@The Republic: It is shinking because population is shrinking. US is an anomaly in the western markets, where growth is possible due to population growth. Take a look at Japan what's happening there.
This necessarily wouldn't be that big of a problem if the dev costs weren't on a constant rise.

Also, the demographic for games is shrinking.

The data is only the US.  So my comments pertain only to the US.

@The Republic: For the topic of shrinking market. I believe Nintendo have made studies outside US just aswell.

And in any case, the demographics for games is indeed shrinking because games are more and more made for a smaller group of people.

Yeah, the demographics are shrinking a bit.  From the IGN link:

That's discounting the fact that the gaming population in the 25-35 segment has increased over the last 10 years...
It's no longer nerdy to game when you are no longer a teenager...

And that segment has a lot more disposable income than the teenager segment..

over all that maybe true but u are not forced to make full Hd high developement, games.

gust and nippon ichi have found decent sales in japan on the ps3.

and psn and xbla help alot small studio to produce profitable games.

nintendo being low on hardware was more nintendo making more profits.

does it really matter if the other companies arnt solely gaming companies? I beg to differ because personally i and probably everyone else dont. As for motives who gives a flying rats a**. Im currently getting amazing games on my PC and 360 and fans of the PS3 are getting great games too. this article is so pointless

@Ail: No, it's the opposite. Gaming have become more nerdy. Instead of being social entertainment for the whole family, it has become entertainment for a bunch of nerds.
In any case, 10 years earlier the group had been 15-25. The same people play the games, but as time passes, they just grow older.

@Xoj: Well, Nintendo could have made a HD console that would still be dirt cheap to manufacture.

And, on the HD consoles the games need to meet certain level of graphics in order to get published, that goes for PSN aswell as XBLA. And it still is cheaper to make WiiWare game than PSN or XBLA title.

well they didn't, that's the point, wii didn't have to be so overpowered ,it could have been weakest without having to bleed profits, but they went fhuge profit in hardware too.

Ateleir ronora it's not a graphical beast, and gust made it. critter crunch it's artistic, and PSN game.

same for castle crashers etc etc.

I've never understood those who say a game has to meet certain grapical standards on ps360. Many of these ps360 owners also own wiis. If they loved graphics so much, I'm pretty sure they won't be buying any wii games.

The way I see it is that having better hardware just raises the ceiling. You can still make games that look  like disgaea 3 but you can also make games that look like killzone 2 if you wish. There's just more room to maneuver. People always seem to have the opinion that sony and M$ force devs to make good graphics which doesn.t make sense