The very fact that Avellone did two sequel drafts suggests that BIS was definitely considering it (and why wouldn't they?), but the game didn't sell enough and that was the end of it.
He worked on design documents, but he never pitched them, so BIS/Interplay never got to call it off. That's just your confirmation bias.
I don't claim to know the inner workings of interplay or Black Isle but you don't write two design docs because you're bored and have nothing better to do.
BG sold well because of DnD license more than anything else. Fallout did not require a license. A studio can only make so many games so of course if they want to make money they will choose the one which did the best and did not need a license. The end.
Which explains why they started pumping out IWD games.
As for BG, sure, DnD license helped, but that wasn't the main driving factor. Back in 98 the game was stunningly beautiful, unlike anything the RPG players have ever seen, and stunning visuals always sell. It was also RTwP and easy to play, so you didn't have to be a DnD geek to get in. When ToEE was released offering the most faithful adaptation of the DnD ruleset, the #1 complaint wasn't the bugs or the overall design, but the complexity of the ruleset. The mainstream reviews created an impression that the game is for rocket scientists and unless you know DnD like the back of your hand you shouldn't even bother to understand it.
AoD 2 would also be a profitable game but the kind of profit it might generate would most likely put us out of business
You mind explaining that? Not sure if you mean what i think you mean (expanding player base, stagnating, etc -> ITS future)
The opposite, actually.
As you probably noticed a number of indie and not so indie sequels have done very poorly lately, selling anywhere from 10 to 30% of the original title - XCOM2, Banner's Saga 2, Legend of Grimrock 2, Blackguards 2, etc. My explanation of this phenomenon is that unless you have a AAA blockbuster with massive appeal, you don't go for a sequel because it would never sell as much as the original because the public perspective would be "it's more of the same".
Now, let's be optimistic and assume that the breakdown goes something like that (based on the reviews and impressions):
- core supporters - 25% - love it, want more
- core haters - 10% - fucking hate it, will never buy another ITS game again
- kinda liked it - 50% - liked it but ... This "but" ranges from minor to major issues
- meh - 15% - played for a couple of hours and moved on, no strong emotions, no urge to play more
So if we make AoD 2, we get the core supporters and some % of the kinda liked it camp. We'll also get some new players, probably no more than 20%. So our best case scenario is selling 3/4 of what AoD sold, worst case - less than half. Thus moving to a brand new setting with different systems but the same core design is the safest bet even though it looks like the riskiest.