablo instead.
Thus, the lesson of 3.X's success isn't that "D&D can keep growing forever!". What it actually shows is that D&D had very real limits. In a truly competitive environment - where there are CCGs, Euros, Minis, CRPGs, and MMOs - only around 6 million people would play D&D. The rest had gone to play other stuff.
4th Ed Fail
Unfortunately, this was a lesson that WoTC completely failed to learn, or accept. Egged on by Hasbro, 4th Ed was clearly a risk meant to try and make D&D big again. That's why the edition abandoned and showed so much contempt towards the 3rd Ed fans.
The problem is that they tried to target people, who were already entrenched playing a different game. 4th Ed has a lot of elements borrowed from MMOs, and a lot of the marketing is clearly targetted towards trying to convert MMO players to playing D&D. Only it totally failed, and it's not because of the mechanics (even though they sucked).
Try playing an MMO. Then try playing a D&D session. Then try playing Pong (seriously).
What you should quickly realize is that playing an MMO is actually a lot closer to Pong than D&D. Sure, Pong's graphics suck. It doesn't have numbers. But majority of your playing time in an MMO actually revolves around moving your character around. Making your character go to interesting places. Making your character take up attack position. Timing your heal to save a dying teammate.
In short, MMOs are much more a "twitch" game, rather than a numbers-and-calculations game.
Compare that to D&D 4th Ed. The only time you move your character around in combat is when your turn comes up. The rest of the time, you sit down and watch other people move their characters, or talk/joke with the rest of the players.
And because WoTC failed to realize that playing a tabletop RPG is a fundamentally different experience from an MMO, their product failed miserably. We're now down to 1.5 million players (because the people who started playing in the year 2000 got old too), and most of these are people who used to play D&D as opposed to new blood from MMOs.
The Future
Now given this situation, what can be done?
My proposal is simple. For the next edition of D&D to be a success, it needs to stop with the mass-market delusions. We are never going back to the 80s era where D&D dominated the tabletop scene. Too many competitors exist. In the year 2000, with a competitive market, with a good product, we got about 6 million players. That is our ceiling.
Now, some of you may argue that targeting to hit 6 million people, as opposed to hit all 5 billion is retarded. Why target a smaller number when you can target a bigger one?
So let me explain a concept in marketing called niche marketing.
Marketing is essentially a battle of ideas in the consumer's mind. And most consumers only have enough space in their minds for 2 or 3 competing "ideas" for a particular issue. If you're #4 on their mind, you are simply forgotten
For instance, when a consumer's issue is "What kind of cola should I drink?", most consumers either think Coke (representing the idea of the "traditional" cola) or Pepsi (representing the idea of the new and hip Cola). This is why they are the market leaders in the beverage segment.
The thing is, some people don't like thinking the same way the mainstream does. If you ask some people "What kind of cola do you drink?", they would respond "I want to drink something healthy." Because of these people, the concept of health drinks were born, and they are very profitable.
Now, apply this to this question: "What fantasy game do you play?". And the truth of the matter is, most people will answer World of Warcraft (the idea of playing with your friends online), Dragon Age (the idea of playing a strategy RPG), and Final Fantasy (the idea of playing an angsty teen.). D&D simply isn't big enough anymore to compete with its computer game counterparts.
However, D&D can totally fulfill the needs of players who say "I want to create my own fantasy game". And this is something that cannot be fulfilled by WoW, Dragon Age, or Final Fantasy. This is something that D&D (and TTPRGs in general) owns.
I Can Create My Own Game with D&D
And thus we get to the master plan: Re-defining D&D as the game... where you can create your own game.
Design-it-yourself is a huge part of D&D. The Den was born largely because of a set of houserules. Edition Wars are fought because people think 2nd/3rd/4th Ed is "their" game. They took the rules, "improved it" using their own skills, and made it the best game ever (or so they think). And it is something that none of D&D's real competitors - CRPGs, MMOs, and boardgames - can match.
To meet this paradigm, here are some of the things the new edition will need to have:
* Involve the player base as much as possible during the development of the game. Have them vote on which classes will be on the PHB. Hold a massive playtest were people can submit cool ideas, classes, and feats (gameplay balancing being a secondary consideration).
* Let players vote on which supplements to develop next (similar to GMT's pre-order model). So we're not forced to develop yet another Forgotten Realms book unless 10K people seriously commit to pre-ordering it.
* Emphasize customizeability over balance. If you're given the choice between free-form multi-classing and making Fighters = Wizard, go with the former (although still try to achieve the latter). Again, it's about letting the players pick and choose what mechanics they want.
* Focus on cool ideas and concepts and make them work. People want to play stuff like Necromancers, Summoners, and stuff. Make sure they can play these archetypes. Again, balance be damned if needed.
* Add in subsystems and alternate rules sets, but only if enough players vote for them and commit via pre-orders system above. This should let good subsystems (i.e, crafting) to get nice books, while weeding our chaff like that Incarnum thing.
* Extensively use existing online resources. Don't try to create your own Facebook. Instead, go to places where D&D players already congregate and market your product there. You're here to sell an RPG, not another new social networking program.
* Publish free stuff from time to time via PDF - like say rules updates.
* Support minis, but don't make them mandatory. Depending on the profitability, either make a seperate non-randomized miniatures line for battle games (ala Warhammer) and make them compatible with D&D, or simply abandon minis production entirely and instead license it out to a 3rd-party mini-making company. With the latter option, you can also sell some cardboard counters and tiles with your books to serve as ad-hoc minis.
*whew*
Anyway, as with everything on the Den, I expect violent reactions, so let me now put on some body armor before people start shooting