I think you hit the nail on the head here. 1.2 million copies of a game sold is a very successful game most of the time - what kind of retardation is it to require a brand new game to sell 3 mil.

I'm not saying sequels are the only thing that should be made - quite the opposite. You need to take some risks to reap the rewards later. Assassins Creed wouldn't be insanely profitable right now if they hadn't taken a chance on AC1 and even though it fared poorly greenlit AC2 as well. Same goes for every single other popular series - modern warfare (activision wanted another ww2 game), dead space, etc.