I watched a video from the Penny Arcade (Extra Credits) site. It was entitled “Where did Survival Horror Go?” and laid out how survival games have slowly died out. His video explains what horror is, but doesn't go into detail about where survival horror actually went. I do tend to agree with him on the explanation of what exactly constitutes as horror though. In a nutshell, a psychological trip that explores the depths of just what goes bump in the night. What’s more terrifying than coming face to face with a muscular guy with a pyramid head and a giant sword? I’m sure this isn't something that has graced the imaginations of many before this game came out, but it’ll certainly get people to think twice before leaving the room after a play through.
The second reason involves mystery. You have to find your way after being set up for events you don’t understand. Everyone knows, the usual “you just woke up… find out what’s going on” set up. Unfailingly though, this has always been the setup. Well, most of the time. This wasn't just a characteristic of old horror games. This is pretty much what’s going on in any horror game now-a-days. Not that that’s a bad thing, really. Now, it is true that after many sequels (once the mystery has been unraveled) that there’s no longer a true “horror” aspect to it. This can be seen from Resident Evil (Extra used this example and it was spot on). Umbrella is the bad guy, obviously, how much longer can they drag this out? (Resident Evil 6 anyone? Oh wait, I meant game trying to be an action movie.)
He is right on a few things though, like franchises and sequels being an issue for the genre. This is true, but that doesn’t mean that good horror games aren't out there. There are many independent games that prove their worth as horror games. It is unfortunate ultimately though that horror does not sell as well as other games like sports, action, etc. Maybe one day this will change, but for now, you just have to dig for the diamonds, even if they’re a little on the rough side.