If the leading system next December is only pulling 1 million, this industry is in all kinds of trouble. This December is somewhat troubling, as it's basically flat, but it gets a bit of a pass since there are two debuting systems (one that is severely supply constrained) and two systems that are a bit long in the tooth. Next December, I expect each of PS4 and Xbox One to exceed 1 million, with the market leader (presumably PS4) approaching (preferably exceeding) 2 million. 3DS should be near 1.5 million minimum now, and that's just to be in the ballpark of GBA.
I don't actually see it so pessimistically. The only sector of the game industry that would be in serious trouble would be the AAA sector, where budgets are just ridiculous. The core and hardcore fanbase has grown since 6th gen, and will continue to grow.
If the industry shrinks, maybe console manufacturers can cut down on the extraneous features and make future systems focused more solely on playing games. Allocate some of that media budget to haptic and VR instead. The subscriber base will still be there for XBL/PSN. The middle-tier market would be sustainable again. Indies still have their audience. You would literally only be cutting out the very casual gamer, but if the core and hardcore base grows that gets easier to sacrifice.
Game prices could also be lowered (or a structured pricing system more easily enforced) and a more even playing ground established for non AAA games to sell more. It's not about lowering expectations, but getting R&D costs for manufacturers and developers to a reasonable standard, allocate the money to more gaming-focused tech and features, and establish budget platforms for middle-tier and indie games.
Right now I think that would benefit Sony a lot more than Microsoft.
Okay, enough of that. Didn't mean for a derail. Back on track.
