Blockbusters like Oblivion may seem to come out of no where, but anyone familiar with Bethesda's history knows that Oblivion comes after a long line of hugely ambitious games that fell short in important areas.
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From a gameplay and overall quality point of view Oblivion was pretty shitty
This is basically untrue. While Oblivion had a lot of system design issues, their terrible character building and leveling system, for one, overall it was a solid experience. It was well engineered and scoped and while not free of bugs it was polished enough to sell a bajillion copies, and if there is one thing that gamers react to more than design or art direction or story or sound or anything else it is overall polish. Shooting a guy with 5000 arrows before he dies may be pretty shitty, but I'll be damned if those arrows didn't skewer him entertainingly.
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No. At least, not in that order of priority. Pedigree first, polish second. Dragon Age 2, anyone?
This is true. Keep in mind though, that prior to Oblivion Bethesda only had any pedigree with hardcore gamers, but more casual gamers responded to it in droves anyway. I think we can rule out Oblivion's massive popularity as being a product of Morrowind's smashing popular success.
The game was well marketed as well, but again, marketing isn't shit when the product sucks. Particularly if you don't have a brand that promises enough first-day purchases to make you a hit even if you blow.
The game was, in many ways, a step back from the design (particularly creative design) of Morrowind, but in many ways it was a lot better. You know what precisely zero people liked about Morrowind? Swinging your axe at a guy and being told you missed based on a hidden die roll.
Anyway, I'm not here to defend Oblivion as a paragon of excellent game design, but it did mark the point in Bethesda's production where scope, ambition, and production lined up perfectly and matched the market's desires in such a way as to produce a hit that helped build a brand.
EDIT: In my opinion it's actually critics and hardcore gamers who respond more to pedigree than your average gamer. For years no one but the most serious gamer coudl actually tell you the difference between Bioware and Black Isle and routinely confused the two. People still do. I know lots of (casual adequateness) people who played New Vegas and not one of them knows what Obsidian is. On the other hand, Bioware could probably release a turd in a box and critics would give it high 8s and low 9s while the majority of the gaming comunity responds with apathy (unless the turd has Dragon Age or Mass Effect written on the box, in which case week 1 sales will be good, but that's it).