the reality of generation 8 has been a severe decline in interest in dedicated hardware. microsoft feels it with the transition from xbox 360 to xbox one, nintendo feels it with the transitions from ds to 3ds and wii to wii u, and sony felt it with the transition from psp to vita. the ps4's trajectory of somewhere between the wii and ps2 being a sign that everything is fine is sort of like claiming global warming isn't a thing because you had a week of cold weather.
the problem with xbox one and ps4 is that they're not actually built for incremental upgrades. it's not part of their original concept. it is part of the nx's, apparently, to the point where multiple form factors is part of the discussion. with xb1 and ps4, it's about just making everything stronger halfway through what's traditionally considered a generation instead of offering choices. the ps4 and xb1 aren't super adaptable to market trends and consumer choice except for more power. i think this will change with a true ninth generation platform from them like what we'll probably see from nintendo for nx.
the old model is fading away. there are less games published for retail, fewer big publishers on consoles, smaller sections for video games in stores, and games media cannot afford to cover games anymore exclusively (ign and gamespot have music, movies, and tv for their money makers now). it's not just the first-parties that see it either. third parties like ea, ubisoft, warner bros., and square-enix have all tried their own storefronts and programs that ultimately won't need dedicated hardware for success. this is all while steam and mobile have exploded in popularity. sony, microsoft, and nintendo have to prepare for the inevitable future where dedicated hardware is relegated to enthusiasts and the market is much more geared to digital storefronts as platforms. you see this with the unified windows platform in bringing xbox in as part of a gaming brand. you see it in a big way with nintendo starting a new account system, social app, and rewards program all around the same time. you see it with sony in playstation now and playstation vue.
I would argue that sony is behind the curve on this sort of thing a bit more though, since they seem to have a bunch of little things and the dots aren't connecting to each other like they should be. but good for them for seeing the writing on the wall at least and trying to adjust to the trends in the marketplace before it was super too late. ps4k now means this direction for their ninth generation platform won't be a big surprise. same with microsoft and xb1 with their ninth gen platform. they also get the benefit of having seen how nintendo does it so they can mimic the successful parts and avoid the pitfalls.
See, you're not wrong in what you're seeing, but I think you're definitely drawing the wrong conclusion from the evidence at hand.
There's obviously a contraction in the console market from 7th Gen to now, but the overall gaming market and industry is larger and stronger than ever. what we're seeing now is less a contraction and more the final settling down of the emergent mainstream 'casual' market that started with the PS2, gained vast temporary numbers with the Wii and Kinect, only to end up almost entirely on iOS and Android.
This has hit Nintendo hardest, they've gone from being fleetingly the top dog, to too high on their own success to see the ground suddenly rising up to meet them. The WiiU fitting snuggly back into the steady decline in sales they've seen in the home console market since the NES is the true position they should be in the console market, the Wii's audience was never a true part of that, and their transfer to a different gaming market should not be counted as a negative
The handheld market disappearing is a knock on effect of that, or rather, not disappearing so much as being superseded by more appealing handheld gaming devices in the form of those same smartphones and tablets that took the wii audience.
This is similar to the fortunes of the Xbox. Kinect undeniably gave the 360 a second wind last generation, and the people buying those control less games and 'lifestyle accessory' software are the same casual crowd that Wii lost to mobile. The more traditional enthusiast market also helped of course, but their inroads early on into that demographic were severely damaged by the heavy focus on Kinect and casuals, while also heavily dependant on Sony having fucked up royally with the launch of the Playstation 3.
Fast forward to the XO, and Microsoft unveils a console designed for an audience that has gone to a different market, and too weak to compete with a now back on form Playstation brand revival for the traditional console market which never went away.
Now you might dismiss the success of the PS4 due to the failure of it's competitors, but looking back at the 5th and 6th gen, and I'm seeing the same healthy market that saw the PS1 and PS2 rock on to over 100m sales and competing consoles left dead or in the dust, and I don't see anyone calling those generations as anything other than healthy.
Lastly, you see a decline in retail sales and AAA games as a sign of unhealthy market, while I see the rise of indies to fill the void of B tier and budget games on traditional consoles that we saw evaporate last gen, and a digital distribution explosion that bypasses the huge problems in increased production costs and physical retail shrinkage across the board, not just in the games industry.
This gen in terms of hardware sales, will indeed see a contraction, but that's due to an unsustainable, new and fleeting market last gen (and to a lesser extent on the PS2) that unnaturally buoyed the fortunes of Nintendo and Microsoft in a market that wouldn't have otherwise been so supportive of them.
Meanwhile, the Handheld market isn't gone, it's just been absorbed into the new Mobile one.
So rather than the old model not working, it's the changes to the old model last gen that are the failures, and the two companies that most embraced those changes, and who are now suffering the reality of the true home console market status quo of Sony domination, that are trying to desperately struggle for relevance by throwing more hardware at a problem that truly needs a software based approach to succeed.
If Sony don't fuck things up with a PS4.5, either by not making one, or it not having enough of an effect on the market to rock the boat, I expect to see the same end result as 5th ten, with the XO in the place of the N64, and NX in the place of either the Saturn, or worse, Dreamcast.
And that's the way the console market is meant to be.
