I agree with everything you say, except I miss the 'scorch the earth' part. There is infinite demand for "games" type entertainment. So this technique ends up making a lot of companies short term wealthy until they shrivel up and die. Then they go away and it is hard to get investment to build another one. But the demand for games is still out there, and someone will fill it with some other plan.
I completely get that if you're trying to sell a game on one of these platforms for $20 and getting no traction at all because all your money is being sucked out by Candy Crush it feels like the end of the world but look at World of Warcraft, that sucked a lot of the oxygen out of the PC space and now its off dying. Opening up once again opportunities.
Infinite demand is absolutely false and the example I cited is really blatant: Eventually there is a backlash against destructive practices and they either get banned or die out. Nobody can leverage the acquisition/retention techniques Zynga used to get big because they don't work anymore.
The idea of infinite demand for entertainment is trivial to disprove anyway: Gamers only have so much time in the day that they can devote to games, and only so much money they can afford to spend on games every month. If someone already plays multiple games, you're competing to either grab an increasingly tiny slice of their time or convince them to replace one of the games they're playing with yours.
Note that this is compensated for by the traditional model because the up-front payment provides an incentive for the player to finish the games they've already bought; for F2P/subscription games there's no incentive to stick with a single title unless they find ways to keep you there.
Also, the claim that either WoW or the PC space are dying is blatantly false. PC games are doing fine and WoW still brings in tons of money (even if its subscription numbers are way down). It is true that the nature of the MMO and PC industries has changed but it's not as if WoW killed anything.
I completely get that if you're trying to sell a game on one of these platforms for $20 and getting no traction at all because all your money is being sucked out by Candy Crush it feels like the end of the world but look at World of Warcraft, that sucked a lot of the oxygen out of the PC space and now its off dying. Opening up once again opportunities.