There's room in the market for a huge number of regular games, but with live-service games, only a handful of winners can ever really succeed, creating an eye-watering risk profile for any new entrant into the market.
Ehhh. I mean, I agree with the general idea that there have been far too many live-service games chasing too few players, but I think that it's probably possible to create lower-budget, niche-oriented live service games that appeal very strongly to a particular group rather than trying to get the whole world onboard.
That's true of non-live-service games. I like some milsims, like Rule the Waves 3, that are just never going to become a mass market phenomenon. That's fine, because that's not what the publisher is aiming to do with the game, and has budgeted accordingly. They're going after a particular group with specific interests.
But if you want to do that, that means that the interest in your niche by players has to be sufficient to overwhelm the fact that you aren't going to have the playerbase and thus budget that a game with more general appeal would.