I think the money issue is more complex than that. Look at the porn industry? There is no way we would have that much porn out there if there wasn't a big market for it. Companies are knowingly leaving tons of money on the table by excluding that sort of content from their games. Why would they do that? Because the "family friendly" market is even bigger and requires that exclusion either to directly prevent kids from seeing it or to prevent damaging their brand for people who are looking specifically for family friendly content.
I think you're right, but for the wrong reason.
The problem isn't that the game industry want to be "family friendly", but more that they don't look their market from the same angle than the porn industry. Take the
Mass Effect series. As lame and vanilla as can be the adult scenes, they exist and include homosexuality, and despite this making the game totally not "family friendly", the games sold well.
The difference is that the porn industry target individuals, while the game industry target peoples.
You'll never see a porn movie "for the 20/25 middle class junior workers". No, porn movies are for teens lovers, MILF worshipers, feet fetishists, and so on. It's games that are made this way, that target a part of the population not by their interest, but by their sociocultural situation. But by doing this, they also explicitly limit themselves to what will be the common interest of this part of the population.
That's why you've games that goes further than "family friendly", like the
Leisure Suit Larry series, the already named
Mass Effect series or the
GTA series. None of them is family friendly but none of them are effectively adult games. The
Leisure Suit Larry games were for adult only, but there's no sex, just innuendo. The hot coffee mod was just activating content that they decided to not release and forgot to remove. And, as said, the
Mass Effect series are really vanilla. This simply because it's as far as the "common interest" of the targeted population goes.
And this difference come from the production cost. Sell few thousands porn movies and you start making benefits, but for games you need to sell millions of them for the same result ; and so you need a bigger target.
There are plenty of games that I would see no value in adding sex related content to. If I'm playing something like Civilization for instance. I'm interested in a challenging strategy game, I'm not looking for a quick wank...
Which doesn't mean that it can't have sex related content. Send spies in an enemy territory, and use them to loosen the morality of the inhabitants. They'll pass more times in brothels than at works, which will slow down their progress and give you an advantage. Or open state brothels in your own territory, as reward for those who works hard, and your progress will speed up, also giving you an advantage.
Sex related content don't necessarily imply that you'll see sex.
I think there are plenty of TV shows and movies that would potentially have a wider audience and higher revenue as well if they "upgraded" to an R or NC17 rating rather than the more common PG rating for shows that have adult themes. If you're going to make a show where it makes sense for there to be nudity, cursing, etc then that's what I want to see. I don't want the kids version and I'm less likely to pay for it if the only option is a kids version.
This is mostly an US thing. Not that it exist only in the USA, but in the rest of the western world there's more freedom. If it really make sense to have nudity at this time, or for a character to curse, then it will happen. By example, it's not unusual to have people sleeping naked in movies/TV shows ; they don't always awake fully clothed, especially when they are supposed to have had sex right before.
But the USA is the biggest audience, and so the limits are put according to its Law and population, either for movies/TV shows, than for games. The romance options of
Mass Effect would have been more bold, I'm not sure that they would have included homosexuality in it.