"they get to choose what contract they sign"
newsflash, you retarded metalhead, you either sign the fucking contract or you lay off people, or worse, close the studio.
There would have been more and better contract offers if their past products had been successful enough. If they "had to" accept the contract it was ultimately their own fault. Obsidian is not entitled to good contracts and Bethesda is not obligated to offer them either.
Possibly, but given that Bioware couldn't get a decent timeframe for DA2 from their EA owners, I wouldn't bet on it. Good crpgs aren't exactly big money these days - if anything there seems to be an inverse relationship. Moreover, game publishing is an oligopoly - the publisher has a massive number of alternate developers they can work with instead (again, all the publisher cares about is the $$$), whereas the developer only has a handful of publishers to choose from. For a crpg there might literally be no other publisher that's interested in that kind of game....and there's NO publishers that are interested in 'good' crpgs by Codex standards.
And even if none of that was the case, the publishers have an incentive not to weaken their bargaining position with other developers by offering better or more flexible contracts. With a choice between blowing off Obsidian and making just as much money (or more) by funding a different game, or giving them a better contract and not only paying more in this particular case but also encouraging other developers to get uppity, why would they choose the latter?
There would be a reason if Obsidian had been more successful in the past. By success, I mean monetary success in this case if that was not clear before. If that had been the case, i.e. if Kotor 2 had brough in twice or thrice the money Kotor 1 did, then yes, publishers might just try to offer better contracts to Obsidian so that they would make games for them instead of the other publishers. A developer will have to make themselves tempting enough that the cheaper alternative developers are not good enough (do not make enough money) for the publishers. Even If there is only one publisher offering a deal a successful developer can still negotiate for a better contract because the publisher knows that they make more money for them. Of course if there are many desperate, roughly equal developers (money-wise), the supposed sole publisher can just pick out the most desperate and feed it scraps. There is no blackmail there, contrary to how some here see it.
If the developer is incapable of being sufficiently successful then trash contracts, layoffs and/or the company going down are your options and there is nothing wrong with that. In the CRPG business it may be very difficult to be that successful but that changes absolutely nothing.
Greater sales would have helped (though with party-based crpgs this often comes at the cost of gameplay - not so much with hybrids, as TES/ME are quite inefficient in their mechanics; Deus Ex has more 'meaningful' interaction despite far simpler mechanics). But I don't think it would have been enough, even if their games sold through the roof.
Publishers seem to be quite contemptuous of developers, even successful ones. With good reason - the market follows IPs, not developers. Similarly, when a publisher buys a developer, they do it to get the IPs - it isn't buying the staff, as the creative talent can come and go, and while the previous owners are hired on non-compete clauses they're mostly just doubling up on the executive expertise that the publisher already has. Look at the way that the publishers treated the Battlefield and CoD developers - they couldn't give a shit about retaining the developer, because they own the IPs and that's what they expect the market to follow.
Now that might not be so strongly the case with crpgs, as I suspect that there's a greater proportion of 'informed customers' in this market. Not enough to tip the scales towards developers instead of IPs though - most people who bought KoTOR2 probably didn't even realise that it wasn't made by the same people as KoTOR1. And the publishers don't understand crpgs anyway, so I wouldn't expect them to even take that into account (a healthy and competitive industry would have detailed research into the minutia of this, but game publishing is an industry where companies like EA manage to lose money despite being part of a fricken oligopoly!).
For Obsidian to get a better contract, they'd need better sales AND ownership of the IP. Actually scrap that - they'd just need ownership of the IP. Even with mediocre sales (not indie-level mediocre, but less than what they've had to date), IP-ownership would still give them a more powerful bargaining position as they wouldn't be so easily replaceable; the publisher could only target fans of the IP by hiring Obsidian, intsead of just getting another developer to make a game using that IP instead.
IP ownership, rather than game sales, are the biggest reason why Kickstarter is a godsend for developers of Obsidian's size. Normally it's a self-perpetuating impossibility - publishers demand the IP ownership, which means that the developers never have the bargaining power required to keep their IPs. For indie developers this doesn't mean a lot, but those working just outside the AAA markets are able to sell enough copies that they can use kickstarter to create an IP with significant commercial value, even if the game itself doesn't sell a lot outside the backers.
There's a lot of things about Kickstarter that I really don't like, but it's a good step towards a competitive, mature, market, just by breaking the stranglehold that the publishers have over the IPs. If more developers owned their IPs, it would be a lot easier to bypass publishers altogether. Developers will always need outside funding, but if they own their own IP, banks will eventually ask themselves why they aren't cutting out the middleman and lending $$$ straight to the developer.