You've got a large number of people that routinely are OK with paying over $1000 for a new iPhone every year. A one time $500 console purchase once every 8 years isn't anything. I do think game sales are going to go down though. $80 is just too much for a game. People will be way more selective and only the big titles are going to sell.
There is absolutely zero way I'm paying $80 for a Mario or Donkey Kong game. A Zelda game where I could get 60+ hours out of it? Maybe.