Judging by the fact that the studio ran out of money 3 months after releasing Kingdoms of Amalur, your advice, even if they followed it, would have been way, way too late.
EDIT: Incidentally I think you are correct - the MMO that just kept going and going and costing and costing is what killed them, not KoA. My point is simply that by the time KoA was released, it's too late to take that years of money that has been spent back. They couldn't pay the bills or their employees with actual revenue finally coming in for the first time from a few months of KoA sales, at that point you are already doomed because you have already overspent.
In hindsight they almost certainly should have done things differently, closer to the way you described.