This isn't quite right -- gaming is still flourishing, generally speaking. What is not flourishing is console development in particular. The Wii is obviously down by drastic amounts, and even the PS3/360 aren't lighting the world on fire; they're basically keeping pace with the PS2/Xbox.
In comparison,
iOS has exploded in popularity, besting any other handheld in gaming revenue in 2011;
Android is finally showing signs of gaming software growth; Facebook and social gaming
have become a major force to be reckoned with in the gaming world; and Steam
continues to gain momentum, producing double or even triple digit growth year after year. In comparison to
that, "consoles are as popular as last generation" is not good enough.
And it shows: according to EA, Console's marketshare of the whole gaming market has been hugely reduced,
from 80% ten years ago to just 40% now, and still falling.
But revenues are still fine, so there is a real market there and it should be catered to. The problem, then, is that major console publishers like EA and Take 2 did not plan for flat revenues; they assumed that the home console market would continue to dominate -- or even monopolize -- the market as consoles had during the PS2 era. They planned for growth and built for growth, and it's put the home console business in to something of a bind.
The responsible way to handle the console market is to assume slow growth or stagnation, and plan for that; we're unlikely to see the console industry grow significantly beyond the parameters it has now set.
Gaming in general will grow, but not consoles in particular. This means budgeting accordingly, but launching new systems in the immediate future will only exacerbate these underlying problems. Console sales stagnation should mandate R&D stagnation, but for a variety of reasons publishers haven't been very good at accomplishing this.
